The First Bancorp, Inc.

The company reported second-quarter net income of $22 million, or $0.10 per share, versus $23.3 million, or $0.11 per share, in the prior quarter. Total assets were $12.5 billion, down from $12.7 billion at March 31. Total net interest income was $120.2 million, and net interest margin was 4.1%, down 17 basis points sequentially. Non-interest income was $19.8 million, and non-interest expense fell by $3.5 million. Net charge-offs were $24.7 million, or 1.11% of loans annualized, versus $23.6 million, or 1.05%, a year ago. Non-performing assets increased $19 million to $756 million. Tangible common equity was 13.55%, Tier 1 was 17.12%, and total capital was 20.72%. For guidance, management did not give formal next-quarter or full-year earnings guidance, but said it expects funding costs to improve in the second half as about $400 million of higher-cost borrowings mature, and it expects more REO sales in the second half of 2016.

Aurelio Aleman framed PROMESA as a meaningful positive because it reduces uncertainty in Puerto Rico and should help long-term growth and credit quality. He stressed that the franchise remained strong despite market challenges, with better loan origination and renewal volumes across regions, tighter credit standards, and a stronger second-half pipeline. He also said the company remains focused on expenses, improving the balance sheet mix, and reducing reliance on brokered deposits.

Orlando Berges said the quarter’s main pressure point was net interest income, which declined $4.4 million to $120.2 million as the margin slipped to 4.1%. He tied the margin compression to lower loan balances, consumer portfolio runoff and prepayments, investment portfolio prepayments, a lower-rate reverse repo replacement, and higher average cash balances. He noted non-interest expense fell $3.5 million, brokered CDs were down $197 million, average interest-bearing deposit cost held at 76 basis points, and about $400 million of higher-cost borrowings mature over the next six months, which should help funding costs in the second half.

Analysts focused on early delinquencies, loan growth needed to offset NII pressure, the impact of PROMESA on business activity, and how the bank is handling regulators as it works through capital actions. Management said 30-to-89-day delinquencies were about $212 million at quarter-end and down 13% from the prior quarter, and explained that stronger pipelines in Puerto Rico and the Virgin Islands, plus a steady Florida franchise, should help sustain origination volumes. On the large commercial credit that moved to non-performing, management said it was already adversely classified in March and had filed for bankruptcy during the quarter; they also said it is too early to tell whether PROMESA will translate into better cash flows for the TDF hotel loans, though two of the three loans remain current.