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DATE

Tuesday, January 27, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • Chairman, President, and Chief Executive Officer — Javier Ferrer-Fernández
  • Executive Vice President and Chief Financial Officer — Jorge Garcia
  • Chief Risk Officer — Lidio Soriano

TAKEAWAYS

  • Annual Net Income -- $833 million, rising $219 million, or 36%, with management citing franchise strength and Puerto Rico economic stability.
  • Loan Growth -- $2.2 billion, an increase of 6%, led by commercial loans in both Puerto Rico and the United States.
  • Net Charge-Offs -- 52 basis points for the year, decreasing by 16 basis points, attributed to lower consumer credit losses.
  • Common Equity Tier One (CET1) Ratio -- 15.7%, a level management described as "strong," with stated intent to lower it toward mainland peer levels.
  • Tangible Book Value Per Share -- $82.65, up 21%, supported by reduced unrealized investment losses and net income, partially offset by capital returns.
  • Share Repurchases -- $500 million in 2025, with total repurchases since 2024 resumption at $720 million; $148 million bought in the fourth quarter.
  • Dividend -- Raised to $0.75 per share in Q4, an increase of $0.05 from the previous quarter, with a further increase expected in 2026.
  • Quarterly Net Income and EPS -- $234 million and $3.53, respectively, both rising sequentially by $23 million and $0.38; adjusted net income was $224 million, excluding an FDIC assessment reversal.
  • Return on Tangible Common Equity (ROTCE) -- "Exceeded 14% [in Q4] and 13% for the full year," with management stating an ongoing "objective" of maintaining a sustainable 14% ROTCE.
  • Net Interest Income (NII) -- $658 million for the quarter, an increase of $11 million, driven by higher loan balances and lower deposit costs; full-year NII up 11%.
  • Net Interest Margin (NIM) -- Expanded 10 basis points sequentially to 3.61% GAAP, and fully tax-equivalent margin up 13 basis points to 4.03%.
  • Deposit Trends -- Ending deposit balances fell $323 million, driven by a $662 million outflow of Puerto Rico public deposits; excluding public deposits, BPPR grew commercial demand balances by $430 million.
  • 2026 Guidance, Loan Growth and NII -- Management guided to 3%-4% consolidated loan growth and 5%-7% NII growth, reflecting continued reinvestment and improved funding mix.
  • Operating Expenses -- $473 million in Q4, a decline of $22 million from Q3; 2025 GAAP operating expenses up 2.5%, below guidance, with management now expecting a 3% rise in 2026.
  • Tax Rate -- Fourth quarter effective tax rate was 16%; full-year rate 17%, compared to 23% last year, due to higher exempt income.
  • Non-Performing Loan Metrics -- NPLs to total loans fell three basis points to 1.27%; BPPR segment commercial and consumer NPLs increased, while mortgage NPLs declined by $8 million.
  • Allowance for Credit Losses (ACL) -- Rose $22 million to $808 million, driven by higher commercial portfolio reserves and consumer FICO mix changes; ratio of ACL to loans steady at 2.05%.
  • 2026 Net Charge-Offs Guidance -- Management expects annual net charge-offs in the 55-70 basis point range, reflecting stable credit but possible isolated commercial losses.
  • Strategic Initiatives -- Exited US mortgage business, optimized Puerto Rico mortgage servicing, and transitioned to a cloud ERP platform to boost efficiency.
  • Digital Platform Rollout -- New consumer credit origination launched in Puerto Rico and Virgin Islands, with $36 million in digital originations since Q3 launch.
  • M&A Positioning -- Management reiterated that whole bank M&A is not a priority, though selectively open to opportunities that enhance US franchise breadth and deposit base, with high thresholds for consideration.
  • Onshoring/Reshoring Impact -- Multiple manufacturers announced investments totaling $2.2 billion and more than 3,500 jobs in Puerto Rico, with expectations for further activity in 2026.

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RISKS

  • Javier Ferrer-Fernández identified "affordability" as a key risk for some client segments and cited the unresolved PREPA (Puerto Rico Electric Power Authority) bankruptcy as a concern, stating, "anything having to do with the generation of electricity is a concern because it is essentially a tax on economic growth."
  • Lidio Soriano noted that 2026 net charge-off guidance includes "potentially some charge-offs of some larger commercial relationships that we have reserved for," indicating anticipated but isolated commercial credit pressure.

SUMMARY

Popular (BPOP +5.55%)'s fourth quarter and full-year results demonstrated significant profitability gains, with double-digit annual growth in net income, an elevated CET1 ratio, and robust tangible book value expansion. Management provided concrete 2026 guidance targeting slower but positive loan and net interest income growth, driven by sustained improvement in funding costs and growing commercial relationships, even as consumer lending is expected to soften, particularly in the auto segment. Investments in technology and efficiency initiatives contributed to disciplined expense growth, and management indicated further opportunities to reallocate capital through ongoing share repurchases and potential dividend increases. The outlook was framed by stable credit quality and clear capital management objectives, while management actively highlighted exposure to lingering risks from the PREPA bankruptcy and the affordability environment.

  • New digital origination platforms and infrastructure modernization projects, involving more than 800 employees, were launched as part of management's operational transformation agenda.
  • Loan and deposit growth remain primarily focused in Puerto Rico, while US expansion is guided by relationship lending and profitability discipline.
  • Management described share repurchases as remaining at a "good run rate," supported by confidence in current share valuation and available repurchase authorization.
  • Onshoring and manufacturer expansions in Puerto Rico are expected to further support local economic activity and potentially strengthen the commercial portfolio.
  • Additional tier one capital remains well below peer averages; management identified this as an opportunity to optimize the capital structure, subject to market conditions and board approval.

INDUSTRY GLOSSARY

  • CET1 (Common Equity Tier One): The core measure of a bank's capital, consisting of common equity, used in regulatory capital ratios to assess financial strength.
  • ROTCE (Return on Tangible Common Equity): Net income as a percentage of average tangible common equity, indicating profitability relative to core shareholder capital.
  • BPPR: Banco Popular de Puerto Rico, the primary banking subsidiary of Popular, Inc. operating in Puerto Rico.
  • PB: Popular Bank, Popular, Inc.'s US mainland subsidiary.
  • PREPA: Puerto Rico Electric Power Authority, the public corporation responsible for electricity generation and distribution in Puerto Rico, currently undergoing bankruptcy proceedings.
  • FDIC special assessment: A regulatory fee or charge imposed by the Federal Deposit Insurance Corporation, referenced here due to an identified partial reversal affecting reported results.

Full Conference Call Transcript

Javier Ferrer-Fernández: Thank you, Paul, and good morning, everyone. Please turn to slide four. 2025 delivered 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, offset in part by dividends and our share repurchase activity. We repurchased approximately $500 million in common stock during 2025. Since resuming buybacks in 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, an expanding net interest margin, strong loan growth, and importantly, lower operating expenses. Our credit metrics were stable in the quarter with lower NPLs and net charge-offs.

We are very pleased to have exceeded a 14% ROTCE for the quarter and a 13% ROTCE for the full year, demonstrating significant progress in our efforts to improve our sustainable returns towards our 14% objective. Please turn to Slide six. As of 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% remains 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 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 are 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 are also seeing the results of our focus on being simple and efficient. We have sustained and continued to simplify our commercial credit origination portfolio risk management. We are seeing faster cycle times, higher banker productivity, a more seamless customer journey, and loan 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?

Jorge Garcia: Thank you, Javier. 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 EPS 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% ROC fee for the period and 13% ROC fee 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 ROX 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 Roxy. Our current objective remains a sustainable 14% Roxy. 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 BPPR, 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 US 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 balances decreased by $323 million and average deposit balances 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 billion 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 cost decreased by 11 basis points at each bank.

At BPPR, 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 PB, the reduction was mainly related to lower online savings deposit costs and repricing of time deposits. We anticipate 2026 NII will increase 5% to 7%, 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.

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 noninterest income to continue to be in a range of $160 million 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 noncash goodwill impairment taken in the third quarter.

For the year, GAAP operating expenses increased by roughly 2.5% and were 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 GAAP 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 driven by our net income and lower unrealized losses in our investment portfolio, offset 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 Javier noted earlier, we are pushing our teams to enhance profitability through ongoing incremental revenue initiatives and expense discipline.

While we have made progress over the past two years in reducing our CET one ratio, there is 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 31, we have $281 million remaining on our active share repurchase authorization. In addition to the common stock repurchases, we will 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 one 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 CT one goal of having levels consistent with mainland bank peers plus a buffer for geographic concentration. With that, I turn the call over to Lidio. Thank you, Jorge.

Lidio Soriano: And thank you all for being with us. Turning to Slide number 12. Credit quality metrics remained stable during the fourth quarter, with lower NPLs and lower net charge-offs. Non-performing assets and loans decreased by $4 million this quarter, mainly due to Popular Bank. U.S. NPLs decreased by $14 million as a $17 million mortgage relationship returned to accrual status, offset in part by higher commercial NPLs. BPPR NPLs increased $5 million, with commercial up $8 million, consumer up $3 million, offset in part by an $8 million decrease in mortgage NPLs. Inflows of NPLs declined by $194 million, primarily in BPPR, as the previous quarter included inflows from two unrelated commercial relationships totaling $188 million.

The ratio of NPLs to total loans held in the portfolio decreased three basis points to 1.27%. Turning to slide number 13, net charge-offs amounted to $50 million or annualized 51 basis points compared to $58 million or 60 basis points in the prior quarter. This quarter's results include $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 points. Net charge-offs in BPPR decreased by $7 million, driven by a decrease in commercial net charge-offs as the prior quarter included a $40 million charge-off related to a single borrower.

In 2025, net charge-offs 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-offs of 55 to 70 basis points. The allowance for credit losses increased by $22 million to $808 million, mostly in BPPR, 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 compression ratio of the ACL to loans held in the portfolio remains stable at 2.05%, while the ratio of the ACL to NPLs 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 BPPR 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 Javier Ferrer-Fernández for his concluding remarks. Thank you.

Javier Ferrer-Fernández: 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. Increased revenues, maintained expense discipline, generated strong loan growth, and improved customer deposit trends. I am 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.

Operator: 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. Our first question comes from Brett Rabatin with Hope Group. Your line is open. Please go ahead.

Brett Rabatin: Hey. Good morning, everyone. How are you doing?

Javier Ferrer-Fernández: Good morning, Brett. Doing well.

Brett Rabatin: Wanted to start on the guidance and just thinking about the NII guide. And if I am reading it correctly, it kind of would suggest maybe slightly slower average balance sheet growth during 2026 and five to 10 basis points of margin expansion? And I know you guys do not like to give explicit margin guidance, but would that be within the realm of what you are looking at? And then just wanted to ask around the Roxy goal. You know, why would operating leverage that might not increase a bit from here?

Javier Ferrer-Fernández: Okay. Thank you, Brett. Good morning. First, on the NII, first, we were very pleased with the 11% growth this year. The 11% growth in NII was driven by expanding the margin, being able to reinvest fixed-rate investments in our portfolio into higher-yielding assets, loan growth, and lower cost of deposits. We believe all those three factors will continue into 2026, albeit at a smaller magnitude. We will see a slowdown, for example, of the yield uptake that we will get on the reinvestment of the portfolio. But we are 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 are looking at what drives one for the other, it really always revolves around low-cost deposit levels and our ability to reduce deposits in the US market. In terms of the ROC fee, you know, we have talked in the past that we want 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 is enough uncertainty in the world, and we want to make sure that we are absorbing any ups and downs to the cycle. We are not quite there yet. We do feel that we have a lot of momentum and like the starting point where we are 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 are managing capital levels as well. And, you know, as I discussed in my prepared remarks.

Brett Rabatin: Okay. And then the other question I have 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 have had 6% ish growth. The past two years. 4Q was 7%. You know, is the slowness or slower level anticipated in '26? You know, is that just conservatism around consumer, or any thoughts around that? And then as it relates to onshoring, you guys seen any opportunities related to that?

Javier Ferrer-Fernández: Okay. 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. 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. You know, 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 is some of that embedded. As well as, Brett, if you can imagine, there is always timing as loan transactions are focused on larger clients. When those things close in terms of funding that you advance or when things slow down on expected payoff, that has an impact on those kind of year-over-year changes. But we are confident on the 3% to 4% guide and the momentum that we had over the last couple of years. Both Puerto Rico and our US markets.

Brett Rabatin: Okay. That is helpful. Congrats on a strong year, guys.

Javier Ferrer-Fernández: Thank you. Thank you.

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

Jared Shaw: Good morning.

Javier Ferrer-Fernández: Good morning.

Jared Shaw: Maybe, I guess, just sticking to the theme of growth outlook. When you look at fees, where do you see potential softness, I guess, in fees in that growth rate? You have had some pretty good trends during the course of the year.

Javier Ferrer-Fernández: 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 in fee income. So that is $10 million really if you look at the guide, you are making up for that $10 million year. So there is a little bit more growth embedded in that guide than probably, you know, jumps out at you.

Jared Shaw: 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, you know, in terms of potential sizes or anything like that? Any thoughts you could share with us?

Javier Ferrer-Fernández: Sure. This is Javier. Well, our primary focus continues to be our transformation program. That said, in the US, we are always open to opportunities to add on profitable niche businesses, teams, and assets. So whole bank M&A is not a priority. However, it would be responsible for us to say that we would not evaluate opportunities to enhance shareholder value over the long term. I think we said this before. There is a high threshold for any transaction we may consider. And we will 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 effort related to an M&A. You know, due diligence, integration, conversion. Number two, core deposits. The transaction needs 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-sized for our US business. I have a preference for not for MOEs. MOEs. I, you know, I do not think either of those. Not that they can work, but that is just my bias. And I think the last item would be cultural fit, and it is the last, but it is really top of mind. Whatever target needs to align to our culture of performance and employee well-being.

So we are very mindful that not all customer demographics will make sense as a part of Popular. So I think, you know, very specifically, that is how we think today about M&A.

Jared Shaw: Okay. Thanks. That is great insight. Just maybe finally for me, do you just have the spot deposit costs and asset yields at the end of the year?

Javier Ferrer-Fernández: We do not usually provide, you know, the spot rates, Jared.

Jared Shaw: Okay. Alright. Thanks.

Operator: We now turn to Benjamin Gerlinger with Citi. Your line is open. Please go ahead.

Benjamin Gerlinger: Hi. Good morning. I was wondering if we could touch base on expense.

Javier Ferrer-Fernández: Good morning, Ben.

Benjamin Gerlinger: Good morning. So on the expense guide, I know you guys always give a GAAP basis. So it is inclusive of investment and things like that. I know that last year, you were also investing. And this year, I am assuming 27 yards, will are they going to because it is your size investment almost like a core. So I was kind of curious. Is this year on an investment basis kind of smaller or larger or anything you could frame up sort of timing and any expectations on that relative to kind of what we have seen previously or potentially starting new projects that are multiyear in nature?

Javier Ferrer-Fernández: I mean, I think the run rate that we are 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, you know, for example, Javier talked about that we went live on a new ERP on January 1. That releases some resources, but then a lot of those resources get reallocated to the next big project and the next thing going on. 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 there is a reality that you can only have so much, you know, resource and management focus on these implementations.

Benjamin Gerlinger: Gotcha. That is helpful. I know we have talked about the pace of loan growth, and then also the reinvestment of the securities higher. I am 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, probably the best case scenario. But I am just kind of curious, is today's mix within kind of the guardrails that you want? Could you potentially see more loans down the road or just kind of curious on just how you think about average earning asset mix down two, three, four, five years from now given that you also have the public deposits?

Javier Ferrer-Fernández: Yeah. I mean, certainly, we would prefer to make loans, not so much necessarily on a yield perspective, but we would rather have those relationships. Right? And we feel that, you know, we can have a deeper profit base with a lending relationship than we can just buying, you know, portfolio assets. But there is a reality that we have around 30% of our deposits in Puerto Rico that require it to be collateralized, and that will keep us in the portfolio business of buying investment securities.

So as we go forward, we would like to see a lower loan to deposit ratio, or sorry, higher loan to deposit ratio, but it will depend on the composition of our balance sheet. But, you know, 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 maturities between our recent purchases and more, you know, legacy pre-2023 investments, we still have a good upside pickup of yield in that investment portfolio. Like, current rates, the more recent purchases do not 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.

Benjamin Gerlinger: Gotcha. Okay. Thank you.

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

Kelly Motta: Hey, good morning. Thanks for the question. Maybe turning back to Capital, I want 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 are thinking about that. As we move ahead. Given the importance of capital return to the profitability improvement story? Thank you.

Javier Ferrer-Fernández: Sure. Thank you, Kelly. So we often talk with you all about CET1 and a lot of focus on CET1. We talked about, you know, our goal of getting that lower plus a buffer. One of the things that we do not very often talk about is that, you know, we have somewhat inefficient capital stack and that we really have very little additional tier one. Right? We have, you know, around five basis points 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 is an opportunity that we are evaluating and looking at.

Perhaps there is an opportunity for something that is accretive without necessarily impacting the total tier one or total regulatory capital and being able to balance lowering CET1 with managed and board's intent to be more, you know, deliberate in reducing that capital over a prolonged period of time.

Kelly Motta: Okay. Alright. Fair enough. And maybe I think we have 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 and I do not believe you usually provide it, but I will try. Any, you know, new production rates would be really helpful here. Thank you.

Javier Ferrer-Fernández: Yes. So a couple of things on loan yields. We are still seeing loan growth in Puerto Rico on the consumer side to be, you know, flat or above and with the exception of credit card, 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 did not pass through all the increases in the loan pricing, and we are seeing kind of the benefits. A little bit of the opposite behavior that we see in our deposit base in Puerto Rico.

I do not, you know, I think last quarter, we talked about where I do not know how long that is 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 is around 25% of our total loans 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, you know, the construction portfolio that floats.

And in terms of new yields, we do not provide that.

Kelly Motta: 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 have seen in Puerto Rico, but a step up from 2025. I would imagine that is mostly on the consumer side, but can you kind of piece together the outlook here of what you are seeing, 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.

Lidio Soriano: Yep. Small correction, Kelly. I mean, we provided for 55 to 70 basis points. So the high end was a little bit lower than 25, 70 basis points. Yeah. I mean, generally, before going to the details, I mean, we have a very stable outlook. We think the Puerto Rico economy continues to be stable with moderate growth, and that is 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 account for potentially some charge-offs of some larger commercial relationships that we have reserved for. So that is embedded in the range that we have provided to you.

So that explains a little bit of the rationale.

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

Operator: We now turn to Arren Cyganovich with Truist. Your line is open. Please go ahead.

Arren Cyganovich: Thank you. You could talk a little bit about whether or not you are seeing any kind of deposit competition in Puerto Rico and your expectations for deposit growth in the year?

Javier Ferrer-Fernández: Well, I think clearly, there is competition in the market. No? You can see from our numbers that we have grown deposit balances. And we expect to do the same this year. But there are a few banks in the market and also credit unions. So but we are not seeing any irrationality in the pricing. So on this cycle. So I would say that it is pretty steady, and we will not, however, we said it before, we will not lose good clients to pricing deposit pricing. So again, we are going to be, we are going to defend our position and particularly good relationships in all segments. But hopefully not do anything that is crazy.

Arren Cyganovich: Okay. Helpful. And then maybe just kind of thinking broader picture. The US has really stepped up military in The Caribbean. And wondering if you are seeing any, you know, increasing presence and whether or not that is a positive from an economic standpoint to Puerto Rico?

Javier Ferrer-Fernández: Well, I will say that it is a net positive. We have seen some increased activity, but it is mostly, I would not say in our branches. I am going to say it is in geographies adjacent to military bases or installations. You know, we have seen customers that are benefiting from relationships with the military throughout Puerto Rico, and we are seeing reports of the military entering into lease agreements for, you may imagine, you know, ports, and airports. And, again, we know of customers, clients of ours that, you know, smaller or middle market clients that have entered into contracts with the military. So that is why we believe it is net positive. Obviously, we are monitoring it.

If military presence were to grow, that can only increase. So that is why I started by saying that it is net positive. We will see. It is dependent on, as you know, geopolitical forces and decisions out of the White House.

Arren Cyganovich: Thank you. Sure.

Operator: We now turn to Gerard Cassidy with RBC. Your line is open. Please go ahead.

Gerard Cassidy: Morning, Jorge. Good morning, Javier.

Javier Ferrer-Fernández: Good morning, Gerard.

Gerard Cassidy: And at the risk of being called a curmudgeon again as I was on a call with one of your peers, I have to ask a question. I mean, 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 slope. We have got loan growth as you pointed out as well.

When you look around corners, aside from the geopolitical risk that we are all aware of, when you guys have to look around corners, what are you watching out for so that we do not get a surprise this year that nobody is obviously expecting?

Javier Ferrer-Fernández: Well, that is a very good question. Of course, we think about it all the time. I think that one of the themes 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 is something that obviously impacts home creation, let us say, and it may impact our customers if inflation would escalate. So that is something that we think about. And the other item that we cannot control, but it obviously has an impact on our economy is the PREPA situation. The fact that the electric power authority bankruptcy is still pending.

So anything having to do with the generation of electricity is a concern because it is essentially a tax on economic growth. Now we are also benefiting from the fact that gasoline is at very good levels. So we are benefiting from that. But I think those will be the two items that are kind of lurking, you know, and may bite us. But you know, we are hoping that this is a year where the PREPA bankruptcy gets dealt with. And, clearly, everybody recognizes that, you know, developing the grid and fixing this is critical for Puerto Rico's future.

So we think that, you know, clear heads will prevail and we will get to a resolution that is rational for all the parties involved.

Gerard Cassidy: 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 on the onshoring of America and, you know, the building of manufacturing plants that is taking place on the mainland? I believe Puerto Rico is seeing some of those benefits as well. Can you give us some color on what you are seeing on the ground? Is there progress being made there and what that future might look like for the economy of Puerto Rico?

Javier Ferrer-Fernández: Yep. Well, we can comment on what is public and maybe offer some thoughts on maybe stuff that we are listening to through the grapevine. But sure. You are absolutely right. Global manufacturers are increasingly prioritizing reshoring initiatives, and Puerto Rico is very well positioned to benefit from this trend. So during last year, multiple companies announced new investments or expansions in Puerto Rico of all sizes. And that represents about $2.2 billion in total capital investment and the creation of more than 3,500. Well, actually, I thought it was 4,600 jobs. So and I think we called it the whale. I mean, there is, again, all sizes.

But the whale we call the Eli Lilly's announcement, which is a $1.2 billion commitment to modernize and expand its pharma manufacturing facilities in Carolina, and that is close to 1,100 new jobs. And Amgen's $650 million investment to expand its bio farm operations in Huncos, and that is another 750. Now that said, we expect, and this is the grapevine now. That is what happened last year. We and it is close to 17, you know, entities that announced new investments in Puerto Rico through the onshoring or reshoring. But grapevine tells us that, you know, we ought to expect more announcements in 2026. And a few will be large. So but that is just grapevine.

So we think that trend will continue. And, of course, that will fuel our economy. It is not only the direct job, but as you know, this has a multiplier effect. And any such investment will generate out, you know, three times what it typically generates in indirect investment. So looking forward to more announcements from the government in '26, and, of course, once that happens, you will know right away.

Gerard Cassidy: Very good. And now will there be any benefits from the halftime show at the Super Bowl?

Javier Ferrer-Fernández: We will see. We will see. We will see.

Gerard Cassidy: More record sales. Right? We can talk about it. Thank you. It is interesting.

Javier Ferrer-Fernández: I have already seen the ads. The ads are fantastic.

Gerard Cassidy: Yeah. The ads are fantastic. Good. But we will see.

Gerard Cassidy: Oh, that is good for Puerto Rico. Okay. Thank you.

Javier Ferrer-Fernández: Yep. Absolutely.

Gerard Cassidy: Thank you, Jared.

Operator: We now turn to Emmanuel Navas with Kwatosanda. Your line is open. Please go ahead.

Emmanuel Navas: 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? Just is that valuation, pricing, are you targeting some sort of total return target? Just any kind of color more on the buyback pace, please.

Javier Ferrer-Fernández: First, Emmanuel, 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 appreciate it. In terms of market conditions, I mean, you know, we tend to do these on 10b5-1 plans. So, certainly, changes in market prices that, you know, could impact the grids that we use. So that is certainly something that is something unexpected, could be an accelerator or decelerator from the target number. But, also, you know, global political, macroeconomic environment, and these are all things that impact our perception, you know, of what is 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 is very attractive.

Emmanuel Navas: And the current share number in this quarter was nice. You like that pace. Correct?

Javier Ferrer-Fernández: We like the total volume, the total dollar that we spent to be a good baseline.

Emmanuel Navas: Perfect. I appreciate that. Thank you, guys.

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

Timur Braziler: Hi. Good morning.

Javier Ferrer-Fernández: Hey, Timur.

Timur Braziler: 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 tariffs first got announced last year?

Lidio Soriano: I will 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, 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. 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 a 9% down from the previous year.

And the expectation for the industry is to be slightly down 5% from the numbers that we have. What I will say still, I mean, a year that is above 110,000 or close to 110,000, that is a great year for the industry in Puerto Rico.

Timur Braziler: Okay. Got it. Thank you. And then maybe asking the expense question a different way. I think, historically, you have broken it down kind of into three different phases. With the first phase being to kind of change the mindset of the employee base and focusing on the customer, phase two being, simplify the franchise, improve the efficiency and then finally becoming a top-performing bank. I am guessing between or I am questioning, I guess, between phase one and phase two, the costs kind of associated with those, are they similar?

And your comment that you had to delay some technology expenditures in '25 that are running in '26, like, are those costs similar as well, or is one of those phases implicitly more expensive maybe than some of these others?

Javier Ferrer-Fernández: I think the one thing that I would encourage us to think differently is there is no really phase-driven. I mean, this is an arms race every day. You know, that, you know, whether it is other banks, fintechs, other competitors, are competing. Everybody is competing for a user experience that is very unique and omnichannel. We can come up with all the different buzzwords. You know, we are happy with the level of investment that we are at. Know that there is more to do. And we are going to wake up tomorrow and have another new challenge that we will have to evaluate and put on the queue something else.

Know, I think that what is important is that we are very much focused on it. We have a strong investment discipline in terms of the projects that we are green-lighting with our customer in mind, but also our employees. I think it is that combination that creates the operating leverage that we are 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 are a lot of things here that just become table stakes. That we have got to do or risk falling behind.

Javier Ferrer-Fernández: Yeah. And I do not see it as phases. I see it as a strategic framework which would have us, towards point, do our jobs every day better, faster, and quicker. To tackle competition, which, you know, is not going to let down. As you know, everything is going quicker faster. So know, we have a great position in Puerto Rico. We need to defend it. But also grow it. And that is exactly what we are trying to do every day.

Timur Braziler: Got it. Thank you.

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

Brandon Bowman: 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. I was just hoping you would be able to dissect the drivers of that. Is it the planned investments that were delayed that is causing the 100 basis point difference in the growth rate? Or is it something else? Any breakdown would be helpful. Thank you.

Javier Ferrer-Fernández: Yeah. Thanks, Brandon. Thanks for the question. You know, first, I think if you look at where we ended up 2025 versus our original guide and even our guidance in the third quarter call, we did, I think, outpace or overperform in 2025. The teams have done a really good job to be focused on efficiency. We have implemented a lot of opportunities that are sustainable and will continue to generate savings, but we also had some wins that resulted in maybe a benefit that we see in '25 that we will not see repeat '26, or we will see a lower level in '26 versus '25.

Then when you add that to the continued investments in technology, you know, I think we have talked in the past how as projects go near live, you start doubling up on expenses as you are supporting two platforms. And kind of incurring, you know, the cost of licensing on the old platform and the cost of development and the new platform, etcetera. That tends to have some peaks and valleys, and that is part of the noise that you are seeing and comparing the run rate. But we will continue to invest in technology and continue to invest in our people and ensure that we are attracting talent.

And those are the two biggest drivers when we look at year-over-year and our expectation of expense growth.

Brandon Bowman: Thank you very much. Have a good day.

Javier Ferrer-Fernández: Thanks.

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

Kelly Motta: 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 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 brokered. You gave the range for government. Are embedded in your NII guide, do you have any, you know, thoughts around or I guess, opportunity to run off some higher-cost funding given the strong cash flows you are generating off the securities portfolio? And overall outlook for, you know, core deposits in Puerto Rico here? Thank you.

Javier Ferrer-Fernández: You know, of course, our objective is not only to retain, you know, client 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 have 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, you know, can we reduce the cost of the US deposits? And those are driven both by the competitive nature of online, you know, direct deposit, which are important funding sources for our US business.

But we are also seeing strong competition in New York and the Florida markets. Know, the reality is that kind of for that incremental money and clients that are more rate sensitive, it is still very competitive out there, and it is our team's goal is we are very much focused on relationship growth and if that begins with the loan relationship in the US, making sure that translates into deposit relationships. That, you know, maybe impacts our loan growth guidance as we want our team to be more focused on those relationships and that profitability. But at the end, no secret.

In banking, the deposits and low-cost transactional accounts and 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. Both of our markets.

Kelly Motta: Got it. Thank you so much.

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

Javier Ferrer-Fernández: 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.

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