Prepared remarks
Good morning and welcome to the First Bank Corp. Second Quarter 2026 Financial Results Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would 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, Julianne. Good morning, everyone, and thank you for joining FirstBank Corp's conference call to discuss the company's financial results for the second quarter of 2026. I am here with Aurelio Alemán-Bermudez, President and Chief Executive Officer, and Said 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, 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 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 would like to turn the call over to our CEO, Aurelio Alemán-Bermudez.
Thank you, Ramon. Good morning to everyone, and thanks for joining our earnings call again. We concluded the first half of the year with 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, or $0.62 per share. That is up 24% compared to the same quarter last year. Underlying revenue trends remained very strong during the quarter. Pretax, pre-provision income reached an all-time high of $138 million, up 11% from a year ago. This translates into a 2% return on average assets, and this is our 18th consecutive quarter with ROA above 1.5%, continuing the strongest and most consistent period of financial performance in our actual history. Moving to the balance sheet, I am very pleased with how loan growth accelerated during the quarter, driven primarily by commercial activity in Puerto Rico, reaching $13.3 billion in total loans. That is up 5% on a linked-quarter annualized basis. Total loan originations for the quarter were very encouraging, reaching $1.7 billion, 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 reinforces 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 government deposits, but we also saw a slight increase in core customer deposits. Credit performance remains sound with lower net charge-offs and nonperforming assets remaining near historical lows. That said, early delinquency rose during the quarter, but when we look year-over-year it was flat to the prior year June and was actually below December 2025. So we continue to monitor delinquency trends and broader consumer market conditions. Regarding capital deployment, consistent with prior quarters, we completed $50 million of share buybacks and paid $0.20 per share in dividends. Even after these actions, we ended the quarter with very strong CET1 of 17%, which leaves ample room to invest strategically in our franchise, technology, and competitiveness to improve the customer experience, which is our primary objective. Moving to slide 5, I am happy to see that in spite of global noise and geopolitical issues, we continue to see an environment that is positive and stable, supportive of the loan activity we see. If we look at the main market, unemployment stands at 5.6%, which is pretty good for our market considering recent trends. Construction activity continues to provide economic support and the island continues to benefit from encouraging manufacturing investment announcements that will represent future benefit. On the other hand, the industry wholesale sector continues to reflect the impact of tariffs. Recent trends for the last quarter suggest that the market is beginning to normalize, with June industry-wide auto sales down 3% year-over-year. So we believe sales are stabilizing. Against this backdrop, our core business continues to perform really well, with loan growth accelerating in the second half of the year as business activity in Puerto Rico continues and also in Florida where we have a really good pipeline. That said, we sustain our loan growth guidance target of 3% to 5% for the year, obviously looking to achieve that in the second half of the year. We also continue deepening customer engagement through our multichannel strategy. Active digital users grew 6% versus prior year, and we capture 95% of deposit transactions through digital and self-service channels. As we look ahead, our priorities remain unchanged: very focused on execution, focused on growing market share in our core business, growing organically with disciplined execution while evaluating potential strategic opportunities as they arise, and maximizing significant organic growth opportunities in front of us. At the same time, we continue to invest in the franchise, in technology, leveraging AI to automate routine processes and enhance the client experience. I think we are all in the early innings of this AI journey, and we are encouraged by the opportunities that we see. At the end of the day, it is about servicing the customer better, improving processes, shortening lifecycle times, and improving the management of potential fraud. This quarter reflects what has become a hallmark of our franchise: strong profitability, disciplined risk management, robust capital generation, and most important, consistent execution across different cycles. As always, I really thank you for your interest in FirstBank. We appreciate your support. Now I will turn the call to Said, our recently appointed CFO, to go over the financial results in more detail.
Thanks, Aurelio, and good morning, everyone. As Aurelio mentioned, for the second quarter of 2026, we earned $96.1 million, or $0.63 per diluted share, which compared to $88 million, or $0.57 per diluted share, in the prior quarter. Pretax, pre-provision income increased by $6 million, or 5%, compared to the previous quarter, and reached an all-time high of $138 million. The return on average assets was 2.02% for the quarter compared to 1.89% in the previous quarter. Results for the quarter did include additional interest income of approximately $3.4 million related to two refinancings during the quarter—a commercial loan and a municipal bond—which resulted in accelerated recognition of fees or discounts. If we exclude this impact, net income would have amounted to $93 million, or about $0.60 per diluted share. The provision for the quarter was relatively flat. The provision did benefit from a reduction in charge-offs of approximately $5 million, primarily in the auto portfolio. This was offset by loan growth, particularly in the commercial and residential portfolios. The macro, as Aurelio mentioned, continues to show slight improvements in the unemployment projection and the home price index, but at a lower degree than in the previous quarter. Income tax expense for the quarter was $24 million compared to $25 million in the previous quarter. Results included about a $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 and looking at net interest income, we grew about 3.7% quarter-over-quarter, amounting 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 million was included as interest income on investment securities and $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 on investments and cash increased by $4.5 million. Excluding the aforementioned refinancing, the yield on the investment portfolio continued to increase, rising by 18 basis points as we have continued to reinvest cash flows from maturing securities into higher-yielding instruments. Looking at the interest expense side, we continue to proactively manage our funding costs with overall deposit costs declining by 2 basis points versus the prior quarter. The cost of paying deposits, excluding broker deposits and public funds, decreased by 8 basis points to 0.26%. On the other hand, the cost of interest-bearing checking and savings accounts increased by 5 basis points to 1.26%, driven by higher rates on certain government accounts. Additionally, the cost of preferred deposits decreased by 9 basis points and the average balance in the quarter was down by approximately $27 million. Our net interest margin on a GAAP basis was 4.87%, a 12 basis point increase compared to the previous quarter. If we exclude the acceleration of fees and discounts recognized in the quarter, our net interest margin would have been closer to 4.80%, reflecting a 5 basis point increase compared to the prior quarter. That was slightly higher than the 2 to 3 basis points per quarter guidance we provided at the beginning of the year. As you know, the rate environment has continued to evolve, and with any rate cuts in the second half of the year, we believe our asset-sensitive balance sheet position is well positioned for additional NIM expansion. We expect for the remainder of 2026 our margin to expand by 3 to 5 basis points per quarter out of the 4.80% base. Shifting to other income and operating expenses on page 9, non-interest income amounted to $35.7 million versus $37.7 million in the previous quarter; the decrease was mostly related to seasonal contingent commissions which are typically received in the first quarter. Operating expenses for the quarter were relatively flat 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%, slightly lower than the 49.1% in the previous quarter, associated with 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 million to $130 million as merit increases take effect during the third quarter combined with pickup in business promotions and pricing and expense trends on our technology products. We believe that our efficiency ratio levels for 2026 will be closer to the lower end of our 50% to 52% range as the changes in expense and income components continue to play out. Moving to slide 10 to discuss asset quality: nonperforming assets grew $5.1 million compared to the previous quarter, mainly related to the inflow of a C&I loan in the Florida region of approximately $4.8 million, which is well collateralized. Excluding this relationship, nonperforming assets decreased by $9.7 million as we saw reductions in the residential mortgage portfolio, consumer portfolio, and repossessions. Inflows to non-accrual were $47 million, which is $6.4 million higher than last quarter. Excluding the aforementioned inflow in the Florida region, inflows to non-accruals were $8.4 million lower than the prior quarter, mostly driven by a $4.6 million decrease in the auto and finance lease portfolio. On the other hand, we did see early-stage delinquency rise in the quarter by approximately $32.9 million compared to the previous quarter, mainly due to a $20.7 million increase in the auto and finance leases portfolio. In the first quarter, we saw a reduction in early delinquency as consumers typically receive tax refunds early in the year. Early delinquency in the consumer portfolio, if we compare it to December 2025, is actually lower by approximately $10.3 million. 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: the allowance amounted to $145 million, which represents 1.85% of total loans, and was relatively flat 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 auto and finance lease portfolios mentioned earlier. Such increase was offset by multiple factors including improvement in macroeconomic projections, particularly employment and HPI, combined with improvements in delinquency in the consumer unsecured portfolio. Net charge-offs for the quarter were approximately $16 million, or 49 basis points of average loans, significantly lower than the 65 basis points in the prior quarter. This improvement was mostly due to a decrease of $4.7 million in consumer and finance leases net charge-offs, mainly in the auto portfolio. Capital remains strong and our healthy and consistent profitability levels have enabled us to repurchase $50 million of common stock and declare $31 million in dividends. Our regulatory capital ratios continue to exceed regulatory levels and remain relatively unchanged against the prior quarter as earnings have offset capital deployment actions and growth in RWAs. Annual book value per share grew to $12.68 while tangible common equity ratio decreased 3 basis points to 10.08%, mainly related to growth in intangible assets. We still hold about $2.36 of intangible book value per share, about a 166-basis-point intangible common equity ratio. The equity ratio related to other comprehensive loss adjustments from the investment portfolio. Overall, we are 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 dividends. This concludes our prepared remarks. Operator, please open the call for questions.
Questions and answers
Thank you. As a reminder, to ask a question, please press star 1. To withdraw any questions, press star 1 again. Our first question comes from Arren Cyganovich from Truist Securities. Please go ahead. Your line is open. Erin, you may be on mute.
Sorry about that. Loan growth is very solid this quarter, and it sounds like your pipelines are going well both in Puerto Rico and in Florida. Maybe you could talk a little bit about what types of originations you are doing, and what kind of spreads you are seeing in the competitive environment there?
As I said before, the growth this quarter was primarily commercial. On the other hand, we saw better stability in the auto consumer portfolios than we had anticipated, so there was slight growth there as well—not a contraction, which is very positive. On the commercial side, it's a good mix: some acquisitions by larger players, some CRE, some construction, and C&I. There is activity around development of warehouses, hotels, and a small portion in healthcare. So overall it is commercial activity focused on middle market rather than very large credits. There was also a transaction with a municipality of significant size which was a refinancing of restructured debt; we increased our exposure with a very solid municipality in terms of financials. In addition, there was some infrastructure refinancing which led to an increase. So when we look at diversification of risk and where we position our capital across asset classes, that mix helps. Regarding M&A and utilization of excess capital—relative to our CET1 of around 17%—we are looking at potential activity. There's not much we can say at this stage, but we are active participants in evaluating strategic fits for our franchise that could follow our operating model and deliver consistent results. It is opportunistic. In the meantime, we continue with buybacks and a competitive dividend, and, obviously, organic growth. We are also seeing good activity in the new region in Florida where we opened a local office last year, and we continue to see pretty good activity there as well. The organic play continues to be at the front of our efforts.
Our next question comes from Kelly Motta from KBW. Please go ahead. Your line is open.
Hi. Thank you so much for the question. Great quarter.
Thank you, Kelly.
Maybe to kick it off: the margin was clearly a highlight, and even excluding those loan fees it came in well above where we expected, with some expansion ahead. Can you walk through and remind us of the repricing dynamics of the securities book? Clearly that is a big driver here.
I'll make a few comments and pass it to Said. It is important to note the role of the yield curve relative to our projection. Rates have been favorable in the investment portfolio and those maturities matter. Also, loan activity on the commercial book, which is a significant portion of our portfolio, is variable and contributes to margin expansion. Those two components—investment securities repricing and commercial loan activity—are important in understanding how our margin continues to improve. This quarter we also had items we consider nonrecurring related to the two loans that were renewed and yielded some one-time benefits.
In terms of the investment portfolio, we expect about $400 million to reprice in the second half of the year with yields around 1.92%. Looking into 2027, there are about $100 million coming in of securities yielding about 1.73%. All in, over the next 18 months it is about $1.2 billion of repricing coming.
That is helpful. And then, I apologize if you hit on this, but with the deposit growth it looks like about two-thirds of that was government deposits. Can you help us with expectations around flows on that side as well as commentary on how competitive pricing dynamics are holding up for the core portfolio? Thank you.
When you look at deposit growth it is almost flat overall. There is a portion of government deposits that are linked to an index and there is volatility in that government book as large chunks can move in or out in a specific quarter based on key relationships receiving reconstruction funds or other disbursements. Liquidity remains very solid and funding continues to come in through CDBG and FEMA for reconstruction and other purposes. In the core customer base we see activity linked to money market rates and pressure on rates; some large customers can move balances and we work to retain them. Net-net the deposit balance was positive, but there is some noise. Deposit costs will likely remain around current levels given the size of our deposit base. CDs are a specific component we can manage to retain balances without impacting the franchise materially. Overall, I would characterize government deposits as stable and we continue to target growing our core franchise.
Great. Nice quarter again. Thank you so much.
Our next question comes from Steve Moss from Raymond James. Please go ahead. Your line is open.
Good morning, Steve.
Good morning, you guys. Thank you.
Maybe just on expenses and the efficiency ratio longer term: obviously, healthy business trends here. I know you guys are guiding toward the low end of the 50% efficiency ratio range for 2026. Just curious, longer term, do you think you could go a little lower given balance sheet dynamics and better growth on the island? Or do you expect it to shake out around the guided range?
Great, that is helpful. And then, thinking about business activity on the island, there was quite a step up year-over-year in originations. Any sense on the biggest drivers versus a year ago? You mentioned hospitality—anything else to highlight? Also, on capital deployment, you generally target a high payout ratio. Earnings are running ahead of your planned buyback. Should we expect a catch-up in buybacks or a special dividend later this year?
On expenses, the absolute expense number is very close to the guidance we provided. We are making investments in technology and some branch expansion—one branch opened last week and another opens in a couple of weeks—along with the technology transformation to cloud and AI investments. We always like to see the efficiency ratio go down through revenue growth, and that has happened this year. Part of the improvement is asset sensitivity and the current rate environment, which has helped many banks. There is opportunity to move below 50% if revenues continue. However, we still have significant investments ahead that we will continue making, so that is why we placed the 50% target. On business activity in Puerto Rico, hospitality is a standout sector: ADRs, occupancy, and visitors are showing better trends than prior cycles, and there are ongoing projects and continued investor confidence. The island has been an attractive place for investment for some years now despite political and macro challenges. Regarding capital deployment, we keep optionality. Every quarter we review capital decisions. We will publish our capital plan in the coming months, and while our strategic goal is to deploy capital to shareholders, we have not concluded how we will do so this year. We will likely discuss more in the next call.
Appreciate the color, Aurelio. Thank you.
For any additional questions, please press star followed by the number 1. 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 early delinquency rise. You had some commentary around it. Is there anything more specific in the auto portfolio we should be watching? Are any particular FICO cohorts rising more than others? Anything you could add on that delinquency rise?
To be honest, we view it as seasonal. We compared to prior periods and saw a significant improvement in the first quarter that we attributed to liquidity coming into the island from tax refunds and other factors. We are back to what I would call a more normalized level. We do not expect significant deterioration from here. The delinquency increases are concentrated in early-stage buckets, and we do not see anything at this stage indicating this will continue materially. Overall, it is actually better than December 2025 and in line with the prior year. Most other credit metrics are pretty solid.
Additionally, on margin sensitivity: can we reset on the margin and your sensitivities to hikes or potential declines? I appreciate the go-forward guidance with flat rates, but what would happen with increases or decreases from here?
We disclose scenarios and sensitivities in our 10-Q. Any significant moves would be consistent with what is disclosed in the 10-Q on net interest income, and you can reference the breakdowns there by scenario.
Okay. Thank you.
Our next question comes from Arren Cyganovich from Truist Securities. Please go ahead.
Thanks for the follow-up. I just wanted to clarify on the NIM guidance: you are not assuming any rate increases through the end of the year?
Correct.
We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.