On Wednesday, First BanCorp (NYSE:FBP) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://events.q4inc.com/attendee/331310542
Summary
First BanCorp reported net income of $89 million for Q1 2026, an increase of 21% year-over-year, with a return on average assets of 1.9%.
Total loans declined slightly to $13.1 billion due to seasonal factors and a decrease in consumer credit demand, while core deposits grew by 4.9% on a linked quarter basis.
Credit performance remained strong with low levels of non-performing assets and a 24% decline in early stage delinquencies from the prior quarter.
The company maintained a 16.9% CET1 ratio despite a 92% net payout through buybacks and dividends.
First BanCorp sustained its loan growth guidance of 3-5% and reported a 6% increase in total loan originations year-over-year.
The company is focusing on technology investments, including AI, to enhance service delivery and operational efficiency.
Net interest margin expanded by 7 basis points to 4.75%, exceeding original guidance, and non-interest income increased due to seasonal contingent commissions.
Operating expenses remained stable, with projected quarterly expenses for 2026 expected to be in the range of $128 to $130 million.
Management discussed ongoing economic stability in Puerto Rico, with continued commercial activity and a resilient labor market.
First BanCorp plans to focus on capital allocation to support organic growth, competitive dividends, and share repurchases.
Full Transcript
OPERATOR
Good morning and welcome to the first First BanCorp Q1 2026 financial results conference call. All participants are in a listen only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you will need to press STAR followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Hermon Rodriguez, corporate strategy and Investor Relations. Thank you. Please go ahead. Thank you.
Julianne
Julianne Good morning, everyone. 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 Leman, President and chief executive officer and Orlando Verges, chief financial officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward looking statements such as projections of revenue, earnings and capital structure, as well as statements on the plans and objectives of the Company's business. The Company's actual results could differ materially from the forward looking statements made due to the important factors described in the Company's latest SEC filings. The Company assumes no obligation to update any forward looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbp investor.com at this time I'd like to turn the call over to our CEO Aurelio Aurelio Aleman.
Aurelio Aleman (President and Chief Executive Officer)
Thank you Hermon 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 57 cents per share. That is actually up 21% when compared to same quarter last year. Core operating trends remain also very strong during the quarter with pre-tax pre-provision income reaching all time high of 131 million, that is of 5% from a year ago. This performance resulted in a 1.9% return on average assets. This marks our 17th consecutive ROA above 1.5%, definitely demonstrating our commitment to sustain profitability. Moving to the balance sheet, total loans declined slightly to 13.1 billion. That is actually consistent to prior year seasonality and accounts for the expected softening in credit demand within the consumer lending segment that we mentioned before. That said still better than pre pandemic levels when we look at consumer demand. On the other hand, core deposit for the quarter were strong other than broker and public funds which we don't call core were up by 4,9% 4.9% on a linked Quarter annual basis, reinforcing the strength of the relationship during 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 of during the quarter in terms of new clients and accounts. Credit performance remained a key strength for the franchise during the quarter with charge off very stable, record low levels of non performing 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. You know, we're pleased to say that business activity and economic conditions across the market continue stable and progressing in line with our expectation. The labor market continues to show resilience, other economic indicators in the main market such as economic activity index continue to be stabilized and recent great delinquency indicates consumer stability. We are encouraged by what we see around in addition to the restructuring, sorry reconstruction activities, reshoring activity and expanded US military presence in the island. While there is a recovery efforts remain in place expanding on a consumer first quarter industry. Auto sales declined 19% when compared to the first quarter last year. Definitely evidence in the expected reduction in consumer credit demand for auto. That said, it is important to note that retail auto sales continue to be 6.5% above the pre pandemic 10 year average. So still better than the prior cycle. We're definitely prepared to serve our customers in this environment. Very, very, you know many, many, many parts moving regarding you know, potential impact of oil cost which you are monitoring which could be, you know, rising energy costs and other potential impact on inflation which could impact consumer activity and commercial activity more broadly in the future. Hopefully that ends soon. And while the macroeconomic environment continues to be dynamic, we remain focused on managing what we can control in housing, the service delivery platform, technology investment to be more agile and efficient and focusing on providing the best quality of service that we could. When we look at business highlights, total loan originations were up by 6% when compared to prior year. Seasonally adjusted commercial loan pilots actually remain healthy. Actually if I compare pipeline today with 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 that we mentioned in the last call in terms of Omni channel strategy, active data users continue to grow year over year, data transaction volumes continue to grow, self service payment continue to increase, sustaining demonstrating sustained engagement of clients in the platforms. We are even spending time and effort on AI understanding what we can do to improve internal processes and also improve the way we service our clients. We continue to also do franchise investment in our brand channels to continue to optimize how we service our client. We believe that AI will definitely play a key role in the execution of this strategy, providing clients with faster, more personalized service offerings and enabling our colleagues to to spend more time in value added customer interaction rather than dealing with routine transactions and processes. We're working very close to our key vendors to ensure that we adopt what's coming in all this new venture overall capital allocation priority remain unchanged. Also. This includes supporting organic growth which is a priority in and paying a competitive common stock dividend and returning excess capital through share repurchase. As always, we thank you for your interest in first bank and your support and with that I'll turn the call to Orlando and we'll come back for questions later. Thank you.
Orlando Verges (Chief Financial Officer)
Good morning everyone. This quarter we earned 88.8 million 57 cents per share which compares to 87.1 million or 55 cents 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 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 commercial real estate (CRE) price index continue to show better trends and that leads to some of the reduction. Also we had reductions in delinquency as Aurelio mentioned, and some of the consumer portfolios. The size of some of the consumer portfolios was down. On the other hand, we had an increase in qualitative reserves to account for the current geopolitical uncertainty in the Middle East. Income tax expense for the quarter was 25 million, which is 5 million higher than prior quarter, mostly related to the higher pre tax income. But also at the end of last year in the fourth quarter we booked an adjustment to the effective tax rate for the final results for 2025. The estimated effective tax rate as of now it's just slightly higher. It's 21.9% 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, the net interest income amounted to 221 million. That's 2.7 million related to two less days in the quarter. But net interest income compared to same quarter last year is 4% higher. Interest income on loans is 6.5 million lower than last quarter which 3.8 million it's due to the two less days in the quarter and 2.8 million relates to the market interest rate reductions that affected the the commercial portfolio pricing, specifically the floating rate components. Yields on the commercial portfolio decline 18 basis points. On the other hand, interesting common Investment securities increased 2.8 million mostly due to a 22 basis points improvement in yields as we have continued to reinvest cash flows from maturing securities into higher yielding instruments. On the expense side, overall funding cost was 3.5 million which is 1.3 million related. 1.3 million of that reduction relates to the two less days in the quarter and 1.2 million relate to rate reductions. The cost of interest rate 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 475, 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 NIM expansion. In line with our original guidance. In terms of non interest 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 1:27.1 million, very much in line only an increase of 200,000 from last quarter if we exclude the gains from OREO operation, expenses for the quarter were 128 million, which it's about the same kind of adjustment of increase of 300,000 which compared to the 127.7 we had last quarter. Expenses were on the lower end of our guidance. Payroll expenses for this quarter were 2.1 million higher. That relates to a seasonal increase in payroll taxes and also we had an increase in share based compensation expense for stock grants that were issued during the quarter the portion of these grants that are attributable to retirement eligible employees is charged to Expense in the quarter. This increase in payroll expense was offset by a decrease in business promotion. Typically, business promotion efforts are lower during the first quarter and pick up on the second and fourth quarter of the year. The efficiency ratio for the quarter was 49.1%, which is slightly below the 49.3 we had in the fourth quarter. As we have mentioned before, based on our projected expense trends for ongoing technology projects and the pickup on business promotion efforts that happen later in the year, we rate the rate. Our quarterly expense base for 26 will be in that range of 128 to 130 million. As we had previously mentioned, this is excluding OREO gains or losses. Our efficiency ratio. We estimate that we'll still be in that range of 50 to 52% considering the changes in expense and income components for the year. In terms of asset quality, credit quality continued to improve in the quarter. Non performing assets came down by 5.3 million. That includes 4.8 million reduction in non accrual loans. That was across all business lines. OREO balances also decreased by 1.2 million, but we did have 700,000 increase in repossessed autos in the quarter. Inflows to non accrual were 34.3 million which is 12 million lower than last quarter and that's mostly related to a 10 million commercial loan inflow that was booked was recorded last quarter 4Q25. Most importantly, loans in early delinquency decreased by 34.5 million or 24% during the quarter, which is mostly 31 million decrease in consumer loans delinquency, specifically auto loans, most of it. We have seen some stability in the consumer delinquencies and we continue to monitor closely the behavior of the different vintages that were issued over the last few years. In terms of the allowance for credit losses, the allowance is 3.9 million lower. The reached 245 million which represents 1.87% of loans. This is likely 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. Mostly this is mostly related to reduced appraised value of the collateral of a commercial non performing loan that led to a $600,000 charge off for the quarter on the commercial side. On the capital front, Sauron mentioned, strong profitability has allowed us to repurchase the 50 million in shares this quarter and declare the 31.5 million in dividends. Regulatory capital ratios continue to grow a little bit as the capital actions were offset by the earnings generated in the quarter. Tangible book value per share grew to $12.45 and then 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 intangible common equity ratio which is related to the other comprehensive loss adjustments that are related to the investment portfolio Aurelio mentioned already. But we remain focused on supporting our client and growing our business while delivering close to 100% of earnings to shareholders in the form of buybacks and dividends. With this, I would like to open the call for questions. Operator.
OPERATOR
Thank you. As a reminder to ask a question, please press Star followed by the number one on your telephone keypad. Again, to ask a question, please press Star followed by one. Our first question comes from Brett Rabitan from Stonex. Please go ahead. Your line is open.
Aurelio Aleman (President and Chief Executive Officer)
Hey, good morning. Everyone wanted to start on loan growth and you know, 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, you know, consumer payoffs to slow from here? You know, just any thoughts on the pipeline relative to payoffs and how you see the balance sheet getting to that number? Well, you know, it's going to take to the end of the year to, you know, consumer payoff and originations to settle. So some of that additional contraction in the consumer portfolio is a reality. On the other hand, we expect, you know, additional commercial growth both in Puerto Rico and Florida based on what we have at hand in the pipelines today. And we do expect some additional growth in the mortgage portfolio, which demands continue strong. So that's how it's playing Obviously if we go back to how many years we grew the consumer book mostly driven by auto sales and demand, we're still performing pretty well in terms of our market share in that sector. But it's just sales are lower, still better than pre pandemic I believe stabilizing, you know, comparing to last year. It's a little bit unfair too because the first quarter of last year in auto March was a very strong month because it was a pre tariff people knowing that prices were going to increase. So that number is a little bit the 19% that we saw in the quarter on an adjusted basis. You know it should be, it should be you know, about 10%. So that you know we assuming about 95,000 new units which is still better than you know, many years back. So again it's just a price. We understand it's a price issue. You know I think there's still distributors considering you know, lowering prices and adjusting and that could flow through the economy and change that number. But that is how what we're assuming right now.
Orlando Verges (Chief Financial Officer)
Okay, that's helpful. And then your securities portfolio, you know, has been a source of strength in terms of improving yields as you've had cash flow to reinvest 269 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 in the rest of the year? So the we still on the lower yielding securities, we still have about 600 million in cash flows coming from maturities of securities yielding on average 165. That changes a little bit per quarter. But it's about 250 million. It's in the second quarter. And then we have the other 350 million. It's in the second half of the year. The average yield, it's fairly consistent. It's, it's a little bit lower on the third quarter, a little bit higher on the fourth quarter. But overall it's at 165. That's what we were looking at. We had an additional about 236 million or so that mature during the first quarter. We did take advantage of a little bit of the, you know, second half of March where rates change, behavior change a bit and increased. So we try to advance a little bit of cash flows into that. So that, that should help on the numbers going forward. But think about that 600 plus a little bit of the 200 that we had in the first quarter. That clearly is being Replaced with, you know, things going from 250 to, to about 380 basis points higher. I'm sorry, 280 basis points higher. That's what I meant.
Brett Rabitan (Equity Analyst at Stonex)
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, you know, how you were seeing the commercial pipeline in terms of people maybe making decisions or not just given some uncertainty. And then just as you guys see it, the health of the consumer, if there's been any impact from the inflationary stuff, definitely we're watchful on the impact on oil. Latest numbers that the government published energy in Puerto Rico now it's below 20% dependent on oil. That's good. They have been converting generation to LNG and they still have a carbon facility and then some renewable. So less than 20% is less impact in terms of oil in terms of the final bill. On the electricity side, on the other hand, the gas station cease immediately. So that impacts more the consumer, I will say, which is what we've been seeing and we've been commenting about it. On the other hand, we've been proactively managing our risk in that segment. So we feel pretty good on the asset quality trends and how we have proactively managed that. Commercial activity remains strong, tourism is strong. Puerto Rico is very attractive for US Visitors that probably not going to Europe or Mexico at this time and coming more here. When we look at hotel occupancy, airport, we feel pretty good about that. There are still a few projects on hotels that are moving through the pipelines in terms of overall activity. Construction continues very active and the supply chains that relates to that. So we haven't seen any softening on that piece. And distribution expansion, distribution and other infrastructure projects are moving. So we feel pretty good about the commercial pipeline and obviously looking forward to, to, you know, faster closing of what we have at hand so we can deliver the growth that we promised. Okay, that's great. Keller, Aurelio, thanks for all the color.
Aurelio Aleman (President and Chief Executive Officer)
Thank you, Brett.
OPERATOR
Our next question comes from Aaron Saganovich from Trua Securities. Please go ahead. Your line is open.
Aaron Saganovich (Equity Analyst at Trua Securities)
Thanks. The credit quality obviously quite, quite solid this quarter. And you commented on the early stage delinquencies improving. What's the expectation, excuse me, for credit, you know, 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 of the credit losses in the later Part of the year. Well, yeah, we're expecting stability. You know, you always have a little bit of benefits on the first quarter from tax refunds. But when, you know, as we have mentioned in the past, we monitor vintages and based on adjustments we did on credit policies way back in 23 and 24, and we have seen how the behavior of the vintages, incentives are much better than what they used to be. You know, we, at this point, based on expectations on the market, we don't, we don't see any factors that could change dramatically. Always could be up a little bit up a little bit down here and there. But overall we expect stability on the delinquency side. Okay, got it. And then on capital return, I appreciate the
Aurelio Aleman (President and Chief Executive Officer)
keeping a steady amount of capital return. Buybacks have definitely helped over the past several quarters. You're still operating with quite a high level of CET1. I know that that's your intention, but are you giving any thought, particularly with seeing peers in the mainland talk about lower capital and some of your competitors on the island also having a bit lower capital than you do in terms of increasing some of that capital return? Well, that, that is a, that is a discussion that we constantly have as we, as we move, you know, the pieces, the moving parts are obviously the, the macro things that we don't control, obviously, you know, other opportunities that we could, that we would like to have, you know, have the power to execute if come to play, obviously competitive dividend and you know, and obviously the component of the buyback. So, you know, it's a constant discussion that we will continue to have and we with the board, with the management and we try to be opportunistic and consistent. That's what we try to achieve. So, so taking all those other pieces into consideration.
Aaron Saganovich (Equity Analyst at Trua Securities)
Got it. Okay, thank you.
OPERATOR
Our next question comes from Kelly Mota from kbw. Please go ahead. Your line is open. Hey, good morning. Thanks for the question. Maybe circling back to capital. I think a couple 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 and A given your high levels of capital and multiple.
Aurelio Aleman (President and Chief Executive Officer)
Well, you know, I think the answer is, you know, it's always part of the optionality that we keep have to be, you know, something that makes sense and something that yield returns that are we, that we our threshold of returns. So, you know, not necessarily easy to find, you know, something that qualifies for all of it. But you know, we cannot discard if a good Opportunity comes to the table, we will not discard. That's really the way we look at it. Not aggressive about it. Balance and realistic, which obviously in mind, you know, what is the bottom line from both a strategic perspective and financial perspective. Both goes 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
Kelly Mota (Equity Analyst at KBW)
for I believe some marketing and technology initiatives. And your commentary hit on some work you're doing on AI. I'm wondering if you could share additional color as to the use cases you see today and what you're looking at.
Aurelio Aleman (President and Chief Executive Officer)
Thanks. Well, I say we're working together. Definitely AI is here to stay and I think the industry is in a learning stage of, you know, make sure that you have the size and the scale to make sure the use cases are financially justifiable. In the back of oversize, obviously you have internal processes, you know, related to education and other analytics that are the use cases that come to play, fraud management and those. But also we're working with our key vendors, you know, we don't have any develop applications so it's all vendor driven and they have a roadmap and you know, we are, you know, getting into the train in the early stages so we can benefit out of it. But you know, you know, I think there's a common understanding of scales is not only, you know, how you move, you have to move with the right governance and the right oversight as any other technology bring risk that you have to have commensurate policies and processes to cover. So I think at the end we all benefit of it. I think the larger the institution is, the more the benefit and the more easy to justify the use cases because of the investment. On the other hand, you know, very, very important investment this year, which is a foundation is really data, you know, where the data resides, data analytics, everything. You know, all the efforts are moving to be fully cloud based, which is halfway through already in our infrastructure and including the main applications already there. So, you know, it's a journey and it would require, you know, investments that we are and obviously are an important component of the expense guidance that Orlando has been mentioning.
Orlando Verges (Chief Financial Officer)
Got it. That's, that's really helpful. Last question for me, if I can speak one last nitty gritty one in. I appreciate, I believe you reiterated your expectations around margin which last quarter was about 2 to 3 basis points of expansion per quarter. But off this, this higher base, one thing looking at your average balance sheet that stuck out was Residential mortgage yields were a bit higher. Late 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 rateable. Thanks. Not any large ones. We typically get some movements on what's in and out of non performing and so we collect some things that were out there but nothing major. I mean remember that for quite a while when rates were low we were originating almost all or substantially all of the originations were conforming paper. So we didn't have a lot of lower yielding things on the portfolio and we were not putting too much in the portfolio. We have been putting things into non conforming kind of paper now for the last couple of years, a year and a half and those are higher yielding. So as you get repayments on some of the lower yielding ones, you're going to get some pickup. This quarter was a bit higher also. It's a function of the 3360 kind of component. But other than that we expect that portfolio to. As long as rates stay here, new originations will continue to come in a bit higher than what's going out of the portfolio with repayments.
Kelly Mota (Equity Analyst at KBW)
Amazing. Thank you so much. Great quarter all set back.
Aurelio Aleman (President and Chief Executive Officer)
Thank you.
OPERATOR
Our next question comes from Steve Moss from Raymond James. Please go ahead. Your line is open.
Orlando Verges (Chief Financial Officer)
Good morning Steve. Morning. Maybe just starting Orlando on the 5% margin here. Curious on your funding cost expectations going forward. Noticed that your public funds have continued to head lower. Just kind of curious. Maybe there's a little bit more give on your liability side for the margin here. I mean you have to divide it by components. The clear ones are like the time deposits. New time deposits on the books are lower rates than some of the older ones that are maturing. So that's where you saw the five basis points pick up on the time deposits, you know, broker deposits. Even though it's not a large portfolio, it's also being repriced at lower rates. So we had that seven basis points that you know, we'll continue to see some small reductions at the end of deposits. You have to divide it. You know, the typical checking, you know, interest bearing checking account or savings account with the limited movement in rates the same way they did it, that only went up 14% kind of beta when rates were going up. We wouldn't see significant rate reductions on those accounts. Some of the reductions are seen on the government deposit accounts that are part of the interest bearing component because some of them are indexed and as some of the market Rates have come down. They will come down. But it all depends on what happens with market rates. I would say that with current expectations, we would see some reductions on time deposits, not so much in some of the other deposit accounts. Okay, maybe we should phrase it this way. So in other words, just, it's fair to assume like your public funds will be roughly stable around the 3 billion ish or close to 3 billion dollar level, is your expectation. Yeah, we, we, we don't expect major changes on, on those numbers. Okay, appreciate that color. And then in terms of, you know, the other thing that I was just wondering about here, you know, the Puerto Rican originations in Puerto Rico were very strong year over year, up almost 11%. Just curious, you know, are you guys thinking that's market share gains or just, you know, overall economic activity that you're seeing on the market here? Yeah, I think it's a, it's a little bit of both. A little bit of both. But, but I think overall economic activity until timing is really the primary. Some of these deals are being working, are being a couple of years in the making, especially related to infrastructure or construction or permits, things like that. So, so it's also a timing of economic activity. Okay, got it. And then just in terms of Florida, you know, I realize tends to be seasonally weak, but just kind of any, you know, you've had some expansion there in the Florida market. Just. Any updated thoughts? Yeah, it's an important piece of the franchise and it's an important strategy. A very healthy portfolio. We opened in the last quarter of last year, as we mentioned, a new office in Boca. We just announced reposition of a branch in Miami, Kendall, that we are looking to close and move to some other areas. It really, you know, we've really focused on repositioning to where commercial activity is more, is more active. Definitely, you know, going north is showing, you know, additional opportunities, meaning northeast, which is of the corridor of Broward county, and we're taking those. We already have the teams engaged and executing and, and producing. So, you know, it's an important piece of our franchise. Obviously, we all know that deposit gathering in Florida, it's so much more challenging than other markets.
Steve Moss (Equity Analyst at Raymond James)
Right. Okay, well, I appreciate all the color there. A very nice quarter. Thank you very much, guys.
Aurelio Aleman (President and Chief Executive Officer)
Thank you. Thank you.
OPERATOR
Our next question comes from Manuel Navas from Piper Sandbar. Please go ahead. Your line is open.
Manuel Navas (Equity Analyst at Piper Sandler)
Hey, I wanted to dive back into the NIM for a moment. 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 at. Based on expectation of rate movements and portfolio movements. Okay. Could funding costs improve if your core deposits continue to grow?
Orlando Verges (Chief Financial Officer)
Yes, assuming, you know, because if our core deposits grow on a typical mix, that would mean that those are more on the savings and interest bearing checking accounts. And that assumes that as we mentioned, we just mentioned that we be stability on the government side. So that would mean that those deposits are lower cost deposits and definitely that mix could improve.
Manuel Navas (Equity Analyst at Piper Sandler)
And what initiatives are in that area that are helping kind of drive because there was some nice core deposit growth this quarter.
Aurelio Aleman (President and Chief Executive Officer)
Well, I have to say a lot of coordination, sales efforts, products marketing across both retail, small business is an important piece of the puzzle which we continue to penetrate. We also have in the year, as we announced before, a couple of branch expansions in the west coast of the island which are open in mid year 4000 new clients between retail and small business. So that you know, it's really sales focus and execution, you know, it requires, you know, a lot of coordination and efforts.
Manuel Navas (Equity Analyst at Piper Sandler)
Okay, so that kind of means to summarize like you know, loan yields are generally stable. Securities could reprice higher as you laid out and deposit costs hard to decline them. But if there's good mix and growth in the right areas, that's where you get this steady increase in nim that could have upside if deposit growth exceeds expectations.
Orlando Verges (Chief Financial Officer)
Yes, that's correct. The only thing I would add, keep in mind that one of the things we are considering, we have included in our assumption is that the market, the consumer market in Puerto Rico is still going to come down a bit in size. And those are higher yielding assets. So that's part of the assumption here that some higher yielding assets might come down a bit. Okay, the commercial side, it's very good. But the average deal on our consumer portfolios is above 10%. Obviously that's not the kind of yield on the. On the commercial side. Perfect. I appreciate that. And how would rate cuts impact this kind of forward guidance? If there were any, you know, there's none in forward curve at the moment. But just if there was a rate cut, how would that shift your kind of expectations? We the two through three basis points included some rate cut starts the end of the year. The impact depending on the size is obviously the investment portfolio reinvestment component. Rate cuts are more, it's going to be a smaller rate. But on the other hand we also get some repricing on some of the deposit side. So that assumption includes some expectation of reduction towards the, the Latter part of 2026. Remember that also that the floating rate component of the commercial side, it's about 50%, just under that. And obviously if rates are not cut then we wouldn't have repricing on those. That's part of the assumption also that there is going to be some repricing if rates cuts do happen.
Aurelio Aleman (President and Chief Executive Officer)
Broadening out for a moment in the economic commentary, discuss the potential, and we've discussed about this, that of military activity on the island and how it could impact the economy. Not that it increases activity, but could you kind of talk about how that makes Puerto Rico perhaps a increases the floor of economic activity or reconstruction fund safety? Can you just speak to that military activity that you are seeing on the island? You know, what we're seeing is active use of some of the facilities with more people coming in, more actually military personnel. There's also expansions in capacity to where they live in these facilities within actually hotels. This is outside the metro area primarily. This is in the east side of the island, the south part of the island and the airport in Ovadilla, which is the northwest of the island. So it's outside the metro area. So the hotels that are being fully occupied, small hotels, fully occupied by military personnel for long term contracts, obviously they buy and consume merchandise and they go to places. And so we see more of that. There is some construction in the Ceiba area. This has been kept fairly confidential. So we, in terms of how much more is coming, we're seeing it and we're getting commentary from our clients on this happening in our, you know, our branch representatives in the areas that this is happening. And this strategic importance increase also makes the reconstruction funds a little bit safer, the deployment of them as well. That's my last question. And definitely. And that's been, that's been also a contribution in the energy transformation of production because you know, the Department of Energy has also been very involved working with the local authorities on this because it's part of safety.
Manuel Navas (Equity Analyst at Piper Sandler)
Thank you for the commentary. I appreciate it. Thanks.
OPERATOR
Our last question will come from Robert Rutschau from Wells Fargo. Please go ahead. Your line is open.
Robert Rutschau (Equity Analyst at Wells Fargo)
Hi, good morning. Thanks for taking my question. Morning. I just wanted to follow up on the tech commentary. You know, we can see relatively high growth rates in the outsourced tech spend and the professional expense. How much of the expense base would you consider to be tech spend? Is the growth rate of say the outsourced services indicative of the overall tech spend? And is it possible to segment your tech spend between like back office Maintenance, you know, efficiency initiatives and anything that's geared towards revenue growth. Thank you.
Orlando Verges (Chief Financial Officer)
At this point, there is a lot that has to do. As we have mentioned, we started a migration of our centers, our data centers from a managed facility structure we had within our facilities to a service provided structure. We use FIS as a service provider and we've also been migrating. We have other cloud applications where they are managing, they are managing and will fully manage some of those applications, some of those cloud applications for us. So we continue to see a lot of investments which is part of the data migration process, which is included in, in the professional service and both. And the outsourcing cost.
Aurelio Aleman (President and Chief Executive Officer)
Yeah, I think just to add, you know, everything that is coming new is coming into cloud, it's coming as software, as a service rather than in house develop applications or, you know, more physical, you know, servers in our facility. So we don't have, we cannot answer specifically the distribution of the expenses, something to, to look into, but we haven't made that data public. We, so we, you know, we can, we'll consider your questions for how much more detail we can provide in future presentations.
Robert Rutschau (Equity Analyst at Wells Fargo)
Yeah, okay, great. If I could just follow up on that. Do you think your tech spend growth rate is sort of at a peak level or is it possible it can decline or should we think about it sort of staying at these levels?
Orlando Verges (Chief Financial Officer)
I think it will sustain for probably another 18 to 24 months and then should decline.
Robert Rutschau (Equity Analyst at Wells Fargo)
Okay, great. Thank you.
OPERATOR
We have no further questions. I would like to turn the call back over to Ramon Rodriguez for closing remarks.
Ramon Rodriguez (Corporate Strategy and Investor Relations)
Thanks to everyone for participating in today's call. We will be attending Wells Fargo Financial Services Conference in Chicago on May 13th and Truist Financial Services Conference in New York on May 19th. 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 all.
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