First BanCorp (FBP) Q3 2026 Earnings Call: 4.73% NIM, $350M Buyback

Key Takeaways

• First BanCorp reported Q3 2026 net income of $96.1 million, essentially unchanged from Q2, while earnings per share increased to $0.63 due partly to share repurchases. Year-to-date EPS rose 14% from the prior-year period.
• Net interest income declined $1.6 million to $227.5 million. Net interest margin fell 14 basis points sequentially to 4.73%, reflecting the absence of $3.4 million in prior-quarter purchase discount and deferred fee accelerations, as well as higher funding costs.
• Total loans grew at a 3.3% annualized linked-quarter rate, led by Commercial and Construction balances. Core customer deposits increased by $120 million, although competition raised the cost of time deposits and government market-linked accounts.
• Credit quality remained stable, with the nonperforming asset ratio unchanged at 0.59% and the allowance for credit losses at 1.81% of total loans. Annualized net charge-offs increased to 0.55%, mainly due to Consumer and auto-related losses.
• First BanCorp returned approximately $80 million to shareholders, equal to about 84% of quarterly earnings. The board approved a 25% quarterly common dividend increase and a new $350 million share repurchase authorization.
• Management expects Q4 core margin to remain near the Q3 level and continues to target the lower end of its 3% to 5% loan growth guidance for 2026.

Key Financial Data

Business and Operating Performance

Commercial lending was the main growth driver. Management attributed the pipeline to new construction projects, M&A-related financing, business expansion, warehouses and commercial real estate transactions. The pipeline remained healthy entering Q4, and management said it had not yet seen a material effect from higher rates on Commercial demand.

Consumer loans declined modestly, consistent with management’s expectations. The company expects the portfolio to stabilize, but sees limited growth opportunities at this stage. Mortgage was the only Consumer component to record year-to-date growth.

Deposits remained stable, supported by a $120 million increase in core customer balances. However, customers continued to seek higher yields, particularly on larger balances, while credit unions were described as more aggressive competitors. First BanCorp said it intends to remain competitive without sacrificing pricing discipline.

The Puerto Rico economy remained supportive, according to management, aided by reconstruction activity, steady employment conditions and manufacturing and reshoring announcements. The bank also opened a branch in San Germán and continued investing in digital tools, technology and AI.

Management Guidance

Management maintained its 2026 loan growth target of 3% to 5% and expects to finish near the lower end of that range.

For Q4, the company expects core net interest margin to remain near the Q3 level. Deposit competition and loan pricing remain headwinds, while Commercial loan repricing and securities reinvestment should provide support. Approximately $252 million of securities yielding an average 2.23% are expected to generate Q4 cash flows available for reinvestment.

Management expects net interest income to continue increasing, but cautioned that the margin trajectory is more difficult to predict because the balance-sheet mix is shifting from higher-yielding Consumer loans toward Commercial loans.

The company expects Q4 noninterest income to remain around Q3 levels. It also plans to complete another $50 million of share repurchases during the quarter. Guidance for 2027, including capital returns and margin expectations, is expected on the next earnings call.

Risks and Areas to Watch

• Funding costs are rising as certificates of deposit reprice above their current 3.30% average cost and government market-linked account rates increase.
• Inflation, electricity costs, gasoline prices and other consumer expenses could pressure Puerto Rico borrowers. Management is maintaining prudent Consumer underwriting and monitoring delinquencies closely.
• Auto sales remain under pressure from tariffs and inflation, while Consumer and auto-related losses drove higher net charge-offs during Q3.
• Higher market rates continue to create unrealized securities losses through accumulated other comprehensive loss, reducing reported tangible book value.
• Asset-mix changes may limit NIM expansion even if net interest income rises, because Commercial loans generally yield less than Consumer loans.
• A $2.8 million contingency reserve was recorded following an adverse court ruling involving a commercial OREO property in the U.S. Virgin Islands.

Analyst Q&A Highlights

Management confirmed that First BanCorp remains asset-sensitive and should benefit over time from higher rates through cash balances, variable-rate Commercial loans and securities reinvestment. The timing and magnitude of that benefit will depend partly on deposit repricing and competition.

The company purchased approximately $400 million of securities during Q3 at a 5.44% yield. Management said the $252 million of Q4 securities cash flows, currently yielding 2.23%, could be reinvested in the high-5% to low-6% range under prevailing market conditions.

On capital allocation, management continues to target capital returns of around 100% of earnings for Q4 2026, while retaining flexibility to act opportunistically. It did not provide a corresponding target for 2027.

Management expects ACL coverage to remain near current levels if credit quality, delinquencies and Puerto Rico’s economic outlook remain stable. The slight Q3 decline partly reflected updated historical loss experience in the residential mortgage portfolio.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Thank you for joining us, and welcome to the First BanCorp Third Quarter 2026 Financial Results. I will now hand the conference over to Ramon Rodriguez, IR Officer. Ramon, please go ahead.

Ramon Rodriguez

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

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

Aurelio Alemán-Bermúdez

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

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

Credit metrics remain healthy with the NPA ratio unchanged at 0.59 basis points (sic) [ 0.59% ]. Importantly, we continue to return substantial capital to shareholders through both repurchases and dividends while maintaining a CET1 ratio of 16.9%, providing significant flexibility to support opportunities and future capital deployment initiatives. As we disclosed yesterday in a separate press release, we're very pleased that our Board approved a 25% increase in our quarterly common dividend and a $350 million stock buyback authorization.

Our capital allocation priorities remain unchanged. Given the strength of the balance sheet and capital position, we saw an opportunity to increase capital returns while continuing to support our customers, invest in the franchise and maintain a prudent capital cushion. We expect share repurchase to remain an important tool, particularly when market valuations create compelling opportunities. Overall, we believe the quarter demonstrated the resilience of earnings power of our franchise.

Please let's move to Slide 5. Stepping back from the quarter, the broader operating environment remains, I would say, stable and supportive. Puerto Rico economy continue to show resilience, supported by ongoing reconstruction activity, steady unemployment conditions and encouraging manufacturing and reshoring announcement. Against the backdrop, we continue to see healthy client activity and constructive business pipelines into the fourth quarter. This quarter, we continue advancing our multichannel strategy. We opened a new branch in the San Germán area, where there was only one bank present. And we continue to expand digital tools that provide faster and more efficient, seamless service experience.

This commitment to innovation is being recognized by multiple -- gaining multiple recognitions, one by Global Finance, which named us the "Best Digital User Experience in

Latin America and Puerto Rico" and the "Best Digital Banking App" in Puerto Rico. In addition, Forbes included our company among the world's top performing banks in 2026, making our highest ranking yet and the first position among our Puerto Rico peers. Again, we're very proud of these recognitions, which reflect our associates' hard work and dedication to delivering the best digital experience for our clients while sustaining a strong and profitable franchise. The combination of these achievements, stable asset quality, significant excess capital position us well to continue executing on our priorities, creating long-term value for our shareholders.

Before I turn over the call to Said, I'd like to provide some additional context on our key performance indicators and outlook for the remainder of the year, only 1 quarter away. Please let's move to Slide 6. Looking at the priority, we believe we remain on track of the beginning of the year operating metrics. Loan growth trends continued to improve by strong origination and healthy pipeline. We remain confident that we can achieve the lower end of our 3% to 5% guidance with what we see going on this quarter. Efficiency remained ahead of target. Year-to-date margin performance remained consistent with our expectation. We continue to expect to close $50 million more in buybacks during this fourth quarter.

Asset quality remains stable, and we continue to balance growth and disciplined underwriting, we believe is the prudent thing to do with all the noise that we see in the global macros. As we move to the final quarter, priorities remain clear: selective grow market share, maintain strong profitability, drive operating leverage and continue enhancing the customer experience through technology and AI. As always, I thank you for your interest in FirstBank and look forward to answering your questions. Now I'll turn the call over to Said to discuss quarterly results in more detail. Thank you.

Said Ortiz

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

We also generated adjusted pretax pre-provision income of approximately $130 million during the quarter. At the same time, unrealized losses in the securities portfolio continue to affect tangible book value through AOCL. For the quarter, tangible book value was $12.15 and tangible common equity was 9.55%. Excluding the impact of the unrealized losses, adjusted tangible book value per share was $15.34 and adjusted tangible common equity was 11.76%, highlighting the underlying strength of our capital position.

Moving on to Slide 9 to discuss NII and the margin in detail. Net interest income was $227.5 million, down from the prior quarter. The primary drivers were the absence of approximately $3.4 million of purchase discount and deferred fee accelerations recognized last quarter, along with higher funding costs. The quarter did have an additional day. Excluding the impact of the additional day, which is about $1.3 million, and the $3.4 million I just mentioned, net interest income increased by $500,000. The increase in NII came from growth in the Commercial and Construction balances, coupled with the securities portfolio reinvestment activity. Net interest margin was 4.73%, declining 14 basis points from the second quarter. Roughly half of the decline reflects the previously disclosed onetime items recognized in the prior quarter, while the remaining decline was largely driven by higher funding costs, primarily driven by a change in mix to higher interest-bearing products such as time deposits and higher rates on government market-linked accounts.

Despite continued competition for deposits and a volatile rate environment, our funding profile remains a key strength, and we continue to manage pricing with a disciplined approach focused on relationship, value and profitability. At 4.73%, our margin remains at an attractive level and continues to compare favorably with peers. Looking ahead, we expect for core margin to remain near current quarter levels during the fourth quarter. We expect continued deposit competition and loan pricing dynamics to remain headwinds, while our investment portfolio repricing opportunities, which for the fourth quarter are approximately $252 million at an average yield of 2.23%, coupled with floating loan portfolio repricing, should provide support if rates continue to move higher as expected. In terms of 2027, we're monitoring certain factors, including inflationary pressures and the overall rate environment. Consequently, we will provide an updated forecast on our next earnings call.

Shifting to other income and operating expenses on Slide 10. Noninterest income totaled $32.6 million. The decline was primarily driven by lower gains on purchase tax credit as well as a gain on sale of a Florida fixed asset that benefited the second quarter. Excluding those items, noninterest income remained generally stable. Noninterest expenses totaled $130.2 million. The increase from the last quarter was largely attributable to a $2.8 million contingency reserve associated with an adverse court ruling involving a commercial OREO property in the U.S. Virgin Islands. Excluding that item, expense trends remained basically unchanged from prior quarter. Importantly, our efficiency ratio was 50%, remaining below our long-term operating target of 52%, demonstrating continued operating discipline while we invest in the franchise and technology initiatives.

Looking at asset quality on Slide 11. Credit quality remained largely stable during the quarter. The NPA ratio was unchanged at 0.59%, while ACL coverage was slightly lower than last quarter and remained healthy at 1.81% of total loans. Total nonperforming assets increased only modestly and continue to be at low levels relative to the size of the portfolio. Annualized net charge-offs increased to 55 basis points of average loans, primarily reflecting higher Consumer and auto-related losses. We also saw an increase in early-stage delinquencies, although this figure included a mature construction credit that was fully repaid after quarter end. We did see a $6.8 million increase in consumer loans. Overall, Commercial credit performance remains solid. Reserve levels remain appropriate, and we continue to monitor consumer trends closely. We remain comfortable with the risk profile of the portfolio and an overall credit outlook.

Moving on to capital on Slide 12. Capital generation remains one of the defining strengths of our franchise. During the quarter, as Aurelio mentioned, we returned approximately $80 million to shareholders through $50 million of common shares repurchase and $30 million of dividends, representing about 84% of quarterly earnings. Our CET1 ratio ended the quarter at 16.9%, well above regulatory well-capitalized levels and comfortably above our internal operating targets. While tangible book value per share declined due to the impact of higher market rates on the accumulated other comprehensive loss, our underlying capital strength remains exceptionally strong. Given our earnings power, liquidity profile and capital position, we continue to have substantial flexibility to support growth initiatives while returning meaningful capital to shareholders. This concludes our prepared remarks. Operator, please open the call up for questions.

Operator

[Operator Instructions] Your first question comes from the line of Arren Cyganovich with Truist Securities.

Question-and-Answer Session

Arren Cyganovich

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

Said Ortiz

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

Aurelio Alemán-Bermúdez

Yes. Just some additional color. What we're seeing on the cost of funds, obviously, consumers continue to look -- CDs are repricing higher. If we go to the brokered CD market, it's repricing higher. So there is some high yield seeking on large balances. So those are -- and obviously, those are the negatives. On the other hand, the offsets are the loan repricing, we have a significant variable loan portfolio on the Commercial side, whatever reprice with Prime happened very late in the last quarter and whatever reprice on SOFR base happened very early in this quarter. So we're going to see that some positives, plus the fact that the $250 million that Said mentioned. So between the positives and the negatives, the positives we can estimate fairly clearly, but the funding impact is very difficult to -- til we see some more stability in the market. That's why we're saying we look forward to offset any funding increase with the other opportunities, plus loan growth should contribute also to part of the positives.

Arren Cyganovich

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

Said Ortiz

Yes. We do remain in an asset-sensitive position. Obviously, that will benefit some of the more asset-sensitive assets such as cash. We've been seeing good opportunities on the investment portfolio of reinvesting those cash flows at higher yields. So overall, yes, we should benefit from those movements on the interest rate higher.

Operator

Your next question comes from the line of Brett Rabatin with StoneX Group.

Brett Rabatin

I wanted to first ask maybe more of a housekeeping issue on the other income that was lower this quarter, I think, due mostly to the income tax credits or the lack of this quarter versus prior quarters, mostly. Just wanted to see if -- does that rebound from here with additional investments? Or just any thoughts on the other fee income line item and then just fee income generally the outlook going forward?

Said Ortiz

Yes. The decrease in the quarter was some gains that we were able to realize on the second quarter that we didn't have this quarter. So yes, that should continue to be around the levels of this third quarter.

Brett Rabatin

Okay. And then credit continues to be really solid, a little bit of an increase in net charge-offs on the Consumer/auto side. But just any -- it seems like auto production or auto sales is continuing to trend better than expected for the island. Any thoughts on the increase in delinquencies on the auto side? And then that construction shared national credit, I, kind of, missed what the expected outcome was from that participation.

Aurelio Alemán-Bermúdez

Well, the construction loan was repaid early in the quarter. So that is out of the delinquency increase now. The auto industry continue with the same challenges. Sales are down. And there's some seasonality to delinquencies if we look at other prior years and on that, I think we -- I have to say, continue stable. We continue to have significant share of the volume. It's just sales are down overall in the market, mostly impacted by tariff, I would say, and inflation in terms of other needs that the consumer need to spend their money.

So we are forecasting that the portfolio is decreasing a bit on a quarterly basis, but we should -- we expect that to stabilize. On the Consumer side, the only component that is growing is really the Mortgage business achieved some growth year-to-date. We expect that to stabilize. We continue to focus on growing the Commercial, which is where we see the opportunity.

Brett Rabatin

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

Aurelio Alemán-Bermúdez

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

Operator

Your next question comes from the line of Kelly Motta with KBW.

Kelly Motta

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

Aurelio Alemán-Bermúdez

Well, obviously, this -- as I said in my other remarks, we -- this quarter, we're going to complete $50 million. We always say around 100%. We're not going to -- probably not going to get there unless it's opportunistic. I think that is important this quarter. So obviously, you have an increased dividend, which is going to be paid out early December, and then we have the $50 million goal. And we do have a plan that goes from the $200 million that we approved last year to $350 million. And every quarter, we'll give you more guidance in terms of how we continue to move ahead on that. Obviously, the goal is to stay around 100%. And probably if we see the opportunity to both go beyond that in 2027, then we will execute.

Kelly Motta

Got it. So that 100% is still related to 4Q '26, and you're not ready to necessarily guide to that for 2027. Is that what I'm putting together or?

Aurelio Alemán-Bermúdez

Yes. That's correct.

Kelly Motta

Okay.

Aurelio Alemán-Bermúdez

We provide more guidance in January. We like to keep the optionality and be opportunistic. So that's part of the plan as it's been for some time.

Kelly Motta

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

Said Ortiz

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

Kelly Motta

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

Aurelio Alemán-Bermúdez

I think we continue to be prudent on the Consumer originations. We basically -- we monitor the portfolio very closely, and we -- every quarter, if we need to do some adjustments on what comes in and our risk appetite, we do. We feel pretty good where we are. The portfolio has been behaving well. We took actions on some of this a couple of years ago. So we expect stability, but we're monitoring closely. Definitely, the inflation is impacting the consumer on the electricity, gasoline on the pump and consumer goods. So is not only here, it's happening across mainland. So that's -- we feel good where we are, and with pretty good reserve. These are high-yielding portfolios. Obviously, opportunities for growing these portfolios are limited at this stage.

Operator

Your next question comes from the line of Steve Moss with Raymond James.

Chase Steward

This is Chase on for Steve. So the yield on securities and other earning assets moved lower this quarter despite the reinvestment. Can you walk us through, like, what drove that decline? And maybe just a reminder on the repricing opportunity for securities into 2027?

Said Ortiz

Yes. So Steve, remember that on the securities side, part of the acceleration of deferred fees and the purchase discount was included on the yield on the second quarter for securities, right? If we actually exclude those one-timers, the yield on the securities increased by about 8 basis points, mostly related to the acceleration that we mentioned on the call. Actually, earning assets are -- if we exclude the one-timers, total earning assets was around 604 bps and very similar to the previous quarter. On the opportunities on the reinvestment of the securities portfolios where you saw in the quarter, we purchased around $400 million at 5.44%. We have $252 million coming in on the fourth quarter, yielding 2.23%, and we should be able to invest that on high 5% and lower 6% the way interest rate markets are behaving right now. That's what we're seeing.

Chase Steward

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

Aurelio Alemán-Bermúdez

There's probably some of that happening. But when you look -- when I look at today's pipeline, it's not impacted by that on the Commercial side. Obviously, that is usually -- in the cycle where rates go over a certain limit, that usually happens. Some projects are postponed. It's part of the cycle. We haven't seen that yet.

Chase Steward

Okay. And just one more quick one for me. Where are new commercial loans pricing today? And have spreads held up as rates moved up?

Said Ortiz

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

Operator

[Operator Instructions] Our next question comes from the line of Manuel Navas with Piper Sandler.

Manuel Navas

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

Aurelio Alemán-Bermúdez

Well, for now, we see -- I think I mentioned that delta is positive and negative for the fourth quarter. Obviously, if other increases happen, which are uncertain, it should be positive for our NIM into 2027. But it's just -- it will depend on both that other increases happen and we achieve the loan growth targets that we have on the plan. Because the asset mix, do remember, continues to change. So we have less Consumer, more Commercial. Consumer is more high yielding. So even though we feel confident about net interest income continue to move north, the NIM formula is more tricky because it also involves the asset mix.

So obviously, investments are -- as I mentioned, investments are being booked at much higher rates than the cash flows that we received. And couple that with higher rates on the commercial variable rate loans, that definitely brings -- offset the potential cost of fund increase. But when you put the mix of loans into the picture, it definitely changed the view of even though net interest income should move north. Clear?

Manuel Navas

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

Said Ortiz

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

Manuel Navas

So the CD appetite remains constant at least near term?

Aurelio Alemán-Bermúdez

Yes.

Said Ortiz

Yes.

Manuel Navas

Okay. And then just can I flip over to the loan growth. You said that the pipeline is healthy. Can you detail it a little bit? And, kind of, what are the factors driving Commercial growth? C&I was excellent this quarter. And just, kind of, thoughts on the Commercial growth going forward.

Aurelio Alemán-Bermúdez

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

Manuel Navas

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

Said Ortiz

Obviously, there's a good economic outlook for the main market that we serve, which is the Puerto Rico economy. So that would, in theory, with the CECL rules lead to good levels of reserves and similar to what we're seeing there. So if that keeps on that way, we should probably see some stability. On the quarter, you did see a little bit of a decrease and mostly related to some of the updated historical experience on the residential mortgage portfolio, which also benefited that and decreased a little bit the ACL coverage. But yes, overall, if credit quality remains stable and delinquency levels stay similar to what we're seeing right now and the economic outlook on the Puerto Rico economy remains positive, you should see similar levels of ACL coverage going forward.

Operator

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