Good morning, and welcome to the First BanCorp Q1 2026 Financial Results Conference Call. Operator provided 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 Alemán-Bermúdez, President and Chief Executive Officer; and Orlando Berges-González, 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 Alemán-Bermúdez.

Thank you, Ramon. Good morning. Good morning, everyone, and thanks for joining our call today. We started 2026 with very strong momentum, generating $89 million in net income or $0.57 per share. That is actually up 21% when compared to the same quarter last year. Core operating trends remain also very strong during the quarter with pretax pre-provision income reaching an 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 with 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, we ended the quarter with a 16.9% CET1 ratio. Let's turn to Slide 5 to talk about the environment and highlights 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 indexes continue to be stabilized and recent credit delinquency indicates consumer stability. We are encouraged by what we see around in addition to the reconstruction activities, reshoring activity and expanded U.S. military presence on the island while the disaster recovery efforts remain in place. Expanding on consumer activity, first quarter industry auto sales declined 19% when compared to the third quarter last year. This is evidence of 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 we're still better than the prior cycle. We're prepared to serve our customers in this environment. There are many moving parts regarding the potential impact of oil costs, which we are monitoring, including rising energy costs and other potential impacts on inflation, which could affect consumer activity and commercial activity more broadly in the future. While the macroeconomic environment continues to be dynamic, we remain focused on managing what we can control, enhancing the service delivery platform, making technology investments to be more efficient and focusing on providing the best quality of service that we can. When we look at business highlights, total loan originations were up by 6% when compared to prior year on a seasonally adjusted basis. Commercial loan pipelines actually remained healthy. If I compare pipelines today with the same time prior year, we are actually in a better position. So we sustain our loan growth guidance of 3% to 5% that we initiated and mentioned in the last call. In terms of our omnichannel strategy, active digital users continue to grow year-over-year. Digital transaction volumes continue to grow, and self-service payments continued to increase, demonstrating sustained engagement of clients on 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 invest in our franchise and brand channels to continue to optimize how we service our clients. We believe that AI will 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 closely with our key vendors to ensure that we adopt what's coming in all these new ventures. Overall, capital allocation priorities remain unchanged and include supporting organic growth, which is a priority, 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. 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 decreased in size. 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 is just slightly higher: it's 21.9% compared 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 two fewer days in the quarter, but net interest income compared to the same quarter last year is 4% higher. Interest income on loans is $6.5 million lower than last quarter, of which $3.8 million is due to two fewer 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 lower, which is $1.3 million related to the two fewer 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. 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. 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, an increase of only $200,000 from last quarter. If we exclude gains from OREO, operating expenses for the quarter were $128 million, which is about the same kind of adjustment of an increase of $300,000 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 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 in the second and fourth quarters 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 later in the year, we reiterate our quarterly expense base for 2026 will be in the range of $128 million to $130 million as we had previously mentioned, excluding OREO gains or losses. Our efficiency ratio, we estimate that we'll still be in the 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 a $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 recorded last quarter, fourth quarter of 2025. 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. We have seen some stability in 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 the 63 basis points we had in the prior quarter. This is mostly related to a 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 that strong profitability has allowed us to repurchase $50 million in shares this quarter and declare $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 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 tied to the investment portfolio. As Aurelio mentioned already, 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 provided 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 until the end of the year for consumer payoffs 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, where 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 sales are lower, still better than pre-pandemic. Stabilizing compared to last year is a fair characterization because the first quarter of last year in auto, March was a very strong month as it was pre-tariff with people anticipating price increases. So that number is a little bit elevated; the 19% that we saw in the quarter on an adjusted basis should be about 10%. We're assuming about 95,000 new units which is still better than many years back. So again, it's a pricing 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 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 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 roughly $250 million is in the second quarter and the other $350 million is in the second half of the year. The average yield is fairly consistent; it's a little bit lower in the third quarter and a little bit higher in the fourth quarter, but overall it's about 1.65%. That's what we're looking at. We had an additional about $236 million or so that matured during the first quarter. We did take advantage of the latter part of March where rates changed a bit and increased yields, so we advanced a little bit of cash flows into that. So that should help on the numbers going forward. 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 yields roughly 250 to about 280 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 of oil. Latest numbers that the government published show energy in Puerto Rico is now below 20% dependent on oil. So that's good. They have been converting generation to LNG, with a carbon facility and some renewables. So less than 20% dependency means less impact in terms of the final electricity bill. On the other hand, gas station prices impact consumers more directly, which is what we've been seeing and commenting on. We have 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 who might be choosing not to travel to Europe or Mexico at this time and are coming more here. When we look at hotel occupancy and airport activity, we feel pretty good about that. There are still a few hotel projects that are moving through the pipeline. Construction continues very active and the related supply chain is robust. So we haven't seen softening in that piece. Distribution, expansion of distribution and other infrastructure projects are moving. So we feel pretty good about the commercial pipeline and are looking forward to faster closings of what we have at hand so we can deliver the growth that we promised.

Operator provided instructions. 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 for 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 the later part of the year?

Well, yes, we're expecting stability. You always have a little bit of benefit in the first quarter from tax refunds. But as we have mentioned in the past, we monitor vintages. Based on adjustments we did on credit policies back in 2023 and 2024, we have seen how the behavior of the vintages since then are much better than they used to be. At this point, based on expectations in the market, we don't see any factors that could change dramatically. There could always be small ups and downs here and there, but overall, we expect stability on the delinquency side.

Operator provided instructions. 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; it's something that makes sense if it meets the returns that are our threshold. It's not necessarily easy to find something that qualifies for all of it, but we would not discard a transaction if a good opportunity comes to the table. We're not aggressive about it; we want balance and to be realistic. We consider strategic and financial perspectives together — 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 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?

I'd say we're working together; AI is here to stay. The industry is in a learning stage to make sure that you have the size and the scale to make the use cases financially justifiable. Given our size, you have internal processes related to automation and analytics that are the obvious use cases, including fraud management. We're also working with our key vendors; we don't have any fully developed internal applications yet — it's all vendor-driven and they have roadmaps, and we are getting on board in the early stages so we can benefit from it. There's a common understanding of scale: it's not only how you move but you have to move with the right governance and the right oversight, as any other technology brings risk that you have to have commensurate policies and processes to cover. At the end, we will all benefit. The larger the institution, the more beneficial and easier to justify the use cases because of the investment. An important investment this year is the foundation: data — where the data resides, data analytics — everything. All efforts are moving to be fully cloud-based; we're already halfway there in our infrastructure and main applications. It's a journey and will require investments that are an important component of the expense guidance Orlando mentioned.

Got it. That's really helpful. Last question for me, if I can sneak one 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 one-time loan fees or anything that may have impacted that. Wondering if that's run ratable.

There were not any large one-time items. We typically get some movements on what's in and out of nonperforming, and so we might collect on some things that were there, but nothing major. Remember that for quite a while, when rates were low, most of our originations were conforming paper, so we didn't have a lot of lower-yielding items on the portfolio. We've been originating some nonconforming paper for the last 1.5 years, and those are higher yielding. So as you get repayments on some of the lower-yielding ones, you'll get some pickup. This quarter was a bit higher. Also, it's a function of the amortization component. Other than that, we expect that portfolio to, as long as rates stay here, produce new originations that will continue to come in a bit higher than what's going out of the portfolio with repayments.

Operator provided instructions. Our next question comes from Stephen 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?

You have to divide it by components. New time deposits on the books are at lower rates than some of the older ones that are maturing, so you saw the 5 basis point reduction on time deposits. Broker deposits, even though it's not a large portfolio, are also being repriced at lower rates, so we had that 7 basis points and we'll continue to see some small reductions. Interest-bearing checking or savings accounts have limited movement in rates; they only went up with limited beta when rates were rising, and we won't see significant rate reductions on those accounts quickly. Some reductions are seen on government deposit accounts because some of them are indexed, and as market rates have come down, they have come down. But it all depends on what happens with market rates. I would say that with current expectations, we would see some reductions on time deposits, not so much on some of the other deposit accounts.

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

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

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

I think it's a little bit of both, but overall economic activity and deal timing is the primary driver. Some of these deals are a couple of years in the making, especially related to infrastructure, construction or permits. So timing of economic activity plays a significant role.

Got it. And then just in terms of Florida, I realize it tends to be seasonal, but any updated thoughts as to where you are in that market?

We continue to view Florida as an important piece of the franchise and strategy. It's a healthy portfolio. We opened a new office in Boca in the last quarter of last year, and we announced repositioning of a branch in Miami, Kendall. We are looking to close and move to other areas. We're focused on repositioning to where commercial activity is more active. We're seeing opportunity in the corridor north and northeast of Broward County, and we have teams engaged in executing and producing. Deposit gathering in Florida is somewhat more challenging than other markets, but it's an important area of focus.

Operator provided instructions. 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 shooting for that 2 to 3 basis points per quarter increase from here?

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

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

Yes, assuming core deposits grow with the typical mix — more savings and interest-bearing checking accounts — and assuming stability on government deposits, that would mean lower-cost deposits and the mix could improve funding cost.

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

A lot of coordination: sales efforts, products and marketing across both retail and small business, which is an important piece of the puzzle that we continue to penetrate. We also have branch expansions on the West Coast of the island opening midyear, which we expect will add about 4,000 new clients between retail and small business. It's really a sales focus and execution that requires coordination and effort.

Okay. So to summarize: loan yields are generally stable, securities could reprice higher as you laid out, and deposit costs are hard to reduce 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 upside if deposit growth exceeds expectations.

Yes, that's correct. One additional point: we have included in our assumptions that the consumer market in Puerto Rico will come down a bit in size; those are higher-yielding assets. So part of our assumption is some higher-yielding assets might decline a bit in size. The commercial side is strong, but the average yield on our consumer portfolio is above 10%, which is materially higher than commercial yields.

How would rate cuts impact this forward guidance if there were any? There's none in the forward curve at the moment, but if there was a rate cut, how would that shift your expectations?

The 2 to 3 basis points per quarter assumes some rate cuts starting at the end of the year. The impact depends on the size of the cuts. Rate cuts would reduce reinvestment yields in the investment portfolio, but we'd also see repricing on some deposits. The assumption includes some expectation of reduction toward the latter part of 2026. Remember that roughly half of the commercial loan book is floating rate, so if rates are not cut we wouldn't see repricing on those floating components; if cuts do happen, those components would repriced lower. That's part of the assumption.

Broadening out for a moment, in the economic commentary you discussed the potential and we've discussed the military activity on the island and how it could impact the economy, not that it increases activity everywhere, but how it could raise the floor of economic activity or reconstruction funds safety. Can you speak to the military activity that you are seeing on the island?

What we're seeing is active use of some facilities with more people coming in — more military personnel. There's also expansion in capacity for where they live, often in hotels. This is outside the metro area primarily: the east side of the island, the south part of the island and the airport in Aguadilla in the northwest. Small hotels are being fully occupied by military personnel under long-term contracts. They buy and consume merchandise and patronize local businesses, and we see more of that. There is some construction in these areas. This activity is being kept fairly confidential, so we don't have full visibility on additional future deployments, but we are seeing it and getting commentary from clients and branch representatives in the affected areas. This strategic importance increase also makes reconstruction funds and related investments somewhat safer and more likely to be utilized given the increased demand and activity.

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

I wanted to follow up on the tech commentary. We can see relatively high growth rates in outsourced tech spend and 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 back-office maintenance/efficiency initiatives and anything geared toward revenue growth?

At this point, a lot relates to migration of our data centers from a managed facility structure within our facilities to a service provider structure. We use FIS as a service provider. We've also been migrating other applications to cloud providers where those providers will manage and fully manage some of the applications for us. So we continue to see a lot of investments which are part of that migration process, and those costs are included in professional services and outsourcing costs.

To add, everything that's coming new is going into the cloud and is coming as software-as-a-service rather than in-house developed applications or more physical servers at our facility. We don't have a public detailed split of expenses between types of tech spend, but much of this is migration costs and cloud transformation. We'll consider your question for more detailed disclosure in future presentations.

Okay. If I could just follow up on that: do you think your tech spend growth rate is at a peak level? Or is it possible it can decline? Or should we think about it 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 the Wells Fargo Financial Services Conference in Chicago on May 13 and the 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.