[Management View]
First BanCorp reported $80 million in net income for Q2 2025, translating to $0.50 earnings per share and a return on assets of 1.69%. Key drivers included record net interest income of $215.9 million, stable asset quality, and disciplined expense management. Management emphasized strategic priorities such as mid-single-digit loan growth, technology investments, and capital deployment through dividends and share buybacks.

[Outlook]
Management reiterated confidence in achieving mid-single-digit loan growth for FY2025, supported by strong commercial lending pipelines in Puerto Rico and Florida. Investment portfolio cash flows exceeding $1 billion in the second half of 2025 are targeted for redeployment into loans. Technology investments, including cloud migration and digital channel expansion, remain a focus to enhance efficiency and customer engagement.

[Financial Performance]
Net interest margin increased to 4.56% on a GAAP basis, up four basis points sequentially. Pretax pre-provision income rose 9% YoY but was slightly below the prior quarter. Operating expenses remained flat at $123.3 million, with guidance for modest increases in the next quarters. Non-performing assets (NPA) ratio held steady at 0.68%, while net charge-offs decreased to 60 basis points of average loans from 68 basis points in Q1.

[Q&A Highlights]

Question 1: Is the effective tax rate of 23% guidance for the full year or just the back half of 2025?
Answer: The 23% effective tax rate is for the full year, driven by a higher proportion of exempt income and benefits from redeeming subordinated debentures, which were not tax-efficient at the holding company level.

Question 2: Can you provide more color on the deposit decline, particularly in large commercial accounts?
Answer: The decline was concentrated in nonrecurring outflows from five large commercial customers, accounting for $120 million. Factors included capital investments, tax payments, and settlements. Retail deposits remained stable, with net customer and account growth.

Question 3: Do you expect charge-offs to increase, or is the current level sustainable?
Answer: Management believes charge-offs are sustainable to improving, particularly in consumer portfolios, reflecting better performance in recent vintages due to prior credit policy adjustments.

Question 4: Were the deposit outflows surprising, and what is the expectation for funding loan growth in the second half?
Answer: Some outflows were unexpected but largely nonrecurring. Stability in deposits is expected in the second half, supported by over $1 billion in investment portfolio cash flows, primarily redeployed into loans.

Question 5: What is the expected composition of loan growth in the second half?
Answer: Loan growth will be driven by both Puerto Rico and Florida, with contributions from commercial sectors and stability in consumer and residential mortgage portfolios.

Question 6: Where are loan yields currently trending?
Answer: Loan yields vary by portfolio, with commercial yields slightly down to 6.67%, consumer yields stable around 10.57%, and mortgage yields in the 6.5%-6.75% range.

Question 7: How much room is there to reduce funding costs, and will Federal Home Loan Bank advances be paid down?
Answer: Funding costs have room for reduction, particularly in brokered deposits and time deposits. $30 million in Federal Home Loan Bank advances maturing in the next three months will likely be paid down, with decisions on $90 million maturing within six months to a year based on funding needs.

Question 8: Are utilization rates affecting loan growth expectations, and how confident is management in achieving mid-single-digit growth?
Answer: Management is confident in achieving mid-single-digit loan growth, supported by strong pipelines. Utilization rates were not detailed but will be updated in future investor presentations.

Question 9: Are there significant technology investments planned to sustain efficiency ratios?
Answer: Technology investments, including cloud migration, process automation, and digital tools, are ongoing. These initiatives aim to enhance efficiency and customer experience without significant expense spikes.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on deposit stability and loan growth sustainability. Management maintained a confident tone, emphasizing strong pipelines, stable asset quality, and strategic capital deployment.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | YoY Change |
|----------------------------|-----------------|-----------------|------------------|
| Net Income | $80M | $76M | +5.3% |
| EPS | $0.50 | $0.48 | +4.2% |
| Net Interest Margin | 4.56% | 4.52% | +8 bps |
| Operating Expenses | $123.3M | $123M | Flat |
| NPA Ratio | 0.68% | 0.68% | Unchanged |
| Net Charge-Offs | 60 bps | 68 bps | -8 bps |

[Risks and Concerns]
1. Deposit outflows in large commercial accounts could recur due to high-yield-seeking behavior amid elevated interest rates.
2. Economic uncertainty in Puerto Rico and Florida, including potential impacts from U.S. policy changes and disaster relief inflows.
3. Rising operating expenses due to ongoing technology investments may pressure efficiency ratios.

[Final Takeaway]
First BanCorp delivered solid Q2 2025 results, marked by stable asset quality, disciplined expense management, and strategic capital deployment. While deposit outflows in large commercial accounts raised concerns, management emphasized their nonrecurring nature and stability in retail deposits. Strong commercial lending pipelines and over $1 billion in investment portfolio cash flows position the company well for mid-single-digit loan growth in the second half. Continued technology investments and efficiency improvements underscore a long-term focus on enhancing shareholder value.