First Bancorp Stock

Good morning, and welcome to the First BanCorp. Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] 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.

Thank you, Julian. Good morning, everyone, and 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 Said Ortiz, CFO, Chief Financial Officer.

Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as 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 obligations to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com.

At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

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, $0.62 per share. That is up 24% when compared to same quarter last year. Underlying revenue trends, I have to say, remained very strong during the quarter, with pretax pre-provision income reaching an all-time high of $138 million, which is actually up 11% from a year ago. This translates into a 2% return on average assets, and this is our 18th consecutive ROA above 1.5%, continuing the strongest and most consistent period of financial performance in our actual history.

Moving to the balance sheet, very pleased on how loan growth accelerated during the quarter driven primarily by commercial activity in Puerto Rico, reaching $13.3 billion in total loans. That is 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 pipeline, we do expect this level of activity to continue for the remainder of the year. This actually reinforce 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 the government deposit, but also we have a slight increase in the core customer deposits. Credit performance remains sound with lower net charge-off and nonperforming as the remaining near historical lows. That said, early delinquency -- early sale delinquency came up during the quarter, but essentially when we look at it over the same period last year was flat to prior year, June and it was actually below in December 2025. So we continue to monitor the [indiscernible] 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 $0.20 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 enhance competitiveness and improve the customer experience, which is our primary objective.

Moving to Slide 5. 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, it stands at 5.6%, which is pretty good for our market, considering trends, preconstruction activity continues to provide economic support and the [indiscernible] continue to benefit from encouraging reshoring and manufacturing investments announcements that will -- that represent actually a future benefit. While industry -- on the other hand, industrial sales continue to reflect the impact of tariffs.

The recent trends for the last quarter suggests that the market is beginning to normalize with June industry-wide auto sales down 3%, only 3% year-over-year. So we believe sales are stabilizing. Again, against this backdrop, core business continued to perform really well, loan growth accelerating in the second half of the year as business activity in Puerto Rico continues and [indiscernible], 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 depending to customer engagement through the multichannel strategy. Active EBITDA users continue to grow with 6% versus prior year. And we continue to increase to 95% now deposit transaction captured to digital asset service channels. As we look ahead, the priorities really remain unchanged, very focused on our execution, focus on selectively growing the market share in our core business, confident in our ability to grow organically to 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 opportunity that we see. At the end is about how you can service the customer better, how can improve processes, short-term life cycle and improve the management of potential fraud. This quarter reflect what has become a hallmark in our franchise from profitability, disciplined risk management, robust capital generation and at what is most important is consistent execution across our different cycles.

As always, I really thank you for your interest in First BanCorp. We appreciate your continued support. Now I will turn the call to Said, our recently appointed CFO, to go welcome side to the call to go over the financial results in more detail. Said?

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 compared to $88 million or $0.57 per share last quarter. Pretax preprovision 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 2 refinancings during the quarter, commercial loan and municipal bonds, which resulted in accelerated recognition of deferred fees or [indiscernible]. If we exclude this impact, net income would have amounted to $93 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 residential portfolio. The macro, as Aurelio mentioned, continues to show slight improvements in the unemployment projection and the home price index at a lower degree than on the previous quarter.

Income tax expense for the quarter was $24 million compared to 25 in the previous -- $25 million in the previous quarter. Results included about $1.3 million benefit from a lower estimated tax rate for the year as a result of the proportion of tax expense income deducible income. The estimated annual effective tax rate is expected to be closer to 21% compared to 21.6% in the previous quarter.

Moving on to Slide 8. Looking at net interest income, it grew about 3.7% quarter-over-quarter and amounted to $229.1 million compared to $221 million in the previous quarter. The increase of $8.1 million in net interest income includes the $3.4 million of additional interest income related to the aforementioned refinancing, of which $1.8 million was included as part of interest income of investment securities and $1.16 million was included as interest income on loans. Excluding the impact of the fee acceleration, interest income on loans grew by $1.7 million, primarily due to the additional day in the quarter.

Interest income and investments and cash increased by $4.5 million. Excluding the aforementioned refinancing, 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 cost declining by 2 basis points versus the prior quarter. The cost of [indiscernible] deposits, excluding brokered deposits and public funds, decreased by 8 basis points to 3.26%. On the other hand, cost of interest-bearing checking and savings accounts increased by 5 basis points to 126%, driven by higher rates on certain government accounts. Additionally, the cost of brokered deposits decreased by 9 basis points, and the average balance in the quarter was down by approximately [ $20 ] million.

Our net interest margin on a GAAP basis was 4.87%, a 12 basis point increase when compared to the previous quarter. If we exclude the acceleration of fee discounts recognized in the quarter, our net interest margin would have been closer to 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 position 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 out of the 4.80% base.

Shifting to other income and operating expenses on Page 9. Other income was up -- it amounted to $35.7 million versus -- I'm sorry, it 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% on the previous quarter associated to the higher levels of income we saw this quarter. We expect our quarterly expense base for the remainder of 2026, excluding OREO gains or losses, to range between $128 million to $130 million as may increase take effect during the third quarter, combined with pickup in business promotions and [indiscernible] trends on our technology price. 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. Nonperforming 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 -- which [indiscernible] is well collateralized. Excluding this relationship, nonperforming assets decreased by $9.7 million as we did see reductions in the residential mortgage portfolio, consumer portfolio and [indiscernible]. Inflows from [indiscernible] were $40.7 million which is $6.4 million higher than last quarter. Excluding the aforementioned inflow in the employer region, inflows to non accruals were $8.4 million lower than prior quarter, mostly driven by a $4.6 million decrease on the auto 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 [indiscernible] final leases portfolio. In the first quarter, we did see a reduction in early delinquency as consumer typically received 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 on capital on Slide 11. In terms of the allowance, it amounted to $245 million, which represents 1.85% of total loans, and was relatively flat when compared to 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 final leases portfolio I 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 charges for the quarter were approximately $60 million or 49 basis points of average loans, significantly lower than 65 basis points we had in the prior quarter. This improvement was mostly due to a decrease of $4.7 million in consumer and finance leases, net charge-offs, mainly the auto portfolio.

Capital remains strong, and our healthy and consistent profitability levels have enabled us to repurchase $15 million shares of common stock and the [indiscernible] $31 million in dividends. Our regulatory capital ratios continue to exceed regulatory levels and remain relatively unchanged against prior quarter as earnings offset capital deployment actions and growth in RWA.

Annual book value per share grew to $12.68 while 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 dividend. This concludes our prepared remarks. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Arren Cyganovich from Truist Securities.

Loan growth, very solid this quarter, and it sounds like your pipelines are going well, both in Puerto Rico and Florida. Maybe you could talk a little bit about what types of originations you're doing, what kind of spreads you're seeing in the competitive environment there?

Yes. As I said before, obviously, the growth this quarter primarily was commercial. On the other hand, better stability on the auto consumer portfolio than we have anticipated. So there was a little slightly 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 player, some CRE, some construction, C&I. So it's a good mix of assets around development of warehousing, hotels, actually small piece on the health care 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 -- restructure of debt, which we increased our exposure in a very solid municipality in terms of financials. So overall, that -- and there was some infrastructure refinancing too which led to an increase. So I think if we look for diversification of risk and where we position our capital in terms of the asset classes that are embedded.

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

I mentioned -- as I mentioned before, we look into things and 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 deliver execute our buyback and deliver a competitive dividend, and obviously, primary organic growth. So we're seeing good activity in our new region in Florida that we opened in the last quarter last year, the Boca Raton office. So we continue to see pretty good activity there, too. So though the organic play continues to lead the front of our efforts.

Our next question comes from Kelly Motta from KBW.

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

Okay. I'm going to make a few comments and pass it to Said. I think it's important, there's -- obviously, the yield curve has to do with this versus our projection, rates continue to be better in the investment portfolio, those maturities as Said will talk about but also loan activity on the commercial book, which is a significant portion of our book is variable. So we -- those 2 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 revisit the forward guidance to a higher range. Obviously, this quarter, we did have what we consider nonrecurring items regarding these 2 loans that were renewed and have some benefits underneath. Said?

In terms of repricing in the investment portfolio, we expect about $400 million on the second half of the year, those are yielding around 1.92%. So -- and 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.

Okay. That's helpful. And then I apologize if you hit on this, but with the deposit growth, it looks like about 2/3 of that was on the government deposits. Can you help us out with your expectations around flows on that side as well as any commentary on how competitive pricing dynamics are holding up for the core portfolio?

Yes. When you look at deposit cost, 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 and once come in, go out and some other time deposits that we negotiate with our core relationships that are transactional basis.

I will say just think about for [indiscernible] deposits staying around this average that we have for the last years, liquidity is very solid in still funding coming in through both CDBG and FEMA for different purposes -- under construction, even prep our or some of the other entities that we have in the portfolio.

I think in the core customer, we're seeing again obviously linked to money market rates and treasury rates, you start to see again high balances that need to be retained in the quarter, we, for example, increased customers in both retail and commercial on the deposits. But if some of the large customers will lose some of the deposits, 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 aggressivity in a very specific component that you can actually play and not really impact the franchise. So I will say stability in both government deposits and obviously, we continue to target growing our core franchise.

Our next question comes from Steve Moss from Raymond James.

Nice quarter here guys. Maybe just thinking about expenses here in the efficiency ratio longer term, obviously, healthy business trends here. I know you guys are still guiding towards a 50% -- or being at the low end of 50% efficiency ratio range. Just kind of curious, longer term, do you think you'd go a little lower here just kind of given balance sheet dynamics, just better growth on the island? Or 50% [indiscernible] where you think shake out in a longer term?

Yes. If you see the absolute number on expense is very close to the guidance that we provided. So we're making investments in both the technology and actually some of the branch expansion that we talk about in the early part of the year. There's 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 it's always -- we always like to see efficiency ratio going down by more revenue. And that's what happened this year. Obviously, again, I think the -- being asset sensitive so there is a part -- we're doing really good growth on loans, but also there is a contribution coming from the rate environment that we -- that is helping every bank. So that was [indiscernible]. .

So yes, there's always an opportunity to move below 50%. We're there today. And if revenues continue at the pace and it's a simple relationship of revenue and expense, so we'll be there. But obviously, we still have significant investments ahead that we will continue doing either way without the new revenue opportunity or not. So that's what we are [indiscernible] in that 50% target, yes.

Great. That's helpful there. And then just kind of thinking about business activity on the island is quite a step-up here year-over-year in originations. I realize there's onshoring obviously, favorable dynamics with the government. Is there -- as you think -- 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.

I think I have to highlight one sector, which is hospitality. Hospitality sector in Puerto Rico continues to show significant trends, better trends than prior cycles, sustainable both ADR, occupancy, visitors. There's still hotel projects coming around and some of them are ongoing. And I think investor confidence -- this investment continued 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 liquidity project. So we'll benefit out of that. And I think the island is being a positive place for that for some years now.

Got you. And then on capital deployment here. I know you guys generally target a 100% payout ratio, obviously, earnings have been strong and are ahead of your planned buyback. Should we expect a catch-up in -- with the buyback or special dividend later this year?

We -- as you know, we keep the optionality and every quarter we sit down that will happen now in August and September. In October, you will see our -- we will publish again our capital plan, which we -- it's a cycle that we do. So we'll -- definitely, that is our strategic goal, and we haven't concluded on how we're going to get there. So -- but we -- we'll probably talk about that in the next call in more detail.

[Operator Instructions] Our next question comes from Manuel Navas from Piper Sandler.

A lot of my questions have been asked and answered. I just wanted 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 arriving more than others? Anything you could add on that delinquency rise?

To be honest, obviously, I say seasonal because when we compare to prior periods, we see -- 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 would say a more normal level, normalized level. We don't expect significant uptake from here in those delinquency levels. When we look at the charge of going through is really focused on the early delinquency buckets. So we don't see anything -- we don't see anything that tells us that this is going to continue at this stage. It's actually better than December and in line with prior year.

Okay. Most of the 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?

Well, we disclosed that on the [indiscernible] and it's going to be similar consistent with what has been disclosed in the Q on NII, right? So 2% to 3%, which we -- and you have the breakdown there by each of the scenarios that we evaluate.

Our next question comes from Arren Cyganovich from Truist Securities.

I just wanted to just clarify on the NIM guidance. You're not assuming any rate increases through the end of the year?

Correct. Yes.

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

Good morning, and welcome to the First BanCorp Q1 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ramon Rodriguez, Corporate Strategy and Investor Relations. Thank you. Please go ahead.

Thank you, Julian. Good morning, everyone, and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the first quarter of 2026. I'm here with Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, 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, 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 fbpinvestor.com.

At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

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.

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 Instructions] our first question comes from Brett Rabatin from StoneX.

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?

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.

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?

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.

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.

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.

Our next question comes from Arren Cyganovich from Truist Securities.

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?

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.

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?

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.

Our next question comes from Kelly Motta from KBW.

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?

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.

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?

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.

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.

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.

Our next question comes from Steve Moss from Raymond James.

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?

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.

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?

Yes. We don't expect major changes on those numbers.

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?

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.

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.

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.

Our next question comes from Manuel Navas from Piper Sandler.

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?

Yes. That's what we're shooting based on expectation of rate movements and portfolio movements.

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

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.

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

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.

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.

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.

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?

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.

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?

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.

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.

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.

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

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.

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.

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.

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?

I think it will sustain for probably another 18 to 24 months and then should decline.

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

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.

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

Hello, and welcome, everyone, to the First Bancorp. 4Q 2025 and Full Year 2025 Financial Results. My name is Becky, and I will be your operator today. [Operator Instructions]

I will now hand over to your host, Ramon Rodriguez, Investor Relations Officer, to begin. Please go ahead.

Thank you, Becky. Good morning, everyone. Thank you for joining First Bancorp's conference call and webcast to discuss the company's financial results for the fourth quarter and full year 2025. Joining you today from First Bancorp are Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and Chief Financial Officer.

Before we begin today's call, it is my responsibility to inform you 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 filing. 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.

Thanks, Ramon, and good morning to everyone, and thank you for joining our call today. Our results for this quarter represent a strong [indiscernible] to a year of outstanding performance and disciplined execution, highlighted by record revenues, positive operating leverage and stable credit performance. We did deliver top-performing bank across multiple metrics.

We produced $87 million in net income or $0.55 per share, generated a top quarter return on assets of 1.8% and prudently managed our expense base, resulting in a 49% efficiency ratio for the quarter.

Turning to the balance sheet. We continue to, first and foremost, deploy our capital to support our client by facilitating a $1.4 billion in loan origination during the quarter. Total loans grew by $80 million, mainly reflecting growth across the commercial segments. Growth was slightly impacted by elevated commercial loan payoffs and slightly lower consumer loan production. Core customer deposits increased by $267 million, and more importantly, we achieved this while proactively continuing to reduce total deposit costs. In addition, government deposit decreased during the quarter as we continue to look for efficiencies in higher-cost deposits in this part of the cycle.

That said, we also see a 3.2% peak in core noninterest-bearing deposit during the quarter. On the asset quality side, the ratio of nonperforming assets to total asset continued to decrease, reaching an all-time low level of 60 basis points during the quarter. Consumer credit continued to stabilize, net charge-off to average loans at 63 basis points, essentially flat to the prior quarter.

And finally, this quarter, we repurchased $50 million in shares of common stock and declared $28 million in dividends. I think to put in perspective, since we began the buyback program we have repurchased over 28% of shares as [indiscernible]. Still, given our sales capital position and meaningful capital generation, we are well positioned to further increase our return of capital to shareholders in 2026. As such, we were very pleased that our Board approved an 11% increase to the quarterly common stock dividend to $0.20 per share starting in the first quarter of 2026.

Please let's move to Slide 5 to provide some highlights of the full year. Definitely, 2025 was a year of changes, geopolitical and the macro. But again, significant progress as we demonstrated the investments we're making are driving strong operating performance. We crossed $1 billion in total revenues, generated a record net income of $345 million, grew earnings per share by 90% and posted a strong 1.8% return on asset for the year, all while improving our capital and liquidity levels.

Our strong profitability allows us to continue returning approximately 95% of earnings to shareholders while increasing tangible book value per share by 24%. Our consistent investments to advance our omnichannel strategy and improve our interaction with customers with -- across multiple channels, meaning digital, branch continue to show in current results in both channels, digital and personalized branch contact which also improved. Active retail let users were up 5% when compared to last year, 95% of deposit transactions were captured through self-service channels and our branch sales and service delivery efforts continue to pay off.

In terms of the macro, I think the second half of the year show a slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trend to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat impact of tariff-related pricing, inflationary pressures and geopolitical [indiscernible] will continue to develop through the year. On the other hand, we see multiple development that will serve as important driver of stability in the future -- for the future for the growth of the economy, both in Puerto Rico and actually our second market, Florida.

Brazilian labor market here, unemployment rate hovering about 5.7%, another year with strong tourism activity, [indiscernible] traffic at the airport, up 3%, reaching a record high of [ 13.6 ] million passengers, already over $2.2 billion in announced investment to expand manufacturing capacity in the island driven by the offshoring efforts and the consistent flow of [indiscernible] funds that will support critical infrastructure developed for the year to come. There's still $40 billion in the year, we don't have final numbers yet on the last quarter, but it seems it was basically flat to prior year in terms of disbursements of the federal fund programs.

Looking ahead to 2026, again, we have ample experience navigating dynamic environments, and we are definitely well positioned to continue growing within our markets and deliver consistent returns to our shareholders. Our guidance remains largely unchanged. We are focused on delivering 3% to 5% organic loan growth, sustaining 52% or better efficiency ratio, maintaining a strong profitability metrics and returning close to 100% of annual earnings back to shareholders.

Asset quality is expected to remain stable with consumer credit quality really returning to the pandemic levels that we have seen, driven by basically inflationary pressure to the consumer, even though compensation is better and there is a stable unemployment. We are in great capital position, continue to make the right investments to modernize and help our franchise to drive both growth and efficiencies and deliver strong performance in 2026.

With that, I thank you for your continued trust. I thank our clients and we are very grateful to our dedicated employees for their commitment and support, and we're looking forward to another exceptional year for our institution. With that, I will now turn the call over to Orlando.

Thanks, Aurelio, and good morning, everyone. As you saw in the release this quarter, we earned $87.1 million, $0.55 per share, which compares to the $100.5 million or $0.63 a share we had in the third quarter. Last quarter results included the reversal of $16.6 million valuation allowance on deferred tax assets related to net operating losses at the holding company. And we also had a $2.3 million employee tax credit that if we exclude represent -- both of them represent about $0.12 per share for the quarter.

Comparing the quarters, excluding these items, earnings per share was 8% higher this quarter from the amounts in the third quarter. Adjusted pretax preprovision income was $129.2 million, which compares to $121.5 million in the third quarter.

For the full year '25, net income was $344.9 million, which represents $2.15 per share and adjusted pretax preprovision income reached an all-time high of $499.2 million, which is 10% higher than 2024. On a non-GAAP basis, adjusting for the items I mentioned before, net income reached $325.3 million for the year which is $2.02 per share, which is 8.6% higher than 2024.

Return on average assets for 2025 was 1.81%, which compares to 1.58% in 2024. And on a non-GAAP adjusted basis, return on assets was 1.71% for the year. 2025 marks the fourth consecutive year that we surpassed our return on average asset target of 1.50%. Again, a strong year, and we are pleased -- very pleased with that.

In terms of net interest income for the quarter, we have an increase of $4.9 million, reaching $222.8 million. This includes $800,000 we collected on a nonaccrual loan that was paid off as well as $500,000 collected on a prepayment penalty on a loan that also was paid out in the [ Florida ] region. Net interest margin for the quarter was 4.68%, but adjusted for these items would have been for 4.65% or 8 basis points higher than last quarter.

You recall, we were expecting that margin would be sort of flat for the quarter, but we were able to achieve a $2.2 million reduction in interest expense on deposits largely due to a 31 basis point reduction in the cost of government deposits. This was higher than we had anticipated. We were able to reprice some of the accounts based on market rates and the reduction we had in government deposits that Aurelio mentioned, was mostly seen on the higher cost accounts. Also, the cost of other interest-bearing checking and savings account decreased 4 basis points during the quarter. We combined all of these items with the fact that we grew noninterest-bearing deposits by about $170 million in the quarter. This helped reduce the overall funding cost for the quarter by 5 basis points.

Meanwhile, we continue to see that pickup in the investment portfolio yields through the reinvestment of cash flows that we have been mentioning during the quarter, we registered a $4 million increase in income from investments as we continue to replace lower-yielding maturing securities with higher-yielding ones. This resulted in a 33 basis point improvement in the yield, a little bit offset by a $2.4 million decrease in income from cash accounts due to the reduction on the Fed funds rate and lower average balances in the quarter.

On the lending side, the yield on the C&I portfolio came down 27 basis points compared to last quarter as the floating rate portion of the portfolio reprice, tied to the reduction in prime rate and the reduction in SOFR. But the yields on the other loan portfolios remain at very similar levels resulting in an overall reduction of the loan portfolios of only 7 basis points.

This reduction in yields was partially compensated by an increase of $155 million in the average balance of loan portfolios. What we expect, it's some of the same dynamics in 2026, some of the same dynamics that drove margin for 2025. We have approximately $848 million in cash flows during 2026 coming from securities that have an average yield of above 1.65%. That would definitely be repriced at higher rates. Out of this amount, $494 million are expected in the first half of the year, benefiting the second part of the year. Based on current expectations that we have for interest rate changes in the year and 2026 and our projected loan and deposit movements, we expect that margin will grow 2 to 3 basis points per quarter during 2026.

Other income items, we had a $3.5 million increase against prior quarter. Part of it was related to a $1.8 million gain from purchase income tax credits, and we also had an increase of $1.6 million in mortgage banking revenues and card processing income based on volumes of sales and transactions.

Operating expenses for the quarter were $126.9 million, which is $2 million higher than last quarter. Employee compensation was $3.4 million higher, but this was related to the $2.3 million employee retention credit that was recorded during the third quarter. Our actual increase was $1.1 million, which was due in part to the full quarter effect of [indiscernible] increases that were granted in the third quarter. We also saw in the quarter an increase of $2.1 million in business promotion, which -- it's mostly related to seasonal marketing efforts.

These increases were partially compensated by an improvement in OREO operations since we -- during the -- you might remember that during the third quarter, we booked a $2.8 million valuation allowance on a repossessed property that we didn't have this quarter. And we also had this quarter [indiscernible] of $1.1 million of part of the accrual for the FDIC special assessment.

Expenses before OREO results and then the reversal of the accrual of the [ AVIC ] special assessment was $128.8 million for the quarter, which compares to $126.2 million in the third quarter, adding back the [indiscernible] retention credit. This is slightly higher than our guidance and reflects some of the investments we're doing in technology but the efficiency ratio remained strong, coming down to 49% in the quarter.

At this point, based on the projected trend for ongoing technology projects and some of the business promotion efforts were undertaken at the beginning of the year. We expect that quarterly expense base for 2026 will be in the range of $128 million to $130 million excluding the OREO losses -- gains or losses, I mean. However, we do believe that our efficiency ratio will still be in that range of 50% to 52% considering the changes on the expense side, but also on the income component.

In terms of asset quality, we saw a stable quarter and NPAs decreased by $5.3 million. Basically, we had 2 commercial cases, nonaccrual cases that amounted to $15 million that were collected in the quarter. And we had a reduction of $1.8 million in OREO -- the real estate owned assets [indiscernible] sales we achieved during the quarter.

On the other hand, we had 2 C&I loan cases amounted to $12 million that migrated to nonperforming in the quarter. Overall, nonaccrual loans 3%, 70 basis points of total loans compared to 74 basis points at the end of the third quarter.

In terms of inflows to nonaccrual, they were $14 million higher this quarter, $46 million, but it's related to these 2 cases that I mentioned that went into nonperforming, the 2 C&I loan cases.

In terms of delinquency, we saw loans in early delinquency, which we define as 30 to 89 days past due, increased $2.1 million. It was mostly on the auto portfolio that increased $7 million, but we had some reductions of $6 million in the Florida C&I loan delinquencies.

The allowance for credit losses on loans increased $2 million in the quarter to $249 million and represent 1.9% of loans compared to 1.89% in the third quarter. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios. Net charge-offs for the quarter were $20.4 million or 63 basis points of average loans, fairly in line with the 62 basis points we had in the prior quarter.

On the capital front, we -- obviously, our strong profitability allowed us to repurchase -- continue the repurchase. We did $50 million in repurchase of shares in the quarter, and we declared $28 million in dividends. Regulatory capital ratios continue to build up as these capital actions were offset by the earnings we generated in the quarter. We also registered a 4% increase in tangible book value per share to $12.29 and the TCE ratio expanded to 10%, mostly due to the $38 million improvement in the fair value of available-for-sale investment securities. The remaining ACL now represent $2.22 in tangible book value per share and slightly over 160 basis points in our tangible common equity ratio.

Again, this year, we sustained our commitment to deliver close to 100% of earnings, as Aurelio mentioned. Through capital actions, we repurchased -- this year, we repurchased $150 million in common shares. We paid $150 million in dividends and redeem the remaining $62 million in subordinated debentures, while growing our tangible book value per share by 24%.

So we announced yesterday, our Board of Directors approved an increase of $0.02 per share quarterly dividend. And again, our intention is to continue the approach of of executing our capital actions based on market circumstances with our base assumption of repurchasing approximately $50 million in shares per quarter through the end of 2026. But again, as we have done so far, we will continue to deploy our excess capital in a thoughtful manner, always looking for the long-term best interest of the franchise and our shareholders.

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

[Operator Instructions] Our first question comes from Brett Rabatin from Hovde Group.

This is [indiscernible] speaking on behalf of Brett. We were just wondering if you feel there's any more mix shift change with lower liquidity? And any other levers that might aid the NIM going forward from here?

The levers would be similar. I think it's going to come from these cash flows on the investment portfolio. We still have those low-yielding securities that are coming due. And again, as Aurelio mentioned, we see the loan pipeline on the commercial side and residential being really strong, not so much on the consumer side, which are higher yielding assets, but still the mix of these items with the options to reprice some of the deposit components as rates come down, those would be the key drivers.

That's -- the mix -- the 2 to 3 basis points, we just mentioned, it's that mix that we expect happening. Right now, we're assuming there is going to be probably 2 more rates toward the end of the year and 2 more cuts. I mean -- and that would have some some impact. But clearly, the repricing of the commercial portfolio, the floating side does have some impact, and that's included in our numbers that the rate reduction we had in mid-December, obviously, it's going to reflect more on that portfolio now in the first quarter. But the overall, we still feel that there should be an improvement in margin.

And what are you guys seeing as far as competition goes, how much more do you think the cost of funds could be lower with lower rates? I mean, what are you seeing as far as the competitive front?

Well, we haven't set a specific number, but you have to look at components. Number one, we do have still some wholesale funding through broker cities mostly. Those are repricing with market, and we don't have long-term issues of brokers, mostly they were [indiscernible] issues somewhere between 9 months and 18 months. So those are coming due and are being reissued to fund our Florida operation at lower rates.

The other component is the time deposit side. Obviously, with rates coming down, we are seeing some of the ones that were issued at a higher rates, now being repriced at slightly lower rates. And as rates come down, some of the other government deposit accounts will have some repricing those -- some of them are tied to market indexes.

So those are where we see most of it. The regular transaction accounts, they could come down a little bit, but not so much. If you go back, you'll see that they didn't go up as much either when rates were going up. So we'll -- we expect similar trends. Those accounts had like a 14% beta. So we don't see that changing that much, but the other components are expected to come down.

And you guys touched on credit quality a little bit during your talk, but I was just wondering if you could expand on -- it's obviously fairly stable, but is there anything that you see might change that for better or for worse?

Now in reality, we believe there is stability. We don't see any specific noise. We saw some deterioration on the consumer delinquencies, which is normalized, also charge-off. So I think we call it stable when you look at the mix of assets, mortgages at its lowest-ever point and commercial similar to that. So we don't see potential disruptors on that and closely monitoring the unsecured market and the consumer, but we're encouraged by the recent trends that we see in the portfolio.

Our next question comes from Steve Moss from Raymond James.

Starting here with -- maybe just on the loan growth front, just curious with regard to auto, if you have any updated thoughts about what you're seeing in that market? I heard earlier -- your tariff comments earlier, but just kind of curious any new thoughts or incremental color you may have.

Yes. When we look at what happened last year, the overall market retail -- on the retail side was down 10%. And also that contraction happened after the tariffs were implemented. So if you consider that, it's actually the second half of the year, the reduction was over 15% compared to prior year.

So we are -- we believe we have seen months of stabilization at a level that would be around an additional 5% this year contraction, considering the normalization in the last quarter unless there is some reversion on the pricing. It's very fluid because some of the manufacturers are still looking to adjust pricing down. Some of them implemented the tariff immediately, others didn't. The ones that didn't, obviously, regained some of the share, the other lost share. So this is the percentage that I provided you is a combination of all the industry.

So we saw the quarter, we saw a contraction in the portfolio of about $6 million overall in the 2 segments, a little bit -- probably 7%, in that range. So obviously, we're looking forward to stable the portfolio, to stabilize the portfolio and recuperate that contraction, but we don't expect any growth in the segment. So unless there is adjustments on tariff or excise tax in the island that could help that industry.

Still a pretty good year for the auto sector. We're just coming from exceptional years. So everything is relative to the prior period. But it will be stable if we compare it to other cycles of the auto sector. And then the consumer demand on the other products is kind of stable, but we don't expect -- we will see growth as we continue to focus on underwriting in a sound manner.

Okay. That's helpful. And then on the securities cash flows, just kind of curious as to how you're thinking about the reinvestment of the proceeds here. Is that largely continued new investment securities purchases? And just maybe curious as to what you're assuming for the yield on those cash flows.

Well, as you know, we don't take credit risk on the portfolio. So it's a market-driven kind of a situation, but we're expecting that we can see somewhere between 2 and 3 basis points pickup on those cash flows depending on the securities and the loan side, both of them. But we'll continue to see agency investments, CMO investments at [indiscernible] through, that's the kind of things that we typically do most.

So the first half of the year, at this point, we're not expecting significant changes on rates, probably end of June, early July, where we are expecting that. I think that the market is somewhere in there also. And that allows us to maximize some of the reinvestment of these items. But I would see -- I see it always as a 2 to 3 basis point pickup on the -- on those [ $165 million ] that matures in the first half of the year.

Okay. I appreciate that, Orlando. And then on the telecom [ NPL, ] is that -- was that a club deal? Just kind of curious, any color you can give there and kind of thoughts on maybe timing of potential resolution.

Yes. There's not a lot of new information on it. I think all banks continue to work with the lead bank on understanding with the resolution, there's a lot of value behind it. So obviously, I think it's just waiting as we manage any other NPA towards resolution, that's main goal, it's just a matter of time and progress. For us, it's a very small...

Right. Okay. And then just 1 last 1 for me here. On capital, you guys have been steady with your capital ratios here. Just kind of curious, definitely on the mainland, there's more of an attitude towards greater return on capital to shareholders and reducing common equity Tier 1 ratios. Just kind of curious if you guys are thinking about anything along those lines...

Well, obviously, our priorities are to organic growth as much as we can. We continue organic expansion in Florida also we just opened in the last quarter, an office in [indiscernible]. We -- and then obviously, there could be no organic opportunities always open and looking unless if nothing comes to the table that meets our accretion and value -- strategic value, we continue using the capital to continue deploying to shareholders buying back the shares. So we always have the 3 options, organic is the most efficient in terms of returns. The others we'll continue to play them both as markets show opportunities. We try to be as opportunistic as we can.

Our next question comes from Kelly Motta from KBW.

This is Charlie on for Kelly Motta. Just I want to clarify -- I was wondering I was just wondering specifically how you guys are calculating the efficiency ratio, you're guiding to 52%. Is that ex OREO gains or just point of clarification there.

The efficiency ratio is typically calculated with everything. As you saw the number this quarter was included in everything. So we tend to calculate it on a GAAP basis, so that it's reported consistently.

That number has been coming down as we have continued to sell some of those OREO properties we've had on the market. And the older properties that we had repossessed, we're taking at a lower values, and that's being compensated. So we do include it as part of the guidance of the 52% even though we do include the expense guidance without it because of the volatility, it could present on total expenses. But the 50% to 52% guidance is on a GAAP basis considering movements in expenses and revenues.

Great. And then you saw some great noninterest-bearing deposit flows this quarter. Just wondering if you could dig into that a little and remind us of any seasonality or changes in your go-to-market strategy that drove this.

Well, that is a goal. We -- that's the value of the franchise, and we have multiple initiatives always in place to achieve that and build core relationships that bring that. So it's a core strategy that we put a lot of emphasis across all regions. And for this year, we -- in efficiency ratio [indiscernible], for example, we will be opening a new branch in the West Coast in a town that there's only 1 bank competing. So that's an area that we've been expanding.

So -- and that obviously the goal is to grow customers grow noninterest-bearing deposits and grow loans in the same regions, which the branch also is a vehicle for small business lending and all type of loan origination. So it's a key strategy. And obviously, you have to look for tactics and sales strategies and products to achieve it.

[Operator Instructions] We currently have no further questions, so I'll hand back over to Ramon for closing remarks.

Thanks to everyone for participating in today's call. We will be attending [indiscernible] Financial Services Conference in Miami on February 10 and KBW's conference in Boca on February 12, 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. .

This concludes today's call. Thank you all for joining us. You may now disconnect your lines.

Hello, and welcome to the First BanCorp Third Quarter 2025 Financial Results. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to the Investor Relations Officer, Ramon Rodriguez to begin. Please go ahead, when you're ready.

Thank you, Carla. Good morning, everyone, and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the third quarter of 2025. Joining you today from First BanCorp are Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and 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 fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Thank you, Ramon, and good morning to everyone, and thanks for joining our call again today. I will begin by briefly discussing our financial performance for the third quarter and then move on to discuss our outlook for the franchise. We're definitely very pleased with the progress on the quarter we delivered another exceptional quarter of financial results that underscore our ability to produce consistent returns to our shareholders and consistent progress in our franchise metrics.

We earned $100 million in net income during the quarter, including the benefit of certain nonrecurring special items Orlando will explain later. However, adjusted for these items, normalized earnings per share grew 13% when compared to the prior year. Most of the improvement came from record net interest income and well-managed expense base and disciplined loan production.

Turning to the balance sheet. Our strong capital position enabled us to continue supporting our clients on the loan production side. We grew total loan by $181 million, of course 5.6% linked quarter annualized surpassing $13 billion in total loans for the first time since 2010. Since the beginning of the second quarter, we do -- we've been experiencing slowdown in consumer credit demand. Especially, I want to comment on the auto industry, which has been below our original expectation for the year.

After the sector-specific tariffs were announced in April, industry-wide sales began trading down, which has negatively impacted overall loan origination in this space during the year and loan mix production. For additional context, total retail sales in our industry are down 7% year-to-date as of September. But when looking at the third quarter sales, they are below 17% compared to the third quarter of the prior year.

Thankfully, we've been able to mitigate this slowdown by executing our growth plan within the commercial and construction lending segment, coupled with a steady on production progress in the residential mortgage business, it's about business diversification and regional diversification contributing to that. In terms of deposit, it was a good quarter. We grew $140 million on core franchise deposits, trends in the market flows remain favorable.

Although we're seeing higher competition in [ using ] flows, we believe that could be temporary. -- particular from affluent customers and government relations. That said, we continue to focus on what is our core deposit franchise, while deploying a mature approach to retaining valuable cost core customer relationships.

In terms of asset quality, credit continues to behave in line with expectations, consumer charge of stabilizing healthy commercial credit trends and a 7% reduction in nonperforming assets. Finally, our early performance related to growth across all capital ratios, while expanding our loan book organically and being able to repurchase another $50 million in shares of common stock.

Consistent with the strategy of returning 100% of annual earnings to shareholders, as we announced yesterday, our Board authorized an additional $200 million share buyback program that we expect to execute through 2026.

Please let's move to Slide 5 for some additional highlights on the macro. In terms of the macro, the operating background remains to stay stable with uncertain elements that are surrounding us as we continue to monitor and assess the potential impact the evolving trade dynamics are bringing to the market, any potential impact of federal government shutdown, that is related to inflationary pressures are having pressure on businesses and consumers across our regions as everybody is realizing.

That said, we are encouraged by the resiliency of the labor markets in Puerto Rico, the continued improving trend of the tourism activity and the recently announced investments of manufacturing companies expanding production capacity in Puerto Rico or establishing new facilities. We believe that the ongoing expansion of the manufacturing sector, coupled with the consistent flow of federal disaster funds earmarked for infrastructure will continue to support local economy for the years to come.

Our franchise is in a great position to benefit from the tailwinds and we expect to strategically deploy our excess capital to continue growing organically our regions. Year-to-date, total or [ nature other nitric ] credit card activities are up by 7% when compared to prior year. be supported by sales discipline, client outreach, well-managed regional and business line diversification which is really the strength of our franchise.

Based on core commence lending pipelines, development rate environment and the ongoing normalization of industry-wide all of sales. Our loan growth guide for the year will probably be closer to the 3%, 4% range, depending on commercial credit line uses and any level of unexpected payments that we don't have knowledge today. We will provide an updated guide on our -- for 2026 once we report our fourth quarter in January, and also full year forecast for next year.

With that, I would like to thank you for your interest in First Bank, I'm definitely very proud of our team's accomplishments to 2023 -- 2025 and look forward to a strong end of the year. And now I will turn the call to Orlando to go over financial results in more detail before we open the call for questions. Orlando?

Good morning, everyone. As Aurelio mentioned, we had a strong quarter with net income reaching $100 million or $0.63 a share. That compares to $80 million or $0.50 a share in the second quarter. Return on average assets for the quarter was 2.1%, much higher than last quarter. This quarter did include a few things, and I'm going to touch upon -- we had a $16.6 million reversal of valuation allowance on deferred tax assets that are related to net operating losses at the holding company.

This quarter, a new legislation was [ at actor ] in Puerto Rico allowing limited liability companies to be treated as disregarded entities -- based on this change, we now expect that NOLs at the holding company will be mostly utilized against revenues from one of its subsidiaries, resulting in the reversal.

Also, during the quarter, we collected $2.3 million in payroll taxes related to the employee retaining credit. That's been outstanding for a while, but we collected it this quarter and it resulted in a reduction of payroll costs, obviously. We also recorded a $2.8 million valuation allowance for commercial other real estate property in the Bridging Island. So it's all of an ongoing litigation, which involved potential loss of title of the property.

If we were to exclude the DTA valuation allowance and MD retention credit components from results. Non-GAAP adjusted earnings per share were $0.51 and return on average assets was 1.7%. The quarter also had a reduction of $3 million in provision as compared to last quarter. Provision was $17.6 million. This was mostly due to a $2.2 million benefit in the allowance for residential mortgage. We've seen updated -- improved updated loss experience in this portfolio and also the projected macroeconomic for unemployment has an improvement in the trends.

In terms of our net interest income, we reached $217.9 million for the quarter, which is $2 million higher than last quarter. That includes a $1.3 million improvement due to an extra day in the quarter. Compared to the third quarter, net interest income the third quarter of 2024, I'm sorry, net interest income, it's 8% higher. Net interest margin for the quarter was [ 53.7% ] 1 basis points higher than last quarter. And over the last 4 quarters, margin has grown 32 basis points.

Debated in prior calls, the reinvestment of the cash flows from the investment portfolio resulted in a 16 basis points expansion in the investment portfolio yields. However, the margin ended up growing less than the 5 to 7 basis point guidance we had provided. Aurelio mentioned, we saw a slowdown in consumer lending originations for the quarter, which was below our expectations and ended up reducing the average balance in the portfolio by $12 million.

Remember, these are high-yielding portfolios, and they are more accretive to net interest income. Also, we saw increased competitive pricing pressures led to a 15 basis point increase in the cost of government deposits and a 2 basis point increase in the cost of time deposits. The average cost of all other retail and commercial deposits remained flat at 72 basis points as compared to prior quarter.

In addition, when we look at the mix of deposits, we see a shift with time deposits growing $166 million at the end of the quarter, while lower cost interest-bearing nonmaturity deposits decreased $45 million. Regarding other loan portfolios, we saw improvements in the quarter with net interest income on commercial loans increasing $3.8 million. related to $126 million increase in average balances, 3 basis points increase in yields. And we had an extra day in the quarter, which also improved the net interest income.

The average balance on the residential portfolio grew $19 million for the quarter. For the fourth quarter, we will continue to benefit from yield improvements from reinvestment of the cash flows from the investment portfolio, but this will be partially offset by the 2 projected Federal Reserve rate cuts that would result in reduction in yields on the floating commercial loan portfolio as well as the cash balance at the Fed Remember, we have a floating commercial portfolio, which about half of it is floating with either prime or so far, mostly as it's a priced today.

Knowing that we have an asset-sensitive position repricing on the asset side will happen faster than on the liability side. We expect that margin for the fourth quarter to be sort of flat with increases in net interest income coming from loan portfolio growth. In terms of other income for the quarter was practically flat, slight reduction on card processing income due to lower transaction volumes.

Expenses for the quarter were $124.9 million, which is $1.6 million higher than last quarter, which is mostly due to the net loss on the OREO operation related to the $2.8 million valuation adjustment I just mentioned. Also, payroll expenses decreased $300,000 due to the $2.3 million employee retention credit that basically compensated for a $1.8 million increase we had from annual marine increases and from an additional payroll day in the quarter.

If we were to exclude OREOs and excluding the employee retention credit, expenses were $126.2 million, which compares to $124 million in the second quarter, which is slightly above our guidance, but pretty much in line with the $125 million to $126 million we had provided. The efficiency ratio for the quarter was 50% pretty much unchanged also, when compared to prior to the second quarter. The projected expense trend for technology projects and business promotion efforts we plan to do in the fourth quarter. And so we reiterate our guidance expense base of $125 million to $126 million for the next couple of quarters. And still believe our efficiency ratio will be in that range of 50% to 52% considering expenses and income components.

In terms of credit quality, it remained fairly stable in the quarter. In the quarter, NPAs decreased $8.6 million basically $3.8 million decrease in nonaccrual loans, mostly residential mortgages and CRE loans and a $5 million reduction in OREO balances. That includes the $2.8 million adjustment on the VI property I mentioned.

Inflows to nonaccrual were $32.2 million, which is $2.2 million lower than last quarter. Mostly commercial residential mortgage inflows of 6.7%, which are offset by -- I'm sorry, a reduction of $6.7 million in residential and commercial with an offset of $4.5 million increase in consumer inflows. Loans in early delinquency, which we define it as 30 to 89 days past due increased $8.9 million, mostly 1 case in the Florida region, a $6 million commercial case that the payment was not received until later in October.

In terms of consumer loans, early delinquency remained relatively flat from the second quarter, increasing only $300,000. Moving on to the allowance. The allowance is down $1.6 million to $247 million. The decrease was mainly in the residential mortgage portfolio as loss severities have continued to improve. On the other hand, the allowance for commercial loans increased based on the portfolio growth and some deterioration that is projected on the CRE price index as part of the macroeconomic over projections.

The ratio of the allowance for credit losses to loans decreased 4 basis points to 1.89%, and this was mostly a decrease of 9 basis points in the allowance for credit losses on the residential mortgage portfolio. Net charge-offs for the quarter were $19.9 million, 62 basis points of average loans, which is up about $800,000 from prior quarter or 2 basis points. Last quarter, we had an $800,000 commercial loan recovery. And this quarter, we did not have any of this size to offset some of the charge-offs.

As Aurelio mentioned, consumer charge-off levels continue to be normalizing and commercial charge-offs continue to be very low. On the capital front, again, our strong capital base continues to support the actions of share repurchases and dividends. During the quarter, we declared $29 million in dividends and repurchased the $50 million in common stock we had mentioned.

Regulatory capital ratios continue to be low, but these capital actions were offset by the earnings generated in the quarter. In addition to all of this, we registered a 6% increase in the tangible book value per share to $11.79 and the tangible common equity ratio expanded to 9.7%. And also due to the $49 million improvement in the fair value of available-for-sale securities.

The remaining ACL still represents $2.42 intangible book value per share and over 177 basis points in the tangible common equity ratio. As we announced yesterday, our Board approved an additional $200 million in share repurchase, our intention is to continue the approach of opportunistically executing on our capital actions based on market circumstances with the base assumption of repurchasing approximately $50 million per quarter through the end of 2026. but again, as we have done so far, we will continue to deploy our excess capital in a thoughtful manner, looking for long-term best interest of our franchise and our shareholders.

With that, operator, I would like to open the call for questions.

[Operator Instructions] And our first question comes from Brett Rabatin with Hovde Group.

Wanted to start off. I wanted to start off, just want to make sure on the tax situation, that's onetime, right? That doesn't continue from here in terms of any benefit?

Well, there will be a benefit in the sense that we won't have reversals of deferred tax asset at these levels. But there is a benefit on the normal operating losses or expenses we have at the holding company. Those are annual expenses that are -- now we're not yielding any tax benefit. And they will be offset all [ Sage's ] revenues from this sub. So it's not -- that is a huge amount, but you saw that the effective tax rate came down a bit, and that's reflecting some of that benefit. So not at the level of this reversal of DTA, but there is a little benefit on the effective tax rate going forward.

Okay. That's helpful. And then wanted just to talk about -- I've seen the stats, and I know that the auto lending has finally come in as expected for some time, a bit -- any thoughts on the health of the consumer in Puerto Rico and your credit trends seem fairly stable from a consumer perspective. But just wanted to hear any thoughts on how you guys are seeing on the grounds consumer activity?

Well, I think it's clearly auto sales, we can call it normalizing. We were expecting for the year, a 5% adjustment coming down. It's actually 7% year-to-date. But obviously, it disrupted by there were increased sales in the second quarter because of the tariff and they were coming. Now you see a reduction, some sales were accelerated. So I think we need to see what happened this quarter to normalize those auto sales and see what is a real stable volume.

They have fluctuated between 100 to 120 units, 20,000 units per year for some years. So we expect somewhere on that range probably the second half of the year will determine how we project 2026. Yes, credit demand has been lower. It's been -- on the other hand, unsecured credit mines being a little bit lower. We remember 3 years ago, 2 years ago, we have been doing adjusted policies. We've seen the good performance of the portfolios across the board and some of the higher losses that we experienced in credit cards and unsecured are being leveling. So we expect stability on the consumer, but we don't expect portfolio growth as we achieved for some years.

So the portfolio growth will come from RESI, which is performing excellent and from the commercial portfolio that we continue to gain some share across the different sectors. So that -- I would say, stability in the consumer. Obviously, working hard to diminish any contraction of the portfolio as we continue to move on with products and services in that segment.

Okay. And then 1 last one, if I can. Just around the margin guidance were flattish in the fourth quarter. Does that assume -- in the face of the rate cuts, does that assume you are able to lower funding costs, deposits, even though the beta in Puerto Rico on the way up was obviously a lot slower than maintenance? Are you expecting the beta on deposits to be better on the way down?

I think 1 element that definitely will come down, we have some index deposits for the government that are -- they move with the rates, and some of that will come down. We don't see the other core retail products coming down yet.

Other than time deposits that we do see some reduction.

Other than time that they happen -- they move with the market. So there will be some reduction on the cost of deposits. Expected to happen during the quarter. Obviously, how much that can offset the mix of the portfolio. Obviously, the margin is very strong. So having less consumer loans at high yield impact the margin directly as well as which segments of the deposits are growing, which we have growth on the city book at market, not early above market. So as an example, so it depends on the whole mix of the balance sheet, which is big, yes.

Thank you. And the next question comes from Timur Braziler with Wells Fargo.

Back on the deposits, can you just elaborate a little bit more on the competitive pressures that you're seeing on the government side? I guess, how much economics are you having to give up how much of that is going to potentially lower some of the benefits of being able to reprice those with some of these rate cuts -- and then just lastly, you said that you are optimistic that some of these competitive pressures might abate here. Maybe just give us some color as to what gives you that confidence?

Well, I think the cycle matters. Some of these are contracted deposits that are indexed. So they are already contracted and they're not necessarily up for bid. So they would buy -- if the rates move, they will move. With them either monthly or quarterly. So some of them are, in our case, probably 40% of the government book is on that bucket.

I think the others in the CD, whatever matures obviously, move down with rates. I think competitive pressures are really coming from the smaller players, not from the large players. And the way we manage that is we go after operational accounts plus what additional services the government entities need, but we compete in pricing, where we have other type of relationship, not just to get a CV or it really has to add something else to the mix of the products that we sell and the franchise services. municipalities and other government is have a lot of payment services, deposits, -- so obviously, to complement that, we compare on CDs when they come to the market.

Okay. And I guess maybe tying that into kind of 4Q, 1Q is the expectation that deposit costs drop with the subsequent rate cuts -- or do some of these, I guess, how much of an offset to some of these competitive pressures would be to the planned drop in deposit costs?

We do expect some reduction in deposit costs coming down from -- as a result of the reduction in rates. The main point is that typically, we have seen the betas on some of these positive products move at a -- there is a lag as compared to some of the floating asset products. So there is a timing issue in terms of when we see that on the asset side versus the deposit side. But we do expect reductions. It's just the pace at which all of them will come down.

Okay. And then just on credit, credit results at First Bank and 3Q were really strong. There was a couple, let's say, in-migration inbounds on the NPL side for your competitor banks on the island, including some degradation maybe on Puerto Rico itself. I guess to what extent does credit at the other banks influence your own level of reserving in the way that you're thinking about your own portfolio, if at all?

Well, we've been telling for some time that we have a firm risk appetite and we have policies that we follow, and we have ticket -- deal size tickets that would happen. And so it's really our methodology. It's really the performance of our portfolio. Obviously, if there are things that could impact an industry, we take that into consideration. But from what we have seen so far -- we don't see any systemic or industry-wide impactful.

Yes. Other than we tend to look at each of our cases individually. And again, as Aurelio mentioned, unless we see something in the industry would be more of what we are seeing on our own customer base and what are the results and the lines of business they have.

Okay. Great. And then just last for me. I think more recently, First Bank has been open to doing maybe M&A on the Mainland. Can you just remind us what you would be considering in terms of size, location, assets, deposits and kind of just your updated view on capital deployment here?

Well, capital deployment priorities are obviously #1 organic growth. As said in the Florida market could be an alternative fit for us is a franchise that enhance our current franchise. It's very easy to originate loans in Florida, if you have the right teams and they move from 1 bank to the other and as long as we have a disciplined credit that will perform well.

And I think we have a history of that. I think it will be fuel have to be complementary to our deposit franchise. That would be the profile. We have the capital, so size will depend yes.

And our next question comes from Kelly Motta with KBW.

Wanted to circle back to the competitive landscape in Puerto Rico. I appreciate the color on the government deposits. Wondering if there's been any competitor competition from outside the Puerto Rico banks any -- if you've seen any new entrants into the market and just opine on the competitive landscape?

None of the deposits. It's really -- while we see it's more aggressive now on the smaller players, as I mentioned. Obviously, in the credit card business, there's always been a lot of entrance and they dominate U.S. banks dominate the card issuance, including the larger brands so the larger bank so nothing new on that on that front.

And it's also the credit unions that play in the market, but not coming from the outside. It's entries that have operations in Puerto Rico.

Okay. Got it. That's helpful. There's some...

The only caveat. Kelly, I'm sorry, the only caveat is there is 1 player, big player, which is called the U.S. treasury and so the -- you face that with some of the high-end customers that they could move monies into treasuries.

Got it. That's helpful. There's been a lot of news on shoring early glimmers of that picking up and helping Puerto Rico. Have you seen any notable impacts? And how should we be thinking about that like more from a high level in terms of the potential?

Yes. I think in the short term, they have announced a few deals, and we will try to put some more detail on that in our investor deck. -- more granular things that have been already approved or negotiated. We're trying to get more data on that. In addition, but we don't see that it's really in the short term. Probably we continue to sustain and improve the construction sector and whatever is related to materials and the labor-related benefit of that. But not necessarily, we see anything that must flow through the economy other than that impact in the short term.

As we -- as we see this expansion become operational, then we'll probably see more employment, better compensation and expansion of the workforce, yes. But we don't expect that until probably second half 2026 or further. But the good thing is a long-term benefit to sustain the economy of the island rather than having a long-term risk by not having this comment. Yes.

Got it. That's really helpful. And then I guess circling back to the margin. I know you guys have had -- we saw a nice uplift from on the securities book. Can you remind us about the cash flows on that, 1. And then 2, what the new loan yield originations look like, just so we can kind of get a sense of the potential offset to some of the floating rate dynamics that you already articulated?

So we have about $600 million of cash flows coming in this fourth quarter. The yields on that are around 1.5% on average. So that would be some of the cash flows that we immediately repriced. We also have about $1 billion more in the first half of 2026. That also, on average, are yielding that 1.5% that it's also come due.

Obviously, with rates coming down, the reinvestment component, it's a bit lower than what we were -- we're seeing rates somewhere between 50 to 100 basis points lower already in some of the reinvestment options within our policy guide. And some of it obviously could go to lending, but Aurelio made reference to it would be more on the commercial and residential side.

Okay. And if your loan book right now is 7 -- 77, what the new loan origination yields look like a, I guess, in Q3?

You're talking about the overall or you're talking about just the -- that's the average yield -- those are average yields, including consumer. If you take a look at the commercial side, mortgages, we're talking about sort of 6, 6.25% kind of rates, right? It's market as so whatever you see in the market. The commercial portfolio yields are right now overall commercial portfolios, including everything, it's about [ $670 million ] on average. So that's a combination of what goes into construction or CRE and C&I, obviously.

So that -- we are not seeing big changes on spreads. It's a function of the base. The base meaning the base rate, which we either so far or prime, which are the main ones. That would be the 1 the adjustments we'll see, but not necessarily on the spreads, it's amount of more. Consumer yields are going to be similar to what we have now, but it's only an issue of what's the level. We -- consumer on average are about 10.5% that what we have in the blended in the whole portfolio of consumer portfolio. And that stays sort of around those levels, but it's a function of volume more than anything on the consumer.

[Operator Instructions] The next question comes from [ Erin Signaviwith ] Truist Securities.

I'm sorry, if you mentioned this, but what's your outlook for loan growth into the fourth quarter? I think you said that NII is expected to be higher despite the kind of flattish NIM just thinking about what you're thinking there on loan growth?

Yes. We -- I did mention that we -- the guidance that we have for the full year is between 3% and 4%. And I think the original guidance was 5%, mid-single digit. This is actually considering what happened in the auto lending side over the third quarter and actually part of the second quarter is a primary driver.

Some offset has been provided by mortgage and we do have a fairly strong pipeline in the commercial. Obviously, there's always timing issues on those. But for the pilots to continue to help.

Okay. And you announced a new share repurchase program, and there's still some remaining authorization from the prior plan. Can you talk about the cadence you're expecting in terms of share repurchases over the next several quarters?

Well, we've -- we always been opportunistic in the market, and we still have $38 million from this year authorization. We can move back and forth and increase or decrease as we believe is prudent. Again, open market is our approach. No ASRs are on schedule or as part of the strategy. So we'll continue monitoring.

Yes. As I mentioned, were our base assumption continues to be around $50 million a quarter. Obviously, with the flexibility or the optionality of saying a little bit more or a little bit less depending on what are the circumstances on the market.

Perfect. All right. And then lastly, just a follow-up on the mainland M&A question. I mean it seems like a lot of other mainland banks are also looking to expand in that geography. Would you say that the environment currently would be somewhat challenging to get a deal done around that area?

Again, opportunities come and go. So we'll see -- we continue to monitor and see what could happen. I think there's some -- if you see some of the bank reports, obviously, there's a credit side could be more reflected in the U.S., so that could bring opportunities too.

Got it.

These are always a timing opportunity. Thank you.

The next question comes from Steve Moss with Raymond James.

Orlando, just following up -- and maybe just following up, Orlando, on the margin here in terms of the timing of the cash flows from the securities portfolio. Is that just -- is that throughout the quarter? Or is that kind of late in the quarter to impact the margin?

Well, you saw it's -- it's not really equally spread, but you can assume it's on average, November and December tend to be the highest in terms of the cash flow coming in. You saw that last quarter, we had that 16 basis point pickup. So we had about $500 million for the third quarter that those were the cash flows more or less than we're having the big repricing impact.

So we -- and all of it did not benefit the third quarter. Some of it we'll see in the fourth quarter. So it averages out a bit. So we should see a pickup, obviously, with the only difference is what I mentioned that we are seeing rates the options that we have in rates being between 50 to 100 basis points lower based on our policy guidelines of what we put in the portfolio. As you know, we don't put much of credit risk in the portfolio. It's more of an interest rate more than anything.

Right. Okay. Just I appreciate that color. And then on the loan loss reserve here, you guys have made a number of, I guess, qualitative adjustments, if you will, over probably the last 12 or maybe 18 months -- just kind of curious here kind of as you think about credit performed quite well on the island for an extended period, your consumer credit charge-offs are lower year-over-year, just kind of curious as to where you think that reserve ratio could shake out over the next 6 to 12 months?

It's -- we don't talk about specific guidance like that is specific, but what I can tell you is that -- on the mortgage side, we have seen the trends with the lower charge-offs that our methodology uses historical loss information that is updated all the time. And obviously, as as you get more history with better numbers in terms of losses that improves the ratio. So the residential reserves should come down. There is always an uncertainty on the forecast -- the macroeconomic forecast projections.

We've seen the stability on the unemployment sector, the unemployment ratios in Puerto Rico reflect on the way the trends are expected on some of the portfolios, especially in when you look at the downside scenarios, we do include in our reserve calculations. So for mortgage, I do expect with the credit expectations we have that it would come down -- continue to come down a bit. The consumer, we're still seeing -- obviously, we had, as you mentioned, the '23 and '24, we saw increases related to those vintages of the older vintages at '22, '23 vintage, we've seen more stability now on the charge-offs, and that includes that affects calculations. So that for now will be sort of stable, I would say, in the meantime. And commercial has been pretty good. So I don't see major changes in commercial.

[Operator Instructions] We have a follow-up from Kelly with KBW.

Thank you for letting me jump back on. I just wanted to close the loop on the tax rate just given it looks like the FTE adjustment is up a bit and there was some noise in the quarter. Do you have a good like approximation of what the go-forward tax rate looks like here? Is it any materially different after adjusting for some of these onetime time things you had in the quarter? Any help would be appreciated.

The number that we put on the press of effective tax rate of about 22.2% which is estimated for the full 2025 already reflects some of this expected improvement. So I would say that's a good number to use as a guidance, remember that with a few things here and there. As we reinvest on the investment portfolio, a large chunk of that would have tax benefits.

And since we have reinvested our better yields that reflects on the rates, then you have other components of the operations on some of the flows on the commercial lending side that's on a taxable side. So the 22.2%, I think, reflects fairly good number that we should be between that I'm sorry, 22% to 22.5% range. It's what I'm expecting now.

I apologize. I think it's said in the release. Thank you.

[Operator Instructions] And as we have no further questions in the queue, I will hand back over to Ramon Rodriguez for any final comments.

Thanks to everyone for participating in today's call. We will be attending half this financial services conference in April on November 4. We look forward to seeing a number of you at this event, and we greatly appreciate your continued support. Have a great day. Thank you.

Thank you, everyone, for joining today's call. This conclude the call, please. You may now disconnect. Have a great day.