Popular, Inc.

Hello, everybody, and welcome to the Popular Incorporated Fourth Quarter 2025 Earnings Call. My name is Elliott, and I'll be coordinating your call today. If you would like to register a question during today's event, please press star 1 on your telephone keypad. And I'd like to hand over to Paul Caldillo. Please go ahead.

Good morning, and thank you for joining us. With me on the call today is our President and CEO, Javier Ferrer, our CFO, Jorge Garcia, and our CRO, Lydia Soriano. They will review our results for the full year and fourth quarter and then answer your questions. Other members of our management team will also be available during the Q&A session. Before we begin, I would like to remind you that during today's call, we may make forward-looking statements regarding POPULAR, such as projections of revenue, earnings, credit quality, expenses, taxes, and capital, as well as statements regarding POPULAR's plans and objectives. These statements are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's earnings release and our SEC filings. You may find today's press release and our SEC filings on our webpage at popular.com. I will now turn the call over to our president and CEO, Javier Ferrer.

Thank you, Paul, and good morning, everyone. Please turn to slide four. In 2025, We deliver results that reflect the strength of our franchise and the continued stability of the Puerto Rico economy. Our annual net income of $833 million increased by $219 million, or 36% compared to 2024. Our strong fourth quarter loan growth helped bring our total growth for the year to $2.2 billion, an increase of 6%. Banco Popular generated loan growth across most business segments, led by commercial loans. Popular Bank achieved growth in commercial and construction loans. Credit quality generally remained stable throughout 2025, aside from a couple of isolated commercial credit relationships in the third quarter. For the year, net charge-offs decreased by 16 basis points to 52 basis points. Our capital levels are strong, ending the year with a common equity tier one ratio of 15.7%. Our tangible book value per share of $82.65 increased by 21% year over year, primarily due to lower unrealized losses on investment securities and net income for the year, offsetting part by dividends and our share repurchase activity. We repurchased approximately $500 million in common stock during 2025. Since resumming buybacks in the third quarter of 2024, we have repurchased approximately $720 million worth of common stock. We continue to believe that our shares are attractive at current prices. Additionally, in the fourth quarter, we increased our quarterly common stock dividend by $0.05 to $0.75 per share. Please turn to slide five, where we share highlights that reflect our strong operating performance in the fourth quarter. We reported net income of $234 million and EPS of $3.53, an increase of $23 million and $0.38 per share, respectively. Our results were driven by higher net interest income and expanding net interest margin, strong loan growth, and importantly, lower operating expenses. Our credit metrics were stable in the quarter with lower MPLs and net charges. We are very pleased to have exceeded a 14% ROTC for the quarter and a 13% ROTC for the full year. We demonstrated significant progress in our efforts to improve our sustainable returns towards our 14% objective. Please turn to slide six. So at the end of the fourth quarter, Business activity in Puerto Rico continued to be solid, as reflected by favorable trends in total employment, consumer spending, construction, tourism, and other key economic data. The unemployment rate of 5.7% remained stable near all-time lows. Consumer spending remains healthy. Combined credit and debit card sales for Banco Popular customers increased by approximately 5% compared to the fourth quarter of 2024. We also continue to see healthy demand for homes in Puerto Rico. Mortgage balances at Banco Popular increased by $115 million during the quarter. The construction sector continues to show positive momentum, with public and private investment fueling higher employment levels and driving cement sales to the highest level since 2021. We are optimistic that these trends will persist given the backlog of obligated federal disaster recovery funds, publicly announced real estate and tourism development projects, and the renewed focus on reshoring by global manufacturing companies. The tourism and hospitality sector continues to be a source of strength for the local economy. In 2025, airport passenger traffic reached a record of 13.6 million, increasing by 3% compared to 2024. During the fourth quarter, passenger traffic remained stable at around 3 million passengers. And according to Discover Puerto Rico, in the fourth quarter, hotel demand reached nearly 250,000 room nights, marking 11% year-over-year growth and driving a 4% increase in total revenue. We are executing on our strategic framework to be the number one bank for our customers by strengthening relationships and providing exceptional service and products to our customers. We're also focused on delivering solutions faster and improving productivity while reducing costs. Ultimately, our goal is to be a top performing bank. In addition to the rollout of a commercial cash management platform, we also deployed a new consumer credit origination platform in Puerto Rico and the Virgin Islands. This platform provides a fully digital origination process for personal loans and credit cards. We saw an upward trend in online originations during the fourth quarter and have originated approximately 36 million since launch in the third quarter. We have continued to invest in our physical retail network to blend the speed and convenience of self-service with in-person support. Our branches continue to be an advantage in Puerto Rico and the Virgin Islands. As we continue to modernize our channels and platforms, we are creating a more seamless experience to provide our customers with the flexibility to connect with Popular, through the channel that best fits their needs without compromising the quality of our service. We're also seeing the results of our focus on being simple and efficient. We have sustained and continue to simplify our commercial credit origination and portfolio risk management. We are seeing faster cycle times, higher banker productivity, a more seamless customer journey, and long growth in our small and middle market segments. During the year, We also executed a series of sustainable efficiency initiatives, including exiting our mortgage business in the United States, optimizing our mortgage servicing business in Puerto Rico, and transforming our ERP solution to a modern cloud platform that significantly improves agility and performance. Currently, more than 800 of our colleagues are working on these projects. We are very proud of the progress that we have made. I will now turn the call over to Jorge for more details on our financial results. Jorge?

Thank you, Javier. Good morning, and thank you all for joining the call today. As Javier mentioned, our quarterly net income increased by $23 million to $234 million, and our EPA has improved by $0.38 to $3.53. Excluding the partial reversal of the FDIC Special Assessment, adjusted net income for the quarter was $224 million, an improvement of $13 million from Q3. These results were driven by better NII and lower expenses. As we have mentioned before, our objective is to deliver sustainable financial results. While we benefited from the FDIC reversal, we are pleased to have exceeded 14% RODSI for the period and 13% RODSI for the full year. In 2025, we executed targeted initiatives to improve profitability by growing the top line and capturing sustainable cost efficiencies, both of which are key drivers of the RODSI numerator. Looking ahead for 2026 and beyond, we will build on this progress and continue to drive improvement in operating leverage and profitability. At the same time, we see capital levels as a meaningful driver to improve RODSI. Our current objective remains a sustainable 14% RODSI. We will continue to use all available levers to position the company as a top performing bank when compared to mainland peers. Please turn to slide eight. Our net interest income of $658 million increased by $11 million and was driven by higher loan balances, fixed rate asset repricing in our investment portfolio, and lower deposit costs in both of our banks. For the year, NII increased by $259 million, or 11%. During the quarter, our net interest margin expanded by 10 basis points to 3.61% on a GAAP basis. Our fully tax equivalent margin improved by 13 basis points to 4.03%, driven by higher loan balances and lower interest expense, primarily due to lower balances and cost of Puerto Rico public deposits. Loan growth of $641 million in the quarter was strong, with both banks contributing to that increase. At BBPR, we saw loan growth of $497 million, driven primarily by commercial and mortgage lending. At Popular Bank, we saw loan growth of $144 million, mainly driven by commercial lending. For 2026, we expect consolidated loan growth of 3 to 4%. In our investment portfolio, we continue to reinvest proceeds from bond maturities into U.S. Treasury notes and bills. During the quarter, we purchased approximately 900 million of treasury notes with a duration of 2.1 years and an average yield of around 3.56%. We expect to maintain a two to three year duration in the investment portfolio. Ending deposit balance has decreased by 323 million and average deposit balance has decreased by 880 million. This decline was mostly driven by anticipated outflows from Puerto Rico public deposits. which ended the quarter at $19.4 billion, a decrease of $662 million compared to Q3. We continue to expect public deposits to be in the range of $18 to $20 billion. At BPPR, excluding Puerto Rico public deposits, ending balances increased by $525 million, driven by growth of $430 million in commercial demand deposits. Average deposits increased by $192 million. Total deposit costs decreased by 11 basis points at each bank. At BBPR, the decrease is mostly a result of Puerto Rico public deposits repricing lower by 22 basis points due to recent interest rate cuts by the Fed, while non-public customer deposit costs decreased by one basis point. At PV, the reduction was mainly related to lower online savings deposit costs and repricing of time deposits. We anticipate 2026 NII will increase five to seven percent driven by continued reinvestment of lower yielding securities and loan originations in the current rate environment, as well as lower cost of Puerto Rico public deposits and online deposits at Popular Bank. Please turn to slide nine. Non-interest income was $166 million, a decrease of $5 million compared to Q3 and in line with the high end of our guidance. we continue to see solid performance across most of our fee generating segments, including robust customer transaction activity during the holiday season. In 2026, we expect quarterly non-interest income to continue to be in a range of 160 to 165 million. Please turn to slide 10. Total operating expenses were 473 million, a decrease of 22 million when compared to Q3. Excluding the FDIC reversal, operating expenses were $489 million. Aside from the reversal, the largest quarter-over-quarter variance was related to a $13 million non-cash goodwill impairment taken in the third quarter. For the year, GAAP operating expenses increased by roughly 2.5%, which was below our original 4% guidance, as we executed on a series of sustainable efficiency initiatives and also benefited from the delay of some expenditures that will occur in 2026. In 2026, we expect total full year gap expenses to increase by approximately 3% compared to 2025 as we continue to invest in our people and technology. Our effective tax rate in the fourth quarter was 16% compared to approximately 15% in Q3. In 2025, our effective tax rate was 17% compared to 23% last year driven by a higher proportion of exempt income. In 2026, we expect the effective tax rate for the year to be in a range of 15 to 17%. Please turn to slide 11. Tangible book value per share at the end of the quarter was $82.65, an increase of $3.53 per share given by our net income and lower unrealized losses in our investment portfolio, often in part by our capital return activity in the quarter. During the fourth quarter, we paid a quarterly common stock dividend of $0.75 per share, an increase of $0.05 from Q3. As Xavier noted earlier, we're pushing our teams to enhance profitability through ongoing incremental revenue initiatives and expense discipline. While we've made progress over the past two years in reducing our CET1 ratio, there's more we can do. In Q4, we repurchased approximately $148 million in common stock. We believe this is a good run rate for the pace of buybacks going forward. subject to market conditions. As of December 31st, we had $281 million remaining on our active share repurchase authorization. In addition to the common stock repurchases, we'll continue to use capital for loan growth, and we also expect to pursue a dividend increase later this year. Finally, we carry less additional Tier 1 capital than peers and see that as another opportunity to optimize our capital structure in the future. We believe that these actions, which are subject to market conditions and board approval, will help us achieve our long-term stated CT1 goal of having levels consistent with mainland bank peers plus a buffer for our geographic concentration. With that, I turn the call over to Lidio.

Thank you, Jorge, and thank you all for being with us. Turning to slide number 12, credit quality matrix remains stable during the fourth quarter with lower MPLs and lower net charge-off. Non-performing assets and loans decreased by 4 million this quarter, mainly due to popular banks. U.S. MPLs decreased by 14 million, as a 17 million mortgage relationship returned to accrual status, offset in part by higher commercial MPLs. BPR MPLs increased 5 million, with commercial up 8 million and consumer up 3 million, offset in part by an $8 million decrease in mortgage MPLs. Influx of MPLs declined by $194 million, primarily in VPR, as the previous quarter included influx from two unrelated commercial relationships totaling $188 million. The ratio of MPLs to total loans held in portfolio decreased three basis points to 1.27 percent. Turning to slide number 13, net charge-off amounted to $50 million or annualized $51 basis point compared to $58 million or $60 basis point in the prior quarter. This quarter results includes $5 million in recoveries from the sales of previously charged-off auto loans and credit cards. Excluding this, the net charge-off ratio was $57 basis point. The net charge-off in VPR decreased by 7 million, driven by a decrease in commercial net charge-off as the prior quarter included a 14 million charge-off related to a single borrower. In 2025, net charge-off were 52 basis points, an improvement of 16 basis points from last year, driven by lower consumer net charge-offs. For 2026, based on current trends and macroeconomic outlook, we expect annual net charge-off of 55 to 70 basis points. The allowance for credit losses increased by $22 million to $108 million, mostly in GDPR, due to higher reserves for the commercial portfolio driven by higher balances, specific reserves, and loan modifications, coupled with higher reserves for consumer loans due to changes in FICO mix. The corporation ratio of the ACL to long-serving portfolio remains stable at 2.05%, while the ratio of the ACL to MPLs was 162% compared to 157% in the previous quarter. The provision for loan losses was $71 million, down $3 million from $75 million in the prior quarter. For the GDPR segment, the provision was $72 million, compared to 74 million in the previous quarter. With that, I would like to turn the call over to Mr. Ferrer for his concluding remarks.

Thank you. Well, thank you, Lidio and Jorge, for your updates. Our fourth quarter results closed out the year on a high note. We are very pleased with our financial performance in 2025. We increased revenues, maintained expense discipline, generated strong loan growth, and improved customer deposit trends. I'm urging our teams to remain focused on deposit growth, loan generation, and particularly on our expense discipline. Our strategy is grounded in customer primacy. We are focused on deepening relationships, delivering value across channels, and simplifying how we operate. Most importantly, It is focused on translating these efforts into tangible financial results and generating value for our shareholders. In closing, I want to recognize our colleagues and their contribution to our results. 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 deeply grateful for their commitment and dedication we are now ready to answer your questions thank you if you would like to ask a question please press star followed by one on your telephone keypad if you would like to withdraw your question please press star followed by two when preparing to ask your question please ensure your device is unmuted locally first question comes from brett rabbiton with hope group Your line is open. Please go ahead.

Hey, good morning, everyone. How are you doing? Good morning, Brad. Doing well. I wanted to start on the guidance and just thinking about the NII guide. And if I'm reading it correctly, it kind of would suggest maybe slightly slower average balance sheet growth during 26 and 5 to 10 basis points of margin expansion. I know you guys don't like to give explicit margin guidance, but would that be within the realm of what you're looking at? And then just wanted to ask around the ROTC goal, you know, why would operating leverage, that might not increase a bit from here?

Okay. Thank you, Brad. Good morning. First, on the NII, first, we were very pleased with the 11% growth this year. The 11% growth in NII was driven Carlos Ortiz- Expanding the margin being able to reinvest fixed rate investments in our portfolio into higher yielding assets loan growth and lower lower cost of deposits, we believe all those three factors will continue into 2026 i'll be it at a smaller magnitude. Carlos Ortiz- We will see a slowdown, for example, of the the yield uptake that we will get on the reinvestment of the portfolio. But we're very comfortable with that 5% to 7% guide. We are expecting margin to continue to expand throughout 2026. I think when you look at that range, if you're looking at what drives one for the other, really always revolves around low-cost deposit levels and our ability to reduce deposits in the US market. In terms of the RODSI, we talked in the past that we want Rodsey to be driven by the improvement in performance and net income, right? And again, we are very pleased with the results this year. We have a lot of momentum going into 2026. We expect that momentum to continue. We want that, you know, above 14% to be sustainable. There's enough uncertainty in the world and we want to make sure that we are absorbing any ups and downs through the cycle. So we're not quite there yet. We do feel that we have a lot of momentum and like, you know, the starting point where we're at. but that is something that we want to continue to focus on. And I think this year we try to be more intent or deliberate in how we're managing capital levels as well. And, you know, as I discussed in my prepared remarks.

Okay. And then the other question I had was just around, you know, loan growth, which was better than I expected and pretty strong in commercial. you know when i think about that guidance for the coming year i mean you've had six percent ish growth the past two years 4q was seven percent you know is the slowness or slower level anticipated in 26 um you know is that just conservatism around consumer or any thoughts uh around that and then as it relates to on shoring uh you guys seen any opportunities related to to that

So let's start first on the loan growth. You know, as you said, we have seen loan growth around 6% for the last couple of years, led by growth in Puerto Rico. That growth in Puerto Rico was across all of our portfolio, right? You know, commercial, mortgage, and consumer. As we look into 2026, we expect to continue to see commercial to lead the way and mortgage in Puerto Rico. But we do see a softening on the consumer, particularly around auto. So that is one part of the guide. The other growth engine for us has been in the US. We are in good markets in the US. We like those markets. But we want to make sure that we are pricing for relationships and for profitable loan growth. There's some of that embedded. As well as Brett, as you can imagine, there's always timing as loan transactions are focused on some larger clients. When those things close in terms of funding that you advance or when things slow down on expected payoffs, That has an impact on those kind of year-over-year kind of changes, but we're confident on the 3% to 4% guide and the momentum that we've had over the last couple of years in both Puerto Rico and our U.S. markets.

Okay. That's helpful. Congrats on a strong year, guys. Thank you. Thank you.

We now turn to Jared Shaw with Barclays. Your line is open. Please go ahead.

Hey, good morning.

Jared Eggebrecht, Good morning.

Jared Eggebrecht, Maybe I guess just sticking to the theme of of growth outlook when you look at fees. Jared Eggebrecht, Where, where do you see potential softness I guess and fees and that growth rate you've had you've had some pretty good trends during the course of the year.

Jared Eggebrecht, yeah remember Jared one of the things that the 25 results included, you know roughly 10 million of kind of unusual items, you know the recovery for prior periods of a tenant. And then we also had some refunds of federal taxes that were recognized and fee income. So that $10 million really, if you look at the guide, you're making up for that $10 million next year. So there's a little bit more growth embedded in that guide than probably jumps out at you.

Okay. And then on capital, nice to see the buyback and the commentary around sort of the willingness to bring capital ratios down. How should we think about M&A with that backdrop. And you certainly have the capital and the growth to do something, I guess, in terms of potential sizes or anything like that. Any thoughts you could share with us?

Sure. This is Javier. Well, our primary focus continues to be our transformation program. That said, in the US, we're always open to opportunities to add on profitable niche businesses. James J Mullooly- teams and assets. James J Mullooly- So whole bank m&a is not a priority, however. James J Mullooly- It would be responsible for us to say that we would not evaluate opportunities to enhance shareholder value over the long term. James J Mullooly- I think we said this before, there is a high threshold for any transaction that we may consider and. We'll evaluate opportunities to grow inorganically as long as they meet the following criteria to complement our US business. First, it needs to be compelling enough for us to consider reallocating resources away from our transformation initiatives. We have a little bit over 800 employees who are currently focused on these efforts that we would need to reallocate to whatever you know, effort related to an M&A, you know, due diligence, integration, conversion. Number two, core deposits. Any transaction we need to strengthen our deposit franchise and lower cost deposits, with lower cost deposits. Number three, it needs to be commercial-led, which is our key strategy in the United States. It needs to enhance our commercial-led and niche business strategy. And also provide some CRE diversification. Four, it needs to be geographically consistent. So create greater market penetration in our existing footprint, increasing opportunities for value creation through cost synergies, or need to extend presence to adjacent markets or geographies. And I think also it needs to have the scale. In terms of scale, it needs to be right size for our U.S. business. I have a preference for not for MOEs. You know, I don't think highly of those. Not that they can't work, but that's just my bias. And I think the last item would be cultural fit. And it's last, but it's really top of mind. Um, what, whatever, uh, target, um, needs to, needs to align to our culture of performance and employee wellbeing. So, um, we are very mindful that not all customer demographics will make sense, uh, as a part of popular. So I think, you know, very specifically, that's, that's how we think today about MNA.

Okay. Thanks. That's a, that's great. Um, great insight. Just maybe finally for me, do you just have the spot deposit costs and asset yields at the end of the year?

We don't usually provide the spot rates, Jared.

Okay.

All right. Thanks. We now turn to Ben Gerlinger with Citi. Your line is open. Please go ahead. Good morning.

Good morning, Ben. Good morning. So on the expense guide, I know you guys always give a gap basis, so that's inclusive of investment and things like that. I know that last year you were also investing, and this year I'm assuming $27 will or are going to because your size investment is almost like a core. So this is kind of curious, is this year on an investment basis kind of smaller or larger or anything you could frame as sort of timing and any expectations on that relative to kind of what we've seen previously or potentially starting new projects that are multi-year in nature?

I think the run rate that we're going is not changing much. It gets to a point then where we only have so much capacity and resources to be able to do so much at once. I think certainly in 25, we were running at that capacity level. As things roll off and we go live, Luis Chavez- And, for example, have you talked about that we went live on a new erp in January 1 that releases some resources, but then a lot of those resources get reallocated to the next big project on the next thing going on. Luis Chavez- You know, so I think we all feel fairly comfortable with the level and focus of the teams, you know we can always certainly do more, but, but there is a reality that you can only have so much. you know, resource and management focus on these implementations.

Gotcha. That's helpful. I know we've talked about the pace of loan growth and then also the reinvestment of the securities higher. I'm just kind of looking at like just the average earning asset mix. Where it is today, and obviously if you could get securities into a loan, it's probably the best case scenario. But I'm just kind of curious, is today's mix within kind of the guardrails that you want to see more loans down the road. Just kind of curious on just how you think about average earning asset mix down two or three, four or five years from now, given that you also have the public deposits.

Yeah, I mean, I mean, certainly we would prefer to make loans, not so much necessarily on a yield perspective, but we'd rather have those relationships. Right. And we feel that we can have a deeper profit base with a lending relationship than we can just buying portfolio assets. But there is a reality that we have around 30% of our deposits in Puerto Rico that are required to be collateralized, and that will keep us in the portfolio business of buying investment securities. So if we go forward, we would like to see a higher loan-to-deposit ratio, but it will depend on the composition of our balance sheet. But as I said before, we do expect NIM to continue to grow and expand this year. And even as we go forward and we start combining maturity between our recent purchases and more legacy pre-2023 investments, we still have a good upside for pickup of yield in that investment portfolio. Like current rates, the more recent purchases, Don't don't reset very far to where we bought them versus the uptake that we get in the more legacy portfolio. So we still see that as a strong tailwind going forward.

Thank you.

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

Hey good morning, thanks for the question um. Maybe we want to go back to capital, I want to make sure good morning, I wanted to make sure I heard you correctly, it seems like you alluded to maybe. Additional tier one being lower than peers wondering if from a high level, you can discuss you know, it seems like maybe then leverage would be your guiding ratio how you're thinking about that. as we move ahead given that the importance of capital return to the profitability improvement story. Thank you.

Sure. Thank you, Kelly. So we often talk with you all about CP1 and a lot of focus on CP1. And we talked about, you know, our goal of getting that lower plus a buffer. One of the things that we don't very often talk about is that, you know, we have somewhat inefficient capital stack and that we, really have very little additional tier one. We have around five basis points. And when we look at peers, they have anywhere between 50 and 100 basis points of additional tier one. So we look at this as another lever that's an opportunity that we're evaluating and looking at. Perhaps there's an opportunity for something that's accretive without necessarily impacting the total tier one or total regulatory capital and being able to balance lowering CT1 with management and boards intent to be more, you know, deliberate in reducing that capital over a prolonged period of time.

Okay. All right. Fair enough. And maybe I think we've hit on this a bit, but turning to loans and yields, I was surprised, you know, your loan yields have held in really nicely, even with the rate cuts. Can you remind us how much of your book floats? I don't believe you usually provide it, but I'll try. Any new production rates would be really helpful here. Thank you.

So a couple of things on loan yields. We're still seeing loan growth in Puerto Rico on the consumer side to be flat or above, with the exception of credit cards. But in the quarter, we still saw an improvement in auto yield and flat in personal loans. And, you know, we talked about in the past that, you know, we just have the low beta on the way up. You know, we didn't pass through all the increases in the loan pricing, and we're seeing kind of the benefits, a little bit of the opposite behavior that we see in our deposit base in Puerto Rico. I don't, you know, I think last quarter we talked about where I don't know how long that's going to continue. You know, as I said in talking about loan growth, we do see a softening in consumer demand, particularly around auto. So it would seem logical to me that we start seeing some lower pricing there as people compete for the production. In terms of variable, it's around 25% of our total loans that are variable or floating. Most of that is commercial loans. I think both portfolios, around 40% of commercial loans are floating. And then remember, we do have the credit card, we have the construction portfolio that float. And in terms of new yields, we don't provide that.

Okay. Fair enough. Last one, if I can slip it in. I apologize. This was addressed already. But with the charge-off, 55 to 75 basis points is certainly lower than, you know, historically what we've seen in Puerto Rico, but a step up from 2025. I would imagine that's mostly on the consumer side, but can you kind of, piece together the outlook here of what you're seeing and how you came to that 55 to 75 basis point range, any movement between now and, you know, what gets you to that higher range in 26.

Thank you. A small correction, Kelly. I mean, we provided for 55 to 70 basis points, so the high end was a little bit lower than 25 basis points. I mean, generally, before going into the details, I mean, we see we have a very stable outlook. We think the portfolio economy continues to be stable with moderate growth, and that's the outlook that we have for next year. Under that context, we believe that generally our consumer portfolio will continue to behave as they have in 2025. We do our accounting for potentially some charge off of some of larger commercial relationship that we have reserved for. So that is embedded in the range that we have provided to you. So that explains a little bit our rationale.

Thank you so much. Step back.

We now turn to Aaron Saikanovich with Truist. Your line is open. Please go ahead.

Thank you. Maybe you could talk a little bit about whether or not you're seeing any kind of deposit competition in Puerto Rico and your expectations for deposit growth in the year.

Well, I think clearly there is competition in the market. You can see from our numbers that we've grown deposit balances. And we expect to do the same this year. But there's a few banks in the market and also credit unions. But we are not seeing any irrationality in the pricing on this cycle. So I would say that it's pretty steady. And we will not, however, as we said before, we won't lose good clients to pricing, deposit pricing. Again, we're going to defend our position and particularly good relationships in all segments, but hopefully not do anything that's crazy.

Okay, that's helpful. And then maybe just kind of taking a broader picture, U.S. has really stepped up military in the Caribbean and wondering if you're seeing any, you know, increasing presence and whether or not that's a positive from an economic standpoint to Puerto Rico.

Well, I will say that it's a net positive. We we have seen some some increased activity But it's mostly, I wouldn't say in our branches. I'm gonna say it's in geographies adjacent to military bases or installations. We've seen customers that are benefiting from relationships with the military throughout Puerto Rico. And we're seeing there are reports of the military entering into lease agreements for, you may imagine, ports, and airports. And again, know of customers, clients of ours that, you know, smaller or middle market clients that have entered into contracts with the military. So that's why we believe it's net positive. Obviously, we're monitoring it. If military presence were to grow, that can only increase. So that's why I started by saying that it's a net positive. We'll see, because it's dependent on, as you know, geopolitical and forces and decisions out of the White House. Thank you.

Sure. As another reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. We now turn to Jared Cassidy with RBC. Your line is open. Please go ahead.

Good morning, Jorge. Good morning, Javier. Good morning, Jorge. Good morning. At the risk of being called a curmudgeon again, as I was on a call with one of your peers, I have to ask the question, the outlook for you folks and your peers is quite good for 2026. The economy is healthy. Credit, as you guys pointed out, is resilient. We have a steeper positive slope yield curve. Maybe it gets even more positive sloped. We've got loan growth, as you pointed out as well. When you look around corners, aside from the geopolitical risk that we're all aware of, when you guys have to look around corners, what are you watching out for so that we don't get a surprise this year that nobody's obviously expecting?

Well, that's a very good question. And of course, we think about it all the time. I think that one of the things that is in the States as in Puerto Rico is affordability, right? I mean, we think about that and how it may impact certain segments of our clients, right? And it's something that obviously impacts home creation, let's say, and it may impact our customers if inflation would escalate. So that's something that we think about. Uh, and the other item that we can control, but it obviously has an impact to our economy is, is, uh, the prep situation, the fact that, uh, the electric power authority bankruptcy, um, uh, is still, uh, is still pending. So anything having to do with, uh, generate generation of electricity is a concern because it's, it's, uh, essentially a tax on, on economic growth. Now, we're also benefiting from the fact that gasoline is at very good levels. So we're benefiting from that. But I think those will be the two items that are kind of lurking, you know, and they bite us. But, you know, we're hoping that this is the year where the prep-up bankruptcy gets dealt with. And clearly, everybody recognizes that developing the grid and fixing this is critical for Puerto Rico's future. So we think that clear heads will prevail and we'll get to a resolution that's rational for all the parties involved.

Very good. And then as a follow-up, stepping back for a moment, you guys touched on some of the economic statistics for Puerto Rico. Can you remind us and give us some color the ensuring of America and the building of manufacturing plants that's taking place on the mainland? I believe Puerto Rico is seeing some of those benefits as well. Can you give us some color of what you're seeing on the ground? Is there progress being made there and what that future might look like for the economy for Puerto Rico?

Yeah, well, we are. We can comment on what's public and maybe provide, offer, offer some like thoughts on maybe stuff that we're listening for the grapevine, but I'm sure you're absolutely right. Uh, global manufacturers are increasingly prioritizing reshoring initiatives and Puerto Rico is very well positioned, uh, to benefit from this trend. So, uh, during last year, multiple companies announced new investments or expansions in Puerto Rico, uh, of all sizes. Uh, and that representing about 2.2 billion in total capital investment and that creation of more than, you know, yeah, yeah. 3,500. Well, actually I have, I thought it was 4,600 jobs. Um, um, so, and I think the, we, we call, we called it the whale. I mean, there's again, all sizes, but, uh, uh, the whale we call, uh, the, uh, announcement. which is a $1.2 billion commitment to modernize and expand its pharma manufacturing facilities in Carolina, and that's close to 1,200 new jobs. And Amgen's $650 million investment to expand its biofarm operations in Juncos, and that's another $750. Now, that said, we expect, and this is a red line now, that's what happened last year. And it's close to 17 entities that announced new investments in Puerto Rico through the onshoring or reshoring. But grapevine tells us that we ought to expect more announcements in 2026. And a few will be large. But that's just grapevine. So we think that that trend will continue. And of course, that will fuel our economy. It's not only the direct job, but as you know, this has a multiplier effect, and any such investment will generate three times what it typically generates in direct investment. So looking forward to more announcements from the government in 2026, and of course, once that happens, you'll know right away.

Very good. And now, will there be any benefits from the halftime show at the Super Bowl? We'll see. We'll see. We'll see. More record sales.

Okay. Thank you. It's interesting. I don't know if you've seen the ads. The ads are fantastic. Yeah, the ads are fantastic.

Good.

But we'll see.

Oh, that's good for Puerto Rico. Okay. Thank you.

Yep, absolutely. Thank you, Jerry.

We now turn to Manuel Navas with Quatasamba. Your line is open. Please go ahead.

Hey, most of my questions have been asked, but I just wanted to check in on what are the market conditions that would impact your buyback? Is that valuation, pricing? Are you targeting some sort of total return target? Just any kind of color more on the buyback pace, please.

First, Manuel, I just want to welcome you to the call and thank you for picking up coverage for all the banks in Puerto Rico and supporting our island. So I appreciate it. In terms of market conditions, I mean, you know, we tend to do these on 10b-5-1 plans, so certainly changes in market prices that, you know, could impact the grids that we use. So that's certainly something that is something unexpected, could be an accelerator or decelerator. from the target number, but also, you know, all the global political macroeconomic environment. And these are all things that impact our perception, you know, of what's happening and how quickly we want to execute on the repurchases. But I will reiterate what Javier said. We believe that we find that our current share price are very attractive.

And the current.

share number in this quarter was was nice and you like that pace correctly we like the total volume the total dollar that we that we spent to be uh a good uh baseline perfect i appreciate that thank you guys we now turn to team brazilia with wells fargo your line is open please go ahead hi good morning

I'm trying to put a finer point on auto expectations. Can you just give us a little bit of color here as to what current demand looks like? And as you start looking out throughout the course of 2026, do you see this being a tough comp year kind of throughout the year, or do trends start getting better maybe post-April once you kind of lapse through some of the pull forward when Paris first got announced last year.

I'll give you a little bit of perspective in terms of the auto industry and maybe a little bit of perspective in terms of the outlook for 2026. I mean, if you look historically prior to COVID, I mean, new auto sales in Puerto Rico, when you had a year above 100,000, that was a great year for the industry. Over the recent years after COVID, numbers have been higher than that. I mean, we had years of 120,000 was the record year for the industry. This year, we are ending up the year around 111,000, which is 9% down from the previous year. And the expectation for the industry is to be slightly down 5% from the numbers that we have. But I will say still, I mean, a year that it is above $110,000, close to $110,000, that is a great year for the industry in Puerto Rico.

Okay. Got it. Thank you. And then maybe asking the expense question a different way. I think historically you've broken it down kind of into three different phases, with the first phase being to kind change the mindset of the employee base and focusing on the customer, phase two being simplify the franchise, improve efficiency, and then finally becoming a top-performing bank. I'm questioning, I guess, between phase one and phase two, the costs kind of associated with those. Are they similar? And your comment that you have to delay some technology expenditures in 25 that are running in 26, Are those costs similar as well, or is one of those phases implicitly more expensive maybe than somebody's other?

I think the one thing that I would encourage us to think differently is it's not really phase driven. I mean, this is an arms race every day, you know, whether it is other banks, syntax, other competitors that are competing, everybody's competing for a user experience that's very unique and omnichannel, et cetera. We can come up with all the different buzzwords. We're happy with the level of investment that we're at. We know that there's more to do, and we're going to wake up tomorrow and have another new challenge that we'll have to evaluate and put on the queue for something else. I think that what's important is that we're very much focused on it. We have a strong investment discipline in terms of the projects that we're greenlighting. with our customer in mind, but also our employees. I think it's that combination that creates the operating leverage that we're looking for. But I think we need to really kind of think of this as a steady state and how do we focus and shift to adding value from our decisions. But Timur, there's a lot of things here that just become table stakes that we've got to do or risk falling behind.

Yeah, and I don't see it as phases. I see it as a strategic framework, which would have us, to Jorge's point, do our jobs every day better, faster, and quicker to tackle competition, which it's not going to let down. As you know, everything's going quicker, faster. So we have a great position in Puerto Rico. We need to defend it, but also grow it. And that's exactly what we're trying to do every day.

Got it.

Thank you. We now turn to Brandon Bowman with Bank of America. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Very nice quarter. I just wanted to build off of the last question on expenses. If we pull out the profit-sharing incurred last year. It implies a little bit faster of a growth rate, and I was just hoping you'd be able to dissect the drivers of that. Is it the planned investments that were delayed that's causing the 100 basis point difference in the growth rate, or is it something else? Any breakdown would be helpful. Thank you.

Yeah. Thanks, Brendan. Thanks for the question. You know, first, I think Carlos Ortiz- If you look at where we ended up 2025 versus our original guy and even our guide guidance in the third quarter call we did I think outpace or over perform in 2025 the teams have done a really good job to be focused on efficiency we've done and implemented a lot of a lot of. Carlos Ortiz- opportunities that are sustainable and will continue to generate savings, but we also had some some wins that that. resulted in maybe a benefit that we see in 25 that we won't see repeat in 26, or we will see a lower level in 26 versus 25. And then when you add that to the continuous investments in technology, I think we've talked in the past how as projects go near live, you start doubling up on expenses as you're supporting two platforms and kind of incurring You know, the cost of licensing on the old platform and the cost of development in the new platform, et cetera, that tends to have some peaks and valleys. And that's part of kind of the noise that you're seeing in comparing the run rate. But we will continue to invest in technology and continue to invest in our people and making sure that we're attracting talent. And those are the two biggest drivers when we look at year-over-year and our expectation of expense growth.

Thank you very much.

We have a follow-up from Kelly Motto with KBW. Your line is open. Please go ahead.

Hey, thanks for letting me circle back. I apologize. I forgot there are so many people on this call. Just to dig down a bit into the NII guide and parsing that with your commentary for margin expansion, thinking through the funding side, mainly deposits, you know, you had some declines in brokers, you gave the range for government. Embedded in your NAI guide, do you have any thoughts around or, I guess, opportunity to run off some higher cost funding given the strong cash flows you're generating off the securities portfolio and overall outlook for core deposits in Puerto Rico here?

Thank you. You know, of course, our objective is not only to retain, you know, planned deposits, but, you know, also increase them, right? So we have been seeing good momentum in our retail network across all segments, you know, affluent, mass affluent, and mass. We've seen strong deposit growth in commercial, really led by corporate and small business. So we expect some of those trends to continue. I think the opportunity on that NII, is can we reduce the cost of the US deposits? And those are driven both by the competitive nature of online direct deposit, which are an important funding source for our US business, but we're also seeing strong competition in New York and the Florida markets. The reality is that kind of for that incremental money and clients that are more rate sensitive It's still very competitive out there and it's our team's goal is we're very much focused on relationship growth. And if that begins to the loan relationship in the US, making sure that that's translated into deposit relationships, that maybe impacts our loan growth guidance as we want our team to be more focused on those relationship and that profitability. But at the end, no secret in banking that the deposits and low cost transactional accounts primacy with those clients are going to be the driver of that guide. And when we look at the outperformance this year, it was really driven by the growth in deposits in both of our markets.

Got it. Thank you so much. Okay.

This concludes our Q&A. I'll now hand back to Javier Ferrer for any final remarks.

Well, thanks again for joining us and for your questions. We look forward to updating you on our first quarter results in April. Have a good day.

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your line.