Banco Del Bajio Shs Of Bk

Good morning and welcome to Banco del Bajio's third quarter 2025 results conference call. My name is Leonor and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance, and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded. Joining us today from Bambajio are Mr. Carlos de la Cerda, Executive Vice Chairman of the Board of Directors. Mr. Edgardo del Rincón, Chief Executive Officer. Mr. Joaquin Dominguez, Chief Financial Officer. And Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session. For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may now begin.

Good morning, everyone, and welcome to Banco del Bajio's conference call to discuss our third quarter 2025 results. Today, we will review our quarterly performance and discuss the strategic evolution of our key financial trends. The industry information cited throughout this presentation is based on CNBP's data as of August, representing the most recent publicly available information. Without any further ado, let's start with the presentation. Let's start on slide three with a brief look at our key financial highlights for the quarter. Our total loan portfolio expanded 5.4% year over year, fueled by the 7.7% growth in our company loan portfolio. This growth was supported by total deposits, which grew 13.7% year over year, showing a sequential growth of 4.3% in the quarter. Regarding asset quality, our non-performing loan ratio stood at 1.97%, with our coverage ratio at 1.16 times. Our cost of risk stood at 109 basis points. Turning to profitability, we reported a quarterly net income of 2.3 billion pesos, to an ROE of 19.7%. our net interest margin was 5.9% and the efficiency ratio stood at 39.5%. Looking at the nine-month period in 2035, the ROE was 19.9%, the net interest margin was 6.1%, and the efficiency ratio at 38.6%. Our capital position remains strong. the preliminary capitalization ratio reached 15.9%, an increase of 136 basis points from the second quarter 2025. This increase was partially the result of our decision to no longer apply our internal methodologies for portfolio reserves and capital requirements for the SME and company portfolio. This decision increased our capital ratio by 82 basis points. Moving to slide 4, we highlight the success of our digital transformation strategy, and the evolution of the number of transactions processed through BambaGeo's channels. The charts on this slide illustrate the structural shift we have executed in client transactions. Today, digital channels are by far our most important transactional channel, leading to a decrease in absolute brand transactions compared to five years ago, when they were still dominant. The chart below shows a similar evolution for the transacted amounts at these channels. We have achieved a compound growth rate of 24% in transacted amounts over the last five years. Within that period, volumes processed through Bajionet have increased by a multiple of 3.7 times, while branch volumes grew only 1.5 times. Transacted amounts through BajioNet now accounts for 82% of all transacted amounts, up significantly from 64% in the third quarter of 2020. The increasing volume and transacted value processed through our digital channels demonstrate an effective strategy that has led to higher client engagement in BanBajio. This is evident when you consider that transaction volume growth has outpaced the 6% CAGR in our active clients over the last five years. This evolution is a supportive driver of our sustained growth in our deposit base and the structural growth of our non-interest income. Our digital channels related income grew at a sound 18.2% CAGR over the past five years. Moving to slide 5, we continue to observe good growth trends for our company and consumer loan portfolios. Company loans grew 7.7% and consumer loans 13.1% year-over-year. Overall, the total loan portfolio reached 268 billion pesos, a 5.4% increase compared to the third quarter of 2024. Our total loan growth was achieved despite the contractions observed in government, financial institutions, and mortgage portfolio. It is worth mentioning that during this quarter, we have successfully continued our strategic relocation of our portfolio, supporting higher yielding low classes with better margins. Simultaneously, our total deposits reached 274 billion pesos, which represents a 13.7% increase year-over-year. We will detail these growth trends in our Funding Structure section on slide 8. On slide 6, we detail the evolution of our consumer portfolio, excluding auto loans. This portfolio reached 7.2 billion pesos, with growth rising to 13.6% year-over-year compared to the third quarter of 2024. As we have emphasized in previous quarters, we view this segment of consumer loans as a strategic high-yield asset that is critical to our efforts to diversify our income generation and our overall business. We have managed to achieve this expansion with asset quality that outperforms the industry standards. As shown in the charts, this is reflected in our NPLs ratio across the board. with payroll loans at 2.26%, credit cards at 2.98%, and personal loans at 2.31%. Turning now to slide 7, we will examine our asset quality trends. Our headline NPL stands at 1.97%, while the NPL adjusted ratio stood at 2.51%. Most importantly, both ratios continue to compare favorably against the industry average. As shown in the bottom right chart, our cost of risk was 109 basis points for the quarter. We expect the cost of risk will converge to more normalized levels over the next two to three quarters. Our coverage ratio remains strong at 1.16 times. Furthermore, we will continue to hold $681 million in additional reserves on our balance sheet, mostly created during the pandemic. In line with our decision to cease applying our internal methodology for additional reserves and to fully transition to the standard regulatory methodology, we plan to absorb these reserves over the next nine months. Moving on to slide 8, our total funding reached 324 billion pesos, reporting a 10.6% increase year-over-year. Within the funding mix, our demand deposit base reported an increase of 20.5% year-over-year, and our overall client deposit base remains stable relative to the institutional funding. Within our funding structure, we have observed a trend over the last two years, with clients that are gradually migrating to interest-bearing demand deposits away from zero-cost accounts, a shift that has gained relevance in the mix. The funding mix now comprises zero-cost demand deposits at 17%, interest-bearing demand deposits at 26%, time deposits at 41%, and institutional funding at 14%. On slide 9, we observed the evolution of interest margins. The net interest margin for the third quarter was 5.9%, a year-over-year decrease of 110 basis points. This reduction was primarily due to the sensitivity to rates, which accounted for 62 basis points of the reduction, while 48 basis points were driven by the negative impact on the asset liability mix. Our current exempted sensibility to rates, considering the current mix of assets and liabilities, stands at around 20.4 basis points of net interest margin per every 100 basis point change in the benchmark rate. We estimate this would represent a full year impact of around 730 million pesos on revenues and 460 million on net income. You will see the performance of Banbajillo's revenues on slide 10. Please note that we are excluding non-strategic asset sales from the third quarter and the nine-month period of 2024 to provide a clear pro forma comparison. Total adjusted revenues decreased by 2.8% compared to the third quarter of 2024, which reflects an aforementioned impact of the reduction in interest rates. Consequently, our financial margin contracted 9.0%. However, our strategy is paying off in non-interest income, which grew strongly by 50% pro forma year over year. Our adjusted net fees plus commission and trading income grew a robust 22.7% in the third quarter. We continue to make important progress in key fee-generating businesses. Bank assurance grew 36.9%. Inter-exchange fees grew 5.9%. POS fees grew 13.4%, while BajioNet-related fees grew 37.3%. The reported total non-interest income growth was boosted by 156 million sale of a written-off portfolio in the quarter. We can see the evolution of our efficiency ratio on slide 11. It came in at 39.5% for the third quarter of 2025. Banbajio's efficiency ratio stands strong against the industry levels. In this third quarter, expenses grew 9.6% year-over-year, consistent with a 9.1% year-over-year growth in September year-to-date, and in line with our guidance. We continue to prioritize our efforts to bring down expense growth, and it is one of our priorities for this year. However, the Bank continues to invest strategically in key initiatives, such as branch openings and some upgrades to our infrastructure. Slide 12 presents the evolution of the profitability metrics of Ban Bajio. As shown in the charts, the quarterly ROE was 19.7% and the quarterly ROA stood at 2.4%. On per share basis, the third quarter earnings per share stood at 1.91 pesos, which represents an annualized earnings yield of 17.1%, computed with the average stock price for the third quarter. Moving to slide 13, the preliminary capitalization ratio as of September 2025 was 15.89%. entirely composed of core equity Tier 1 capital. Around 60% of the 136 basis points increased in our capitalization ratio from the previous quarter was attributed to the aforementioned methodological adjustments applied to our portfolios, and the remaining 40% was a result of our sound earnings generation capacity. Finally, on slide 14, we are pleased to announce that the Board of Directors has approved a proposal to the Ordinary General Shareholders Meeting for an extraordinary cash dividend payment equal to 10% of 2024 net income, which is equivalent to 0.9 pesos per share. This distribution, combined with the previous payouts throughout the year, would result in a total payout ratio for 2025 of 60% of last year's net income, with the proposed payment date set for December 3rd, 2025. The total of the three dividend payments will represent 5.39 pesos per share, equivalent to a dividend yield of approximately 12.2% calculated using the most recent share price. We'll continue to closely monitor the evolution of the drivers for the fourth quarter, and we feel comfortable in our ability to deliver on the guidance that we have provided to the market. With this, I conclude my presentation, and we can open the call to the Q&A session.

We will now conduct the Q&A session. If you would like to ask a question, please press the Raise Your Hand button located at the bottom of your screen. If you are connected via telephone, please dial star 9. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask your question. Our first question comes from the line of Ernesto Gabilondo. Please state your company name and ask your question.

Hi, thank you. Ernesto Gabilondo from Bank of America. Good morning, Carlos, Edgardo, Joaquin, Rodrigo, and Angelica. And thanks for the opportunity to ask questions. My first question will be on your net income guidance. When looking to the accumulated earnings as of the third quarter, it's around 6.9 billion pesos. If we analyze it, it's around 9.2 billion pesos, and the growth print is of minus 14%. which is above the company's guidance range of minus 18 to minus 20. So just wondering if it will be reasonable to expect at least the high end of your guidance and what will be your assumptions on that? My second question will be on your expectations for dividends. As you mentioned in your last slide, you are expecting a special dividend for December the 3rd, and you have an ordinary dividend payout ratio of 50% this year. So just wondering how should we think about the dividend payout ratio next year? And this is especially in a context in which you will no longer have A high reserve coverage ratio, as you mentioned, you are expecting it to be trending to 103%, and actually it's at 116%. So I just wanted to know your thoughts on the dividend payout ratio, and also how should we think about the cost of risk during the next quarters while you are transitioning into this lower reserve coverage ratio? Thank you.

Thank you, Ernesto, and good morning, everyone. This is . Several questions, Ernesto. So about net income, I agree with you. We believe we can be in the high end. uh of the guidance that is 8.8 billion pesos and we feel comfortable in general with the with with all the guidance no regarding the coverage ratio there are only two banks in the mexican financial system with additional research the complexity of the regulatory uh rules no uh that we need to comply uh with the cmbb and additional rules that are coming in the following months no uh take us i mean we decided to abandon, let's say, the methodology for additional reserves and go only to regulatory reserves. That's why, based in the mix of our assets, the level of collateral and guarantees that we have, we feel comfortable with the regulatory reserves. So we still have 680 million pesos that will be, I mean, those will be absorbed in the following six to nine months, mostly at the beginning of 2026. And regarding your last question before the dividend about the cost of risk, we are very glad with the behavior of the cost of risk in the third quarter. Actually, it came 14 basis points better than the second quarter, But for us, the good news is that it's very concentrated in few names, very well-known clients. And a few of them is very possible that they will transition to current during the fourth quarter, no? So we feel that in the following several quarters, maybe two, three quarters, maybe four quarters, we should transition in case of risk. to a more normalized level, let's say between 0.91 and 1%, no? And now I pass the microphone to Carlos about the difference.

Hello, Ernesto. Hello, everybody. Regarding your question, we usually feel comfortable with a 50% payout ratio. that we believe allow us to maintain a capitalization rate that we feel comfortable with, between 14% and 15% capitalization rate. This year, the capitalization rate went up. Since the loan growth has not been as strong as we expected, the economy is, and all the uncertainties related to the tariffs and many things, we have seen a weak demand for loans. That and the change in methodology took our capitalization rate well above 15%. So we decided to propose to the shareholders meeting an additional 10%. considering that in a few months we will be evaluating the payout, the dividend that we will be paying out for the 2025 net earnings. So that will be an important amount again. So we feel comfortable with a 50% that we would have to adjust depending on how the year looks. And that's why we added a 10% additional dividend.

Excellent. Now, thank you so much. And just if may I, a last question on your ROE expectations. How do you see it in the long term? under normalized rates, where do you see the interest rates ending by the end of 2026?

Sure. This quarter, Ernesto, we delivered an excellent ROE of 19.7%. We believe it was a strong recovery. And also confirming the availability to maintain solid profitability, even in a more challenging environment. As we have been mentioning in the previous quarters, our view is that the sustainable ROE remains in the high-teens range. During the year, interest rates, you know, declined faster. than we initially expected, and also that puts some pressures on margins. And at the same time, we have been experiencing a higher cost of risk than originally planned. So it is already trending down and should normalize, as I said, in the following quarters, no? But we really believe that the strong fee income growth, the discipline in expense control, and the solid capital levels, all of which support a very healthy profitability. So even in a low-rate environment that we feel the trend in race will continue to go down maybe to 6.5, 6.25 at the end of 26. We feel confident that we can deliver high teams in ROE, even under that environment.

FNO, thank you so much.

Thank you, Ernesto.

Our next question comes from the line of Brian Flores. Please state your company name and ask your question.

Hi, Tim. Thank you for the opportunity to ask questions. This is Brian Flores from Citi. I have two questions. My first question is on asset quality. I just wanted to understand the perspective on the coverage that is already below the 120% you guided earlier. So is the fourth quarter expected to have some reversals or improvements? I think that would be great to know. I also wanted to, on my second question, see how that is related to long growth. Because as you mentioned previously, Edgardo, long growth is probably running well below historical rates, right? It's 5% year over year. I wanted to ask you maybe the same question in two different aspects. The first one is what is happening in mortgages. Is there some anticipation on the, I don't know, the growth of policy changes that we could see from CMVB? Is it just demand? Is it pricing? If you could share with us what is happening in mortgages, that is the portfolio that is shrinking the strongest. That would be great. And also, if you could share your expectations of long growth for 2026, I think that will be also very, very helpful. Thank you.

Thank you, Brian. Let me start with long growth. You know, in 5.4% year-over-year, that is below previous periods, mainly because we have been very selective on where we want to grow. Corporate lending continues performing well, up around 7%. And within corporate loans, SMEs, I mean, we are having very good momentum. On the other hand, we have been intentionally reducing exposure on government loans, in mortgages, but also in financial institutions segments that either carry lower margins or higher risk. So it's a decision-based in profitability. In the case of financial institutions, you know very well what has been happening in the market with several financial institutions not related with banks, no, that have been having problems, no? We are also seeing good growing consumer loans, and that will continue in the future, mainly in credit cards, payroll, and personal loans. A little bit of it growing 13%, a little bit more than that, no? Overall, as Carlos was saying, credit demand has been somewhat softer, no, than we were expecting. And it's a reflection of what is happening in the economy, the uncertainty locally and globally, and all the geopolitical factors that you know very well. So looking ahead, The fourth quarter typically is our strongest period, and we expect to meet the full guidance without any problem for this fourth quarter. For 2026, we believe it will depend in having more clarity about the economy, how it's going to perform. The economy, the expectation today is it's a little bit more than 1%. So we will continue with economy, let's say, growing at a very slow speed. And also what is going to happen with the trade negotiations, I believe, that will provide clarity and more centrality in the scenario, and then we can have a more robust long demand. Regarding asset quality that you mentioned, we have several quarters with several isolated cases For example, in this third quarter, we have three particular corporate sponsors that moved to stage three during this quarter. As I have been saying, very well-known clients of Ambageo of many years, and we expect at least the most important one in an amount to return to performing status in the fourth quarter. So, yes, we believe we will continue this normalization of the cost of risk going forward. Regarding cost of risk, I mean, I already mentioned it came at 1.09%. But we believe that during the first semester of 2026, we will get to a normalized level that we should be between 0.9 and 1%. Sorry for the long answer. I don't know if I covered everything, Brian.

Thank you. Maybe a quick follow-up. So with the 1%, maybe the base case assumption for next year, do you think the base case for now, obviously not official, but that is very similar to long growth for 2026, which is between 5 and 6, I don't know, 5 to 7. Would that be, in your view, reasonable to assume? And then I don't know if you could expand a bit on mortgages, if there is some impact of the regulation, particularly the changes in GRITOs that you're anticipating here also for that category of the loan book.

Actually, the decision in mortgages has, I mean, more time, no? than the regulation that is changing today. So our decision is based totally in profitability, and we'd rather use the capital in other portfolios with better profitability than mortgages. That is the decision. Regarding 2026, and this is not, of course, any guidance known for 2026, but we feel that we will continue with softer demand during the first months of 2026. And then as we have more clarity in what is going to happen with the trade agreement with the U.S. and locally and the performance of the economy in Mexico, then maybe at the end of the first semester, beginning of the second semester, we can have a better environment to grow.

Thank you, it's going to be very helpful. Thank you.

Our next question comes from the line of Ricardo Bucpeguel. Please state your company name and ask your question.

Hi everyone, this is Ricardo Buspigo from BTG Pactual. The bank has been focused a lot on growing more in SMEs, so I want to get a little bit more color on this portfolio. Can you comment what is the share of the SME portfolio today and what is feasible to expect in the next three years? And also, what are the key differences between the SME and the large corporate lending in terms of overall risk-adjusted name and overall profitability? And you mentioned also, for my second question, you mentioned in the call that you plan to absorb the additional reserves over the next nine months, like helping mainly 2026. But you also mentioned that the first half year of 2026, we expect the cost of risk to be between 0.9% and 1%, which is a little bit above your historical levels. So I wanted you to understand if it makes sense that these additional reserves will be used to absorb, to offset a higher NPL formation over the next following quarters. Thank you.

Thank you, Ricardo.

The SME portfolio account for a little bit more than 70 billion pesos, actually 72 billion pesos. So it's an important part of the portfolio. And it's a portfolio with very good profitability with a cross-sell ratio of more than five products and services. So it's not only loans, but also cash management, electronic banking, FX, acquiring business, et cetera. So it's very profitable, and it's a part of the portfolio that is growing more. So it's what we have. The second part of your question was about additional reserves. The idea is not to take the additional reserves and just pass through the P&L. The additional is to use those additional reserves gradually to cover the need of reserves that the bank is having in the following nine months. That is the idea. So that is going to be a very gradual use of those reserves.

Oh, perfect. So it makes sense for us to expect the cost of risk around like 0.9% and 1% in 2026, right? That's right.

Thank you. Very clear. Thank you, Ricardo.

Our next question comes from the line of Eric Ito. Please state your company name and ask your question.

Hi, Carlos, Edgardo, Joaquin, this is Eric from Brother School BBI. My first question here is regarding OPEX. I just want you to get a sense of, I think you guys have a pipeline of 15 new branches over the next years, if I'm not wrong, and you have been deploying some over the past quarters as well. So I just want you to get a bit on the opportunity here to see efficiency gains and improvements in 2026. Or maybe as more deployments should happen, we could see more efficiency gains in 2027. This is my first one, and then I can ask my second later.

Sure. Thank you, Eric. Expenses continue to perform better than planned. Growing, as you saw, 9.1% year over year for the nine months. The idea is to keep growing. The expense grow below 10%. That was the original guidance, no? So we have maintained a very strong discipline, even while we continue to expand our branch network that today we have 331 branches. During the last 12 months, we have opened 10 branches. that is those branches are adding close to 1% to the expense growth. So it is important. The good news is that these new branches are ramping up profitability quickly. So we feel comfortable with this investment. And the idea is to continue with this expansion between 10 to 15 branches every year. On the technology side, investment remains focused on security, cybersecurity, and system stability rather than new projects. The big investment, for example, in digital banking, et cetera, was done previously. Of course, we need to continue investing in that, but the big investment is coming in cybersecurity and providing the right stability. Our priority has been to strengthen the resilience of the IT ecosystem and ensure reliable operations across the bank. Overall, expense control remains a strategic priority, and we expect to end the year below 10% growth while keeping operating efficiency under 42%. That is the guidance that we have today. That is, as you know, one of the best levels for the financial system today.

okay thank you very clear and then my second question real quick uh on the written off uh portfolio sale that you guys did this quarter just want to get a size uh just want to get a sense of what's the size of the portfolio that you guys sold and uh if this is was just an opportunistic approach or maybe we could see further sales going forward yes and

it was it was an impact of 156 million million pesos it was a sale on of an asset as the money came not from the customer actually come from a dear party that made the acquisition of the asset that's why we didn't record this in in as a recovery that In that case, we would have a very positive impact in cost of risk. Based on the accounting rules, I mean, this was an additional revenue, and that's why you saw that impact in the revenue growth. But even with that, non-financial income, as you saw, we have a very good quarter with 50% growth. But without considering this one-timer, the growth is 27 that is still very strong no so for us that is that is very good news we're very glad with this and we feel that the following quarters we can continue at least with high teams grow in in in no financial income that is a very good level and and much higher than the growth in active clients, that is 6%, or the growth in the drivers, in the long growth portfolio, et cetera. So we're very glad with the performance this quarter in our financial income, and we feel that we should continue with very good levels in the following quarters.

Perfect. Thank you so much. Thank you.

Our next question comes from the line of Pablo Ordonez. Please state your company name and ask your question.

Hi, good morning, gentlemen. My question is, well, did you come in with your funding dynamics? The process has been growing way faster than the portfolio. In addition to this, as you mentioned in the remarks, the mix is not improving. So why taking these additional deposits and also for next year, what level of funding cost as a percentage of the interest rate would you expect? Should we expect some improvement because we have seen some deterioration in the past year? So any color here would be very helpful. Thank you.

Hello. Thank you for the question. This is Joaquin Dominguez. Yes, we took these deposits because that generates marginal income for the bank. We pay a lower rate than the rate we invested those deposits, so it is still a good business for the bank, and it's not... It prepares the banks for a further growth in loans, so we can change the liquidity in investment in assets, in securities for loans. So it provides the banks good enough liquidity to be prepared for a loan expansion, and at the same time, it's a positive business of the banks. Thank you. Perfect.

Thank you, Joaquin. And the second question is regarding the fiscal package. Joaquin, can you comment on what should we expect? I mean, I think that the change for the EPUB fee is very straightforward, but any color that you have on the potential impact for RATL here at the P&L level and the financial impact from the changes in how the RATLs will be reduced going forward with this proportion from this package? Thank you.

Yeah, what we have calculated is that the impact will be an increase in 200 basis points in the effective tax rate. It means it's around 3% of the net income for the next year. In terms of the write-offs, it will have not impact in the P&L, but it will increase the deferral taxes.

Perfect. Thank you very much.

Our next question comes from the line of Yuri Fernandez. Please state your company name and ask your question.

Thank you. Yuri Fernandez from JP Morgan. I have a follow-up on asset quality in the weekend of portfolio sale you had, and it was clear, like the direction of What is not clear for me is that even the outlook for asset quality is a little bit more challenging, right? Like several here and there, and I know they are like kind of a one-timers, but still becoming somewhat frequent. why not you use this case to increase your coverage given you have like a coverage ratio guidance you are slightly below so just checking the box why not increase like this quarter doing more provisions and take the opportunity of this kind of one timer on the positive side and then i have a follow-up on on your stage two and stage three uh when we try to look to the coverage of those stages so trying to look to the amount of allowances divided by the portfolio by stages we have been seeing an increase on the amount of reserves for Stage 2 and Stage 3. So basically, Stage 2 used to be 10%, 11% allowances to loans. Now this number is going to 15. And the same is happening for stage 3. So stage 3, now you are doing some 47, 48 allowances to loans on your stage 3. This number used to be closer to 40. So just checking if we are going to see this to increase, like basically the amount of required provisions for stages being somewhat higher in each of those buckets.

Thank you. Thank you, Yuri, for your question.

Let me go back to the pandemic. Before the pandemic, the level of research that we had was very close to the regulatory methodology, so the methodology coming from the CNBB. Because of the pandemic, we decided to increase the coverage ratio. because we were expecting, in a stress scenario, very high losses, that at the end, with the measures that we take together with the CMVB, didn't happen, and we have been carrying for a long period, several years, those additional reserves. We have been using those reserves in the last maybe four or five quarters for those isolated cases that we have been mentioning. During these periods, we realized that we, in the financial system, there are only two banks. One of those is a big, big bank, no? And Banbajillo. We are the only ones with additional reserves. Since the pandemic, the CNPB has been very close to us, reviewing constantly the methodology we are using. and the calculations we use every month. But during that, the last, let's say, two years, the regulation and the complexity to comply with that methodology has been harder and harder, no? The level of code ratio is based on the mix of the portfolio, as we have 86% of the portfolio incorporates, no, that is very different from the G7, for example, that they carry a lot of consumer business, that normally the level of coverage ratio of those portfolio is close to two times, no? So, based on that mix, you can see the coverage ratio of those big banks really high, but it's not really comparable with the portfolio we have in Bamba Hill. We have 86% in companies with a very high level of collaterals, and we are very active using guarantees from FIRA, from Bancomex, and from La Finza, no? Because of the mix and the level of collaterals we have, the coverage ratio that we have based in regulation is very close to one time, no? If you see other banks, for example, that has a lot of mortgages and auto loans, you will see that the coverage ratio is even below one time, no, in other cases. So we feel comfortable with that level, no, that this is coming from the pandemia. The complexity is really high. If we don't comply with the methodology and the rules of the CMBV, we can have sanctions, no? So that's why we decided to abandon this methodology and have in the future, in the following months, only the reserves we need based in the regulations, as all the rest of the banks.

No, no, it's completely clear that part. My only question on that is that some portfolios, I don't know, are mortgage. Historically, they have much lower coverage, right? And you're reducing your mortgage portfolio. So in theory, by me, maybe our coverage could be higher, right? Because you're not growing in mortgage, you're decreasing. Government loans, I think it's allowances, but you also have a lot of losses. but part of your portfolio is decreasing in products that could have lower reserves also, right?

Yes, in the case of mortgages, it's not developed reserves that are required. The decision of not growing, of course, we can grow sell if a customer that is already with a bank asks for a mortgage, of course, we provide that mortgage. But there is no decision to grow faster the mortgage portfolio that is based in the best use of capital and profitability. Okay.

Great. And regarding the Stage 2 and Stage 3, like when we do reserves by loans, this increase that we observe, should we continue to see, or is this kind of a more quarterly specific trend?

Yes, we feel that we will continue improving the Stage 3 portfolio. Actually, we're expecting a few recovers during this fourth quarter. And the idea is to continue improving the performance during the following quarters, of course. There is a mathematical, I mean, as we have been growing at a very low speed, 5% this quarter, no? That has an impact, of course, in the NPL. But we feel that we will continue trending down in the following quarters, and we are working in recovering those stress-free cases. even by a legal action, as we have a lot of collaterals, there is always a big possibility of recovering those loans.

Thank you. Thank you very much. Thank you. Thank you, Jerry.

Our next question comes from the line of Tejkiran Kamaluri-Marech. Please state your company name and ask your question.

Hi, yeah, this is Paige from MyTalk. I just want to understand with the change in methodology of capitalization that you're calculating, does the range of CET1 you're comfortable with change or does it remain 14 to 15 percent?

Yes, thank you, Greg.

The change that we have during this third quarter actually was in Agos, but that was something that we decided last year. And it's also a methodology that we used to have for several years to make the calculation, I mean, to calculate the reserves for SMEs and for the corporate portfolio, no? as well as is the same case that additional resource we decided that that didn't provide the flexibility that we needed no and any benefit and the complexity as well of the rules are every every year is higher and higher and higher no So it was very difficult to comply with all the rules, no? So we decided to abandon. It's a process that took one year with the CNBB. uh so so we have been in that process during the last 12 months no so the last month in which uh we saw that change it was a a couple of months ago in august and that has a an an important impact in the capital levels of 82 basis points that's why we we just saw the capitalization rate going to 15.9%, no, together with the accumulation of earnings during the last few months.

Okay, understood. There's no two methodology changes. It's just one, the reserves, which also affected the capital.

Understood. Thank you.

our next question comes from the line of andrew gerakty please state your company name and that's your question hey everyone thank you for the opportunity to ask questions um i just wanted to double click a bit on non-interest income and then also the the nim on non-interest income you guys have you know communicated a pretty bullish outlook for going forward of continued high teens growth, faster than the client base growth, faster than loan book growth. Can you just expand a bit on what gives you confidence in this, and is it coming specifically more from the fees and commission side, or can trading income continue to deliver, you know, the pro forma year-over-year growth was 35%. So just a little bit more detail on the non-interest income side. And then in terms of NIM, you know, if the benchmark rate goes to, I believe you said 6.5 is your expectation for the end of next year,

um considering lower rates and maybe changes in mix what is your thought process on the the direction of the nim for 2026 thank you uh thank you uh andrew uh yes we are what we have been doing is uh uh as we said in in previous goals no the the concentration of the bank is really providing the best digital functionality to our customers. So that is working very well. You saw the metrics, but we are very glad with the compound growth that we are seeing both in transactions and also amounts transacted. That 24% growth in amounts transacted is really, really high, and it's the growth for the last five years, no? So we are very glad with that. So the use of digital transactions, digital channels from our customers is really evolving very well, and that is coming with more what I call – operational dependency of the customer with the bank, no? You are really the bank of the customer when you have the loans, of course, but it's very important also to manage the payroll, their sales through the acquiring business, the FX, et cetera, all the different services that we can provide. So just the Baggionet fees that our customers are paying are growing 37% year over year, no? So that is a fantastic growth. but also all the transactions that's made through digital channels. That includes, for example, of course, transfers, but also, for example, FX that is growing very well. All those transactions that are in that digital platform, the compound growth of that income is 18.2%. That is also, let's say, much more than the growth we are having in active customers, that is 6%. So we are very glad with that, and we feel that we can continue with a very good growth, of course. We have a one-timer this quarter. But even without that one-timer, the growth was 26%. So having high teens, I think, is a very realistic expectation in non-financial income. I pass to Joaquin to talk about the NIMS.

Yeah. The NIMS that we recorded at the end of the third quarter was 5.9%. For the next year, you can guide with the sensitivity we have provided. However, there is an important impact depending of the loan growth and the mix of the deposits. Right now, we have a strong liquidity. We have investment in securities. If we get success with the loan growth expectation, we will change those assets with lower return to the SMEs or corporate loans with higher return. It could be an improvement in the net interest margin in case of we success with the long-growth expectation. For the next year, it's very similar to what could happen. It will depend of the long-growth expansion and the mix of deposits. how big can be the change of the NIM. But if you consider the structure of the balance sheet, the sensitivity we have provide could give you a good approach of the NIM for the next year.

Thank you.

Yeah, thank you very much.

Our next question comes from the line of Andres Soto. Please state your company name and ask your question.

Thank you for the presentation.

Just follow up on NIMH. Based on your comments, Joaquin, it sounds like you guys are not expecting to see NIMH to go under 5.5% even if policy rate normalizes in Mexico. I would like to understand how this compares to your historical NIMH and what makes you I'm optimistic on delivering this type of name, which is superior to what Banbajio had in the past at similar levels of interest rates. What has changed in the story of Banbajio in terms of loan mix, funding mix, or any other factors that could sustain this type of name?

i thank you andres and what your perception is correct if you compare the name when the interest rate in the past few years was pretty close to the actual level we had we used to have a lower name so the the we have improved as well the mix and assets as in deposits so based on that and and due that we are expecting to maintain this improvement in the mix and in assets and deposits that we will be able to maintain a high higher of course that five percent name the next year with a reference rate around 6.25 percent for sure that's great uh thank you joaquin and congratulations everybody on the results thank you

Our next question comes from the line of Neha Ararwala. Please state your company name and ask your question.

Hi, can you hear me? Yes.

Sorry. Quick question on the trade negotiations with the US. What part of your portfolio could be directly or indirectly impacted by the upcoming trade negotiations? Thank you so much.

Thank you, Mica.

We have about 10% of the portfolio in customers that do exports, I mean, to different countries, to the U.S. mainly. But I believe the trade agreement has a broader impact, not only in those customers, but also in what we should expect for the economy. As you know, the transformation of Mexico in the last 30 years at the beginning of the NAFTA, you compare the structure of the economy at that moment compared with today is completely different, no? So that has an impact not only with the base of customers that they do export, but also in the whole economy. So that's why it's so important.

Any other part of the loan book that you would be concerned that could be maybe indirectly impacted by these negotiations?

Not really.

As you know, our presence in the agribusiness is very important. It's very difficult to replace those products with production in the U.S., because of the weather and the geography of the U.S. And it's very difficult even to replace Mexico as a supplier of those products to the U.S. economy. And the investment that we have in Mexico in manufacturers, we have a lot of investment coming from the U.S., that I believe is very difficult to move again to other geography or to go back to the U.S. That is going to take a while. So not really. We don't see, we believe our best scenario, but really what we expect is the train agreement will come to a good end, maybe different from the one we have today. But I believe the best scenario for these three countries, Canada, U.S., and Mexico, is to continue together with the trade agreement. And we believe it has been very positive even for the U.S. economy as well.

Thank you so much, Axel.

Thank you.

We have not received any further questions at this point. I would now like to hand the call back over for some closing remarks.

Thank you all very much for joining us today. We remain available to address any follow-up question via email and meeting requests. We look forward to speaking to you again in January 2026 when we release our full year and fourth quarter 2025 results. Thank you very much and have a nice day.

That concludes today's call. You may now disconnect.