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DATE

Wednesday, April 22, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Aurelio Alemán-Bermúdez
  • Chief Financial Officer — Orlando Berges-González
  • Chairman of the Board — Ramon Rodriguez

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TAKEAWAYS

  • Net Income -- $88.8 million, up 21% year over year and $1.7 million higher than the prior quarter.
  • Earnings Per Share -- $0.57, compared to $0.55 last quarter.
  • Pretax Pre-provision Income -- $131 million, up 5% year over year and almost 2% sequentially.
  • Return on Average Assets -- 1.89%, compared to 1.81% in the prior quarter; marks 17th consecutive quarter above 1.5%.
  • Total Loans -- $13.1 billion, a sequential decline in line with consumer portfolio contraction; still above pre-pandemic levels.
  • Core Deposits -- Up 4.9% on a linked quarter annualized basis, demonstrating growth through relationship-driven channels; brokered and public funds excluded from core calculation.
  • Early Stage Delinquencies -- Declined 24% sequentially, driven mainly by a $31 million decrease in consumer auto loan delinquencies.
  • Nonperforming Assets -- Decreased by $5.3 million, including a $4.8 million reduction in nonaccrual loans across business lines.
  • Net Charge-offs -- $21.1 million (65 bps of average loans), slightly up from 63 bps prior quarter; largely due to a $600,000 charge-off on commercial collateral.
  • Allowance for Credit Losses -- $245 million or 1.87% of loans, modestly down from 1.9% last quarter due to portfolio size and improving macro variables, despite increased qualitative reserves for geopolitical risk.
  • Net Interest Income -- $221 million, $1.8 million below the prior quarter due to two fewer days and rate-driven commercial loan yield declines; up 4% year over year.
  • Net Interest Margin -- Rose by 7 bps to 4.75%, exceeding the previous guidance range of 2-3 bps expansion per quarter.
  • Noninterest Income -- $37.7 million, up $3.3 million sequentially, primarily due to $3.6 million in contingent commissions collected seasonally.
  • Operating Expenses -- $127.1 million, a $200,000 sequential increase excluding OREO, on the lower end of guidance.
  • Efficiency Ratio -- 49.1%, slightly improved from 49.3% previous quarter.
  • Tangible Book Value per Share -- Increased to $12.45; tangible common equity ratio rose to 10.11%.
  • Capital Return -- $50 million in share repurchases and $31.5 million in dividends; total payout equaled 92% of net income.
  • CET1 Capital Ratio -- 16.9% at quarter end, after significant capital distribution actions.
  • Loan Originations -- Up 6% year over year, with commercial pipelines noted as currently healthier than one year ago; loan growth guidance of 3%-5% reaffirmed.
  • Investment Securities Reinvestment -- Approximately $600 million of maturing, lower-yielding securities (average 1.65% yield) expected to be reinvested at yields 280 bps higher through the rest of the year.
  • Auto Sales Market Data -- Industry auto sales declined 19% compared to the third quarter of last year, but retail auto sales remain 6.5% above pre-pandemic ten-year average.
  • Expense Outlook -- Projected quarterly expense base of $128 million-$130 million, excluding OREO gains/losses, with upward pressure later in the year from technology and marketing initiatives.
  • AI and Technology Initiatives -- Early-stage adoption underway with focus on cloud migration and vendor-driven solutions; further investment expected over the next 18-24 months.
  • Branch and Market Expansion -- New Boca office and Miami branch repositioning in Florida; two branch expansions on Puerto Rico’s West Coast scheduled midyear, contributing 4,000 new retail and small business clients.

SUMMARY

First BanCorp. (FBP 1.54%) demonstrated marked bottom-line growth, reporting a 21% year-over-year rise in net income and an all-time high pretax pre-provision income, amid reduced overall loan balances and stable asset quality metrics. Capital returns to shareholders remained elevated, totaling 92% of net income, with the Common Equity Tier 1 capital ratio sustaining a strong position despite sizable repurchases and dividend outlays. Strategic focus was reinforced on organic growth, deposit franchise enhancement, selective market expansion—particularly in Puerto Rico and Florida—and ongoing development of cloud-based and AI-driven technologies, contributing to fee-income improvement and operational efficiency.

  • Management reaffirmed net interest margin expansion guidance, now realized at a faster pace than previously forecast, directly benefiting from favorable funding cost dynamics and proactive securities reinvestment strategy.
  • Early-stage loan delinquencies saw considerable sequential improvement, while reserve build focused specifically on macroeconomic and geopolitical risks, including Middle East unrest.
  • Noninterest income growth was materially attributable to seasonal contingent commissions, while efficiency and expense ratios remained at the low end of guidance ranges.
  • Market share gains in Puerto Rico were suggested by nearly 11% year-over-year loan origination growth, driven by infrastructure and economic activity timing rather than isolated business wins.
  • Management described AI technology investments as foundational and paced to match emerging use cases, with the current spend expected to plateau over the next two years before declining.

INDUSTRY GLOSSARY

  • CET1 Ratio: Common Equity Tier 1 capital ratio; a key regulatory measure of a bank's core equity capital to its total risk-weighted assets.
  • OREO: Other Real Estate Owned; real property owned by the bank, typically acquired through foreclosure.
  • Net Interest Margin (NIM): The percentage difference between interest income generated by banks and the amount of interest paid out to lenders, relative to their interest-earning assets.
  • Contingent Commissions: Conditional payments received, often annually, by financial institutions—common in insurance or brokerage—based on performance or volume thresholds.

Full Conference Call Transcript

Aurelio Alemán-Bermúdez: Thank you, Ramon. Good morning. Good morning, everyone, and thanks for joining our call today. We started 2026 with very strong momentum, generating $89 million in net income or $0.57 per share. That is actually up 21% when compared to same quarter last year. Core operating trends remain also very strong during the quarter with pretax pre-provision income reaching all-time high of $131 million. That is up 5% from a year ago. This performance resulted in a 1.9% return on average assets. This marks our 17th consecutive ROA above 1.5%, definitely demonstrating our commitment to sustain profitability. Moving to the balance sheet. Total loans declined slightly to $13.1 billion.

That is actually consistent to prior year seasonality and accounts for the expected softening in credit demand within the consumer lending segment that we mentioned before. That said, still better than pre-pandemic levels when we look at consumer demand. On the other hand, core deposits for the quarter were strong other than brokered and public funds, which we don't call core, were up by 4.9% on a linked quarter annual basis, reinforcing the strength of the relationship-driven franchise while allowing us to actively manage funding costs. Driving core client deposit growth is a key priority for us, and we're very encouraged by the execution during the quarter in terms of new clients and accounts.

Credit performance remained a key strength for the franchise during the quarter with charge-offs very stable, record low levels of nonperforming assets and very encouraging early stage delinquency trends, which actually declined 24% from the prior quarter. And finally, our consistent approach to capital deployment resulted in a net payout of 92% during the quarter achieved through buybacks and dividends. Even after this action, the quarter, we ended the quarter with a 16.9% CET1 ratio. Let's turn to Slide 5 to talk about the environment and highlight of the franchise. We're pleased to say that business activity and economic conditions across the markets continue stable and progressing in line with our expectation. The labor market continued to show resilience.

Other economic indicators in the main markets such as economic activity index continue to be stabilized and recent credit delinquency indicates consumer stability. We are encouraged by what we see around in addition to the restructuring -- sorry, reconstruction activities, reshoring activity and expanded U.S. military presence in the island while the disaster recovery efforts remain in place. Expanding on a consumer first quarter industry auto sales declined 19% when compared to the third quarter last year. Definitely evidence in the expected reduction in consumer credit demand for auto. That said, it's important to note that retail auto sales continue to be 6.5% above the pre-pandemic 10-year average. So were still better than the prior cycle.

We're definitely prepared to serve our customers in this environment, very, very many, many, many parts moving regarding potential impact of oil cost, which we are monitoring, which could be rising energy costs and other potential impact on inflation, which could impact consumer activity and commercial activity more broadly in the future, hopefully, that is soon. And while the macroeconomic environment continues to be dynamic, we remain focused on managing what we can control, enhancing the service delivery platform, technology investments to be more high and efficient and focusing on providing the best quality of service that we could. When we look at business highlights, total loan originations were up by 6% when compared to prior year seasonally adjusted.

Commercial loan pilots actually remained healthy. Actually, if I compare pipelines today with the same time prior year, we are actually in a better position. So we sustains our loan growth guidance of 3% to 5% that we initiated that we mentioned in the last call. In terms of omnichannel strategy, active digital users continue to grow year-over-year. Digital transaction volumes continue to grow, self-service payment continued to increase. A sustaining -- demonstrating sustained engagement of clients in the platforms. We are spending time and effort on AI, understanding what we can do to improve internal processes and also improve the way we service our clients.

We continue to also do franchise investment in our brand channels to continue to optimize how we service our clients. We believe that AI will definitely play a key role in the execution of this strategy, providing clients with faster, more personalized service offers and enabling our colleagues to spend more time in value-added customer interaction rather than dealing with routine transactions and processes. We're working very close to our key vendors to ensure that we adopt what's coming in all this new venture. Overall, capital allocation priority remain unchanged also include -- this includes supporting organic growth, which is a priority and paying a competitive common stock dividend and returning excess capital through share repurchase.

As always, we thank you for your interest in First BanCorp and your support. And with that, I'll turn the call to Orlando and we'll come back for questions later. Thank you.

Orlando Berges-González: Good morning, everyone. So Aurelio mentioned this quarter, we earned $88.8 million at $0.57 per share, which compares to $87.1 million or $0.55 a share last quarter. Adjusted pre-tax pre-provision income reached an all-time high of $131 million, which is almost 2% higher than last quarter and about 5% higher than the first quarter of last year. The return on average assets for the quarter was 1.89%. That compares to 1.81% last quarter. So we had an improvement there. The provision for the quarter was lower. We had some macroeconomic indicators, such as the unemployment rate and the CRE price index continue to show better trends and that leads to some of the reduction.

Also, we had a reduction in delinquency, as Aurelio mentioned, and some of the consumer portfolios, the size of some of the consumer portfolios was down. On the other hand, we had an increase in qualitative reserves to account for the current geopolitical uncertainty in the Middle East. Income tax expense for the quarter was $25 million, which is $5 million higher than prior quarter, mostly related to the higher pretax income but also at the end of the last year, in the fourth quarter, we booked an adjustment to the effective tax rate for the final results for 2025. The estimated effective tax rate as of now, it's just slightly higher.

It's 21.9% compares to 21.6% we had in 2025. In terms of net interest income, we had a reduction of $1.8 million in the quarter. Net interest income amounted to $221 million, that's $2.7 million related to 2 less days in the quarter, but net interest income compared to same quarter last year is 4% higher. Interest income on loans is $6.5 million lower than last quarter, which $3.8 million. It's due to 2 less days in the quarter and $2.8 million relates to the market interest rate reductions that affected the commercial portfolio pricing, specifically the floating rate components, yields on the commercial portfolio declined 18 basis points.

On the other hand, interest income on investment securities increased $2.8 million, mostly due to a 22 basis points improvement in yields as we have continued to reinvest cash flows from maturing securities into higher-yielding instruments. On the expense side, overall funding cost was $3.5 million which is $1.3 million related -- $1.3 million of that reduction relates to the 2 less days in the quarter and $1.2 million related to rate reductions. The cost of interest-bearing checking and savings accounts came down 4 basis points for the quarter to 1.21%, which is mostly driven by government deposit cost reductions.

But also the cost of time deposits came down 5 basis points, and the cost of broker deposits came down 7 basis points. broker the size of the broker deposit portfolio was also down in the quarter. Net interest margin expanded 7 basis points for the quarter to 4.75%, which is slightly higher than our original guidance of 2 to 3 basis points per quarter. Yes. Even though the interest rate environment remains uncertain, particularly in terms of the timing and magnitude of future rate adjustments. Our balance sheet continues to be well positioned for additional expansion in line with our original guidance. In terms of noninterest income, we reached $37.7 million, which is $3.3 million higher than last quarter.

Most of the change was related to a $3.6 million collected on seasonal contingent commissions that we usually get in the first quarter of each year. Operating expenses for the quarter were $127.1 million, very much in line on only an increase of $200,000 from last quarter, if we exclude the gains from OREO operation expenses for the quarter were $128 million, which is about the same kind of adjustment of an increase of $300,000, which compared to the $127.7 million we had last quarter. Expenses were on the lower end of our guidance. Payroll expenses for this quarter were $1 million higher. That relates to the seasonal increase in payroll taxes.

And also, we had an increase in share-based compensation expense for stock grants that were issued during the quarter. The portion of these grants that are attributable to retirement eligible employees is charged to expense in the quarter. This increase in payroll expenses was offset by a decrease in business promotion. Typically, business promotion efforts are lower during the first quarter and pick up on the second and fourth quarter of the year. The efficiency ratio for the quarter was 49.1%, which is slightly below the 49.3% we had in the fourth quarter.

As we have mentioned before, based on our projected expense trends for ongoing technology projects and the pickup on business promotion efforts that happened later in the year, we reiterate our quarterly expense base for '26 will be in that range of $128 million to $130 million as we had previously mentioned. This is excluding OREO gains or losses. Our efficiency ratio, we estimate that we'll still be in that range of 50% to 52% considering the changes in expense and income components for the year. In terms of asset quality, credit quality continued to improve in the quarter.

Nonperforming assets came down by $5.3 million, that includes $4.8 million reduction in nonaccrual loans, and that was across all business lines. OREO balances also decreased by $1.2 million but we did have a $700,000 increase in repossessed autos in the quarter. Inflows to nonaccrual were $34.3 million, which is $12 million lower than last quarter, and that's mostly related to a $10 million commercial loan inflow that was booked was recorded last quarter, fourth quarter of '25. Most importantly, loans in early delinquency decreased by $34.5 million or 24% during the quarter, which is mostly a $31 million decrease in consumer loans delinquency specifically auto loans, most of it.

We have seen some stability in the consumer delinquencies, and we continue to monitor closely the behavior of the different vintages that were issued over the last few years. In terms of the allowance for credit losses, the allowance is $3.9 million lower. We reached $245 million, which represents 1.87% of loans. This is slightly down from the 1.9% of loans we had at the end of last quarter.

Similarly to what I mentioned regarding the reduction in the provision for credit losses, the decrease in the allowance was mostly related to the improvements in some of the projected macroeconomic variables, specifically the unemployment rate and the CRE price index combined with a reduction in delinquencies and the size of the consumer loan portfolios. However, the ACL includes a higher qualitative loan loss reserve, as I mentioned, in order to account for this wider range of potential macroeconomic outcomes that could come out of the unrest in the Middle East. Net charge-offs for the quarter were $21.1 million or 65 basis points of average loans, slightly higher than its 63 basis points we had in the prior quarter.

Mostly -- this is mostly related to reduced appraised value of the collateral of a commercial nonperforming loan that led to a $600,000 charge-off for the quarter on the commercial side. On the capital front, Aurelio mentioned, strong profitability has allowed us to repurchase $50 million in shares this quarter and declared the $31.5 million in dividends. Regulatory capital ratios continue to grow a little bit as the capital actions were offset by the earnings generated in the quarter. Tangible book value per share grew to $12.45 a and the tangible common equity ratio expanded to 10.11%.

Again, we still have approximately $2.28 intangible book value per share and about 160 basis points in tangible common equity ratio, which is related to the other comprehensive loss adjustments that are related to the investment portfolio. Aurelio mentioned already, but we 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. With this, I would like to open the call for questions. Operator?

Operator: [Operator Instructions] our first question comes from Brett Rabatin from StoneX.

Brett Rabatin: Wanted to start on loan growth. And I know that auto sales are still strong, but they've obviously come back in a little bit. The guidance for the 3% to 5% loan growth is unchanged. What needs to happen for you guys to get to that 3% to 5% number? And then are you expecting consumer payoffs to slow from here? Just any thoughts on the pipeline relative to payoffs and how you see the balance sheet getting to that number?

Aurelio Alemán-Bermúdez: Well, it's going to take til the end of the year to consumer payoff and originations to settle. So some of that additional contraction in the consumer portfolio is a reality. On the other hand, we expect additional commercial growth both in Puerto Rico and Florida based on what we have at hand in the pipelines today, and we do expect some additional growth in the mortgage portfolio, which demand continues strong. So that's how it's playing. Obviously, if we go back to how many years we grew the consumer book, mostly driven by auto sales and demand.

We're still performing pretty well in terms of our market share in that sector, but it's just sales are lower, still better than pre pandemic. I believe, stabilizing compared to last year is a little bit of fair too because the first quarter of last year in auto, March was a very strong month. Because it was a pre-tariff people knowing that prices were going to increase. So that number is a little bit -- the 19% that we saw in the quarter on an adjusted basis, it should be about 10%. So that -- we're assuming about 95,000 new units which is still better than many years back. So again, it's just a price.

We understand it's a price issue. I think there are still distributors considering lowering prices and adjusting and that could flow through the economy and change that number, but that is how what we're assuming right now.

Brett Rabatin: Okay. That's helpful. And then your securities portfolio has been a source of strength in terms of improving yields as you've had cash flow to reinvest 2.69% yield in the first quarter. Can you just refresh me on what you guys have coming up and how big of an opportunity that is maybe relative to the margin? And then just any thoughts on the margin pace that's in the rest of the year?

Orlando Berges-González: So the -- we still -- on the lower-yielding securities, we still have about $600 million in cash flows coming from maturities of securities yielding on average, 1.65%. That changes a little bit per quarter, but it's about $250 million, it's in the second quarter. And then we have the other $350 million, it's in the second half of the year. The average yield is fairly consistent. It's a little bit lower on the third quarter, a little bit higher in the fourth quarter, but overall, it's at 1.65%. that's what we're looking at. We had an additional about $236 million or so that mature during the first quarter.

We did take advantage of a little bit of the second half of March where rates change behavior change a bit and increased. So we try to advance a little bit of cash flows into that. So that should help on the numbers going forward. But think about that $600 million plus a little bit of the $200 million that we had in the first quarter. that clearly is being replaced with things going from 250 to about 380 basis points higher. I'm sorry, 280 basis points higher, that's what I meant.

Brett Rabatin: Okay. That's really helpful. And then just lastly, you guys commented some on the economic backdrop and oil prices being higher. Puerto Rico economy seems pretty stable. I was just curious here in the past, month or so how you're seeing the commercial pipeline in terms of people maybe making decisions or not, just given some uncertainty. And then just as you guys see it, the health of the consumer, if there's been any impact from the inflationary stuff.

Aurelio Alemán-Bermúdez: Definitely, we're watchful on the impact on oil. Latest numbers that the government published energy in Puerto Rico now is -- it's below 20% dependent on oil. So that's good. They have been converting generation to LNG, and they still have a carbon facility and then some renewables. So less than 20% is less impact in terms of in terms of the final bill on the electricity side. On the other hand, the gas stations is immediately. So that impacts more the consumer, I will say, which is what we've been seeing, and we've been commenting about it. On the other hand, we've been proactively managing our risk in that segment.

So we feel pretty good on the asset quality trends and how we have proactively managed that. Commercial activity remains strong. Tourism is strong. Puerto Rico is very attractive for U.S. visitors they're probably not going to Europe or Mexico at this time and coming more here, when we look at hotel occupancy airport, we feel pretty good about that. There's still a few projects on hotels that are moving through the pipeline. In terms of overall activity, construction continues very active and the supply chain that relates to that. So we haven't seen any softening on that piece. And distribution, expansion of distribution and other infrastructure projects are moving.

So we feel pretty good about the commercial pipeline and obviously, looking forward to faster closing of what we have at hand, so we can deliver the growth that we promised.

Operator: Our next question comes from Arren Cyganovich from Truist Securities.

Arren Cyganovich: Credit quality, obviously, quite solid this quarter, and you commented on the early-stage delinquencies improving. What's the expectation credit for the rest of the year? Is it still more stability? Or do you think that the early stage delinquencies may help lower some of the credit losses in later part of the year?

Orlando Berges-González: Well, yes, we're expecting stability. You always have a little bit of benefits on the first quarter from tax refunds. But when -- as we have mentioned in the past, we monitor vintages. And based on adjustments we did on credit policies way back in '23 and '24. And we have seen how the behavior of the vintages since are much better than what they used to be. We -- at this point, based on expectations on the market, we don't see any factors that could change dramatically always could be a little bit up a little bit down here and there. But overall, we expect stability on the delinquency side.

Arren Cyganovich: Okay. Got it. And then on capital return, I appreciate the keeping a steady amount of capital return buybacks have definitely helped over the past several quarters. You're still operating with quite a high level of CET1. I know that, that's your intention. But are you giving any thought, particularly with seeing peers in the mainland, talk about lower capital and some of your competitors on the island also having a bit lower capital than you do in terms of increasing some of that capital return?

Aurelio Alemán-Bermúdez: Well, that is a discussion that we constantly have as we move the pieces -- the moving parts are obviously the macro things that we don't control, obviously, other opportunities that we could we would like to have the power to execute if come to play, obviously, competitive dividend, and obviously, the component of the buyback. So it's a constant discussion that we will continue to have and we -- with the Board, with the management and we try to be opportunistic and consistent. That's what we try to achieve. So taking all those other pieces into consideration.

Operator: Our next question comes from Kelly Motta from KBW.

Kelly Motta: Maybe circling back to capital. I think a couple of quarters ago, you mentioned potentially looking in Florida for transactions that would make sense. Just wondering where that appetite stands today? And any kind of additional thoughts here on M&A given your high levels of capital and multiple?

Aurelio Alemán-Bermúdez: Well, I think the answer is it's always part of the optionality that we keep to be something that makes sense. And so in that yield the returns that are -- that we -- our threshold of returns. So not necessarily easy to find something that qualifies for all of it, but we cannot discard if a good opportunity comes to the table, we will not discard. That's really the way we look at it. Not aggressive about it, balance and realistic, which obviously in mind, what is the bottom line from both a strategic perspective and financial perspective, both really go together.

Kelly Motta: Got it. That's helpful. Maybe on expenses. I appreciate you reiterated the guide here with the expectation that there might be some increase later on in the year for, I believe, some marketing and technology initiatives and your commentary hit on some work you're doing on AI. I'm wondering if you could share additional color as to the use cases you see today and what you're looking at?

Aurelio Alemán-Bermúdez: Well, I'd say we're working together, definitely, AI is here to stay. And I think the industry is in a learning stage of make sure that you have the size and the scale to make sure the use cases are financially justifiable. In the back of our size, obviously, you have internal processes related to education and other analytics that are the use cases that come to play fraud management and those. But also, we're working with our key vendors we don't have any developed applications. So it's all vendor-driven and they have a road map, and we are getting into the train in the early stages so we can benefit out of it.

But I think there is a common understanding of scale. It's not only how you move, you have to move with the right governance and the right oversight as any other technology bring risk that you have to have commensurate policies and processes to cover. So I think at the end, we will all benefit of it. I think the larger the institution is the more the benefit and the more easy to justify the use cases because of the investment. On the other hand, very an important investment this year, which is the foundation is really data where the data resides, data analytics, everything.

All the efforts are really moving to be fully cloud-based, which is halfway through already in our infrastructure and including the main applications already there. So it's a journey, and it will require investments that we are and obviously are an important component of the expense guidance that Orlando has been mentioning.

Kelly Motta: Got it. That's really helpful. Last question for me, if I can sneak one last nitty-gritty one in, I appreciate -- I believe you reiterated your expectations around margin, which last quarter was about 2 to 3 basis points of expansion per quarter, but off this higher base. One thing, looking at your average balance sheet that stuck out was residential mortgage yields were a bit higher linked quarter. Wondering if you could provide any color around that, if there was any sort of onetime loan fees or anything that may have impacted that. Wondering if that's run ratable.

Orlando Berges-González: Not any large ones. We typically get some movements on what's in and out of nonperforming. And so we collect some things that were there, but nothing major. I mean, remember that for quite a while, we -- when rates were low, we were originating almost all or substantially all of the originations were conforming paper. So we didn't have a lot of lower-yielding things on the portfolio, and we were not putting too much in the portfolio. We've been putting things into nonconforming kind of paper now for the last couple of years, 1.5 years, and those are higher yielding. So as you get repayments on some of the lower-yielding ones, you're going to get some pickup.

This quarter was a bit higher. Also, it's a function of the 360 kind of component. But other than that, it's -- we expect that portfolio to -- as long as rates stay here, new originations will continue to come in a bit higher than what's going out of the portfolio with repayments.

Operator: Our next question comes from Steve Moss from Raymond James.

Stephen Moss: Maybe just starting Orlando on the 5% margin here. Curious on your funding cost expectations going forward. I noticed that your public funds have continued to head lower. Just kind of curious maybe if there's a little bit more give on your liability side for the margin here?

Orlando Berges-González: I mean, you have to divide it by components. The clear ones are the like the time deposits new time deposits on the books are at lower rates than some of the older ones that are maturing. So that's where you saw the 5 basis point pickup on the time deposits. Broker deposits, even though it's not a large portfolio, it's also being repriced at lower rates. So we had that 7 basis points that we'll continue to see some small reductions.

At the end, the deposits, you have to divide it the typical checking -- interest-bearing checking account or savings account with the limited movement in rates the same way it only went up 14% kind of beta when rates were going up, we won't see significant rate reductions on those accounts. Some of the reductions are seen on the government deposit accounts that are part of the interest-bearing component because some of them are indexed. And as some of the market rates have come down, they will come down. But it all depends on what happens with the market rates.

I would say that with current expectations, we would see some reductions on time deposits, not so much in some of the other deposit accounts.

Stephen Moss: Okay. Maybe we should phrase it this way. So in other words, just fair to assume like your public funds will be roughly stable around the $3 billion-ish or close to $3 billion level is your expectation?

Orlando Berges-González: Yes. We don't expect major changes on those numbers.

Stephen Moss: Okay. Appreciate that color. And then in terms of -- the one other thing that I was just wondering about here, the Puerto Rican -- originations in Puerto Rico were very strong year-over-year up almost 11%. Just curious, are you guys thinking that's market share gains or just overall economic activity that you're seeing on the market here?

Aurelio Alemán-Bermúdez: Yes, I think it's a little bit of both, but I think overall economic activity and deal timing is really the primary. Some of these deals are being a couple of years in the making, especially related to infrastructure or construction or permits, things like that. So it's also the timing of economic activity.

Stephen Moss: Okay. Got it. And then just in terms of Florida, I realize it tends to be seasonal, but just kind of any -- you've had some expansion there in the Florida market. Just any updated thoughts as to where.

Aurelio Alemán-Bermúdez: We continue that Yes. Yes, it's an important piece of the franchise. It's an important strategy, a very healthy portfolio. We opened in the last quarter of last year, as we mentioned, new office in Boca. We just announced repositioning of a branch in Miami, Kendall we are looking to close and move to some other areas. It really we're really focused on repositioning to where commercial activity is more active. Definitely going north is showing additional opportunities. Meaning northeast, which is of the corridor of Broward County, and we're taking those. We already have the teams engaged in executing and producing. So it's an important piece of our franchise.

Obviously, we all know that deposit gathering in Florida, it's somewhat more challenging than other markets.

Operator: Our next question comes from Manuel Navas from Piper Sandler.

Manuel Navas: I wanted to dive back into the NIM for a moment. I just want to confirm, you're feeling for that 2 to 3 basis points per quarter increase from here?

Orlando Berges-González: Yes. That's what we're shooting based on expectation of rate movements and portfolio movements.

Manuel Navas: Okay. Could funding costs improve if your core deposits continue to grow?

Orlando Berges-González: Yes, assuming -- because if our core deposits grow on a typical mix, that would mean that those are more on the savings and interest-bearing checking accounts. And that assumes that as we mentioned -- you just mentioned that would be a stability on the government side. So that would mean that those deposits are lower cost deposits. And definitely, that mix could improve.

Manuel Navas: And what initiatives are in that area that are helping kind of drive? Because there was some nice core deposit growth this quarter.

Aurelio Alemán-Bermúdez: Well, I have to say, a lot of coordination, sales efforts, products, marketing across both retail, small business is an important piece of the puzzle, which we continue to penetrate. We also have in the year, as we announced before, a couple of branch expansions in the West Coast of the island, which are opening midyear. 4,000 new clients between retail and small business. So that -- it's really a sales focus and execution. It requires a lot of coordination and efforts.

Manuel Navas: Okay. So that kind of means to summarize like loan yields are generally stable, securities could reprice higher as you laid out and deposit costs hard to decline them, but if there's good mix and growth in the right areas, that's where you get this steady increase in NIM that could have an upside if the deposit cost if deposit growth exceeds expectations.

Orlando Berges-González: Yes. The only -- that's correct. The only thing I would add, keep in mind that one of the things we are considering we have included in our assumption is that the market -- the consumer market in Puerto Rico is still going to come down a bit in size, and those are higher yielding assets. So that's part of the assumption here that some higher-yielding assets might come down a bit. The commercial side, it's very good. But the average yield on our consumer portfolio is above 10%. Obviously, that's not the kind of yield on the commercial side.

Manuel Navas: Perfect. I appreciate that. And how would rate cuts impact this kind of forward guidance, if there were any. There's none in forward curve at the moment, but if there was a rate cut, how would that shift your kind of expectations?

Orlando Berges-González: We -- the 2, 3 basis points included some rate cut starts at the end of the year. The impact, depending on the size is obviously the investment portfolio reinvestment component, rate cuts are more. It's going to be a smaller rate. But on the other hand, we also get some repricing on some of the deposit side. So that assumption includes some expectation of reduction towards the latter part of 2026. Remember the floating rate component of the commercial side, it's about 50% just under that. And obviously, if rates are not cut, then we wouldn't have repricing on those.

That's part of the assumption also that there is going to be some repricing if rates out cuts do happen.

Manuel Navas: Broadening out for a moment, in the economic commentary, you discussed the potential -- and we've discussed about this that of military activity on the island and how it could impact the economy not that it increases activity, but could you kind of talk about how that makes Puerto Rico perhaps a increase of the floor of economic activity or reconstruction funds safety? Can you just speak to that military activity that you are seeing in the island?

Aurelio Alemán-Bermúdez: What we're seeing is active use of some of the facilities with more people coming in more actually military personnel. There's also expansions in capacity to where they live in the facilities within actually hotels. This is outside the metro area primarily. This is in the east side of the island, the south part of the island and the airport in Aguadilla, which is the Northwest of the island. So it's outside the metro area. So hotels that are being fully occupied small hotels fully occupied by military personnel for long-term contracts. Obviously, they buy and consume merchandise and they go to places. And so we see more of that. There is some construction in the sale area.

This is being kept fairly confidential. So we -- in terms of how much more is coming. But we're seeing it and we're getting commentary from our clients on this happening in our branch representatives in the areas that this is happening.

Manuel Navas: And this strategic importance increase also makes the reconstruction funds a little bit safer to the deployment of them as well. This was my last question.

Aurelio Alemán-Bermúdez: And definitely, and that's been also the contribution in the energy transformation of production because the Department of Energy has also been very involved working with the local authorities on this. Because it's part of safety.

Operator: Our last question will come from Robert Rutschow from Wells Fargo.

Robert Rutschow: I just wanted to follow up on the tech commentary. We can see relatively high growth rates in the outsourced tech spend and the professional expense. How much of the expense base would you consider to be tech spend? Is the growth rate of, say, the outsourced services indicative of the overall tech spend? And is it possible to segment your tech spend between like back office maintenance efficiency initiatives and anything that's geared towards revenue growth.

Orlando Berges-González: At this point, there is a lot that has to do. As we have mentioned, we started a migration of our centers, our data centers from a managed facility structure we had within our facilities to a service provider structure, we use FIS as a service provider. We've also been migrating with we have in other cloud applications where they are managing -- they're going to -- they are managing and will fully manage some of those applications, some of those cloud applications for us. So we continue to see a lot of investments, which is part of the -- of that migration process, which is included in the professional service and both -- and the outsourcing cost.

Aurelio Alemán-Bermúdez: Yes, I think just to add everything that is coming new is coming into cloud, it's coming as software and service, rather than in-house developed applications or more physical servers in our facility. So we don't have -- we cannot answer specifically the distribution of the expenses, something to look into. But we haven't made that data public. So we can -- we'll consider your questions for a much more detail we can provide in future presentations here.

Robert Rutschow: Okay. Great. If I could just follow up on that. Do you think your tech spend growth rate is sort of at a peak level? Or is it possible it can decline? Or should we think about it sort of staying at these levels?

Aurelio Alemán-Bermúdez: I think it will sustain for probably another 18 to 24 months and then should decline.

Operator: We have no further questions. I would like to turn the call back over to Ramon Rodriguez for closing remarks.

Ramon Rodriguez: Thanks to everyone for participating in today's call. We will be attending Wells Fargo Financial Services Conference in Chicago on May 13 and Truist Financial Services Conference in New York on May 19. We look forward to seeing a number of you at these events, and we greatly appreciate your continued support. Have a great day. Thank you.

Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.