First BanCorp (FBP) 2026 Q3 法說會逐字稿

(Operator Instructions)

I will now hand the conference over to Ramon Rodriguez, IR officer. Ramon.

Thank you, Christine. Good morning, everyone.

Thank you for joining First Bancorp'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 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 latest 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'd like to turn the call over to our CEO, Aurelio Aleman.

Thank you, Ramon, and good morning, everyone.

Well, we delivered another quarter of a strong consistent performance supported by healthy balance sheet trends in both deposit and loans, stable credit quality and continued profitability.

Net income totaled $96.1 million or $0.63 per share, essentially unchanged from last quarter.

While year-to-day earnings per share increased actually 14% compared to same period last year.

Our franchise continued to generate attractive returns with return on asset of 1.98%, marking actually our 19 consecutive quarters about 1.5%.

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 Fed rebuy 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 annualized lean quarter rate.

Consumer loans actually declined a bit as we have forecasted.

And 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 NPA ratio unchanged at 0.59 basis points.

Importantly, we continue to return substantial capital to shareholders to both purchases and dividends while maintaining a CET1 ratio of 16.9%, providing significant flexibility to support opportunities in future capital deployment initiatives.

As we disclosed yesterday in a separate press release.

We're very pleased that our Board approved a 25% increase in our quarterly common dividend and a $350 million stock buyback authorization.

Our capital allocation priorities remain unchanged.

Given the strength of the 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 share repurchase to remain an important tool, particularly when market valuations create compelling opportunities.

Overall, we believe the quarter demonstrates the resilience of earning power of our franchise.

Please let's move to slide 5.

Stepping back from the quarter, 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.

Again, the backdrop, we continue to see a healthy client 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 Herman 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.

By multiple gaining multiple recognitions, one by Global Finance, which named us the best digital user experience in Latin America and Puerto Rico and the best digital banking app in Puerto Rico. In addition, Force included our company on 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, the quality, significant capital, position us to continue executing our priorities, creating long-term value for our shareholders.

Before I turn over the court to side, I'd like to provide some additional context on our key performance indicators and an outlook for the remainder of the year, only one quarter away. Please, let's move to slide 6.

Looking at the priority, we believe we remain on track of the beginning of the year operating metrics.

Long-growth trends have continued to improve by strong origination and healthy pipeline.

We remain confident and we can achieve the lower end of our 3% to 5% 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 expect to close $50 million more in buybacks during this fourth quarter.

As the quality remains stable and we continue to balance growth and discipline on the writing, we believe, is the prudent thing to do with all the noise that we see in the global macros.

As we move to the final quarter, priorities remain clear, selective growth market share, maintain growth profitability, drive operating leverage and continue enhancing the customer experience through technology and AI.

As always, I thank you for your interest and look forward to answering your question. Now, I'll turn the call over to Sai to discuss quarterly results in more detail.

Thanks, Aurelio, and good morning, everyone.

Turning to our results, net income for the quarter was $96.1 million, 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, while non-interest income decreased by $3.1 million.

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.

Earnings per share increased to $0.63 per share, benefiting from onshoring ongoing share repurchase activities.

We also generated adjusted pre-tax-free provision income of approximately $130 million during the quarter.

At the same time, unrealized losses in the securities portfolio continue to affect tangible book value through AOCL.

For the quarter, tangible book value was $12.15.

And tangible common equity was 9.55%. Excluding the impact of the unrealized losses, adjusted tangible group 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 detail.

Net interest income was $227.5 million, down from the prior quarter. The primary drivers were the absence of approximately $3.4 million of purchase discount and deferred fee acceleration 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 increase in 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 relationships, value and profitability.

At 4.73%, our margin remains at an attractive level and continues to compare favorably with peers.

Looking ahead, we expect for core margins to remain near current quarter levels during the fourth quarter. We expect continued deposit competition and loan 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 call.

Shifting to other income and operating expenses on Slide 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 remain basically unchanged from prior quarter. Importantly, our efficiency ratio was 50%, remaining below our long-term operating target of 52%, 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 continued to be at low levels relative to the size of the portfolio.

Analyzed net charge-offs 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 end.

We did see a $6.8 million increase in consumer loans.

Overall, commercial credit performance remained solid. Reserve levels remain 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 Aurelio 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 CED1 ratio ended the quarter at 16.9%, 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.

(Operator Instructions).

Your first question comes from the line of Erin Segunovich with Truist Securities. Erin, your line is now open.

Thanks.

I think you had said that you expect the NIM to be 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?

Yes, given some of the dynamics we discussed, volatility on the funding costs, the overall interest rate environment, we should see margins 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 start with you on that.

Yeah, just some additional color. What we're seeing on the cost of fund, obviously, consumers continue to look cities are repricing higher.

If we go to the broker city market, it's repricing higher.

So there is some high yield seeking on large balances, so those are. And those are the negatives, on the other hand, the offsets are the laundry pricing, we have a significant variable on portfolio on the commercial side, whatever reprice with Prime happened very late in the last quarter. And whatever reprice on SO4 base happened very early in this quarter. So we're going to see that some positives plus the fact that the $250 million that Said mentioned.

So between the positives and the negatives, the positives we can estimate fairly clearly. But the funding impact is very difficult to -- until we see some more stability in the market. That's why we're saying we look forward to offset any funding increase with the other opportunities plus loan growth should contribute also to part of the positives.

And could you maybe remind us how the balance sheet is positioned at the end of the third quarter with we have a much higher forward rate expectation now as the Fed is now in a tightening cycle and we're battling inflation across various areas.

Or should you benefit from. From higher rates kind of over the longer-term? I'm not really talking about 4Q, but just the way that your balance sheet will be positioned to absorb those over the next year.

We do remain in an asset-sensitive position.

Obviously, that will benefit some of the more sensitive assets such as cash.

We've been seeing good opportunities on the investment portfolio of reinvesting those cash flows at higher yields. So overall, yes, we should benefit from those movements on the interest rates on higher.

Your next question comes from the line of Brett Rabatin with Stone X Group.

Hey, good morning, everyone.

I wanted to first ask maybe 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 if 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?

Yes, 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 yes, that should continue to be around the levels of this third quarter.

And then credit continues to be really solid, a little bit of an increase in net charge-offs on the consumer.

Auto side, but just any 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 industry continue with the same challenges, sales are down and there's some seasonality to delinquencies if we look at other prior years. And from that, I think we, I have to say, continue stable.

We continue to have significant share of the volume because sales are down or in the market.

Mostly impacted by tariffs, I will say, and inflation in terms of other needs that the consumer need to spend their money. So we are forecasting that the portfolio is decreasing a bit on a quarterly basis, but 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 where we see the opportunity.

And then just lastly, if I could ask one last quick one on competition.

It seems like maybe the credit unions have been a little more aggressive here lately, PenFed and maybe some others. Are you guys seeing an increase in competition and how does that factor into what you're thinking about the margin from here and where deposit funding costs might move to?

Every time that we see this cycle, we see some high-yielding customers, high-yield seeking customers.

So we're retaining and we're making our effort to retain and be competitive. We're not going to go crazy.

But I would say some of the credit unions are more aggressive, but also more on the larger balances is where we see the competition.

I think the core consumer products are continue to be the same.

Okay, great. Thanks for the call, Orelio.

Your next question comes from the line of Kelly Mata with KBW. Kelly, your line is now open.

Really nice capital plan out last night. It certainly came in ahead of my expectations.

I noticed you reiterated your outlook for 100% capital return. I was just wondering, given what are still incredibly 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, obviously, as I said in my other remarks, this quarter we're going to complete 50.

We always say around 100%, we're not going to -- 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 and we do have a plan that goes from the $200 million that we approved last year to $350 million and every quarter will give you more guidance. In terms of how we continue to move ahead on that.

Obviously, the goal is to stay around 100% and probably if we see the opportunity to both go beyond that in 2027, then we will execute.

Got it. So that 100% is still related to 4Q26 and you're not ready to necessarily guide to that for 2027. Is that what I'm putting together or? Yeah. Okay.

We brought more guidance in January. We like to keep the optionality and the opportunistic. So that's part of the plan as it's been for some time.

Got it. That's helpful.

And then the NIM 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.

Some of the September rates 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 accounts. 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 will 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 should we -- what are you watching most carefully?

I think we continue to be prudent on the consumer originations. We basically -- we monitor the portfolio very closely and we -- every quarter, if we need to do some adjustments on what comes in and our risk appetite, we do. We feel pretty good where we are. The portfolio is behaving well. We took action on some of these a couple of years ago, so we expect stability.

But we're monitoring closely, definitely the inflation is impacting the consumer on the electricity, gasoline on the pump and consumer goods. So it's not only here, it's happening across mainland. So that's we feel good where we are and we're pretty good reserved. These are high-yielding portfolios.

Obviously, opportunities for growing these portfolios are limited at this stage.

Your next question comes from the line of Steve Moss with Raymond James.

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. Can you walk us through like what drove that decline and maybe just a reminder on the repricing opportunity for securities into 2027?

On the securities side, part of the acceleration of deferred fees and the purchase discount was included on the yield on the second quarter for securities, right? If we actually exclude those one-timers, the yield on the securities increased by about 8 basis points, mostly related to the acceleration that we mentioned on the call.

Actually, earning assets are if we exclude the one-timers, total earning assets was around $604 million and very similar to the previous quarter.

On the opportunities on the reinvestment of the security portfolios, where you saw in the quarter, we purchased around $400 million at 544%. We have $252 million coming in on the fourth quarter yielding $223 million and we should be able to invest on high five and lower six, the way interest rate markets are behaving right now, that's what we're seeing.

So I know you guys said pipelines are healthy. Are you seeing any slowdown in demand as rates move higher, maybe projects being delayed or anything of that sort?

There's probably some of that happening, but when I look at today's pipeline, it's not impacted by that on the commercial side.

Obviously, that is usually.

That in the cycle where rates go over certain limits, that usually happens, some rates are postponed, it's part of the cycle.

We haven't seen that yet.

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 somewhere 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.

(Operator Instructions). Manuel Nevas with Piper Sander. Manuel.

Hey, good morning.

Putting together some of the NIM commentary, how should we think of the NIM post. Fourth quarter? I know there's a good amount of uncertainty, but you have a natural asset sensitivity.

Do we at least have flat to upward trajectory into next year?

Kind of thoughts on that potential?

But for now, we see I think I mentioned that delta is positive and negative for the fourth quarter.

Obviously, if.

Other increases happen, which are uncertain, it should be positive for our NIM into 2027, but it's just it will depend on both that other increases happen and.

And we achieved the loan growth targets that we have on the plan because the asset mix, remember, continue to change, so we have less consumer, more commercial, consumer is more high-yielding. So even though we feel confident about net interest income continue to move north, the new formula is a little bit more tricky because it also involves the asset mix.

So obviously, investments are, as I mentioned, investments are being both at much higher rates than the cash flows that we receive and couple that with higher rates on the commercial variable rate loans, that definitely brings offset the potential cost of fund increase. But when you put the mix of loans into the picture, it definitely changed the view of.

Of even though 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, on rates on the loan side.

The rates are coming in similar to what you're seeing on the asset yield on the results, right? Obviously, rates move a little bit higher, they could move.

On the deposit side, we continue to be competitive. You saw increases on time deposit. I would think that that will continue to happen. We're renewing CDs at higher rates than the $330 million that they're costing us right now. So yes, you would see some of that and depends on how treasury moves and options to consumers.

So the CD appetite remains.

Remains constant, at least near term.

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?

It's a combination of new construction projects that are coming, alive after, longer periods of planning, some M&A, competitors buying our competitors and we're participating, and some other, business expansion, a couple of warehouses that we saw in the pipeline, some CRE.

CRE investors 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?

Obviously, there's a good economic outlook for the main market that we serve, which is Puerto Puerto Rico economy, so that would in theory with the CECL rules 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 area of the ACL coverage. But yes, overall, if credit quality remains stable.

And delinquency level 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 coverage going forward.

There are no further questions at this time. This concludes today's call.

Thank you for attending. You may now disconnect.