First BanCorp (FBP) Q3 2026 Earnings Call Transcript

DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Aurelio Alemán
• Chief Financial Officer - Said Ortiz
• Senior Vice President - Ramón Rodríguez

TAKEAWAYS

• Net Income -- $96.1 million, representing a flat performance on a sequential basis as lower provision expenses and taxes offset a decrease in net interest income.
• Diluted Earnings Per Share -- $0.63, which benefited from the repurchase of 1.7 million shares during the third quarter.
• Annualized Loan Growth -- 3.3%, driven by broad-based expansion across all operating markets with specific strength in the commercial and industrial segments.
• Net Interest Margin -- 4.73%, representing a 14-basis-point decrease from the prior quarter due to higher funding costs and the absence of one-time purchase discount accelerations.
• Common Equity Tier 1 Capital Ratio -- 16.91%, providing the institution with significant flexibility to support future organic growth and capital return initiatives.
• Core Deposits -- $13.4 billion, reflecting a $120.4 million increase in core customer balances that helped offset declines in government and brokered deposits.
• Provision for Credit Losses -- $14.6 million, decreasing from $17.3 million in the prior quarter due to updated historical loss experience and lower estimated loss severities for residential mortgages.
• Noninterest Expenses -- $130.2 million, increasing by $2.9 million primarily due to a $2.8 million contingency reserve associated with an adverse court ruling in the U.S. Virgin Islands.
• Efficiency Ratio -- 50.06%, remaining below the long-term target of 52% despite ongoing investments in digital technology and the branch network.
• Common Dividend -- $0.20 per share, representing a 25% increase approved by the board of directors to enhance shareholder returns.
• New Stock Buyback Authorization -- $350 million, providing a new multiyear framework for opportunistic share repurchases.
• Tangible Book Value Per Share -- $12.15, declining from $12.68 in the prior quarter due to the negative impact of higher market interest rates on the fair value of securities.
• Net Charge-offs -- 0.55% of average loans, increasing from 0.49% in the prior quarter due to higher losses in the consumer and auto portfolios.
• Nonperforming Assets Ratio -- 0.59%, which remained stable on a sequential basis despite modest increases in nonaccrual auto loans.
• Loan Originations -- $1.5 billion, representing a decrease from $1.7 billion in the second quarter primarily due to the timing of commercial refinancings in the prior period.
• Commercial and Industrial Loans -- $3.9 billion, increasing by $118.4 million during the quarter with growth led by new loan participations in Florida and government disbursements in the Virgin Islands.
• Investment Portfolio Repricing -- $252 million, consisting of fourth quarter maturities with an average yield of 2.23% that management expects to reinvest at current market yields between 5% to 6%.
• Income Tax Expense -- $19.2 million, which decreased from $24.1 million in the second quarter due to a lower estimated annual effective tax rate of 20.5%.
• Liquidity Capacity -- $6.2 billion, representing 128% of estimated uninsured deposits and including $1.1 billion in available borrowing capacity from the Federal Home Loan Bank.
• Core Total Liquidity -- $2.6 billion, consisting of cash and free high-quality liquid securities that could be liquidated or pledged within one day.

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RISKS

• Alemán stated, "the funding impact is very difficult until we see some more stability in the market," noting that increasingly volatile rates have negatively impacted funding costs ahead of loan repricing.
• Alemán indicated that "the auto industry continue with the same challenges" as sales are down across the market due to tariffs and inflationary pressures.
• Alemán noted that "inflation is impacting the consumer on the electricity, gasoline on the pump, and consumer goods," which management is monitoring closely for potential impacts on credit quality.
• Ortiz warned that "continued deposit competition and loan pricing dynamics" are expected to remain headwinds to net interest margin expansion through the fourth quarter.

SUMMARY

First BanCorp. (NYSE:FBP) reported flat sequential net income as strong commercial loan growth and disciplined expense management were offset by rising deposit costs and interest rate volatility. Management highlighted the resilience of the Puerto Rico economy, citing ongoing reconstruction activity and stable unemployment as factors supporting healthy credit pipelines and origination trends. The institution significantly increased its capital return profile, announcing a 25% dividend hike and a substantial new share repurchase authorization. Strategic initiatives remain focused on multichannel distribution, including the expansion of the branch network and the enhancement of digital tools to drive operating leverage and market share.

• Management expects net interest margin to remain stable in the fourth quarter as floating loan repricing and investment portfolio cash flows offset rising costs for time deposits.
• CEO Alemán noted that the bank remains in an asset-sensitive position and should benefit from a higher interest rate environment over the long term.
• The company opened a new branch in San Germán to expand its physical footprint in a market with limited banking competition.
• CFO Ortiz attributed the decline in noninterest income to the absence of one-time gains from purchase tax credits and asset sales that occurred in the second quarter.
• Management reported that while early-stage delinquencies rose, the increase was partially due to a matured construction credit that was fully repaid after the quarter ended.
• The bank plans to execute $50 million in additional share repurchases during the fourth quarter to complete its 2026 capital return objectives.
• Forbes ranked First BanCorp. as the top-performing bank in Puerto Rico for 2026, reflecting the company's focus on digital innovation and franchise profitability.

INDUSTRY GLOSSARY

• ACL: Allowance for Credit Losses, a reserve established to cover estimated credit losses in the loan portfolio.
• AOCL: Accumulated Other Comprehensive Loss, a component of equity that includes unrealized gains and losses on available-for-sale securities.
• C&I: Commercial and Industrial loans, typically made to businesses for working capital or capital expenditures.
• CET1: Common Equity Tier 1, a key regulatory capital measure representing the bank's core equity capital.
• FHLB: Federal Home Loan Bank, a government-sponsored enterprise that provides liquidity to member financial institutions.
• NIM: Net Interest Margin, the difference between the interest income earned on assets and the interest expense paid on liabilities.
• OREO: Other Real Estate Owned, property acquired by a bank through foreclosure or in satisfaction of a debt.
• SOFR: Secured Overnight Financing Rate, a benchmark interest rate used for pricing loans and derivatives.

Full Conference Call Transcript

Ramón Rodríguez: Good morning, everyone. Thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the third quarter of 2026. I am here with Aurelio Alemán, President and Chief Executive Officer, and Said Ortiz, Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest SEC filings.

The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com. At this time, I would like to turn the call over to our CEO, Aurelio Alemán.

Aurelio Alemán: Thank you, Ramón, and good morning, everyone. Well, we delivered another quarter of strong, consistent performance supported by healthy balancing trends in both deposits and loans, stable credit quality, and continued profitability. Net income totaled $96.1 million, or $0.63 per share, essentially unchanged from last quarter. While year-to-date earnings per share actually increased 14% compared to the same period last year. Our franchise continued to generate attractive returns with return on assets of 1.98%, marking actually our 19 consecutive quarters above 1.5%. While margin was somewhat noisy during the quarter, the comparison is impacted by events of the second quarter purchase discount and deferred fees acceleration that were recognized in that quarter.

In addition to an increasingly volatile rate environment which negatively impacted funding costs, which actually happened ahead of loan repricing, which took place after the Fed revised rates and for some of the commercial loans, it takes place at the beginning of each quarter. Even when accounting for these factors, our margin remained among the strongest in the industry. Loan growth was broad-based across our market, but particularly within the commercial segment, with total loans increasing at a 3.3% annualized linked quarter rate. Consumer loans actually declined a bit as we have forecasted. And good to say that deposits remain stable and were supported by growth in core customer balance of $120 million.

Credit metrics remain healthy with the NPA ratio unchanged at 0.59%. Importantly, we continue to return substantial capital to shareholders through both repurchases and dividends while maintaining a CET1 ratio of 16.9%, providing significant flexibility to support opportunities and future capital deployment initiatives. As we disclosed yesterday in a separate press release, we are very pleased that our board approved a 25% increase on our quarterly common dividend and a $350 million stock buyback authorization. Our capital allocation priorities remain unchanged. Given the strength of the balance sheet and capital position, we saw an opportunity to increase capital returns while continuing to support our customers, invest in the franchise, and maintain a prudent capital cushion.

We expect share repurchase to remain an important tool, particularly when market valuations create compelling opportunities. Overall, we believe that we are demonstrating the resilience and earning power of our franchise. Please let us move to slide five. Stepping back from the quarter, the broader operating environment remains, I would say, stable and supportive. Puerto Rico economy continue to show resilience supported by ongoing reconstruction activity, steady unemployment conditions, and encouraging manufacturing and reshoring announcements. Against the backdrop, we continue to see healthy client activity and constructive business pipelines into the fourth quarter. This quarter, we continue advancing our multi-channel strategy. We opened a new branch in the San Germán area where there was only one bank present.

And we continue to expand digital tools that provide faster and more efficient seamless service experience. This commitment to innovation is being recognized by gaining multiple recognitions, one by Global Finance, which named us the best digital user experience in Latin America and Puerto Rico, and the best digital banking app in Puerto Rico. In addition, Forbes included our company among the world's top-performing banks in 2026, making our highest ranking yet and the first position among our Puerto Rico peers. Again, we are very proud of these recognitions, which reflect our associates' hard work and dedication to delivering the best digital experience for our clients while sustaining a strong and profitable franchise.

The combination of these achievements, the asset quality, significant excess capital, position us well to continue executing on our priorities, creating long-term value for our shareholders. Before I turn over the call to Said, I would like to provide some additional context on our key performance indicators and outlook for the remainder of the year, only one quarter away. Please, let us move to slide six. Looking at the priority, we believe we remain on track of the beginning of the year operating metrics. Loan growth trends have continued to improve by strong origination and healthy pipeline. We remain confident that we can achieve the lower end of our 3%-5% guidance with what we see going on this quarter.

Efficiency remain ahead of target. Year-to-date margin performer remain consistent with our expectation. We do expect to close $50 million more in buybacks during this fourth quarter. Asset quality remains stable, and we continue to warrant growth and discipline on the underwriting, we believe is the prudent thing to do with all the noise that we see in the global macros. As we move to the final quarter, priorities remain clear. Selective grow market share, maintain strong profitability, drive operating leverage, and continue enhancing the customer experience through technology and AI. As always, I thank you for your interest for bank, I look forward to answer your questions.

Now, I'll turn the call over to Said to discuss quarterly results in more detail. Thank you.

Said Ortiz: Thanks, Aurelio, and good morning, everyone. Turning to our results. Net income for the quarter was $96.1 million, essentially flat relatively to the second quarter. Lower provision expense and income taxes largely offset softer net interest income, lower non-interest income, and higher operating expenses. Net interest income declined by approximately $1.6 million, while non-interest income decreased by $3.1 million. Provision expense improved by $2.7 million, reflecting continued favorable credit performance. Non-interest expenses increased by approximately $2.9 million, primarily due to a contingency reserve that I will discuss in more detail later. Earning per share increased to $0.63 per share, benefiting from ongoing share repurchase activities. We also generated adjusted pre-tax pre-provision income of approximately $130 million during the quarter.

At the same time, unrealized losses in the securities portfolio continue to affect tangible book value through AOCL. For the quarter, tangible book value was $12.15, and tangible common equity was 9.55%. Excluding the impact of the unrealized losses, adjusted tangible book value per share was $15.34, and adjusted tangible common equity was 11.76%, highlighting the underlying strength of our capital position. Moving on to slide nine to discuss NII and the margin in detail. Net interest income was $227.5 million, down from the prior quarter. The primary drivers were the absence of approximately $3.4 million of purchase discounts and deferred fee accelerations recognized last quarter, along with higher funding costs.

The quarter did have an additional day, excluding the impact of the additional day, which is about $1.3 million and the $3.4 million I just mentioned, net interest income increased by $500,000. The increase in NII came from growth in the commercial and construction balances, coupled with the securities portfolio reinvestment activity. Net interest margin was 4.73%, declining 14 basis points from the second quarter. Roughly 1/2 of the decline reflects the previously disclosed one-time items recognized in the prior quarter, while the remaining decline was largely driven by higher funding costs, primarily driven by a changing mix to higher interest-bearing products such as time deposits and higher rates on government market-linked accounts.

Despite continued competition for deposits and a volatile rate environment, our funding profile remains a key strength, and we continue to manage pricing with a disciplined approach focused on relationship, value, and profitability. At 4.73%, our margin remains at an attractive level and continues to compare favorably with peers. Looking ahead, we expect for core margin to remain near current quarter levels during the fourth quarter. We expect continued deposit competition and loan pricing dynamics to remain headwinds while our investment portfolio repricing opportunity, which for the fourth quarter are approximately $252 million at an average yield of 2.23%, coupled with floating loan portfolio repricing, should provide support if rates continue to move higher as expected.

In terms of 2027, we are monitoring certain factors, including inflationary pressures and the overall rate environment. Consequently, we will provide an updated forecast on our next earnings call. Shifting to other income and operating expenses on slide 10. Non-interest income totaled $32.6 million. The decline was primarily driven by lower gains on purchase tax credit, as well as a gain on sale of a Florida fixed asset that benefited the second quarter. Excluding those items, non-interest income remained generally stable. Non-interest expenses totaled $130.2 million. The increase from the last quarter was largely attributable to a $2.8 million contingency reserve associated with an adverse court ruling involving a commercial OREO property in the U.S. Virgin Islands.

Excluding that item, expense trends remained basically unchanged from prior quarter. Importantly, our efficiency ratio was 50%, remaining below our long-term operating target of 52%, demonstrating continued operating discipline while we invest in the franchise and technology initiatives. Looking at asset quality on slide 11. Credit quality remained largely stable during the quarter. The NPA ratio was unchanged at 0.59%, while ACL coverage was slightly lower than last quarter and remained healthy at 1.81% of total loans. Total non-performing assets increased only modestly and continued to be at low levels relative to the size of the portfolio. Annualized net charge-offs increased to 55 basis points of average loans, primarily reflecting higher consumer and auto-related losses.

We also saw an increase in early-stage delinquencies, although this figure included a mature construction credit that was fully repaid after quarter end. We did see a $6.8 million increase in consumer loans. Overall, commercial credit performance remains solid. Reserve levels remain appropriate, and we continue to monitor consumer trends closely. We remain comfortable with the risk profile of the portfolio and our overall credit outlook. Moving on to capital on slide 12. Capital generation remains one of the defining strengths of our franchise. During the quarter, as Aurelio mentioned, we returned approximately $80 million to shareholders through $50 million of common shares repurchased and $30 million of dividends, representing about 84% of quarterly earnings.

Our CET1 ratio ended the quarter at 16.9%, well above regulatory well-capitalized levels and comfortably above our internal operating targets. While tangible book value per share declined due to the impact of higher market rates on the accumulated other comprehensive loss, our underlying capital strength remains exceptionally strong. Given our earnings powers, liquidity profile, and capital position, we continue to have substantial flexibility to support growth initiatives while returning meaningful capital to shareholders. This concludes our prepared remarks. Operator, please open the call up for questions.

Operator: We will now start the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Arren Cyganovich with Truist Securities. Arren, your line is now open.

Arren Cyganovich: Thanks. Said, I think you had said that you expect the NIM to be relatively stable into the fourth quarter. You mentioned some headwinds, but I apologize, I didn't quite hear exactly what they were. Was it related to the higher funding costs that were impacting the third quarter?

Said Ortiz: Yeah. Given some of the dynamics we discussed, volatility on the funding cost, the overall interest rate environment, we should see margin to be stable for the next quarter. Due to changes in the interest rate environment and the impact it has had on cost of funding, we think that until we get more clarity on that front, margin will remain stable. As we discussed earlier, we do expect that cash flows from the investment portfolio, which we estimate to be around $250 million from lower yielding security, and the repricing of the commercial loans, which we will see the full effect on the fourth quarter. That will provide some expansion on NII and stability on the NIM.

Aurelio Alemán: Yeah, just some additional color. What we're seeing on the cost of funds, obviously, consumers continue to look, CDs are repricing higher. If we go to the brokered CD market, it's repricing higher. So there is some high yield-seeking on large balances. So those are the negatives. On the other hand, the offsets are the loan repricing. We have a significant variable loan portfolio on the commercial side. Whatever reprice with Prime happened very late in the last quarter, and whatever reprice on SOFR base happened very early in this quarter. So we're going to see that's some positives. Plus the fact that the 250 that Said mentioned.

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

Arren Cyganovich: Okay, thanks. That is helpful. Could you maybe remind us how the balance sheet is positioned at the end of the third quarter with, we have a much higher forward rate expectation now, as the Fed is now in a tightening cycle, and we are battling inflation across various areas. Should you benefit from higher rates over the longer term? Not really talking about 4Q, but just the way that your balance sheet will be positioned to absorb those over the next year.

Said Ortiz: Yeah. We do remain in an asset-sensitive position. Obviously, that will benefit some of the more asset-sensitive assets, such as cash. We have been seeing good opportunities on the investment portfolio of reinvesting those cash flows at higher yields. Overall, yes, we should benefit from those movements on the interest rates are higher.

Arren Cyganovich: Thank you.

Operator: Your next question comes from the line of Brett Rabatin with StoneX Group. Brett, your line is now open.

Brett Rabatin: Hey, good morning, everyone. I wanted to first ask, maybe it is more of a housekeeping issue on the other income that was lower this quarter, I think, due mostly to the income tax credits or the lack of this quarter versus prior quarters. Mostly, I just wanted to see does that rebound from here with additional investments or just any thoughts on the other fee income line item and then just fee income, generally, the outlook going forward.

Said Ortiz: Yeah. The decrease in the quarter was some gains that we were able to realize on the second quarter that we did not have this quarter. So yes, that should continue to be around the levels of this third quarter.

Brett Rabatin: Okay. Credit continues to be really solid. A little bit of an increase in net charge-offs on the consumer/auto side. Just any things like auto production or auto sales is continuing to trend better than expected for the island. Any thoughts on the increase in delinquencies on the auto side and then that construction shared national credit? I kind of missed what the expected outcome was from that participation.

Aurelio Alemán: Well, the construction loan was repaid early in the quarter, so that is out of the delinquency risk now. The auto industry continue with the same challenges. Sales are down. There's some seasonality to delinquencies if we look at other prior years. From that, I think we have to say continue stable. We continue to have significant share of the volume. It's just sales are down overall in the market mostly impacted by tariffs, I would say, and inflation in terms of other needs that the consumer need to spend their money. So we're forecasting that the portfolios is decreasing a bit on a quarterly basis. But we expect that to stabilize.

On the consumer side, the only component that is growing is really the mortgage business achieve some growth year to date. We expect that to stabilize. We continue to focus on growing the commercial, which is where we see the opportunity.

Brett Rabatin: Okay. Just lastly, if I could ask one last quick one on competition. It seems like maybe the credit unions have been a little more aggressive here lately, PenFed and maybe some others. Are you guys seeing an increase in competition? How does that factor into what you're thinking about the margin from here and where deposit funding costs might move too?

Aurelio Alemán: Obviously, every time that we see this cycle, we see some high-yielding customers, high-yield-seeking customers. So we're retaining, and we're making our effort to retain and be competitive. We're not going to go crazy. But I would say some of the credit unions are more aggressive. But also more on the larger balances is where we see the competition. I think the core consumer product continue to be the same.

Brett Rabatin: Okay. Great. Thanks for the call, Aurelio.

Aurelio Alemán: Thank you, Brett.

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

Kelly Motta: Hey, good morning. Thanks for the question. Really nice capital plan out last night. It certainly came in ahead of my expectations. I noticed you reiterated your outlook for 100% capital return. I was just wondering, given what are still incredibly beyond healthy CET1 and the internal capital you generate, any interest in incrementally dipping in above 100%? Or said another way, what would give you comfort to do so?

Aurelio Alemán: Well, obviously, as I said in my other remarks, this quarter, we're going to complete 50%. We always say around 100%. We're probably not going to get there unless it's opportunistic. I think that is important this quarter. So obviously you have an increased dividend, which is going to be paid out early in December, and then we have the $50 million goal. And we do have a plan that go from the 200 that we approved last year to 350. And every quarter will give you more guidance in terms of how we continue to move ahead on that.

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

Kelly Motta: Got it. So that 100% is still related to 4Q 2026, and you're not ready to necessarily guide to that for 2027. Is that what I'm putting together or?

Aurelio Alemán: Yeah, that's correct.

Kelly Motta: Okay. Thanks.

Aurelio Alemán: We brought more guidance in January. We like to give the optionality and be opportunistic. That's part of the plan, as it's been for some time, yeah.

Kelly Motta: Got it. That's helpful. The NIM was partly impacted by the Q2 benefit that you had, although as you mentioned several times, deposit costs were also higher. I'm just wondering, within the government deposits, how much of that is truly linked? I'm just wondering if some of that moved ahead of Fed funds here and might be already baking in some of the September raise that we've seen. Thanks.

Said Ortiz: We did see an increase on government market linked accounts around 12 basis points on cost of funds on the government account. That definitely impacted. We also saw some consumers. We saw rates on treasuries moving early in the quarter, so that obviously created opportunities for consumers to move to some of their higher-yielding options, which resulted in retaining of some of these funds at CDs at a higher rate. Obviously, the repricing of Prime occurred during the quarter, so SOFR moved as well a lot later in the quarter. That will benefit the commercial portfolio early this quarter or the fourth quarter. Those were some of the dynamics that we saw in the quarter, Kelly.

Kelly Motta: Got it. That's helpful. Obviously, credit has been really strong. But with inflation and fuel prices higher, I'm just wondering, is there a point at which you think that starts to trickle through to the Puerto Rican consumer, and what are you watching most carefully? Thank you.

Aurelio Alemán: I think we continue to be prudent on the consumer originations. We monitor the portfolio very closely, and every quarter, if we need to do some adjustments on what comes in and our risk appetite, we do. We feel pretty good where we are. The portfolio has been behaving well. We took actions on some of these a couple of years ago. So, we expect stability, but we're monitoring closely. Definitely, the inflation is impacting the consumer on the electricity, gasoline on the pump, and consumer goods. So it's not only here, it's happening across mainland.

Kelly Motta: Yeah.

Aurelio Alemán: We feel good where we are and with pretty good reserve. These are high-yield portfolios. Obviously, opportunities for growing these portfolios are limited at this stage.

Kelly Motta: Awesome. Thank you so much for all the color. I'll step back.

Aurelio Alemán: Thank you.

Operator: Your next question comes from the line of Steve Moss with Raymond James. Steve, your line is now open.

Chase: Hey, guys. Good morning. This is Chase on for Steve.

Aurelio Alemán: Okay.

Speaker 7: The yielding securities and other earning assets moved lower this quarter despite the reinvestment. Can you walk us through what drove that decline, and maybe just a reminder on the repricing opportunity for securities into 2027?

Said Ortiz: Steve, remember that on the security side, part of the acceleration of deferred fees on the purchase discount was included on the yield on the second quarter for securities. If we actually exclude those one-timers, the yield on the securities increased by about 8 basis points. Mostly related to the acceleration that we mentioned on the call. Actually, we exclude the one-timers, total earning assets was around $604 and very similar to the previous quarter. On the opportunities on the reinvestment of the security portfolios, you saw in the quarter we purchased around $400 million at 5.44%.

We have $252 coming in on the fourth quarter yielding 2.23%, and we should be able to invest that on high 5s and lower 6s. The way interest rate markets are behaving right now, that is what we are seeing.

Speaker 7: Got you. I know you guys said pipelines are healthy. Are you seeing any slowdown in demand as rates move higher, maybe projects being delayed or anything of that sort?

Aurelio Alemán: There is probably some of that happening, but when I look at today's pipeline, it is not impacted by that on the commercial side. Obviously, in the cycle where rates go over a certain limit, that usually happens. Some projects are postponed. It is part of the cycle. We have not seen that yet.

Speaker 7: Okay. Just one more quick one for me. Where are new commercial loans pricing today? Have spreads held up as rates moved up?

Said Ortiz: I think it's safe to say that they're somewhat similar what they're yielding right now. Obviously, rates move a little bit higher and some of the movements, so we'll react. But they should be somewhat similar of the yield that you're seeing on the results right now.

Speaker 7: All right. Great. Thank you, guys.

Operator: Reminder, if you would like to ask a question, please press star one to raise your hand. Our next question comes from the line of Manuel Navas with Piper Sandler. Manuel, your line is now open.

Manuel Navas: Hey, good morning. Putting together some of the NIM commentary, how should we think of the NIM post fourth quarter? I know there's a good amount of uncertainty, but you have a natural asset sensitivity. Could we at least have flat to upward trajectory into next year? Kind of thoughts on that potential.

Aurelio Alemán: Well, for now, we see, I think I mentioned that delta's positive and negative for the fourth quarter. Obviously, if rate increases happen, which are uncertain, it should be positive for our NIM into 2027. It will depend on both that rate increases happen and we achieve the loan growth targets that we have on the plan. Because the assets mix, remember, continue to change, so we have less consumer, more commercial. Consumer is more high yielding. Even though we feel confident about net interest income continue to move north, the NIM formula is more tricky because it also involve the asset mix.

Obviously, as I mentioned, investments are being booked at much higher rates than the cash flows that we've received. Couple that with higher rates on the commercial variable rate loans, that definitely brings offset the potential cost of fund increase. When you put the mix of loans into the picture, it definitely change the view of even though net interest income should move north. Clear?

Manuel Navas: I appreciate that. I think I might have missed this just a question ago. What are kind of the marginal assets coming in at? What is your most recent loan origination yields, and what's kind of the marginal deposit cost right now? Perhaps on your kind of CD book where you've grown pretty quickly.

Said Ortiz: Well, obviously on rates on the loan side, the rates are coming in similar to what you're seeing on the asset yield on the results, right? Obviously, rates move a little bit higher, they could move. On the deposit side, we continue to be competitive. You saw increases on time deposit. I would think that will continue to happen. We're renewing CDs at higher rates than the 3.30% that they're costing us right now. So yeah, you would see some of that. It depends on how treasury moves and options to consumers, Manuel.

Manuel Navas: The CD appetite remains constant, at least near term?

Aurelio Alemán: Yes. Yeah.

Manuel Navas: Okay. Can I flip over to the loan growth? You said the pipeline's healthy. Can you detail it a little bit, and what are the factors driving commercial growth? C&I was excellent this quarter. Just kind of thoughts on the commercial growth going forward.

Aurelio Alemán: It's a combination of new construction projects that are coming alive after longer periods of planning. Some M&A, competitors buying out competitors, and we participate in. Some other business expansion, a couple of warehouses that we saw in the pipeline. Some CRE investors that are buying CRE from others that are our clients. I think it's pretty well diversified.

Manuel Navas: I appreciate that. Then your strong credit quality is my last one, but your strong credit quality is leading to a little bit of a decline in the loan loss reserve. Is that something that should kind of continue since credit is generally pretty strong? Or if current trends continue, would you see the loan loss reserve keep falling?

Aurelio Alemán: Obviously, there's a good economic outlook for the main market that we serve, which is, of course, the Puerto Rico economy. So that would, in theory, with the CECL rules, lead to good levels of reserves and similar to what we're seeing there. So if that keeps on that way, we should probably see some stability. On the quarter, you did see a little bit of a decrease and mostly related to some of the updated historical experience on the residential mortgage portfolio, which also benefited that and decreased a little bit the AOCL coverage.

But yeah, overall, if credit quality remains stable and delinquency levels stay similar to what we're seeing right now and the economic outlook on the Puerto Rico economy remains positive, you should see similar levels of AOCL coverage going forward.

Manuel Navas: Okay. I appreciate the commentary. Thank you.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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