First Bancorp Q4 2025 First Bancorp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 First Bancorp Earnings Call
Speaker #1: Hello, and welcome everyone to the First Bancorp Q4 2025 and full year 2025 financial results. My name is Becky, and I will be your operator today.
Operator: Hello and welcome, everyone, to the First BanCorp Q4 2025 and full year 2025 financial results. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. If you wish to ask a question in this time, please press star, followed by 1 on your telephone keypads. I will now hand over to your host, Ramon Rodríguez, Investor Relations Officer, to begin. Please go ahead.
Operator: Hello and welcome, everyone, to the First BanCorp Q4 2025 and full year 2025 financial results. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. If you wish to ask a question in this time, please press star, followed by one on your telephone keypads. I will now hand over to your host, Ramon Rodríguez, Investor Relations Officer, to begin. Please go ahead.
Speaker #1: All lines will be muted throughout the presentation portion of the call, with a chance for a Q&A at the end. If you wish to ask a question at that time, please press star, followed by one, on your telephone keypad.
Speaker #1: I will now hand over to keypads. I will now hand over to your host, Ramon Rodriguez, Investor Relations Officer. To begin, please go ahead.
Ramon Rodríguez: 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 Alemán, 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 legacy file. The company assumes no obligation to update any forward-looking statements made during the call.
Ramón Rodríguez: 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 Alemán, 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 legacy file. The company assumes no obligation to update any forward-looking statements made during the call.
Speaker #2: Thank you . Becky . Good morning , everyone , and thank you for joining first Bank Forbes conference call and webcast to discuss the company's financial results for the fourth quarter and full year 2025 .
Speaker #2: Joining you today from First Bancorp . Are Aurelio Aleman President and Chief Executive Officer and Orlando Perez , Executive Vice President and Chief Financial officer .
Speaker #2: Before we begin today's call , it is my responsibility to inform you that this call may involve certain forward statements , such as projections of revenue , earnings and capital structure , as well as statements on the plans and objectives of the company's business .
Speaker #2: The company's actual results could differ materially from the forward looking statements made due to the important factors described in the important , company's latest SEC filings .
Speaker #2: 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 fbp .
Ramon Rodríguez: If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbbinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Alemán.
If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbbinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Alemán.
Speaker #2: Investor . Com . At this time , I'd like to turn the call over to our CEO , Aurelio Aleman .
Aurelio Alemán-Bermúdez: Thanks, Ramon, and good morning to everyone, and thank you for joining our call today. Our result for this quarter represents a strong capstone 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 $0.8055 per share, generated a top quarter return on asset 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 $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 payoff and slightly lower consumer loan production.
Aurelio Alemán: Thanks, Ramon, and good morning to everyone, and thank you for joining our call today. Our result for this quarter represents a strong capstone 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 $0.8055 per share, generated a top quarter return on asset 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 $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 payoff and slightly lower consumer loan production.
Speaker #3: Thanks , Ramon , and good morning to everyone , and thank you for joining our call today . Our results for this quarter represent a strong capstone to a outstanding and disciplined execution by record revenues , positive operating leverage , and stable credit performance .
Speaker #3: We did deliver top performing bank across multiple metrics . We produce 87 million in net income , or $0.55 per share , generated a top quartile return on assets of 1.8% and prudently manage our expense base , resulting in a 49% efficiency ratio for the quarter .
Speaker #3: Turning to the balance sheet , we continue to . First and foremost , our deploy capital to support our clients by facilitating a 1.4 billion in long origination during the quarter , a total loans grew by 80 million , mainly reflecting growth across the commercial segments .
Speaker #3: Growth: You were slightly impacted by elevated commercial loan payoffs and slightly lower consumer loan production. Core customer deposits increased by $267 million.
Aurelio Alemán-Bermúdez: Core customer deposits increased by $267 million. More importantly, we achieved this while proactively continuing to reduce total deposit costs. In addition, government deposits 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% pickup in core non-interest-bearing deposits during the quarter. On the asset quality side, the ratio of Non-Performing Assets to total assets continued to decrease, reaching an all-time low level of 60 basis points during the quarter. Consumer credit continued to stabilize, and it charged 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 in 2021, we have repurchased over 28% of shares as funding.
Core customer deposits increased by $267 million. More importantly, we achieved this while proactively continuing to reduce total deposit costs. In addition, government deposits 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% pickup in core non-interest-bearing deposits during the quarter. On the asset quality side, the ratio of Non-Performing Assets to total assets continued to decrease, reaching an all-time low level of 60 basis points during the quarter. Consumer credit continued to stabilize, and it charged 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.
Speaker #3: And more importantly , we achieved this while proactively continuing to reduce total deposit costs . In addition , government deposits decreased during the quarter we as continue to look for efficiencies in in higher cost deposits in this part of the cycle .
Speaker #3: That said , we also see a big 3.2% pickup in core noninterest deposits during the quarter . On the asset quality side , the ratio of nonperforming assets to total assets continued to decrease , reaching an all time low level of 60 basis points during the quarter .
Speaker #3: Consumer credit continued to stabilize nature to average loans at 63 basis points , essentially flat to the prior quarter , and finally , this quarter , we repurchased 50 million shares of common stock and declared 28 million in dividends .
I think to put in perspective, since we began the buyback program in 2021, we have repurchased over 28% of shares as funding.
Speaker #3: I think to put in perspective, since we began the buyback program in 2021, we have repurchased over 28% of shares outstanding.
Aurelio Alemán-Bermúdez: Still, given our excess 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 Q1 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 that investments were making and driving strong operating performance. We crossed $1 billion in total revenues, generated a record net income of $345 million, grew earnings per share by 19%, and posted a strong 1.8% return on assets for the year, all while improving our capital and liquidity levels.
Still, given our excess 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 Q1 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 that investments were making and driving strong operating performance. We crossed $1 billion in total revenues, generated a record net income of $345 million, grew earnings per share by 19%, and posted a strong 1.8% return on assets for the year, all while improving our capital and liquidity levels.
Speaker #3: Still , our excess capital position meaningful capital generation , we are well positioned to further increase our return of capital to shareholders 2026 .
Speaker #3: in As such , we were very pleased that our board approved an 11% increase to the common quarterly stock dividend to $0.20 per share , starting in the first quarter of 2026 .
Speaker #3: Please , let's move to slide five to provide some highlights of the full year . Definitely , 2025 was a year of of changes .
Speaker #3: Your political and the macro a but but again significant progress that we demonstrated the we're making are driving strong operating performance . We crossed 1 billion in total revenues , generated record net income of 345 million .
Speaker #3: Grew earnings per share by 19% and posted a strong 1.9% return on assets for the year, all while improving our capital and liquidity levels.
Aurelio Alemán-Bermúdez: Our strong profitability allowed 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 across multiple channels, meaning digital branch, continued to show increasing results. In both channels, digital and personalized branch contact results were improved. Active retail digital 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 continued to pay off. In terms of the macro, I think the second half of the year showed slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trends to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat.
Our strong profitability allowed 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 across multiple channels, meaning digital branch, continued to show increasing results. In both channels, digital and personalized branch contact results were improved. Active retail digital 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 continued to pay off. In terms of the macro, I think the second half of the year showed slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trends to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat.
Speaker #3: A our strong profitability allowed us to continue returning approximately 95% of earnings to shareholders , while increasing tangible book value per share by 24% .
Speaker #3: Our consistent investments to advance our omnichannel strategy and improve our interaction with customers , with multiple across multiple channels , meaning digital branch continue to show encouraging results .
Speaker #3: A both channels , digital and personalized branch contact results were improved . Active retail users were up 5% when compared to last year , 95% of deposit transactions were captured through self-service channels and our our branch sales and service delivery efforts continue to pay off in terms of the macro , I think the second half of the year showed slightly lower economy in our main market .
Speaker #3: In spite of doing this, we are focused on the constructive underlying trends to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat. The impact of tariff-related pricing, inflationary pressures, and geopolitical tensions will continue to develop through the year.
Aurelio Alemán-Bermúdez: The impact of tariff-related pricing, inflationary pressures, and geopolitical tensions will continue to develop through the year. On the other hand, we see multiple developments that will serve as important drivers of stability and the future for the growth of the economy, both in Puerto Rico and actually our second market, Florida. Resilient labor market here while employment rate hovering above 5.7%. Another year with strong tourism activity, passenger 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 federal disaster relief funds that will support critical infrastructure development for the year to come. There's still $40 billion in the year.
The impact of tariff-related pricing, inflationary pressures, and geopolitical tensions will continue to develop through the year. On the other hand, we see multiple developments that will serve as important drivers of stability and the future for the growth of the economy, both in Puerto Rico and actually our second market, Florida. Resilient labor market here while employment rate hovering above 5.7%. Another year with strong tourism activity, passenger 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 federal disaster relief funds that will support critical infrastructure development for the year to come. There's still $40 billion in the year.
Speaker #3: On the other hand , we see multiple developments that will serve as important driver stability and the future for the , you know , the future for the growth of the economy , both in Puerto Rico and actually our our second market , Florida resilient labor market here , unemployment rate hovering above 5.7% .
Speaker #3: Another year was around activity. Passenger traffic at the airport was up 3%, reaching a record high of 13.6 million passengers, already over $2.2 billion.
Speaker #3: In announced investment to expand manufacturing capacity in the island, a driven by the efforts and the consistent flow of disaster relief funds that will support critical infrastructure development for the year to come.
Speaker #3: 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 terms of disbursements the of federal fund programs .
Aurelio Alemán-Bermúdez: 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 a 52% or better efficiency ratio, maintaining 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 gradually returning to pre-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 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%-5% organic loan growth, sustaining a 52% or better efficiency ratio, maintaining 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 gradually returning to pre-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.
Speaker #3: Looking ahead to 2026 again , we we have ample experience navigating dynamic environments , and we are well positioned to continue growing with our markets and deliver consistent returns to our shareholders .
Speaker #3: Our guidance remains largely on: we're focused on delivering 3% to 5% organic loan growth, sustaining a 52% or better efficiency ratio, maintaining strong profitability metrics, and returning close to 100% of annual earnings back to shareholders.
Speaker #3: As quality is expected to remain stable, with consumer credit quality gradually returning to pre-pandemic levels. That we have seen driven by basically inflationary pressures to the consumer.
Speaker #3: Even though compensation is better and there is a stable unemployment , a we are in great capital position , continue to make the right investments to modernize and enhance our franchise , to drive both growth and efficiencies and deliver strong performance in 2026 .
Aurelio Alemán-Bermúdez: We are in great capital position. Continue to make the right investments to modernize and enhance 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.
We are in great capital position. Continue to make the right investments to modernize and enhance 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.
Speaker #3: 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 .
Speaker #3: With that , I will now turn the call over to Orlando . Thanks , Aurelio , and good morning , everyone As you saw in the quarter , we this 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 .
Orlando Berges: 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 per 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 of the holding company. And we also had a $2.3 million employee tax credit that, if we exclude 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 pre-tax pre-provision income was $129.2 million, which compares to $121.5 million in the third quarter. For the full year 2025, net income was $344.9 million, which represents $2.15 per share.
Orlando Berges: 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 per 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 of the holding company. And we also had a $2.3 million employee tax credit that, if we exclude 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 pre-tax pre-provision income was $129.2 million, which compares to $121.5 million in the third quarter. For the full year 2025, net income was $344.9 million, which represents $2.15 per share.
Speaker #3: Last last quarter . Results included the reversal of a 16.6 million valuation allowance on deferred tax assets related to 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 .
Speaker #3: If comparing the quarters , excluding these items , earnings per share 8% higher was this quarter from the from the amounts in the third quarter , adjusted pre-tax pre-provision income was 129.2 million , which compares to 121.5 in in the third quarter .
Speaker #3: For the full year , 25 net income was 344.9 million , which represents $2.15 per share . Adjusted pre-tax income reached an all time high of 499.2 million , which is 10% higher than 2024 on a on a non-GAAP basis , adjusted 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 .
Orlando Berges: Adjusted pre-tax pre-provision 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. 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 average asset target of 1.50%. Again, a strong year, and we are 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.
Adjusted pre-tax pre-provision 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. 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 average asset target of 1.50%. Again, a strong year, and we are 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.
Speaker #3: Return on average , assets for 2025 was 1.81% , which compares to 158 in 2024 and on a non-GAAP adjusted basis , a return on assets was 1.71 for the year 2025 marks .
Speaker #3: The fourth consecutive year that we surpassed our return . On average , target return average assets target of 150 . Again , a strong , strong year .
Speaker #3: And we're 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.
Orlando Berges: This includes $800,000 we collected on an unaccrual loan that was paid off, as well as $500,000 collected on a prepayment penalty on a loan that also was paid off in the Florida region. Net interest margin for the quarter was 4.68%, but adjusted for these items would have been 465 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 points 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.
This includes $800,000 we collected on an unaccrual loan that was paid off, as well as $500,000 collected on a prepayment penalty on a loan that also was paid off in the Florida region. Net interest margin for the quarter was 4.68%, but adjusted for these items would have been 465 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 points 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.
Speaker #3: This includes 800,000 we collected on on an accrual loan that was paid off , as well as 500,000 collected on a prepayment penalty on a loan that also was paid off in the Florida region .
Speaker #3: Net margin interest for the quarter was 4.68% , but adjusted for these items would have been 4.65 or 8 basis points higher than last quarter .
Speaker #3: You recall, we were expecting that margin would be 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.
Speaker #3: This was higher than we had anticipated. We too were able to reprice some of the accounts based on market rates, and the reduction we had in government deposits already that was mentioned was mostly seen on the higher-cost accounts.
Orlando Berges: Also, the cost of other interest-bearing checking and savings accounts decreased 4 basis points during the quarter. We combine all of these items with the fact that we grew non-interest-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 the 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 points 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.
Also, the cost of other interest-bearing checking and savings accounts decreased 4 basis points during the quarter. We combine all of these items with the fact that we grew non-interest-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 the 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 points 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.
Speaker #3: Also , the cost of other interest bearing checking and savings account decreased four basis points during the quarter . We combine all of these items with the with the fact that we grew noninterest bearing deposits by about 170 million in the quarter .
Speaker #3: This helped reduce the overall funding costs for the quarter by five basis points. Meanwhile, we continue to see the pickup in the investment portfolio yields through the reinvestment of cash flows that we've been mentioning during the quarter.
Speaker #3: We registered 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 points improvement in the yield a little bit offset or by 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 .
Orlando Berges: On the lending side, the yield on the C&I portfolio came down 27 basis points as compared to last quarter as the floating rate portion of the portfolio repriced, 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, in fact, partially compensated by an increase of $155 million in the average balance of loan portfolios. What we expect is that 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 1.65% that would definitely be repriced at higher rates.
On the lending side, the yield on the C&I portfolio came down 27 basis points as compared to last quarter as the floating rate portion of the portfolio repriced, 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, in fact, partially compensated by an increase of $155 million in the average balance of loan portfolios. What we expect is that 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 1.65% that would definitely be repriced at higher rates.
Speaker #3: On on the lending side , the yield on the CNI came down portfolio 27 basis points as compared to last quarter as a floating rate portion of the portfolio reprice tied to the reduction in prime rate and and and the reduction in sofr .
Speaker #3: But the yields on the other loan portfolios remain at very similar levels, resulting in an overall reduction of only seven or eight basis points in the loan-only portfolios.
Speaker #3: This this this reduction in yields was in partially compensated by by an increase of 155 million in the average balance of loan portfolios .
Speaker #3: What we what we expect is of the same that some dynamics in 2026 , same dynamics of the that drove margin for 2025 , we have approximately 848 million in cash flows during 2026 , coming from securities that have an average yield of 1.65% .
Speaker #3: That would definitely be repriced at higher rates . Out of this amount , 494 million are expected in the first half of the year .
Orlando Berges: 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.
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 2-3 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.
Speaker #3: You know, benefiting in the second part of the year based on current expectations that we have for interest rate changes in the year and 2026.
Speaker #3: And with our projected loan and deposit movements, we expect that margin will grow 2 to 3 basis points per quarter during 2026.
Speaker #3: 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 purchasing some tax credits .
Speaker #3: 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 .
Orlando Berges: Employee compensation was $3.4 million higher, but this was related to the $2.3 million employee retention credit that was recorded during Q3. Actual increase was $1.1 million, which was due in part to the full quarter effect of merit increases that were granted in Q3. We also saw in the quarter an increase of $2.1 million in business promotion, which is mostly related to seasonal marketing efforts. These increases were partially compensated by an improvement in OREO operations since we, you might remember that during Q3, we booked $2.8 million valuation allowance on a repossessed property that we didn't have this quarter. We also had this quarter a reversal of $1.1 million part of the accrual for the FDIC special assessment.
Employee compensation was $3.4 million higher, but this was related to the $2.3 million employee retention credit that was recorded during Q3. Actual increase was $1.1 million, which was due in part to the full quarter effect of merit increases that were granted in Q3. We also saw in the quarter an increase of $2.1 million in business promotion, which is mostly related to seasonal marketing efforts. These increases were partially compensated by an improvement in OREO operations since we, you might remember that during Q3, we booked $2.8 million valuation allowance on a repossessed property that we didn't have this quarter. We also had this quarter a reversal of $1.1 million part of the accrual for the FDIC special assessment.
Speaker #3: Employee compensation was 3.4 million , higher , but this was related to to the 2.3 million employee retention credit that recorded during was the third quarter .
Speaker #3: Actual increase was $1.1 million, which was due in part to the full quarter effect of merit increases that were granted in the third quarter.
Speaker #3: We saw also in the quarter an increase of 2.1 million in business promotion , which is mostly related to seasonal marketing efforts . These these increases were partially compensated by an improvement in renal operations since we during the .
Speaker #3: You might remember that during the third quarter, we took a $2.8 million valuation allowance on a repossessed property that we didn't have this quarter. And we also had this quarter a reversal of $1.1 million of part of the accrual for the special assessment expenses before ORAL results.
Orlando Berges: Expenses before OREO results and the reversal of the accrual of the FDIC special assessment was $128.8 million for the quarter, which compares to $126.2 million in the third quarter, adding back the employee 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 we were undertaking at the beginning of the year, we expect that a quarterly expense base for 2026 will be in the range of $128 to 130 million, excluding the OREO losses. Gains or losses, I mean.
Expenses before OREO results and the reversal of the accrual of the FDIC special assessment was $128.8 million for the quarter, which compares to $126.2 million in the third quarter, adding back the employee 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 we were undertaking at the beginning of the year, we expect that a quarterly expense base for 2026 will be in the range of $128 million-$130 million, excluding the OREO losses. Gains or losses, I mean.
Speaker #3: and the reversal of the accrual of the Avic Special assessment was 128.8 million for the quarter , which compares to the 126.2 million in third quarter .
Speaker #3: Adding back the the employee retention credit . This is a slightly higher than than our guidance and reflects some of the investments we're doing .
Speaker #3: 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 and some of the business promotion efforts , we we're undertaken at the beginning of the year , we expect that quarterly expense base for 2026 will be in the range of 128 to 130 million , excluding the Oreo losses , gains or losses .
Orlando Berges: 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 components. In terms of asset quality, we saw a stable quarter. NPAs decreased by $5.3 million. Basically, we had two commercial cases, non-accrual cases that amounted to $15 million that were collected in the quarter. We had a reduction of $1.8 million in OREO, other real estate-owned assets, as a result of the sales we achieved during the quarter. On the other hand, we had two C&I loan cases that amounted to $12 million that migrated to non-performing in the quarter. Overall, non-accrual loans represent 70 basis points of total loans compared to 74 basis points at the end of the third quarter.
However, we do believe that our efficiency ratio will still be in that range of 50%-52%, considering the changes on the expense side, but also on the income components. In terms of asset quality, we saw a stable quarter. NPAs decreased by $5.3 million. Basically, we had two commercial cases, non-accrual cases that amounted to $15 million that were collected in the quarter. We had a reduction of $1.8 million in OREO, other real estate-owned assets, as a result of the sales we achieved during the quarter. On the other hand, we had two C&I loan cases that amounted to $12 million that migrated to non-performing in the quarter. Overall, non-accrual loans represent 70 basis points of total loans compared to 74 basis points at the end of the third quarter.
Speaker #3: I mean , however , we 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 income also on the component .
Speaker #3: terms of In asset quality , we saw a stable quarter and NPAs decrease by 5.3 million . Basically , we we had two commercial cases , Non-accrual cases that amounted to 15 million that were collected in the quarter .
Speaker #3: And we had a reduction of $1.8 million in OREO, or the real estate owned assets, service. All the sales we achieved during the quarter.
Speaker #3: On the other hand , we had the two . Two CNI loan cases that amounted to 12 million . That migrated to nonperforming in the quarter .
Speaker #3: Overall, non-accrual loans were 3%, or 70 basis points of total loans, compared to 74 basis points at the end of the third quarter.
Orlando Berges: In terms of inflows to non-accrual, there were $14 million higher this quarter, $46 million, but it's related to these two cases that I mentioned that went into non-performing, two C&I loan cases. In terms of delinquency, we saw loans in early delinquency, which we defined 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, representing 1.9% of loans compared to 1.89% in Q3. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios.
In terms of inflows to non-accrual, there were $14 million higher this quarter, $46 million, but it's related to these two cases that I mentioned that went into non-performing, two C&I loan cases. In terms of delinquency, we saw loans in early delinquency, which we defined as 30-89 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, representing 1.9% of loans compared to 1.89% in Q3. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios.
Speaker #3: In terms inflows of to Non-accrual , there were 14 million higher this quarter , 46 million , but it's related to these two cases that I mentioned that went into non-performing to CNI loan cases .
Speaker #3: In terms of delinquency , we saw loans in early delinquency , which we defined as 30 to 89 days past , due increase of 2.1 million .
Speaker #3: It was mostly on the auto portfolio that increased 7 million . But we had some reductions of 6 million in the Florida CNI loan delinquencies .
Speaker #3: The allowance for credit losses on loans increased 2 million in the quarter to 249 million , representing 1.9% of loans , compared to 1.89% in the in the third quarter .
Speaker #3: 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 with the 62 basis points we had in the prior quarter .
Orlando Berges: Net charge-off 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, obviously, our strong profitability allowed us to continue the repurchase. We did $50 million in repurchase of shares in the quarter, and we declared $28 million in dividends. Regulatory capital ratios continued 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 AOCL now represents $2.22 in tangible book value per share and slightly over 160 basis points in our tangible common equity ratio.
Net charge-off 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, obviously, our strong profitability allowed us to continue the repurchase. We did $50 million in repurchase of shares in the quarter, and we declared $28 million in dividends. Regulatory capital ratios continued 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 AOCL now represents $2.22 in tangible book value per share and slightly over 160 basis points in our tangible common equity ratio.
Speaker #3: On the on the capital front , we obviously are strong . Profitability allowed us to repurchase , continue the repurchase . We we did 50 million in repurchase of shares in the quarter .
Speaker #3: 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.
Speaker #3: We also registered a 4% increase in tangible book value per share to $12.29 , and the ratio expanded at to 10% , mostly due to the 38 million improvement in the fair value of available for sale investment securities .
Speaker #3: The remaining AUC now represent book $2.22 in tangible value per share , and slightly over 160 basis points in our tangible common equity ratio .
Orlando Berges: Again, this year, we sustained our commitment to deliver close to 100% of earnings, as Aurelio mentioned, through capital actions. This year, we repurchased $150 million in common shares. We paid $150 million in dividends and redeemed the remaining $62 million in subordinated debentures while growing our tangible book value per share by 24%. As we announced yesterday, our board of directors approved an increase of $0.02 per share quarterly dividends. Again, our intention is to continue the approach 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. 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 remarks.
Again, this year, we sustained our commitment to deliver close to 100% of earnings, as Aurelio mentioned, through capital actions. This year, we repurchased $150 million in common shares. We paid $150 million in dividends and redeemed the remaining $62 million in subordinated debentures while growing our tangible book value per share by 24%. As we announced yesterday, our board of directors approved an increase of $0.02 per share quarterly dividends. Again, our intention is to continue the approach 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. 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 remarks. Operator, please open up the call for questions.
Speaker #3: Again this year, we sustain our commitment to deliver close to 100% of earnings, as Aurelio mentioned. Through capital actions, we repurchased this year.
Speaker #3: We repurchased 150 million in common shares . We paid 115 million in dividends and redeem the remaining subordinated 62 million in debentures , while growing our tangible book value per share by 24% .
Speaker #3: So we announced yesterday our Board Directors of approved an increase of $0.02 per share quarterly dividends . And again , our intention is to continue the approach of of executing our capital actions based on market circumstances with a with our base assumption of repurchasing approximately 50 million in shares per quarter through through the end of 2026 .
Speaker #3: But again , as we have done so far , we will continue to deploy our excess in a capital thoughtful manner , always looking for the long term best interest of the franchise and our shareholders .
Speaker #3: This concludes our remarks . Operator please open up the call for questions .
Orlando Berges: Operator, please open up the call for questions.
Ramon Rodríguez: Thank you. If you wish to ask a question, please press star, followed by 1 on your telephone keypad now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star, followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brett Rabatin from Hovde Group. Your line is now open. Please go ahead.
Operator: Thank you. If you wish to ask a question, please press star, followed by one on your telephone keypad now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star, followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brett Rabatin from Hovde Group. Your line is now open. Please go ahead.
Speaker #1: Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad. Now, if you feel your question has been, for any reason, or if you would like your question answered, or to remove yourself from the queue, please press star followed by two.
Speaker #1: When preparing to ask your question , please ensure your device is unmuted locally . Our first question comes from Brett Rabatin from Hobday Group .
Speaker #1: Your line is now open . Please go ahead .
Aurelio Alemán-Bermúdez: Hi, guys. This is Anya Pelshaw 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?
Anya Pelshaw: Hi, guys. This is Anya Pelshaw 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?
Speaker #4: Hi guys, this is Anja speaking on behalf of Brett. You know, we're 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.
Orlando Berges: 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. The mix of the 2 to 3 basis points we just mentioned, it's that mix that we expect happening. Right now, we're assuming there's going to be probably 2 more rates toward the end of the year and 2 more cuts, I mean, and that would have some impact.
Orlando Berges: 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. The mix of the 2-3 basis points we just mentioned, it's that mix that we expect happening. Right now, we're assuming there's going to be probably 2 more rates toward the end of the year and 2 more cuts, I mean, and that would have some impact.
Speaker #3: levers The would be similar . I think it's going to come from this cash flows on the investment portfolio . We still have those , you know , low yield securities that are coming due and and again , as I mentioned , we see the loan pipeline on the commercial side and residential being being really strong much , not so on the on the consumer side which are higher yielding assets , but the mix of these items with the options to to of reprice some the of the deposit components as rates come down , those would be the key .
Speaker #3: The key drivers that's , you know , the mix , the 2 to 3 basis points . We just mentioned . It's that mix that we expect happening right now .
Speaker #3: We're assuming there's going to be probably two more rates toward the end of the year . And two more cards . I mean , and that would would have some , some , some impact .
Orlando Berges: 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, is 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.
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, is 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.
Speaker #3: But but clearly the repricing of the commercial portfolio , the side , you know , floating does have some impact . And that's included in our numbers that , you know , the , the , the , the rate we had in , in mid December .
Speaker #3: Obviously it's going to reflect more on that portfolio now in the first quarter . But but the overall we still feel that that there should be an improvement in margin .
Aurelio Alemán-Bermúdez: Thank you. 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? And yeah, I mean, what are you seeing as far as the competitive front?
Anya Pelshaw: Thank you. 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? And yeah, I mean, what are you seeing as far as the competitive front?
Speaker #4: Thank you . And you know what . What are you guys as seeing far as competition goes . You know how much how much more do you think the cost of funds could be lower with lower rates .
Speaker #4: And yeah, I mean, what are you seeing as far as the competitive front?
Orlando Berges: Well, we haven't said a specific number, but you have to look at components. Number one, we do have still some wholesale funding through brokered CDs, mostly. Those are repricing with market, and we don't have long-term issues of brokered. Mostly, there were originally 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, it's the time deposit side. Obviously, with rates coming down, we're seeing some of the ones that were issued at 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. 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.
Orlando Berges: Well, we haven't said a specific number, but you have to look at components. Number one, we do have still some wholesale funding through brokered CDs, mostly. Those are repricing with market, and we don't have long-term issues of brokered. Mostly, there were originally 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, it's the time deposit side. Obviously, with rates coming down, we're seeing some of the ones that were issued at 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. 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.
Speaker #3: Well , we haven't we a specific number . But you have to look at components , number do one , we have still some some broker cities mostly those are repricing with market and you know we we don't have long term issues of brokers mostly they were originally issued between nine somewhere months and 18 months .
Speaker #3: So those are coming coming due and are being reissued to fund our Florida operation at lower rates . The other component is the time deposit side , obviously , rates with coming down , we're seeing some of the ones that were issuing a higher rates now being repriced at a at a slightly lower rates and , and as rates come down , other some of the government deposit accounts will have some repricing .
Speaker #3: some of Those them are tied to market indexes . So those are where we see most of it . The regular transaction accounts .
Speaker #3: 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.
Orlando Berges: If you go back, you'll see that they didn't go up as much either when rates were going up. So 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.
If you go back, you'll see that they didn't go up as much either when rates were going up. So 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.
Speaker #3: When rates were going up . So we'll we'll we expect similar trends . Those accounts had like a 14% beta . So we , we don't see that changing that much .
Speaker #3: But the other components are expected to come down .
Aurelio Alemán-Bermúdez: Thank you. You guys touched on credit quality a little bit during your talk, but I was just wondering if you could expand on it. It's obviously fairly stable, but is there anything that you see might change that for better or for worse?
Anya Pelshaw: Thank you. You guys touched on credit quality a little bit during your talk, but I was just wondering if you could expand on it. It's obviously fairly stable, but is there anything that you see might change that for better or for worse?
Speaker #4: Thank you . And you know , you guys touched on credit quality a little bit . know You , during your talk . But I was just wondering if you could expand on , you know , it's obviously fairly stable , but is there anything that you see might change that for better or for worse ?
Orlando Berges: No. In reality, we believe there's stability. We don't see any specific noise. We saw some deterioration on the consumer delinquencies, which is normalized, also charge-offs. So I think we call it stable when you look at the mix of assets. Mortgage is 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 on the consumer. But we're encouraged by the recent trends that we see in the portfolios.
Aurelio Alemán: No. In reality, we believe there's stability. We don't see any specific noise. We saw some deterioration on the consumer delinquencies, which is normalized, also charge-offs. So I think we call it stable when you look at the mix of assets. Mortgage is 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 on the consumer. But we're encouraged by the recent trends that we see in the portfolios.
Speaker #3: No . You know , in reality , you know , we believe there's stability . We don't see any any specific noise . You know , we saw some deterioration on the consumer delinquencies , which is normalized also charge off .
Speaker #3: So , you know , I think we call it we stable . When you look at the mix of assets , you know , mortgages , it's lowest ever point and commercial to similar that .
Speaker #3: So we don't we don't see potential disrupters on that . And closely the unsecured monitoring market and the consumer . But you know , we're encouraged by the by the recent trends that we see in the portfolios .
Speaker #3: Yeah .
Aurelio Alemán-Bermúdez: Thank you. That's all for me.
Anya Pelshaw: Thank you. That's all for me.
Speaker #4: Thank you . That's all for me .
Orlando Berges: Thank you.
Orlando Berges: Thank you.
Aurelio Alemán-Bermúdez: Thank you.
Aurelio Alemán: Thank you.
Ramon Rodríguez: Thank you. Our next question comes from Steve Moss from Raymond James. Your line is now open. Please go ahead.
Operator: Thank you. Our next question comes from Steve Moss from Raymond James. Your line is now open. Please go ahead.
Speaker #5: Thank you Thank you . .
Speaker #1: . Our question Thank you next comes Steve Moss from Roman James . Your line is now from open . Please go ahead .
[Analyst] (Raymond James): Good morning.
Steve Moss: Good morning.
Speaker #6: Good morning . Good morning . Good morning . Starting here with Morgan . Maybe know , on the front . Just loan growth curious with regard to Otto , if you have any updated thoughts about what you're seeing in market .
[Analyst] (Raymond James): Good morning.
Aurelio Alemán: Good morning.
[Analyst] (Raymond James): Good morning, Steve.
Orlando Berges: Good morning, Steve.
[Analyst] (Raymond James): I'm just starting here this morning. Maybe just on the loan front, just curious with regard to auto, if you have any updated thoughts about what you're seeing in that market. I heard Aurelio your tariff comments earlier, but just kind of curious any new thoughts or incremental color you may have.
Steve Moss: I'm just starting here this morning. Maybe just on the loan front, just curious with regard to auto, if you have any updated thoughts about what you're seeing in that market. I heard Aurelio your tariff comments earlier, but just kind of curious any new thoughts or incremental color you may have.
Speaker #6: that I heard a really . Aurélio , your the comments earlier , but of just kind curious . Any new thoughts or incremental call you may have ?
Orlando Berges: Yeah. When we look at what happened last year, the overall market retail on the retail side was down 10%, and most of 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 years. So we believe we have seen months of stabilization at a level that will be around an additional 5% this year contraction, considering that there are normalizations in the last quarter, unless there's 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 shares. So this is the percentage that I provided you is a combination of all the industry.
Aurelio Alemán: Yeah. When we look at what happened last year, the overall market retail on the retail side was down 10%, and most of 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 years. So we believe we have seen months of stabilization at a level that will be around an additional 5% this year contraction, considering that there are normalizations in the last quarter, unless there's 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 shares. So this is the percentage that I provided you is a combination of all the industry.
Speaker #3: Yeah. When we look at what happened last year, the overall market on the retail side was down 10%. And most of that contraction happened after the tariffs were implemented.
Speaker #3: So if you that is consider actually the second half of the year , the reduction was over 15% compared to year . prior So , so we are we believe we have seen months of stabilization .
Speaker #3: You know , at a level A at a level that would be around an additional 5% this year . Contraction , considering that normalization of the last quarter , unless , you know , there's some reversion some on the pricing , you know , it's very fluid because some of the manufacturers are still looking to adjust pricing down the some of them implemented the tariff immediately .
Speaker #3: Others didn't . The ones that didn't , you know , obviously regain some of the share . The other lost share . So this is you know , the percentages are provided .
Speaker #3: You is a combination of all of the industry . So we , you know , if we saw the quarter , you know , we saw a contraction in the portfolio of about 6 million .
Orlando Berges: So if we saw the quarter, we saw a contraction in the portfolio of about $6 million overall in the two segments, a little bit probably $7 million in that range. So obviously, we're looking forward to stabilize the portfolio, to stabilize the portfolio, and recuperate that contraction, but we don't expect any growth in the segment, unless there are 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 an exceptional year, so everything is relative to the prior period. But it will be stable if we compare 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 don't see growth as we continue to focus on underwriting in a sound manner.
So if we saw the quarter, we saw a contraction in the portfolio of about $6 million overall in the two segments, a little bit probably $7 million in that range. So obviously, we're looking forward to stabilize the portfolio, to stabilize the portfolio, and recuperate that contraction, but we don't expect any growth in the segment, unless there are 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 an exceptional year, so everything is relative to the prior period. But it will be stable if we compare 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 don't see growth as we continue to focus on underwriting in a sound manner.
Speaker #3: A overall a in the two segments , a little bit , probably seven in that range . So , so obviously we're looking forward to , to stable the portfolio to stabilize the portfolio .
Speaker #3: And , and recuperate that contraction . But we don't expect any growth at all in the segment . So unless there is a adjustments on on tariff or excise tax in the island , that could help that industry , a still a pretty good year for for the auto sector .
Speaker #3: We're just coming from exceptional So everything years . relative to to the prior period . But you know , it it will be a stable if we compare to other , other cycles of the auto sector .
Speaker #3: the consumer And then demand , consumer and demand consumer other products is kind of stable . But we don't expect we don't see we don't see , we don't see growth .
Speaker #3: A as you to continue in a underwriting sound manner , yeah .
[Analyst] (Raymond James): 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? I'm just maybe curious as to what you're assuming for the yield on those cash flows.
Steve Moss: 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? I'm just maybe curious as to what you're assuming for the yield on those cash flows.
Speaker #6: Okay . That's that's helpful . And then on the securities cash flows , just kind of curious as to how you're thinking about reinvestment of the proceeds here .
Speaker #6: You know , is that largely continued new investment securities purchases and just maybe curious as to what assuming you're for for the yield on those cash flows .
Orlando Berges: Well, as you know, we don't take credit risk on the portfolio, so it's a market-driven kind of 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, agency pass-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, it's 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 see it always as 2 to 3 basis points pickup on those 165 that are matures on the first half of the year.
Orlando Berges: Well, as you know, we don't take credit risk on the portfolio, so it's a market-driven kind of 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, agency pass-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, it's 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 see it always as 2-3 basis points pickup on those 165 that are matures on the first half of the year.
Speaker #3: Well .
Speaker #2: As you know, we don't take credit.
Speaker #3: Risk on the on the portfolio . So it's a it's a driven market kind of situation . But we're expecting that we we can we can see somewhere between and three basis points .
Speaker #3: Pick up on those flows cash depending on on the securities and the loan side . But both both of them we'll . we'll But continue know , to to , you see agency .
Speaker #7: that In .
Speaker #8: You know
Speaker #8: .
Speaker #8: . that Investments
Speaker #3: agency through . That's the kind of things that we typically do most . So you know , the first half of the year at this point , we're not expecting significant changes on on rates , probably , you know , end of June , early which is where we are expecting that .
Speaker #3: I think that , you market is know , the somewhere in there . Also that . And to allows us to maximize some of the the reinvestment of of these items .
Speaker #3: But , you know , I would see I , I see it always as a 2 to 3 basis points . Pick up on on the on those one 165 that first half of the matures on the year .
[Analyst] (Raymond James): Okay. Appreciate that, Orlando. And then on the telecom NPL, 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.
Steve Moss: Okay. Appreciate that, Orlando. And then on the telecom NPL, 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.
Speaker #6: Okay . Orlando . Appreciate that And then on the telecom NPL is that that is a club deal . Just kind of curious .
Speaker #6: Any color you can give there, and kind of thoughts on maybe timing of potential resolution.
Orlando Berges: Yeah. 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 the main goal. It's just a matter of time and progress. Yeah. For us, it's a very small participation. Yeah.
Aurelio Alemán: Yeah. 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 the main goal. It's just a matter of time and progress. Yeah. For us, it's a very small participation. Yeah.
Speaker #9: Yeah . You know there's not a lot of new information on it . You know , I think all banks continue to work with the lead bank on on understanding understanding what the resolution there's , you know , a lot of value behind it .
Speaker #9: So a obviously , you know , I think it's just waiting as we as we manage any other NPAs towards resolution . That's the main goal a it's just a matter of time .
Speaker #9: And progress . Yeah . it's a For us small , very small participation . Yeah .
[Analyst] (Raymond James): Right. Okay. And then just one last one for me here. On capital, you guys have been betting with your capital ratios here. Just kind of curious. Definitely on the mainland, there's more of an attitude towards greater return on capital shareholders and reducing Common Equity Tier 1 ratios. Just kind of curious if you guys are thinking about anything along those lines these days.
Steve Moss: Right. Okay. And then just one last one for me here. On capital, you guys have been betting with your capital ratios here. Just kind of curious. Definitely on the mainland, there's more of an attitude towards greater return on capital shareholders and reducing Common Equity Tier 1 ratios. Just kind of curious if you guys are thinking about anything along those lines these days.
Speaker #6: Right . Okay . And then just one last one for me here on capital . You guys been you know you know with your capital ratios steady here .
Speaker #6: Just kind of curious . You know definitely on on the mainland there's more of an attitude towards greater return on capital shareholders and reducing , you know , common equity tier one , tier one ratios .
Speaker #6: Just kind of curious if you guys are thinking about anything along those lines these days.
Orlando Berges: 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 Boca Raton. And then, obviously, there could be non-organic opportunities. Always open and looking unless if nothing comes to the table that meets our accretion and strategic value, we continue using the capital to continue deploying to shareholders buying back the shares. So we always have the three options. Organic is the most efficient in terms of returns. The others, we continue to play them both as market show opportunities. We try to be as opportunistic as we can, so.
Orlando Berges: 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 Boca Raton. And then, obviously, there could be non-organic opportunities. Always open and looking unless if nothing comes to the table that meets our accretion and strategic value, we continue using the capital to continue deploying to shareholders buying back the shares. So we always have the three options. Organic is the most efficient in terms of returns. The others, we continue to play them both as market show opportunities. We try to be as opportunistic as we can, so.
Speaker #9: you Well , know , obviously our priorities are to , you know , organic growth as much as we can . You know , we continue organic expansion in Florida .
Speaker #9: Also , but we just opened in the last quarter , you know , an office in Boca Raton . And we and then , you know , obviously there could be no organic opportunities always open and looking unless , you know , if nothing comes to the table that meets our , you know , our accretion and and value strategic value , we continue using the capital A to continue deploying to shareholders , shares .
Speaker #9: Buying, we always have the three options. Organic is the most efficient in terms of returns. The others—we would continue to play them both as markets show opportunities.
Speaker #9: You know we try to be as opportunistic as we can . So .
[Analyst] (Raymond James): Okay. Great. I appreciate all that, Colin. And I'll step back into queue. Nice quarter.
Steve Moss: Okay. Great. I appreciate all that color. And I'll step back into queue. Nice quarter.
Speaker #6: Okay , great . I appreciate all that color . Then I'll step back in the queue next quarter .
Orlando Berges: Thank you.
Orlando Berges: Thank you.
Speaker #9: you Thank .
Ramon Rodríguez: Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead.
Operator: Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead.
Speaker #1: Thank you . Our next question comes from Kelly Motta from KBW . Your line is open . Please go ahead now .
[Analyst] (KBW): Hi, this is Charlie. I'm for Kelly Motta. Thanks for the question. Just a point of clarification. 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? Thank you.
[Analyst] (KBW): Hi, this is Charlie. I'm for Kelly Motta. Thanks for the question. Just a point of clarification. 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? Thank you.
Speaker #10: Hi , this is Charlie on for Kelly . Thanks for the question . Just a point of clarification . I was wondering . I'm good .
Speaker #10: I was just wondering specifically how you guys are calculating the efficiency ratio . You're guiding to 52% . Is that X Oreo gains or just .
Speaker #10: Point of clarification there. Thank you.
Orlando Berges: 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 gap 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 our 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 52-52 guidance is on a gap basis, considering movements, expenses, and revenues.
Orlando Berges: 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 gap 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 our 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 52-52 guidance is on a gap basis, considering movements, expenses, and revenues.
Speaker #3: The the efficiency ratio is typically calculated with everything . As you saw , the number this quarter was included in everything . So to we tend we tend to to calculate it on a GAAP basis .
Speaker #3: So that it's reported consistently . You know that number has been coming down as we have continued to to , you know , sell some of those Oreo properties .
Speaker #3: We've had on the market and , and the older properties that we had repossessed , you know , we're we're taking at a lower values .
Speaker #3: And that's being compensated . So we we do included the guidance of as part of the 52% , even though we do include the the expense guidance , without it , because of the volatility , it could present on , on total on .
Speaker #3: But the 5250 to 52 guidance is on a GAAP basis , considering movements in expenses and and in revenues .
[Analyst] (KBW): Great. Thank you. And then you saw some great non-interest-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. Thank you.
[Analyst] (KBW): Great. Thank you. And then you saw some great non-interest-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. Thank you.
Speaker #10: Great . Thank you . And then you saw some great non-interest 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 that drove this .
Speaker #10: Thank you .
Orlando Berges: Well, that is a goal. That's the value of the franchise. And we have multiple initiatives always in play to achieve that and build core relationships that bring that. So it's a core strategy that we put a lot of emphasis across our regions. And for this year, it's the efficiency ratio and loan growth, for example. We will be opening a new branch in the West Coast in a town where there's only one bank competing. So that's an area that we've been expanding. And obviously, the goal is to grow customers, grow non-interest-bearing deposits, and grow loans in the same regions, which the branch also is a vehicle for small business lending and all types of loan origination. So it's a key strategy. And obviously, you have to look for tactics, sales strategies, and products to achieve it.
Aurelio Alemán: Well, that is a goal. That's the value of the franchise. And we have multiple initiatives always in play to achieve that and build core relationships that bring that. So it's a core strategy that we put a lot of emphasis across our regions. And for this year, it's the efficiency ratio and loan growth, for example. We will be opening a new branch in the West Coast in a town where there's only one bank competing. So that's an area that we've been expanding. And obviously, the goal is to grow customers, grow non-interest-bearing deposits, and grow loans in the same regions, which the branch also is a vehicle for small business lending and all types of loan origination. So it's a key strategy. And obviously, you have to look for tactics, sales strategies, and products to achieve it.
Speaker #3: Well , that .
Speaker #9: That is , you know , that is a goal . You know we that's the value of the franchise . And and you know we have multiple initiatives always in play to to to achieve that .
Speaker #9: And build core relationships that bring that . So , so you know , it's a core strategy that we put a lot of emphasis across our regions .
Speaker #9: And , and you know , for this year we , you know , it's it's an efficiency ratio . For example , we will be opening a new branch in the West Coast in , in in a town that there's only one bank competing .
Speaker #9: So that's an area that we've been expanding . So and that obviously the goal is to , know , grow you customers , grow new varying deposits and grow loans in the same regions , which the branch is a vehicle for also small business lending .
Speaker #9: And all type of loan originations . So , so , you good know , it's a strategy . And , you know , obviously , you know , you have to you have to look for tactics and strategies and products achieve it to .
[Analyst] (KBW): Great. Thanks for taking my questions. I'll step back.
[Analyst] (KBW): Great. Thanks for taking my questions. I'll step back.
Speaker #10: Great. Thanks for taking my questions. I'll step back.
Orlando Berges: Thank you.
Orlando Berges: Thank you.
[Analyst] (KBW): Thank you.
[Analyst] (KBW): Thank you.
Speaker #9: Thank you . Thank .
Speaker #11: You .
Ramon Rodríguez: Thank you. As a reminder, if you did want to ask a question, please press Star, followed by 1 on your telephone keypad now. That's Star, followed by 1. We currently have no further questions, so I'll hand back over to Ramon for closing remarks.
Operator: Thank you. As a reminder, if you did want to ask a question, please press Star, followed by one on your telephone keypad now. That's Star, followed by one. We currently have no further questions, so I'll hand back over to Ramon for closing remarks.
Speaker #1: Thank you . As a reminder , if you did want to ask a question , please press star followed by one on your telephone keypad .
Speaker #1: Now that's star , followed by one . We currently have no further questions , so I'll hand back over to Ramon for closing remarks .
Operator: Thanks to everyone for participating in today's call. We will be attending BOA's Financial Services Conference in Miami on 10 February and KBW's Conference in Boca on 12 February. 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.
Ramón Rodríguez: Thanks to everyone for participating in today's call. We will be attending BOA's Financial Services Conference in Miami on 10th February and KBW's Conference in Boca on 12 February. 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.
Speaker #2: Thanks to everyone for participating in today's call. We will be attending a financial services conference in Miami on February 10th, and the KB conference in Boca on February 12th.
Speaker #2: We look forward to seeing a number of you at these events, and we greatly appreciate your continued support. Have a great day.
Speaker #2: Thank you .
Ramon Rodríguez: This concludes today's call. Thank you all for joining us. You may now disconnect your lines.
Operator: This concludes today's call. Thank you all for joining us. You may now disconnect your lines.
