First Bancorp (FBP) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to the first Bancorp third quarter 2026 financial results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Ramon Rodriguez, IR Officer. Ramon, please go ahead.

Thank you, Christine. Good morning, everyone. Thank you for joining First Bank Corp's conference call and webcast to discuss the company's financial results for the third quarter of 2026. I'm here with Aurelio Aleman, President and Chief Executive Officer, and Zaid Ortiz, 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 projections of revenue, earnings, 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 latest SEC filing. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbbinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Alemán.

Thank you, Ramon, and good morning, everyone. Well, you know, we deliver another quarter of a strong consistent performance supported by healthy balance sheet trends in both deposit and loans, stable credit quality, and continued profitability. A net income total of $96.1 million, or $0.63 per share, essentially unchanged from last quarter, while year-to-day earnings per share increased actually 14 percent compared to the same period last year. Our franchise continues to generate attractive returns, with return assets of 1.98 percent, marking actually over 19 consecutive quarters of 1.5 percent. And while margin was somewhat noisy during the quarter, the comparison is impacted by events of the second quarter, purchase discount, and deferred fees acceleration that were recognized in that quarter. In addition to an increasingly volatile rate environment, which negatively impacted funding costs, which actually happened ahead of laundry pricing, which took place after the first by rates, and for some of the commercial loans, it takes place at the beginning of each quarter. Even when accounting for these factors, our money remains among the strongest in the industry. Loan growth was broad-based across our market, but particularly within the commercial segment, with total loan increasing at a 3.3 analyzed link quarter rate. Consumer loans actually decline a bit as we have forecasted. And, you know, good to say that deposits remain stable and were supported by growth in core customer balance of $120 million. Credit metrics remain healthy with the MPA ratio unchanged at .59 basis points. Importantly, we continue to return substantial capital to shareholders through both repurchases and dividends while maintaining a CET-1 ratio of 16.9%, providing significant flexibility to support opportunities and future capital deployment initiatives. As we disclosed yesterday in a separate press release, we're very pleased that our board approved a 25% increase on our quarterly common dividend and a $350 million stock buyback authorization. Our capital allocation priorities remain unchanged, You know, given the strength of a balance sheet and capital position, we saw an opportunity to increase capital returns while continuing to support our customers, invest in the franchise, and maintain a prudent capital cushion. We expect a share repurchase to remain an important tool, particularly when market valuations create competing opportunities. Overall, we believe the world demonstrates that the feeling is a burning power of our franchise. Please let's move to slide five. Stepping back from the quarter, you know, the broader operating environment remains, I would say, stable and supportive. Puerto Rico economies continue to show resilience, supported by ongoing reconstruction activity, steady unemployment conditions, and encouraging manufacturing and reshoring announcements. Against the backdrop, we continue to see a decline activity and constructed business pipelines into the fourth quarter. This quarter, we continue advancing our multi-channel strategy. We opened a new branch in the San Hermann area where there was only one bank present. And we continue to expand digital tools that provide faster and more efficient seamless service experience. This commitment to innovation is being recognized by, you know, by multiple, gaining multiple recognitions, one by Global Finance, which nameless the best digital user experience in Latin America and Puerto Rico, and the best digital banking app in Puerto Rico. In addition, Forbes included our company among the world's top performing banks in 2026, making our highest ranking yet, and the first position among our Puerto Rico peers. Again, we're very proud of this recognition, which reflect our associates' hard work and dedication to delivering the best digital experience for our clients while sustaining a strong and profitable franchise. The combination of these achievements, stable asset quality, significant asset capital, you know, position of wealth to continue executing on our priorities, creating long-term value for our shareholders. Before I turn over the court to say, I'd like to provide some additional context on our key performance indicators and outlook for the remainder of the year, only one quarter away. Please let's move to slide six. Looking at the priority, you know, we believe we remain on track of the beginning of the year operating metrics. Long growth trends have continued to improve by strong coordination and healthy pipeline. You know, we remain confident that we can achieve the lower end of our 3 to 5 percent guidance with what we see going on this quarter. Efficiency remain ahead of target. Year-to-date margin performance remain consistent with our expectation to close $50 million more in buybacks during this fourth quarter. As equality remains stable and we continue to balance growth and discipline underwriting, we believe is the prudent thing to do in, you know, with all the noise that we see in the global macros. As we move to the final quarter, you know, priorities remain clear. Selective growth market share, maintain strong profitability, drive operating leverage, and continue enhancing the customer experience through technology and AI. As always, I thank you for your internet expert bank and look forward to answering your questions. Now, I'll turn the call over to SAI to discuss quarterly results in more detail. Thank you.

Thanks, Aurelio, and good morning, everyone turning to the results net income for the quarter was 96.1 million dollars essentially flat relatively to the second quarter lower provision expense and income taxes largely offset softer net interest income lower non-interest income and higher operating expenses net interest income declined by approximately 1.6 million dollars while non-interest income decreased by 3.1 million dollars. Provision expense improved by 2.7 million, reflecting continued favorable credit performance. Non-interest expenses increased by approximately 2.9 million, primarily due to a contingency reserve that I will discuss in more detail later. Earning per share increased to 63 cents per share, benefiting from ongoing share repurchase activities. We also generated adjusted pre-tax provision income of approximately 130 million dollars during the quarter. At the same time, unrealized losses in the securities portfolio continue to affect tangible book value through ALCL. For the quarter, tangible book value was 12 dollars and 15 cents and tangible common equity was 9.55 percent. Excluding the impact of the unrealized losses, adjusted tangible book value per share was $15.34, and adjusted tangible common equity was 11.76%, highlighting the underlying strength of our capital position. Moving on to slide 9 to discuss NII and the margin in detail. Net interest income was $227.5 million, down from the prior quarter. The primary drivers were the absence of approximately 3.4 million dollars of purchase discount and deferred fee accelerations recognized last quarter along with higher funding costs the quarter did have an additional day excluding the impact of the additional day which is about 1.3 million and the 3.4 million i just mentioned net interest income increased by 500 000 the increasing nii came from growth in the commercial and construction balances coupled with the securities portfolio reinvestment activity Net interest margin was 4.73%, declining 14 basis points from the second quarter. Roughly half of the decline reflects the previously disclosed one-time items recognized in the prior quarter, while the remaining decline was largely driven by higher funding costs, primarily driven by a change in mix to higher interest-bearing products such as time deposits and higher rates on government market-linked accounts. Despite continued competition for deposits and a volatile rate environment our funding profile remains a key strength and we continue to manage pricing with a disciplined approach focused on relationship value and profitability at 4.73 percent our margin remains at an attractive level and continues to compare fairly with peers looking ahead we expect for core margin to remain near current quarter levels during the fourth quarter we expect continued deposit competition and long pricing dynamics to remain headwinds, while our investment portfolio repricing opportunities, which for the fourth quarter are approximately $252 million and an average yield of 2.23%, coupled with floating loan portfolio repricing, should provide support if rates continue to move higher as expected. In terms of 2027, we're monitoring certain factors, including inflationary pressures and the overall rate environment. Consequently, we will provide an updated forecast on our next earnings cost. Shifting to other income and operating expenses on slight 10. Non-interest income totaled $32.6 million. The decline was primarily driven by lower gains on purchase tax credit as well as a gain on sale of a Florida fixed asset that benefited the second quarter. Excluding those items, non-interest income remained generally stable. Non-interest expenses totaled $130.2 million. The increase from the last quarter was largely attributable to a 2.8 million contingency reserve associated with an adverse court ruling involving a commercial Oreo property in the U.S. Virgin Islands. Excluding that item, expense trends remained basically unchanged from prior quarter. Importantly, our efficiency ratio was 50 percent, remaining below our long-term operating target of 52 percent, demonstrating continued operating discipline while we invest in the franchise and technology initiatives. Looking at asset quality on slide 11. Credit quality remained largely stable during the quarter. The NPA ratio was unchanged at 0.59%, while ACL coverage was slightly lower than last quarter and remained healthy at 1.81% of total loans. Total non-performing assets increased only modestly and continue to be at low levels relative to the size of the portfolio. Analyzed net charges increased to 55 basis points of average loans, primarily reflecting higher consumer and auto-related losses. We also saw an increase in early-stage delinquencies, although this figure included a mature construction credit that was fully repaid after quarter rent. We did see a 6.8 million increase in consumer loans. Overall commercial credit performance remained solid, reserve levels remained appropriate, and we continue to monitor consumer trends closely. We remain comfortable with the risk profile of the portfolio and an overall credit outlook. Moving on to capital on slide 12. Capital generation remains one of the defining strengths of our franchise. During the quarter, as I already mentioned, we returned approximately $80 million to shareholders through $50 million of common shares, repurchased, and $30 million of dividends, representing about 84% of quarterly earnings. Our CD1 ratio ended the quarter at 16.9 percent, well above regulatory world capitalized levels and comfortably above our internal operating targets. While tangible book value per share declined due to the impact of higher market rates on the accumulated other comprehensive loss, our underlying capital strength remains exceptionally strong. Given our earnings powers, liquidity profile, and capital position, we continue to have substantial flexibility to support growth initiatives while returning meaningful capital to shareholders. This concludes our prepared remarks. Operator, please open the call up for questions.

We will now start the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Aaron Saganovich with Tuist Securities. Aaron, your line is now open.

Thanks. I think you had said that you expect the NIM to be, you know, relatively stable into the fourth quarter? You mentioned some headwinds, but I apologize. I didn't quite hear exactly what they were. Was it related to the higher funding costs that were impacting the third quarter?

Yeah. Given some of the dynamics we discussed, volatility on the funding costs, the overall interest rate environment, we should see margin to be stable for the next quarter. Due to changes in the interest rate environment and the impact it has had on cost of funding, we think that until we get more clarity on that front, margin will remain stable. As we discussed earlier, we do expect that cash flows from the investment portfolio, which we estimate to be around $250 million from lower yielding securities and the repricing of the commercial loans, which we will see the full effect on the quarter, on the fourth quarter, that will provide some expansion on NII and stability on the end.

Yeah, just some additional color. You know, what we're seeing on the cost of funds, you know, obviously, you know, consumers continue to look, you know, cities are repricing higher. If we go to the broker city market, it's repricing higher. So there's some high yield seeking looking on large balances, so those are the negatives. On the other hand, the upsets are, you know, the low repricing. We have a significant value of the loan portfolio on the commercial side. Whatever repriced with prime happened very late in the last quarter, and whatever repriced on sole for base happened very early in this quarter, so we're going to see that some positives opportunities, plus the fact that, you know, the 250 that I mentioned. So between, you know, the positives and the negatives, the positives, we can estimate fairly clearly. But, you know, the funding impact is very difficult until we see some more stability in the market. That's why we're saying, you know, we look forward to offset any funding increase with the other opportunities, plus long growth, you know, should contribute also to part of the positives. Yeah.

Okay. Thanks. That's helpful. And could you maybe remind us how the balance sheet is positioned at the end of the third quarter with, we have, you know, a much higher forward rate expectation now, you know, as the Fed is now in a tightening cycle and we're, you know battling inflation across various areas you know or should you benefit from from higher rates kind of over the longer term not really talking about 4q but just the way that your balance sheet will be positioned to to absorb those over the next year yeah we do we do remain in an asset sensitive position obviously that will benefit some of the more

asset-sensitive assets such as cash. We've been seeing good opportunities on the investment portfolio of reinvesting those cash at higher yield. So overall, yes, we should benefit from those movements on the interest rate. Thank you.

Your next question comes from the line of Brett Robiton with StoneX Group. Brett, your line is now open.

Hey, good morning, everyone. I wanted to first ask, maybe it's more of a housekeeping issue, on the other income that was lower this quarter, I think due mostly to the income tax credits or the lack of this quarter versus prior quarters mostly. Just wanted to see, does that rebound from here with additional investments or just any thoughts on the other fee income line item and then just fee income generally, the outlook going forward?

Yeah, the decrease in the quarter was some gains that we were able to realize on the second quarter that we didn't have this quarter. So, yeah, that should continue to be around the levels of this third quarter.

Okay. And then credit continues to be really solid, a little bit of an increase in net charge also on the consumer slash auto side. But just any, you know, things like auto production or auto sales is continuing to trend better than expected for the island. Any thoughts on the increase in delinquencies on the auto side and then that construction shared national credit? I kind of missed what the expected outcome was from that participation.

Well, the construction was repaid early in the quarter, so that is out of the delinquency increase now. The auto, you know, the auto industry continues with the same challenges, you know, sales are down, and there's some seasonality to delinquencies if we look at other prior years and from that, you know, I think we have to say it continues stable. We, you know, we continue to have, you know, significant share of the volume because sales are down or in the market, you know, mostly impacted by tariffs, I would say, and inflation in terms of other needs that the consumer needs to spend their money. So we, you know, we're forecasting that the portfolio is decreasing a bit, you know, on a quarterly basis, but we should, you know, we expect that to stabilize. On the consumer side, The only component that is growing is really the mortgage business achieves some growth year-to-date. We expect that to stabilize. We continue to focus on growing the commercial, which is going to receive the opportunity.

And then just lastly, if I could ask one last quick one on competition. You know, it seems like maybe the credit unions have been a little more aggressive here lately, you know, PINFED and maybe some others. Are you guys seeing an increase in competition? And, you know, how does that factor into what you're thinking about the margin from here and where deposit funding costs might move to?

You know, obviously, every time that we see this cycle, we see some hygiene-seeking customers. You know, hygiene-seeking customers. So, you know, we're retaining and we're making our effort to retain and be competitive. We're not going to go crazy. But, you know, I would say some of the great unions are more aggressive, but, you know, also more on the larger balances is where we see the competition. I think the core consumer product are continuing to be, you know, the same.

Okay. Great. Thanks for the call, Raleo.

Thank you, Raleo. your next question comes from the line of kelly malta with kbw kelly your line is now open hey good morning thanks for the question um really nice capital plan out um last night it certainly came in ahead of my expectations um i noticed you reiterated your outlook for 100 capital return i just wondering, given what are still incredibly healthy, beyond healthy CET1 and the internal capital you generate, any interest in incrementally dipping in above 100? Or, said another way, what would give you comfort to do so?

Well, you know, obviously this, as I said in my other remarks, you know, we, this quarter we're going to complete 50. You know, we always say around 100%, we're probably not going to get there unless it's opportunistic. I think that is important this quarter. So if you have an increased dividend, which is going to be paid out early in December, and then we have the 50 million goal. And we do have a plan that goes from the 200 that we approved last year to 350, and every quarter will give you more guidance in terms of how we continue to move ahead on that. uh obviously you know you know the goal is to stay around 100 uh and probably you know if we see the opportunity to both go up beyond that in in 2027 then then we will we will execute got it so that that 100 is still related to to 4q26 and you're not ready to necessarily early guide to that for 2027 is that is that what i'm putting together or okay um we brought more

guidance in january you know we we like to keep the optionality and the opportunistic so that that's part of the plan as it's been for some time got it that's helpful um and then And the NIMH was partly impacted by the Q2 benefit that you had, although, as you mentioned several times, deposit costs were also higher. I'm just wondering, within the government deposits, how much of that is truly linked? And I'm just wondering if some of that moved ahead of kind of Fed funds here and might be already baking in some of the September raise that we've seen.

We did see an increase on government market linked accounts around both basis points on cost of funds on the government account. So that definitely impacted. And we also saw some consumers, we saw rates on treasuries moving early in the quarter. So that obviously created opportunities for consumers to move to some of our high yielding options, which resulted in retaining of some of these funds at CDs at a higher rate. Obviously, the repricing of prime occurred late in the quarter. So far moved as well a lot later in the quarter. So that would benefit the commercial portfolio early this quarter, the fourth quarter. So those were some of the dynamics that we saw in the quarter, Kelly.

Got it. That's helpful. And then obviously credit has been really strong, but with inflation and fuel prices higher, I'm just wondering, is there a point at which you think that starts to trickle through to the Puerto Rican consumer?

And what are you watching most carefully? you know i think we we continue to be prudent on the on the consumer nations you know we we basically uh you know we monitor the periphery very closely and we every quarter you know if we need to do some adjustments on what comes in and and and our resabotage you know we do you know we feel pretty good where we are the portfolio is behaving well we took actions on some of this you know, a couple of years ago. So, you know, we expect stability, but we're monitoring closely. Definitely, you know, the inflection is impacting the consumer on the electricity, gasoline on the pump, and consumer goods. So, it's not only here. It's happening, you know, across the main land.

So, that's, you know, we feel good where we are, and we're pretty good reserve these are high yielding portfolios obviously opportunities for growing these portfolios are limited at this stage awesome thank you for so much for all the color i'll step back thank you your next question comes from the line of steve moss with raymond james steve your line is now open hey guys good morning this is chase on for steve so the yielding securities and other earning assets moved lower this quarter despite the reinvestment um can you walk us through like what drove that decline and maybe just a reminder on

the repricing opportunity for securities into 2027. yeah so so steve remember that um on the security side uh part of the acceleration of deferred fees and the purchase discount was included on the yield on on the second quarter for for securities right if we actually exclude those one-timers the the yield of securities increased by about eight basis points mostly related to the to the to the operation that we mentioned on the call actually earning assets are we exclude the one-timers total earning assets was around 604 and and very similar to the previous quarter on the on the opportunities on the reinvestment of the security portfolios were you saw the quarter we we purchased around 400 million dollars at 544 uh we we have 252 coming in on the on the fourth quarter yielding 223 and we should be able to invest that on on high five and and lower six the way interest rate markets are behaving right now uh that's that's what we're seeing gotcha and um so i know you guys said pipelines are healthy uh are you seeing any slow down in demand as you know rates move higher maybe projects being delayed or anything of that

sort you know there's probably some of that happening but but you know when you look when i look at the today's pipeline you know it's not impacted by that on the commercial side you know obviously that that is usually that that in in the cycle where rates go over certain limit That usually happens. Some rates are postponed. It's part of the cycle. We haven't seen that yet.

Okay, and just one more quick one for me. Where are new commercial loans pricing today and have spreads held up as rates moved up?

I think it's safe to say that they're somewhat similar to what they're using right now. Obviously, rates move a little bit higher and some of the movements that will react. But they should be somewhere similar of the yield that you're seeing on the results right now. All right. Great.

Thank you, guys.

Reminder, if you would like to ask a question, please press star one to raise your hand. Our next question comes from the line of Manuel Navas with Piper Sandler. Manuel, your line is now open.

Hey, good morning. Putting together some of the NIMH commentary, how should we think of the NIMH post-fourth I know there's a good amount of uncertainty, but you have a natural asset sensitivity. Can we at least have flat to upward trajectory into next year? Kind of thoughts on that potential.

But for now, you know, this is like, you know, for now we see, you know, I think I mentioned that Delta's positive and negative for the first quarter. Obviously, if other increases happen, which are uncertain, it should be positive for our NIMP in 2027. But it's just, it will depend on both that other increases happen and we achieve the long growth targets that we have on the plan, because the assets makes remember continue to change. So we have less consumer, more commercial, a consumer is more high yielding. So even though we feel confident about net interest income continue to move north, you know, the new formula is more tricky because it also involves the asset mix. So, obviously, investments are, as I mentioned, investments are being, you know, booked at much higher rates than the cash flows that we receive, and, you know, couple that with, you know, higher rates on the commercial variable rate loans, that definitely brings, upsets the potential cost of fund increase, but when you put the mix of loans into the picture, it definitely changed the view of even though an interest income should move north.

I appreciate that. And I think I might have missed this just a question ago. What are kind of the marginal assets coming in at? Like, what is your most recent loan origination yields?

And what's kind of the marginal deposit cost right now? perhaps on your kind of cd book where you've grown pretty quickly well obviously uh we on on on rates on the on the loan side uh the the rates are coming similar to what you're seeing on on on the asset yields on on the on the results right obviously rates move a little bit higher they they could move um on the deposit side we we we continue to be competitive you you saw increases on time deposit i i would think that that will continue to happen we're renewing uh cities at higher rates than than the 330 that they're they're costing us right now so so yeah you you would see some of that uh some of that and depends on on how treasury moves and options to consumers uh manuel so the cd appetite remains remains constant at least in your term Yes.

Okay. And then just kind of flip over to the loan growth. You said the pipeline is healthy. Can you detail it a little bit and kind of what are the factors driving commercial growth? C&I was excellent this quarter. And just kind of thoughts on the commercial growth going forward.

You know, it's a combination of new construction projects that are coming, you know, alive after, you know, longer periods of planning. Some M&A, you know, competitors buying other competitors and we're participating. And some other, you know, business expansion, a couple of warehouses that we saw in the pipeline, Some CRE investors that are buying CRE from others that are our clients. I think it's pretty well diversified.

I appreciate that, and then your strong credit quality is my last one, but your strong credit quality is leading to a little bit of a decline in the low-loss reserve. Is that something that should kind of continue since credit is generally pretty strong, or What is the kind of, if current trends continue, would you see the low-loss reserve keep going?

Well, obviously, there's a good economic outlook for the main market that we serve, which is for the Puerto Rico economy. So that would, in theory, lead to good levels of reserve and similar to what we're seeing there. So if that keeps on that way, we should probably see some stability. On the quarter, you did see a little bit of a decrease and mostly related to some of the updated historical experience on the residential mortgage portfolio, which also benefited that and decreased a little bit the ACL coverage. But, yeah, overall, if credit quality remains stable and delinquency levels stay similar to what we're seeing right now on the economic outlook, on the Puerto Rico economy remains positive, you should see similar levels of ACL covers going forward.

Okay, I appreciate the commentary. Thank you.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.