Julian: Good morning and welcome 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 1 on your telephone keypad. 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 Investment Relations Officer. Thank you. Please go ahead.
Ramon Rodriguez: Thank you, Julian. Good morning, everyone. 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 Alemán, President and Chief Executive Officer, and Said 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 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.
Aurelio Alemán: 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, pre-provision 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 18th consecutive ROA above 1.5%, continuing the strongest and most consistent period of financial performance in our actual history. Moving to the balance sheet, very pleased on how loan growth accelerated during the quarter, driven primarily by commercial activity in Puerto Rico, reaching $13.3 billion in total loans. That is all 5% on a linked quarter on a life basis. Total loan for the quarter were 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 reinforces our path to achieve our full year growth objective for 2026. Total deposit grew by $274 million during the quarter, primarily driven by an increase in the government deposit, but also we have a slight increase in the core customer deposit. Great performance remains down with, you know, lower net charge of and non-performing assets remaining near historical lows. That said, you know, early delinquency, early state delinquency came up during the quarter, but essentially when we look at it, you know, over the same period last year, it was flat to prior year, June, and it was actually below December 2025. So we continue to monitor A decision on 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 CET1 of 17%. which leaves 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, happy to see that in spite of the global noise and war, we continue to see an environment that is positive and stable. Thank you very much. While on the other hand, industry-wide sales continue to reflect the impact of tariffs, the recent trend for the last quarter suggests that the market is beginning to normalize with June industry-wide auto sales down 3%, only 3% year-over-year. So we believe sales are stabilizing. 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 a really good pipeline also. That said, we're sustaining our long growth guidance target of 3% to 5% for the year. Obviously, 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 through digital access service channels. As we look ahead, you know, The priorities really remain unchanged, very focused on our execution, focused on selectively growing the market share in our core business, confident and willing to grow organically to discipline execution while evaluating potential alternative strategy 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 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 lifecycle, and improve the management of potential fraud. This quarter reflects what has become a hallmark in our franchise, Trump 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 Said, our recently appointed CFO, to go welcome Said to the call to go over the financial results in more detail.
Said Ortiz: Thanks, Aurelio, and good morning, everyone. As Aurelio mentioned, for the second quarter of 2026, we earned $96.1 million, or $0.62 per share, which compared to $0.88 million, or $0.57 per share, last quarter. Pre-tax-free provision income increased by $6 million, or 5%, when compared to the previous quarter. and reach an all-time high of $138 million. The return on average assets was 2.02% for the quarter compared to $189 on the previous quarter. Results for the quarter did include additional interest income on approximately $3.4 million related to two refinancings during the quarter, commercial loan and a municipal bond, which resulted in an accelerated recognition of deferred fees or discounts. If we exclude this impact, net income would have amounted to $93 million, 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, primarily in the auto portfolio. This was offset by loan growth, particularly in the commercial residential portfolio, The macro, as already mentioned, continues to show slight improvements in the unemployment projection and the home price index, but at 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 refinancing, of which $1.8 was included as part of interest income of 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. It increased by 18 basis points as we have continued to reinvest cash flows from majority 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 paying deposits, excluding brokerage deposits and public funds, decreased by 8 basis points to 326. On the other hand, cost of interest-bearing checking and savings accounts increased by 5 basis points to 126%, driven by higher rates on certain government accounts. Additionally, the cost of brokerage 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 47, a 12 basis points increase when compared to the previous quarter. If we exclude the acceleration of fee discounts recognized in the quarter, our net interest margin would have been closer to 480, reflecting a 5 basis points increase when compared to our prior quarter. It was slightly higher than the 2 to 3 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 sheet 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, our income was up It amounted to $35.7 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 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%, slightly lower than the 49.1% 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, as may increase take effect during the third quarter, combined with pickup in business, promotions, and projects, 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% range as the changes in expenses and income components continue to play out in the future. Moving to slide 10 to discuss asset quality. Non-performing assets grew $5.1 million when compared to the previous quarter, mainly related to the inflow of a CNI loan in the Florida region of approximately $14.8 million 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 non-accrual were $40.7 million, which is $6.4 million higher than last quarter. Excluding the aforementioned inflow in the employer region, inflows to non-accruals were $8.4 million lower than prior quarter, mostly driven by a $4.6 million decrease on the out-on-finance list 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 list 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 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, In terms of the allowance, it amounted 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 auto and financial portfolios just mentioned. Such increase was offset by multiple factors, including improvement in the macroeconomic projections, particularly on employment and HPI, Combined with improvements in delinquency in 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 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 shares of common stocks and declare $31 million 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 12.68 while tangible common equity ratio decreased three basis points to 10.08%, mainly related to growth in tangible assets. We still hold about $2.36 in tangible book value per share and about 166 basis points in tangible 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 our needs to shareholders in the form of buybacks and dividends. This concludes our prepared remarks. Operator, please open the call for questions. Thank you.
Julian: Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again. Our first question comes from Aaron Suganovich from Truist Securities. Please go ahead. Your line is open.
spk04: Aaron, good morning.
Julian: Aaron, you may be on mute.
Aaron Suganovich: Sorry about that. Loan growth, very solid. This quarter 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're doing, what kind of spreads you're seeing in the competitive environment there.
Aurelio Alemán: Yeah. As I said before, obviously, the growth this quarter 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, CNI. So it's a good mix of assets around development of warehousing, you know, hotels, actually 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 significant size, which was the refinancing of debt, restructural debt, which we increase our exposure in a very solid municipality in terms of financial. So overall, and there was some infrastructure refinancing too, which led to an increase. So I think if we look for diversification of risk and where we position our capital in terms of the asset classes that are embedded.
Aaron Suganovich: Thanks. In, 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?
Aurelio Alemán: 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 participants in looking at what could be a strategic fit for our franchise that could follow our same operating model and could deliver 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. So we continue to see pretty good activity there too. So the organic play continues to lead the front of our efforts. Okay. Thank you.
Julian: Our next question comes from Kelly Mota from KBW. Please go ahead. Your line is open.
Kelly Mota: Hi. Thank you so much for the question. Great quarter. Thank you.
Aurelio Alemán: Thank you, Kelly.
Kelly Mota: Maybe to kick it off, you know, the margin clearly a highlight and even 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 stock? Because clearly that's a big driver here.
Aurelio Alemán: Okay, I'm going to make a few comments and pass it to Said. I think it's important, you know, there's obviously the yield curve, you know, has to do with this versus our projection, you know, rates continue to be better in the investment portfolio. Those maturities that I will talk about. But also, you know, long activity on the commercial book, which, you know, a significant portion of our book is variable. So we, those two components are important in understanding how our margin, you know, continues to get better, which is good to say that it's better than anticipated. And that's why, you know, we revisit the Thank you very much. Thank you very much. Thank you.
Said Ortiz: 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 the next 18 months, it's about $1.2 billion of repricing coming in.
Kelly Mota: 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.
Aurelio Alemán: Yeah, when you look at deposit costs, 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 from reconstruction and funds come in, 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 for the government deposits staying around this average that we have for the last year, you know, liquidity is very solid in still, you know, funding coming in through, you know, both CDBG and FEMA for different purposes, and reconstruction, you know, even, you know, PREPA or some of the other entities that we have in the portfolio. I think in the core customer, we're seeing again, obviously linked to money market rates and treasury rates. You know, you start to see again, you know, high balances that need to be retained in the quarter. 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. Net net was positive. Well, 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, you know, will continue to be, you know, 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. So I will say stability in both government deposits and obviously we continue to target growing our core franchise.
Kelly Mota: Great. I'll step back. Nice quarter again. Thank you so much.
Said Ortiz: Thank you.
Julian: Our next question comes from Steve Moss from Raymond James. Please go ahead. Your line is open.
spk04: Good morning. Morning, Steve. Nice morning, you guys. Thank you. Morning. Maybe just, you know, thinking about, you know, expenses here in the efficiency ratio longer term, I mean, obviously, you know, healthy, healthy business trends here. I know you guys are still going towards the 50% or being at the low end of the 50% efficiency ratio range. Just kind of curious, you know, longer term, do you think you'd go a little lower here, just kind of given balance sheet dynamics, just better growth on the island or, you know, 50% still kind of where you think it'll shake out later, longer term?
Aurelio Alemán: Yeah, if you see, you know, the absolute number on expense is very close to the guidance that we provided. So, you know, we're making investments in both the technology and actually some of the branch expansion that we talked about in the early part of the year. You know, one of the new branches just opened last week, and there's another one opening in a couple of weeks. So that continues. And then the technology transformation to cloud and the AI investment, it's there. So, again, you know, I think it's always, you know, we like, always like to see efficiency ratio going down by more revenue. And that's what happened this year. Obviously, again, I think, I think the, you know, the, there's being asset sensitive, 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, that was asset sensitive. So, so yes, there's always an opportunity to move below 50. We're there today, and if revenues continue at the pace and there is a simple relationship of revenue and expense, so we'll be there. But obviously, we still have 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.
spk04: Great. That's helpful there. And then just kind of, you know, thinking about, you know, business activity on the island and 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 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.
Aurelio Alemán: I think, you know, I have to highlight one sector, which is hospitality. You know, hospitality sector in Puerto Rico continues to show, you know, significant trends, better trends than prior cycles, sustainable, both ADRs, the occupancy, visitors. There's still, you know, other projects coming around, and some of them are ongoing. And, you know, I think investor confidence, you know, This investment continues to show a very positive investor confidence in the island. For whatever political and macro challenges are out there, both in Puerto Rico and the US, the economy continues to sustain. These friends and investors are looking to play some of their equity projects, so we're benefiting out of that. And I think the island is being a positive place for that for some years now. Got you.
spk04: And then, you know, on capital deployment here, I know you guys generally target a 100% payout ratio. Obviously, earnings have been strong and run ahead of your planned buyback. You know, should we expect, you know, a catch-up with the buyback or a special dividend later this year?
Aurelio Alemán: You know, we, as you know, we keep the optionality and every quarter we sit down. That will happen now in August and September. In October, we will publish again our capital plan, which is a cycle that we do. So definitely, that is our strategic goal, and we haven't concluded on how we're going to get there, but we'll probably talk about that in the next call in more detail.
spk04: Okay. Aurelio, I appreciate all the call here. Thank you very much.
Aurelio Alemán: Thank you.
Julian: 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.
Manuel Navas: 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? Is there any particular FICO scores that are rising more than others? Anything you could add on that delinquency rise?
Aurelio Alemán: To be honest, you know, obviously, you know, I say seasonal because when we compare to prior videos, you know, we see, we saw, Significant improvement in the first quarter that we attribute to a lot of liquidity that came in the island for taxes, benefits, and other matters. We're back to what I could say a more normal level, normalized level. We don't expect 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 that tells us that this is going to continue at this stage. It's actually better than December and in line with prior year.
Manuel Navas: Okay. Most other credit metrics are pretty solid. I just wanted to ask about that one.
Aurelio Alemán: Yeah. No, I'm all right.
Manuel Navas: Additionally, as we look at this new kind of, can we reset on the margin Your sensitivities to hikes or potential declines? I appreciate the new kind of go-forward guidance with kind of flat rates. What would happen in either increases or decreases from here?
Said Ortiz: Well, we need to close out on the 10Q, those NEP cups, and it's going to be similar, consistent with what has been disclosed in the queue on NII, right? So 2% to 3%, which we, and you have the breakdowns there by each of the scenarios that we evaluate.
Manuel Navas: Okay.
Aurelio Alemán: Thank you. Thank you, Manon.
Julian: Our next question comes from Aaron Saganovich from Truist Securities. Please go ahead. Your line is open.
Aaron Suganovich: Thanks for the follow-up. I just wanted to just clarify on the NIM guidance. You're not assuming any rate increases through the end of the year?
Said Ortiz: Correct. Okay.
Aaron Suganovich: Thank you.
Manuel Navas: Yeah.
Julian: And we have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.
