Popular BPOP Q3 2025 Earnings Call Transcript

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Date

Thursday, Oct. 23, 2025 at 11 a.m. ET

Call participants

Chief Executive Officer — Javier D. Ferrer-Fernández

Chief Financial Officer — Jorge Jose García

Chief Risk Officer — Lidio V. Soriano

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Risks

Nonperforming loan increase — The ratio of nonperforming loans to total loans rose to 1.3% from 82 basis points in the prior quarter due to two unrelated large commercial credits. Management cited these as idiosyncratic events but acknowledged they increased provision and charge-off expenses.

Charge-off guidance — Management stated, "There is a possibility that we may have to take charge-offs in the exposure that we reserved this quarter, which did not charge off, and that is driving the results," according to Lidio V. Soriano, indicating potential further credit costs related to a specific commercial exposure.

Goodwill impairment — The company recognized a $13 million noncash goodwill impairment at its US-based equipment leasing subsidiary in Q3 2025.

Takeaways

Net income -- $211 million in net income for Q3 2025, up $1 million, with management attributing the gain to higher revenues, margin expansion, and steady deposits.

Earnings per share -- $3.15 per share, up $0.06 from the prior quarter, showing sequential improvement.

Net interest income (NII) -- Net interest income was $647 million in Q3 2025, a $15 million increase, reflecting higher average deposits, asset repricing, and pricing discipline.

Net interest margin -- Expanded by 2 basis points and 5 basis points on a tax-equivalent basis in Q3 2025, driven by higher loan and tax-exempt securities balances.

Loan growth -- Total loans grew $502 million, led by commercial and construction segments at both BBPR ($357 million) and Popular Bank ($145 million).

Revised loan growth guidance -- Management now projects 2025 consolidated loan growth of 4%-5%, up from 3%-5%, despite expected Q4 US construction portfolio paydowns.

Investment portfolio activity -- Purchased $2.5 billion in US Treasury notes averaging 1.4-year duration and 3.65% yield, funded by $1 billion in bond maturities and $1.5 billion in redeployed cash during Q3 2025.

Deposit trends -- Ending deposit balances fell by $704 million, while average balances rose $793 million. Puerto Rico public deposits ended at $20.1 billion, down $842 million from Q2 2025.

Deposit cost -- Cost per deposit increased by 1 basis point at both BBPR and Popular Bank in Q3 2025, primarily driven by higher BBPR average public deposits.

NII growth outlook -- CFO Jorge Jose García said, "we continue to expect NII growth of 10% to 11% in 2025."

Noninterest income -- $171 million in noninterest income for Q3 2025, up $3 million from Q2, and above the high end of 2025 quarterly guidance, including a $5 million retroactive lease payment.

Noninterest income guidance -- Projecting Q4 2025 noninterest income of $160 million to $165 million, totaling $650 million to $655 million for the year.

Operating expenses -- $495 million, up $3 million quarter-over-quarter in Q3 2025, with a $13 million US equipment leasing goodwill impairment offset by a $13.5 million decline in other expenses from a claims accrual reversal and reductions in operational reserves.

Personnel costs -- Personnel expenses increased $3.6 million in Q3 2025 due to annual merit adjustments and severance costs related to cost efficiency actions at Popular Bank.

Strategic actions -- Management decided to exit the US residential mortgage origination business and close four underperforming New York branches as part of ongoing profitability improvements.

Expense guidance -- Expenses in 2025 are expected to rise 4%-5% compared to last year.

Effective tax rate -- 14.5% for Q3, down from 18.5% in Q2, due to higher tax-exempt income and changes to the Puerto Rico tax code. Q4 guidance is 14%-16%, and the annual outlook is 16%-18% (effective tax rate).

Tangible book value per share -- $79.12, up $3.71, reflecting net income and lower unrealized MBS losses, partially offset by capital return activities in Q3 2025.

Dividend and repurchases -- Declared a $0.75 per share dividend (up $0.05) and repurchased $119 million in shares, leaving $49 million authorized as of Q3 2025.

CET1 capital ratio -- 15.8%, down 12 basis points due to loan growth and capital actions net of quarterly income in Q3 2025.

Nonperforming loans (NPLs) -- NPL ratio rose to 1.3% in Q3 2025 due to two BBPR commercial loans: a $58 million nonaccrual telecom loan in Puerto Rico and a $30 million nonaccrual Florida hotel loan (with $14 million charged off).

Net charge-offs -- $58 million, or 60 basis points annualized, compared to $42 million (45 basis points) in the prior quarter, mainly impacted by the commercial real estate charge-off and increased auto portfolio losses in Q3 2025.

Credit loss allowance -- Allowance rose by $17 million to $786 million; provision expense jumped $29 million to $75 million, mostly due to the above commercial loans in Q3 2025.

Allowance ratios -- Allowance for credit losses to loans remained at 2.03%, while allowance to NPLs dropped to 157% from 247% in Q3 2025.

Net charge-offs guidance -- Management expects full-year 2025 net charge-offs to be within the 50-65 basis point range.

Strategic transformation -- Ongoing initiatives include digital loan origination rollout in Puerto Rico and the US Virgin Islands, expansion of digital deposit products in the US Mainland, and improvements to commercial cash management and credit delivery.

Return target -- Popular reiterated its commitment to sustainable 14% ROTCE over the long term; actual ROTCE exceeded 13% for a second consecutive quarter (Q3 2025).

Summary

Popular (NASDAQ:BPOP) delivered modest sequential growth in net income and EPS in Q3 2025, underpinned by revenue gains, sustained net interest margin expansion, and consistent loan growth. Management indicated that deposit volatility primarily affected public balances in Puerto Rico, while private deposit balances remained comparatively resilient through retention initiatives. The quarter saw an increase in nonperforming loans and credit provisions attributed explicitly to two isolated large commercial exposures—one in Puerto Rico's telecom sector and another in Florida real estate—without broader credit deterioration signals, according to management. Expense growth reflected both strategic cost actions, such as business exits and technology investments, and elevated personnel costs, aligning with the company's repositioning and operational efficiency plans.

Management said, "we do continue to expect our NIM to expand in the fourth quarter and beyond," according to Jorge Jose García, highlighting ongoing benefits from repricing assets and the lagged re-pricing of public deposit costs to market rates.

The decision to exit US residential mortgage origination and close New York branches is part of a multi-year transformation initiative aimed at improving profitability and efficiency.

CFO Jorge Jose García stated, "For certain, we are not going to stop at 14%. It is a guiding principle, and we want to get there, but we are not going to stop there," emphasizing ongoing focus on sustainable ROTCE improvement beyond current targets.

No new depository entrants were reported in Puerto Rico, though management cited an active competitive environment both in pricing for deposits and commercial loan origination.

Expense discipline and redeployment are expected to fund future technology and operational transformation initiatives, with over 80 active projects cited as underpinning cost leverage and reinvestment.

Industry glossary

BBPR: Banco Popular de Puerto Rico, Popular’s principal Puerto Rico banking subsidiary.

ROTCE: Return on Tangible Common Equity; measures net income available to common shareholders as a percentage of average tangible common equity, excluding goodwill and intangible assets.

NPL: Nonperforming Loan; a loan where the borrower is not paying interest or repaying principal as scheduled.

ACL: Allowance for Credit Losses; a reserve to absorb estimated future losses on loans and leases.

CET1: Common Equity Tier 1; a regulatory capital measure defined by bank regulators, denoting high-quality, loss-absorbing capital.

NIM: Net Interest Margin; the difference between net interest income generated and interest paid, divided by average earning assets.

Full Conference Call Transcript

Javier D. Ferrer-Fernández: Thank you, Paul, and good morning, everyone. Starting on Slide three, we share a few highlights that reflect our strong operating performance in the third quarter. We reported net income of $211 million and EPS of $3.15, an increase of $1 million and six cents per share, respectively. Our results were driven by higher revenues, an expanding net interest margin, strong loan growth, and importantly, stable customer deposit balances. Our credit metrics were impacted by two large commercial loans, which were related to isolated circumstances that do not reflect broader credit quality concerns. Lidio will discuss in more detail in his remarks. I note that excluding these two relationships, credit metrics remain stable.

For the second quarter in a row, we have demonstrated progress from our efforts to achieve sustainable returns above 12% this year and towards our longer-term 14% objective. Please turn to slide four.

As of the end of the third quarter, business activity in Puerto Rico continued to be solid, as reflected by favorable trends in total employment, consumer spending, tourism, and other key economic data. The unemployment rate of 5.6% continues to hover around all-time lows. Consumer spending has been resilient and remains healthy. Combined credit and debit card sales for Banco Popular customers increased by approximately 5% compared to 2024. Home purchase activity continues to be strong, as demonstrated by the $129 million increase in mortgage balances at Banco Popular during the quarter. Momentum in the construction sector has been solid with both public and private investments fueling higher employment levels and cement sales.

We are optimistic that these trends will persist given the backlog of obligated federal disaster recovery funds, announced real estate and tourism development projects, as well as the renewed focus on restructuring by global manufacturing companies. One example of this is Amgen's recently announced $650 million manufacturing network expansion, which is expected to create roughly 750 direct new jobs in Puerto Rico. Puerto Rico is also well-positioned given its strategic geographic location considering current geopolitical focus on the Caribbean region. The tourism and hospitality sector continues to be a source of strength for the local economy. This summer, the sector benefited from Bad Bunny's thirty-one-night concert residency at the Coliseum in San Juan, right next to our Popular Center complex.

This was more than just a series of concerts. The event also featured Puerto Rico as a destination, highlighting our music, natural beauties, and culinary offerings. The celebration of our culture generated significant media exposure for the island globally and led to a substantial increase in tourism activity during what is normally a seasonally slow period of the year. Please turn to slide five.

I would like to comment on our new strategic framework and transformation progress. Our strategy centers on three objectives. First, be the number one bank for our customers by deepening relationships, earning trust, delivering value across all channels, and providing exceptional service. Leveraging our very strong primacy and satisfaction scores in Puerto Rico, we are focused on advancing digital and payment solutions to further grow engagement. Second, be simple and efficient by working collaboratively, streamlining operations, and reducing costs. We are committed to making our processes simpler and more effective to deliver superior solutions for our customers.

And finally, be a top-performing bank by attracting and retaining top talents and converting customer and operational success into shareholder value, with a commitment to generating a sustainable 14% ROPSI over the long term. This framework, simple yet powerful, guides our transformation, which continues to show steady and novel progress. We are investing in seamless, secure banking solutions, expanding service channels, and modernizing branches and digital platforms to provide our customers with the flexibility to connect with Popular through the channel that best fits their needs. We plan to extend these digital capabilities to more products to further improve online and mobile experiences and support future growth.

Recent initiatives include the launch of a fully online personal and credit card loan origination process in Puerto Rico, the Virgin Islands, and the expansion of digital deposit products in the US Mainland. On the commercial side, we are improving cash management and credit delivery for small and mid-sized businesses. We are pleased with the progress we have made so far in our transformation and are convinced that these efforts will continue to unlock growth opportunities and efficiencies to drive sustained financial performance. I will now turn the call over to Jorge Jose García for more details on our financial results. Jorge?

Jorge Jose García: Thank you, Javier. Good morning, and thank you all for joining the call today. As Javier mentioned, our quarterly net income increased by $1 million to $211 million. Our EPS improved by 6¢ to $3.15 per share. These results were driven by better NII and noninterest income, and a lower effective tax rate, offset somewhat by a higher provision for credit losses. As we have mentioned before, our objective is to deliver sustainable financial performance. While there is some noise in the current quarter's results, we are very pleased to have once again exceeded a 13% ROTCE for the period. We continue to expect to achieve at least a 12% ROTCE in Q4, as well as for the full year.

Longer term, we remain focused on achieving a sustainable 14% return on tangible common equity. Please turn to slide seven.

Our net interest income of $647 million increased by $15 million and was driven by higher average deposit balances, fixed-rate asset repricing in our investment portfolio, and deposit pricing discipline in both of our banks. Our net interest margin expanded by two basis points on a GAAP basis and by five basis points on a tax-equivalent basis, driven by a larger balance of loans and tax-exempt investment securities. Loan growth of $502 million in the quarter was strong, with both banks contributing to the increase. At BBPR, we saw loan growth of $357 million reflected across most portfolios, but driven primarily by commercial and construction lending.

At Popular Bank, we saw loan growth of $145 million, also driven by the commercial and construction lending segment. Given that the underlying economic activity and demand for credit in both of our markets remain solid, we now expect consolidated loan growth in 2025 to be between 4-5% as compared to the original 3-5% guidance for the year, despite the expected headwinds in our US construction balances due to paydowns expected during the fourth quarter.

In our investment portfolio, we continue to reinvest proceeds from bond maturities into US treasury notes and bills. During the quarter, we purchased approximately $2.5 billion of treasury notes, with a duration of 1.4 years and an average yield of around 3.65%. We funded the purchases by reinvesting roughly $1 billion of bond maturities, along with redeploying $1.5 billion of cash reserves. We expect to continue to invest in treasury notes to lessen our NII sensitivity to lower rates while maintaining an overall duration of two to three years in the investment portfolio. Ending deposit balances decreased by $704 million, while average balances grew by $793 million.

Puerto Rico public deposits ended the quarter at $20.1 billion, a decrease of $842 million when compared to Q2. We continue to expect public deposits to be in the range of $18 billion to $20 billion. At BBPR, excluding Puerto Rico public deposits, ending deposit balances decreased by $101 million to $162 billion, and on average, deposits decreased by $44 million, demonstrating the impact of our continued focus on deposit retention strategies. At Popular Bank, ending deposit balances increased by approximately $216 million net of intercompany deposits. Total deposit cost increased by one basis point at both banks. At BBPR, the increase was mostly due to a higher average balance of public deposits.

Given the results year to date, along with the anticipated NIM expansion in Q4 from repricing of our fixed-rate earning assets, we continue to expect to see NII growth of 10% to 11% in 2025. Please turn to slide eight.

Noninterest income was $171 million, an increase of $3 million compared to Q2, and above the high end of our 2025 quarterly guidance. We continue to see solid performance across most of our fee-generating segments, including robust customer transaction activity. This quarter, we also benefited from a $5 million retroactive payment from a tenant related to an amended lease contract. Given the trends year to date, and particularly the stability in customer transaction activity, we now expect Q4 noninterest income to be in a range of $160 million to $165 million. This will result in total noninterest income between $650 million and $655 million for the year. Please turn to slide nine.

Total operating expenses were $495 million, an increase of $3 million when compared to last quarter. The largest variance was related to a $13 million noncash goodwill impairment in our US-based equipment leasing subsidiary due to lower projected earnings. Offsetting this was a $13.5 million quarter-over-quarter reduction in other operating expenses, driven by the effect of a reversal this quarter of a $5 million claims accrual recorded in Q2, and a similar reduction in operational reserves. We also saw a $3.6 million increase in personnel cost, mainly due to annual salary and merit increases effective in July, along with the impact of employee termination benefits related to cost efficiency initiatives at Popular Bank.

Specifically, as part of our ongoing efforts to improve profitability, we decided to exit the US residential mortgage origination business and to close four underperforming branches in the New York Metro Area. We will remain focused on areas where we feel we can invest to achieve improved operating leverage. We continue to expect the increase in 2025 expenses to be between 4-5% when compared to last year. Our effective tax rate in the third quarter was 14.5%, compared to 18.5% in Q2, driven by a higher proportion of exempt income. This higher exempt income, along with the impact of changes to Puerto Rico's tax code, will result in an effective tax rate for Q4 in the range of 14-16%.

For the year, we now expect the effective tax rate to be between 16-18%. Please turn to slide 10.

Regulatory capital levels remain strong. Our CET1 ratio of 15.8% decreased by 12 basis points, mainly due to loan growth and the effect of capital actions net of our quarterly net income. Tangible book value per share at the end of the quarter was $79.12, an increase of $3.71 per share, driven by our net income and lower unrealized losses in our MBS portfolio, offset in part by our capital return activity in the quarter. During the third quarter, we declared a quarterly common stock dividend of $0.75 per share, an increase of $0.05 from Q2. Finally, we repurchased approximately $119 million in shares during Q3.

As of September 30, we still have $49 million of the $429 million remaining on our active repurchase authorization. With that, I turn the call over to Lidio V. Soriano.

Lidio V. Soriano: Thank you, Jorge. Good morning, and thank you for joining the call. Turning to Slide number 11. The ratio of NPLs to total loans held in portfolio increased to 1.3% compared to 82 basis points in the prior quarter. Credit quality metrics were impacted by two unrelated commercial exposures in BBPR, resulting in an increase in NPLs and net charge-offs. This impact relates to borrower-specific circumstances and does not reflect broader credit quality concerns. The first loan is a commercial industrial facility extended to a telecom company in Puerto Rico experiencing reduced revenue due to operational challenges and client attrition following the business acquisition.

As of September 30, we classified this loan as nonaccrual with a carrying value of approximately $58 million and drove the increase in provision expenses in the quarter. The second loan is a commercial real estate facility secured by a hotel property in Florida. This loan has also been placed on nonaccrual status and carries a value of $30 million as of September 30, which includes a $14 million charge-off recognized during the quarter. Excluding these two cases, credit quality metrics were stable. We continue to closely monitor the economic environment and borrower performance. Economic uncertainty remains a key consideration. We are confident that the risk profile of our loan portfolios positions Popular to operate successfully under the current environment.

Turning to Slide number 12, net charge-offs amounted to $58 million or annualized 60 basis points, compared to $42 million or 45 basis points in the prior quarter. Net charge-offs in BBPR increased by $16 million, mostly due to the $14 million charge-off related to the $30 million commercial NPL inflow mentioned earlier. Consumer net charge-offs increased by $4 million, mostly due to higher auto loans net charge-offs by $6 million, partially offset by a $2 million reduction in credit card net charge-offs. Given our credit performance year to date and NPL inflows this quarter, we expect net charge-offs to be between 50 to 65 basis points for the full year.

The allowance for credit losses increased by $17 million to $786 million, while the provision for credit losses increased by $29 million to $75 million. Both increases were driven by the impact of the two commercial exposures, offset in part by improvements in the credit quality of the consumer portfolios. The corporation's ratio of ACL to loans held in portfolio remained stable at 2.03%, while the ratio of ACL to NPLs was 157% compared to 247% in the previous quarter. With that, I would like to turn the call over to Javier D. Ferrer-Fernández for his concluding remarks. Gracias.

Javier D. Ferrer-Fernández: Well, thank you, Lidio and Jorge, for your updates. We are very pleased with our financial performance in the third quarter. We increased revenues, maintained expense discipline, generated strong loan growth, and benefited from stable customer deposit trends. We are determined to close out 2025 on a high note. We continue to execute on our strategy, and I am urging our teams to remain focused on deposit retention, loan generation, and particularly on our expense discipline. We will continue to generate value for our shareholders and deliver our ROCE objectives. We will achieve this by concentrating on our strategic framework: be the number one bank for our customers, be simple and efficient, and be a top-performing bank.

I want to give a shout-out to our colleagues and recognize their hard work. I see what they do every day in our branches, call centers, and centralized offices. We are pushing ourselves to deliver more for our clients every day, and I am incredibly grateful for their commitment. We are now ready to answer your questions.

Operator: Thank you. If you would like to ask a question, please press. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw: Hey. Good morning, everybody.

Javier D. Ferrer-Fernández: Hey. Good morning, Jared.

Jared Shaw: Maybe starting just on the margin and on asset yields. With the securities yields, I am sorry, with the securities purchases this quarter, should we assume that trend continues? And I guess, where are the new purchase yields? It looks like maybe we will not be able to see net yield expansion much more from here if we see the rate cuts.

Jorge Jose García: No. I mean, let me first answer the yield extension. We do believe that we still have strong tailwinds. So you can see in our appendix, we provide to you kind of the upcoming maturities in the investment portfolio. Those are still coming off at, you know, one and change, and, you know, we expect to be able to continue to get a significant spread pickup on those maturities. So while they may, you know, be priced lower as rates are coming down, remember that a large portion of our portfolio is also being financed in, you know, a let's call it, you know, money stands in fungible, but still being financed by public deposits.

We would expect those public deposits to also benefit from the lower rate environment, giving us the opportunity to create that spread. So we do continue to expect our NIM to expand in the fourth quarter and beyond.

Jared Shaw: Okay. And then on the loan side, what about new loan yields this quarter? Oh, sorry. Go ahead.

Jorge Jose García: Yep. On the new loan yields, during the quarter, we still saw, you know, kind of the condition that we had been seeing for the last year where particularly in personal loans and auto lending. We still see some yield pickup, you know, quarter over quarter. I would expect, Jared, that maybe that would slow down a little bit, particularly in the auto. The auto volumes or new car sales activity is slowing down, and it is possible that, you know, it would not be unreasonable to believe that will result in more competitive pricing to maintain demand for auto sales.

But, you know, as we said in the past, there is a lot of, you know, front and back book in that auto loan portfolio in particular. And when you look back, given the average life of those loans, assuming the same type of risk profile, we still see opportunities of repricing given the current, you know, rate environment.

Jared Shaw: Okay. Thanks. And then maybe just shifting on the credit side, especially on the auto. There was an increase in delinquency, but it is still lower, I guess, year over year. How are you looking at the credit trends over the next few quarters within auto and consumer, I guess, broadly?

Lidio V. Soriano: I mean, I will say the variation that you saw this quarter is within the seasonality of the portfolio. We continue to be very optimistic about the consumer given the trends in Puerto Rico, given the trends in employment, liquidity of our client base. We see losses are about the auto portfolio, about 45 basis points below last year. So we are comfortable with our position and the outlook for the portfolio.

Jared Shaw: Great. Thank you.

Operator: We now turn to Timur Braziler with Wells Fargo. Your line is open. Please go ahead.

Timur Braziler: Hi. Good morning. Good morning, Lidio. Sticking with the credit commentary, the large C&I loan, I guess, what are the specific reserves that you set aside for that timing of resolution as you see it? And I am just wondering, you know, why it moved into nonperformers right away instead of kind of up the risk migration chain. Did they stop making payments, or is that still accruing at this point? Maybe start there.

Lidio V. Soriano: Okay. I mean, thank you for the question. They continue to make payments. So the loans are current from a payment standpoint. And so that is that. In terms of our decision to, I mean, the situation has been deteriorating over time. We had been downgrading the loan over time. For us, I mean, it is a business that carries a significant amount of debt. And management has indicated their intent to right-size the capital structure, including liability management, the liability structure. So that drove our decision to place it in nonaccrual status.

Timur Braziler: Okay. And then I guess in terms of specific reserve, and any kind of timeline around planned resolution?

Lidio V. Soriano: I think the planned resolution is most likely next year. Sorry. Probably next year. In terms of specific reserves, we have not provided that information at this time.

Jorge Jose García: Yeah. Timur, you can assume that the driver of the variance this quarter in provision was related to these loans.

Timur Braziler: Okay. And, I mean, this is a little bit of a larger credit. Just maybe stack ranking the loan book, is this one of the larger credits that you guys carry? Is this kind of typical size just given your place in the Puerto Rico economy? And maybe just talk a little bit more broadly as to, you know, the health of the economy from a business standpoint versus a consumer standpoint, and if there are any kind of signs that might be, you know, flashing yellow, or any other kind of degradation.

Lidio V. Soriano: If you look at our portfolio over the years, we shifted our portfolio from being more of an SME portfolio to a corporate credit type of portfolio. And we have seen strong trends over the last few years. And we are actually, if you look, I think the last time we had one issue with a large bank was a large group was in 2019. I think we will continue to focus on that segment that we think there are significant opportunities in Puerto Rico. They have performed very well over the years. And that is the nature of our portfolio. Every now and then, you might see a situation.

I think the important thing is we stick to our underwriting discipline. The performance has been very strong, and we feel comfortable with the exposures that we have today.

Javier D. Ferrer-Fernández: Yeah. And if I may add to that, I mean, to your question about the macro, I think in our commentary, we are clear that we are not seeing, you know, any sort of yellows or reds or any insects in Puerto Rico, you know, referencing something that somebody said in the United States. It is, you know, we are seeing a strong economy. But as Lidio just said, it so happens that we continue to focus on large commercial opportunities.

And from time to time, as happened this quarter and it has not happened in a long time, there may be an isolated credit event that occurs due to idiosyncratic borrower-specific issues that are unrelated to the underlying economic backdrop. And that is exactly how we feel. So I cannot really point to anything in the four-year economy that gives us any pause or worry or, on the contrary, as they say, you know, across the ocean. We feel that, you know, the economy is performing well, and our big customers are investing and continue to move on with their projects.

Timur Braziler: That is great color. Thank you. And then just lastly for me, encouraging to hear that margin expansion is going to continue here. I am just wondering from an NII standpoint, you guys reiterated the guidance. It is a little bit wide in terms of the range as it implies 4Q. Should we assume that margin expansion portends to NII kind of flat to up here as we go through these rate cuts? Or just given some of the lags, maybe NII growth stalls here over the next couple of quarters? Thank you.

Jorge Jose García: Yeah. I think first, you know, I want to reiterate that, you know, we continue to see the benefits of fixed asset repricing, you know, loan growth. All those things should continue to contribute to improving NII and the expansion of the margin. As you mentioned, the guidance for NII, you know, we left it where it was. Part of that has to do with our perspective on public deposit balances in the fourth quarter. You know, we still expect to be within the range, but maybe not at the high end of the range where we are at. Also mentioned the lag in pricing of these deposits.

And when we close out Q3, you know, we continue to be slightly asset sensitive, particularly in the early stages of moves of, you know, FIP funds rate. But as we stated before, the cost of public deposits, you know, are linked to short-term market rates. And in general, they reprice on a quarterly lag, you know, it is just that we have never given the index, but we are going to do Paul a favor, and it is, you know, tied to three-month treasuries, you know, obviously minus the spread. And, you know, so they are in a lag.

So over time, we would expect to see the effects of changes in rates be reflected in the cost of public deposits with a beta of near one. And that pricing structure will continue to support, you know, our success of repricing and investment portfolio, making sure that we generate that improving spread on that investment. But, you know, anytime there is, you know, movement in the Fed, you know, maybe there is a little bit of a lag, not always. Right? We talked about that in the past that if the market and treasury get ahead, in anticipation of Fed moves, we might be able to benefit a little quicker.

But we have kind of incorporated all that into our NII guidance for the fourth quarter, but we have a high level of confidence that as that stabilizes and the passage of time and, you know, into 2026 and beyond, we will continue our previous growth trends.

Timur Braziler: Great. Thank you.

Operator: Our next question comes from Benjamin Gerlinger with Citi. Your line is open. Please go ahead.

Benjamin Gerlinger: Hi. Good morning.

Javier D. Ferrer-Fernández: Hi, Ben.

Benjamin Gerlinger: Not to belabor the point on credit. It is pretty clear that you guys are doing phenomenal relative to, like, the last ten years. But I thought it interesting that your guide kind of fine-tuned a lot, whereas the charge-off outlook, you just brought up the low end. So when you think about the 65 bps on the high end on a full-year basis, that would imply something pretty draconian for the fourth quarter. I mean, is that a possibility? Or how should we think about that considering the other guidance portions were fine-tuned?

Lidio V. Soriano: I mean, I will say that as we mentioned in the remarks, we took a reserve and a provision for some of the exposure. We charge off one of the two related exposures. There is a possibility that we may have to take charge-offs in the exposure that we reserved this quarter, which did not charge off, and that is driving the results. Overall, I mean, if you exclude that, we continue to expect a very solid performance out of the rest of our book. So that is the only thing that we are caveating in terms of the range that we provided to you.

Jorge Jose García: Yep. And, you know, in similar words, we talked about this in the past where when we provide that spread in the guidance of net charge-offs, we are trying to put in for idiosyncratic events that could happen in our portfolio at any given time. Certainly, the activity that we have seen here today, as you say, you know, does not reflect necessarily a lot of opportunities to get to the high end without it being a commercial loan.

Benjamin Gerlinger: Got it. Okay. Helpful. And I know you guys have gone through quite a bit of initiatives on the expense front. Is there anything, I know you are going to give me a '26 guide, but is there anything in '26 that we could potentially prepare for outside of just kind of normal cost inflation?

Jorge Jose García: Rick, you are right. We are not going to give you anything 2026. That is a try. Good try. Good try. You know, we are very happy with the cost discipline. And a lot of initiatives that are ongoing. We talked about it last in the last quarter's call. There is a lot of effort around really just focusing on execution and really what Javier says, you know, focus on excellence. And there are a lot of efforts that are ongoing that are, you know, maybe a lot of singles and bumps, but they add up. They add up, and this quarter, we saw some of those.

We saw some of the actions, and we talked about the activity in the US. You know, it is not easy impacting our colleagues. But we did make a decision to terminate our mortgage origination business in the US. We do not believe given our funding profile and the positive pension in the US that is a business that we really want to be in at this time. And there are other things across the organization. I would say the important part is that those efforts are sustainable. They are not one-offs. And we do expect to see those benefits that would allow us to reinvest in other things.

We talked to you in the past about slowing down our expense growth rate. These are all the things that allow us to do that while continuing to invest in areas that we think will add value and get us closer to that 14% ROTCE.

Benjamin Gerlinger: Gotcha. Sounds good. Thank you, guys.

Javier D. Ferrer-Fernández: Thank you.

Operator: We now turn to Kelly Ann Motta with KBW. Your line is open. Please go ahead.

Kelly Ann Motta: Hey. Good morning. Thanks for the question. I will pick up on that 14% ROTCE that you mentioned. You have been above 13% the last two quarters. It seems like we have 14% in sight. I appreciate the guidance around at least 12% for the year, which seems very doable. Wondering if you have any update on the timing of the 14% one. And then two, you know, given what you have laid out with your NII trajectory, has there been any discussion in terms of whether 14% is the right place to stop as a sustainable ROTCE for us to be?

Jorge Jose García: Yeah. Kelly, good morning. For certain, we are not going to stop at 14%. It is a guiding principle, and we want to get there, but we are not going to stop there. And, you know, having said that, what we want to make sure is that sustainable performance. We have said that in the past. I agree with you. We are a lot closer today than we were, you know, a year ago when we pulled back that guide for this year. A lot of effort from a lot of people, a lot of things going right, and we just want to make sure that we continue to execute.

And, you know, more to come in terms of guidance and when and how we get there. But the important part is we continue to believe strongly that we get there through improving our net income performance and our operating leverage. And whatever we do on the capital side just adds to the opportunity to get there and surpass it.

Kelly Ann Motta: Okay. Got it. That is really helpful. And then on the tax rate, the reduction in guide, you called out the higher proportion of tax-exempt income as well as some changes in the tax rate, and there is some noise in appreciating, you know, you are not giving 2026 guidance. I am just hoping if you could, you know, kind of help us out with what is this full-year 2025? And good core run rate ahead, or you expand upon, you know, the Puerto Rico tax rate change and how that kind of impacts the go-forward. Just any kind of color on that would be helpful given that there is a lot of moving parts here.

Jorge Jose García: Yeah. So I would ground on two things. One, this quarter, there were not any, like, real discrete events that impacted the effective tax rate of this quarter. It was lower given the mix of taxable income and tax-exempt income. Did benefit, you know, that $5 million other operating income number. Those have a tax-preferred treatment. So that helped. But I say that so that you know, it is a good basis to start off. And then when you look at the guidance for the fourth quarter, what we are talking about is saying we are reversing, you know, this change in the tax law in Puerto Rico will allow us to reverse the related tax expense during the year.

I tell you this whole long story to say that the guide for 2025 of 16 to 18% really ends up being a fairly clean number for us for this year. That guide does not really have a lot of noise of discrete events that are, you know, that are not part of our normal tax strategy. You can infer from that whatever you would like. We can discuss it in January when we give you the 2026 guide.

Kelly Ann Motta: Fair enough. Last question if I can sneak it in. You know, some of your competitors have noted increased competition on the deposit side. One was on government deposit, the other was, you know, some of the initiatives they are doing. Wondering if you could just expand upon the market competition you are seeing in Puerto Rico, one. And two, like, has there been any news of any new entrants to the island, specifically, you know, on the depository side? Thank you.

Javier D. Ferrer-Fernández: Well, I will take that. I will start by saying that we are aware of no new entrants on the depository side in Puerto Rico. Competition, yes. I mean, it is a vibrant market. And there is competition every day. We compete every day for our piece of the business and for customers. So but we are going to be rational while we are doing that. Yes. We will not lose any good clients on pricing and on terms. So we are seeing competition. It is normal. We have now you see how some of our esteemed bank competitors in Puerto Rico are sort of positioning themselves as challenger banks or, you know, whatever banks.

But, frankly, you know, we like where we are at. And we like the fact that the franchise is certainly being reenergized. And we are not behaving like a hundred and thirty-two-year-old bank. And more to come on that, quite frankly. So we, you know, do not know what else to say other than we like where we are at.

Kelly Ann Motta: Right. Thank you so much. I will step back.

Operator: Our next question comes from Gerard Cassidy with RBC. Your line is open. Please go ahead.

Thomas Letty: This is Thomas Letty standing in for Gerard. Loan growth in the quarter was strong, as you mentioned. And just on the back of the increased competition on the deposit side, I am curious in booking new C&I and CRE loans, have you seen a similar increase in competition maybe resulting in less rigorous underwriting standards? In other words, you know, anything you can tell us about changes in underwriting standards on loans you are originating now versus, say, a year ago?

Javier D. Ferrer-Fernández: I mean, I guess each one of us can answer that, but, no, the answer is no. And, you know, we have a very strong credit underwriting process and, you know, Lidio leads the reside and then our business side as well. We are not going to do anything that does not make any sense, frankly. We tend to be a bit conservative by nature, quite frankly. But I am not seeing anything in originations that would point to that concern.

Jorge Jose García: Yeah. From talking to our bankers and listening to the teams, the pushback we gather in competition is more pricing. Yeah. You know, we are seeing maybe, particularly, you know, you are hearing in, you know, some entrants in the New York market and maybe South Florida. People being a little more aggressive in pricing. And, frankly, you know, if those loans are not true relationships, you know, and they are not coming with deposits, we are not going to pursue that, particularly in Puerto Rico, we might have a different strategy echoing what Javier previously said in his comments.

Thomas Letty: Okay. No. That is helpful. Thank you.

Operator: We now turn to Aaron Cycanovich with Truist Securities. Your line is open. Please go ahead.

Aaron Cycanovich: Hey. Hey, Aaron. By the way, happy to hear you. Welcome to the call, Aaron. Thank you for picking up the coverage for us and out of Puerto Rico. So welcome.

Javier D. Ferrer-Fernández: Good to be back.

Aaron Cycanovich: Maybe we could just talk a little bit about, Javier, your commentary around investment initiatives that you have in your transformation plan or the second leg of your transformation plan. How are you thinking about all of the items that you kind of mentioned in your prepared remarks? With regard to, you know, the cost, would that be a step up in cost or do you see some efficiencies that you will be gaining that will help offset some of the further investment as you continue down that path?

Jorge Jose García: Sorry, Aaron. I mean, the one thing I will reiterate, you know, our goal here is to be able to continue to invest and generate opportunities and efficiencies to be able to then continue to reinvest at the level slowing down the overall level of expense growth.

Javier D. Ferrer-Fernández: Yeah. I mean, so there is going to be a beginning and in certain periods, right, a disconnect, right, between initial investments and then results from those investments, which is what Jorge is referring to. And we think that is okay as long as the actual investment makes sense to us, we are not going to do something dramatic or irrational. But, you know, we have to invest in our technology to continue to compete. Not only in Puerto Rico, but, you know, we compete with folks that come from the United States. You may imagine, you know, the big players are already here. And they have the best technology.

So our program is rational in that way, and I think our expense base shows it.

Jorge Jose García: Yeah. I do not perceive that we are going to go above and beyond a particular sort of threshold.

Javier D. Ferrer-Fernández: Yeah. And what happens is right now, we have got over 80 projects that are ongoing. Some of them have higher levels of current investments. Some are in capitalizing modes, but a lot of them are in dual expense mode. As you are developing, particularly with SaaS licensing agreements, you are paying for your new system and you are paying for your old system. So over time, as you are generating the cost avoidances and turning off old systems, that allows us buffers to continue to reinvest, you know, following, you know, a business case and value-add analysis.

But when we talk about, you know, being able to slow down the rate of growth, that is the kind of thing that we are talking about is how do we shift and reallocate expenses and savings to continue to improve the business and add value to our shareholders?

Javier D. Ferrer-Fernández: So be and then I say this and shut up. That is a very important point that Jorge just made. We are not looking at this on a siloed view. Right? So we are saying so if we are going if we are investing in the transformation, we want to make sure that if we can generate some savings in other parts of the bank, which will, of course, kind of fund that transformation. That is the mindset in many cases, we have been able to do that. And that helps minimize the impact of the actual investment. So again, I mean, it is a broad-based program. We are very excited about it. And we are starting to see results.

And we will continue because as I said, I mean, we are also creating a transformation mindset in our teams. Right? We need to continue moving forward.

Aaron Cycanovich: Thank you. I appreciate the color.

Javier D. Ferrer-Fernández: Sure.

Operator: This concludes our Q&A. I will now hand back to Javier D. Ferrer-Fernández, CEO, for any final remarks.

Javier D. Ferrer-Fernández: Well, thank you. Thanks again, everybody, for joining us and for your questions. We appreciate that. We look forward to updating you on our fourth-quarter results in January. Thank you.

Operator: Ladies and gentlemen, today's call has now concluded. I would like to thank you for your participation. You may now disconnect your lines.

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