First BanCorp (NYSE:FBP) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

First BanCorp reported strong financial performance for Q2 2026, with net income of $96 million, up 24% year-over-year, and pre-tax, pre-provision income reaching a record high of $138 million.

Loan growth accelerated, particularly in commercial activity in Puerto Rico, with total loan originations increasing by 21% year-over-year, and total deposits growing by $274 million.

The company maintained a robust capital position, completing $50 million in share buybacks and paying a $0.20 per share dividend, while ending the quarter with a CET1 ratio of 17%.

Strategic initiatives included investments in technology for customer experience enhancement, leveraging AI for process automation, and expanding presence in Florida.

Future outlook remains positive with sustained loan growth guidance of 3-5% for 2026, stable economic conditions supporting business activity, and continued focus on organic growth and potential strategic opportunities.

Full Transcript

OPERATOR

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 one 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 Investor Relations Officer.

Thank you. Please go ahead.

Ramon Rodriguez, Corporate Strategy and Investor Relations Officer

Thank you, Julianne. Good morning, everyone. Thank you for joining First BanCorp'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 Sayed 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 fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Aurelio Aleman, President and CEO

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 62 cents per share. That is up 24% when compared to the 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 history. Moving to the balance sheet. 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 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 deposits grew by 274 million during the quarter, primarily driven by an increase in government deposits, but also we have a slight increase in core customer deposits. Credit performance remains sound with lower net charge-offs, and non-performing assets remaining near historical lows.

That said, early-stage delinquency came up during the quarter, but essentially, when we look at it over the same period last year, it was flat to prior-year June and was actually below December 2025. So we continue to monitor early-stage delinquency trends and broader consumer market conditions. Regarding capital deployment, consistent with prior quarters, we completed our 50 million of share buybacks and we paid a 20 cents per share dividend. 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 to 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, supportive of the loan activity that we see. If we look at the main market, unemployment stands at 5.6%, which is pretty good for our market considering trends. Reconstruction activity continues to provide economic support, and the island continues to benefit from encouraging reshoring and manufacturing investments—announcements that represent future benefit.

While, on the other hand, industry sales continue to reflect the impact of tariffs. The recent trends for the last quarter suggest that the market is beginning to normalize, with June industry-wide auto sales down only 3% year over year. So we believe sales are stabilizing. Against this backdrop, core business continues to perform really well. Loan growth 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 sustain our loan 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 deepening customer engagement through the multichannel strategy. Active digital users continue to grow, up 6% versus prior year, and we continue to increase to 95% of deposit transactions captured through digital and self-service channels. As we look ahead, the priorities really remain unchanged—very focused on our execution, focused on selectively growing the market share in our core business.

Confident in our ability to grow organically through disciplined 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, 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, shorten life cycle, and improve the management of potential fraud. This quarter reflects what has become a hallmark in our franchise: strong profitability, disciplined risk management, robust capital generation, and, what is most important, 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. Welcome, Saeed, to go over the financial results in more detail.

Orlando Berges, EVP and Chief Financial Officer

Thanks, Aurelio, and good morning, everyone. As Aurelio mentioned, for the second quarter of 2026 we earned $96.1 million, or $0.62 per diluted share, which compares to $88.0 million, or $0.57 per diluted share, last quarter. Pre-tax, pre-provision income increased by $6 million, or 5%, when 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 deferred fees or discounts. If we exclude this impact, net income would have amounted to $93.0 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 portfolio. The macro, as already mentioned, continues to show slight improvements in the unemployment projection and the Home Price Index, though to 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, looking at net interest income, it grew about 3.7% quarter over quarter and amounted to $229.1 million compared to $221.0 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 part of 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 $11.7 million, primarily due to the initial day in the quarter. Interest income on investments and cash increased by $4.5 million, excluding the aforementioned refinancings. The yield on the investment portfolio continued to increase and increased 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 core deposits, excluding brokered deposits and public funds, decreased by 8 basis points to 3.26%. 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 brokered 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 4.7%, a 12-basis-point increase when compared to the previous quarter.

If we exclude the acceleration of fees/discounts recognized in the quarter, our net interest margin would have been closer to 4.80%, reflecting a 5-basis-point increase when compared to the prior quarter. It 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 absent any rate cuts in the second half of the year, we believe our asset-sensitive balance sheet continues to be 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 off the 4.80% base. Shifting to other income and operating expenses on Slide 9, other income was down; it 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 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% 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 to $130 million as merit increases take effect during the third quarter, combined with a pickup in business promotions and persistent expense trends on our technology projects.

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 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 C&I loan in the Florida region of approximately $14.8 million, which 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 housing.

Inflows to nonaccrual were $40.7 million, which is $6.4 million higher than last quarter. Excluding the aforementioned inflow in the Florida region, inflows to nonaccrual 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 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 auto and finance leases portfolio.

In the first quarter we did see a reduction in our 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 $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 finance leases portfolios just mentioned. Such increase was offset by multiple factors, including improvement in the macroeconomic projections—particularly unemployment 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 we had 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 $15 million of shares of common stock and declare $31 million in dividends. Our regulatory capital ratios continue to exceed required 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 the tangible common equity ratio decreased 3 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 earnings to shareholders in the form of buybacks and dividends.

This concludes our prepared remarks. Operator, please open the call for questions. Thank you.

OPERATOR

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

Erin Saganovich, Analyst at Truist Securities

Good morning,

OPERATOR

Erin, you may be on mute.

Erin Saganovich, Analyst at Truist Securities

Sorry about that. Loan growth 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're doing, what kind of spreads you're seeing, and the competitive environment there.

Aurelio Aleman, President and CEO

Yeah, you know, as I said before, you know, obviously the growth this quarter primarily was commercial. On the other hand, better stability on the auto consumer portfolios than we had anticipated, so there was a slight growth there too—not a contraction—which is very positive. On the commercial side, I think it's a good mix of some acquisitions by the larger players, some CRE, some construction, C&I, so it's a good mix of assets around development of warehousing, 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 significant size, which was the refinancing of debt, restructuring of debt, which we increased our exposure on a very solid municipality in terms of financials. So overall. And there was some infrastructure refinancing too, which led to an increase. I think we look for diversification of risk and where we position our capital in terms of the asset classes.

Erin Saganovich, Analyst at Truist Securities

Thanks, and just around 17% of CET1, what are you seeing on maybe the M&A front—something that you might be able to utilize all that excess capital?

Aurelio Aleman, President and CEO

You know, as I mentioned before, we look into potential activity. There's not much we can say about that, but 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 execute our buyback and deliver a competitive dividend, and obviously primary organic growth.

We're seeing good activity in our new region in Florida that we opened in the last quarter of last year—the office—so we continue to see pretty good activity there too. So the organic play continues to lead the front of our efforts.

Erin Saganovich, Analyst at Truist Securities

Okay, thank you.

OPERATOR

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

Kelly Mota, Analyst at KBW

Hi, thank you so much for the question. Great quarter.

Aurelio Aleman, President and CEO

Thank you, Kelly.

Kelly Mota, Analyst at KBW

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

Aurelio Aleman, President and CEO

Okay, I'm going to make a few comments and pass it to Orlando. I think it's important that, obviously, the yield curve has to do with this versus our projection. Rates continue to be better in the investment portfolio, those maturities as I would talk about, but also loan activity on the commercial book, which 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 we revisited the forward guidance to a higher range. Obviously, this quarter we did have what we consider non-recurring items regarding those two loans that were renewed and have some benefits underneath that type.

Orlando Berges, EVP and Chief Financial Officer

Yeah, yeah. In terms of repricing in the investment portfolio, we expect about $400 million in the second half of the year. Those are yielding around 1.92%. 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 in.

Cody, Analyst

Okay, that's helpful. And then I apologize if you hit on this, but with the deposit growth, it looks like about two thirds of that was on the government deposits. Can you help us out with 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 Aleman, President and CEO

Yeah, when you look at deposit costs, it's almost flat. Obviously 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 large chunks moving in or out in a specific quarter based on key relationships that receive funds primarily from reconstruction. Funds come in, go out, and some other time deposits that we negotiate with our core relationships that are transactional based.

I will say just think about the government deposits staying around this average that we have for the last years. Liquidity is very solid, and still funding coming in through both CDBG and FEMA for different purpose reconstruction, even PREPA, or some of the other entities that we have in the portfolio. I think in the core customer, we are seeing, again, obviously linked to money market rates and Treasury rates, you start to see 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 deposit. Net-net was positive, but we start to see a little bit of that noise and we start to compete to retain better. So I will say 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 aggressiveness in a very specific component that you can actually play and not really impact the franchise.

So I will say stability involves government deposits, and obviously we continue to target growing our core franchise.

Cody, Analyst

Great, I'll step back. Nice quarter again. Thank you so much.

Aurelio Aleman, President and CEO

Thank you, Cody.

OPERATOR

Our next question comes from Steve Moss from Raymond James. Please go ahead. Your line is open.

Steve Moss, Analyst at Raymond James

Good morning.

Aurelio Aleman, President and CEO

Morning, Steve.

Steve Moss, Analyst at Raymond James

Nice calling you guys.

Aurelio Aleman, President and CEO

Thank you.

Steve Moss, Analyst at Raymond James

Morning. Maybe just, you know, thinking about expenses here and the efficiency ratio longer term. I mean, obviously, healthy business trends here. I know you guys are still guiding towards the 50% or being at the low end of the 50 efficiency ratio range. Just kind of curious, 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, you know, 50% still kind of where you think it'll shake out later, longer term?

Aurelio Aleman, President and CEO

Yeah. If you see the absolute number on expense, it's very close to the guidance that we provided. So, you know, we are making investments in both technology and actually some of the branch expansion that we talked about in the early part of the year. 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 is there.

So, again, I think we always like to see the efficiency ratio going down by more revenue, and that's what happened this year. Obviously, again, I think there's been a sensitivity. So there's a part we're doing really good growth on loans, but also there's a contribution coming from the rate environment that is helping every bank. So that was a sensitivity. So, yes, there's always an opportunity to move below 50. We're there today, and if revenues continue at the pace, then 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, with or without the new revenue opportunity. So that's why we are placed in that 50% target.

Steve Moss, Analyst at Raymond James

Yeah, great, that's helpful there. And then just kind of, you know, thinking about 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, as you look at business activity here, just kind of curious 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 Aleman, President and CEO

I think I have to highlight one sector, which is hospitality. The hospitality sector in Puerto Rico continues to show significant trends, better trends than prior cycles, sustainable in both ADRs, occupancy, visitors. There's still hotel projects coming around and some of them are ongoing. And I think investor confidence—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 U.S., the economies continue to sustain these trends, and investors are looking to place some of their excess liquidity in projects. So we're benefiting out of that, and I think the island has been a positive place for that for some years now.

Steve Moss, Analyst at Raymond James

Got you. And then 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 a catch up with the buyback or special dividend later this year?

Aurelio Aleman, President and CEO

You know, as you know, we keep the optionality, and every quarter we sit down. That will happen now in August, now September. In October, you will see 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.

Steve Moss, Analyst at Raymond James

Okay. Aurelio, I appreciate all the color here. Thank you very much.

Aurelio Aleman, President and CEO

Thank you. Thank you.

OPERATOR

For any additional questions, please press star followed by the number one. Our next question comes from Manuel Navis from Piper Sandler. Please go ahead. Your line is open.

Manuel Navis, Analyst at Piper Sandler

A lot of my questions have been asked and answered. 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 Aleman, President and CEO

To be honest, you know, obviously I say seasonal because when we compare to prior periods, we saw a 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 upticks from here in those delinquency levels. When we look at the charge-off going through, it's really focused on the early delinquency buckets.

So we don't see anything that tells that this is going to continue at this stage. It's actually better than December and in line with prior year.

Manuel Navis, Analyst at Piper Sandler

Okay. And most other credit metrics are pretty solid. I just wanted to ask about that one. 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, but what would happen in either increases or decreases from here?

Orlando Berges, EVP and Chief Financial Officer

Well, we disclose that in the Q. Those NII sensitivities are going to be similar, consistent with what has been disclosed in the Q on NII, right? So 2 to 3%, and you have the breakdowns there, the scenarios that we evaluate.

Manuel Navis, Analyst at Piper Sandler

Okay. Thank you.

Aurelio Aleman, President and CEO

Thank you, Mano.

OPERATOR

Our next question comes from Erin Saganovich from Truist Securities. Please go ahead. Your line is open.

Erin Saganovich, Analyst at Truist Securities

Thanks for the follow-up. I just wanted to clarify on the NIM guidance: you're not assuming any rate increases through the end of the year? Okay. Thank you.

OPERATOR

And we have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.