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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Investor Relations Officer - Paul J. Cardillo
• President and Chief Executive Officer - Jorge Jose Garca
• Executive Vice President and Chief Financial Officer - Lidio V. Soriano

TAKEAWAYS

• Net Income -- $266 million, representing a 26% increase compared to the prior year.
• Diluted EPS -- $4.21, reflecting a 34% increase versus the third quarter of 2025.
• Net Interest Income -- $699 million, driven by higher income from investment securities and commercial loans.
• Net Interest Margin (GAAP) -- 3.63%, declining three basis points from the prior quarter due to higher interest expense on deposits.
• Net Interest Margin (FTE) -- 4.16%, representing a decrease of one basis point compared to the second quarter.
• Total Deposits -- $68.7 billion, decreasing $1.5 billion from the prior quarter primarily due to lower Puerto Rico public sector balances.
• Puerto Rico Public Deposits -- $21.5 billion, which management expects to remain between $20 billion to $22 billion for the remainder of the year.
• Full-Year Loan Growth Guidance -- 2% for 2026, revised downward from previous expectations of 3% to 4% due to lower auto and lease activity.
• Full-Year NII Guidance -- 8.5% increase for the year, supported by tailwinds from the reinvestment of the investment portfolio.
• Operating Expense Guidance -- 2% increase for the full year, including the impact of the maximum profit-sharing contribution.
• Effective Tax Rate Guidance -- 14% for the full year, representing the lower end of previous guidance.
• Net Charge-off Guidance -- 80 to 90 basis points for the full year, reflecting year-to-date commercial charge-offs and nonperforming loan inflows.
• 2027 Initial NCO Outlook -- 60 to 75 basis points, according to initial management expectations for the upcoming fiscal year.
• Noninterest Income -- $176 million, decreasing $5 million from the second quarter but remaining above previous guidance ranges.
• Operating Expenses -- $506 million, increasing $21 million sequentially primarily due to higher personnel costs and annual salary adjustments.
• Personnel Costs -- $245 million, rising 7% from the second quarter due to merit increases and performance-based compensation.
• Return on Average Tangible Common Equity -- 15.8%, compared to 17% in the second quarter and 13.1% in the third quarter of 2025.
• Common Stock Repurchases -- $179 million, representing 1,060,241 shares repurchased at an average price of $168.40 per share.
• Common Dividend -- $0.90 per share, reflecting a 20% increase beginning with the payment on October 1.
• Nonperforming Loan Ratio -- 1.16%, increasing from 1.04% in the prior quarter as nonperforming loans rose by $52 million.
• Commercial Nonaccrual Inflow -- $74 million, related to a single commercial relationship at BPPR placed on nonaccrual status during the quarter.
• Commercial Partial Charge-off -- $34 million, recorded on a credit that entered nonperforming status during the second quarter.
• Investment Reinvestment Yield -- 4.3%, representing the average yield on $1.4 billion in U.S. Treasury note reinvestments with an average duration of 2.7 years.
• Customer Card Sales Volume -- 7% increase year over year, indicating solid consumer spending activity in the Puerto Rico market.
• Additional Day Impact -- $6 million, representing the contribution to net interest income from having one additional day in the third quarter.

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RISKS

• Garca warned that Popular is monitoring affordability pressures that are being driven by inflation, and the higher cost of fuel and energy.
• Soriano noted that changes in commercial credit metrics were influenced by developments involving two unrelated commercial and industrial relationships that deterioration was driven primarily by borrower specific issues.

SUMMARY

Popular, Inc. (BPOP -3.13%) reported solid financial results for the third quarter, supported by a stable economic environment and healthy labor market in Puerto Rico. Management reported that net interest income growth was driven by higher yields on investment securities and commercial loans, even as total deposits decreased due to seasonal public sector outflows. The company maintained a disciplined approach to capital management, increasing its quarterly dividend by 20% and executing significant share repurchases. While loan growth expectations for the full year were moderated to 2%, the company reported continued expansion in its net interest income and a sustainable return on average tangible common equity. Strategic initiatives focused on deepening customer relationships through new retail products and the completion of a multiyear commercial cash management platform transition.

• President and CEO Garca stated, "Tourism was another source of meaningful support for the Puerto Rico economy," noting that hotel occupancy improved more than 4 percentage points through August.
• The company completed the final wave of customer onboarding to its new commercial cash management platform, concluding a multiyear effort to enhance money movement capabilities.
• Management reported that total employment in Puerto Rico reached approximately 1.26 million in September, the highest level of the year.
• CFO Soriano indicated that the company expects to repurchase between $150 million to $200 million of common stock during the fourth quarter.
• Garca noted that federal disaster-recovery funds continue to support construction activity, with approximately $43 billion in allocated funds remaining to be spent.
• Popular launched a new deposit product aimed at retail customers that offers zero service fees for meeting specific criteria, resulting in a $2 million decrease in fee income during the quarter.

INDUSTRY GLOSSARY

• ACL: Allowance for credit losses, representing a reserve for estimated credit losses in the loan portfolio.
• BPPR: Banco Popular de Puerto Rico, the company's principal banking subsidiary operating in Puerto Rico and the Virgin Islands.
• FTE: Fully taxable equivalent, a method of adjusting interest income to allow for the comparison of tax-exempt and taxable assets.
• NCO: Net charge-offs, the amount of loans written off as uncollectible minus any recoveries on previously charged-off loans.
• NII: Net interest income, the difference between the interest earned on assets and the interest paid on liabilities.
• NIM: Net interest margin, a ratio that measures the difference between interest income and interest expense relative to earning assets.
• NPL: Nonperforming loans, which are loans that are 90 days or more past due or no longer accruing interest.
• PB: Popular Bank, the company's New York-chartered banking subsidiary operating in the mainland United States.
• ROTCE: Return on average tangible common equity, a financial ratio measuring performance based on tangible common shareholders' equity.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Popular Inc. Third Quarter 2026 Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *1 on your telephone. You will then hear automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Investor Relations Officer of Popular, Paul Cardillo. Please go ahead.

Paul J. Cardillo: Good morning, and thank you for joining us. With me on the call today are our President and CEO, Jorge Jose García and our CFO, Lidio V. Soriano. They will review our third quarter results and then answer your questions. Other members of our management team, including our CRO, Luis Sosa, will also be available during the Q&A session. Before we begin, I would like to remind you that during today's call, we may make forward-looking statements regarding Popular, such as projections of revenue, earnings, credit quality, expenses, taxes, and capital, as well as statements regarding Popular's plans and objectives. These statements are based on management's current expectations and are subject to risks and uncertainties.

Factors that could cause actual results to differ materially from these forward-looking statements are discussed in today's earnings release and our SEC filings. You may find today's earnings release and our SEC filings on our website at popular.com. I will now turn the call over to Jorge.

Jorge Jose García: Thank you, Paul, and good morning, everyone. Please turn to Slide 4 to discuss the highlights of another solid quarter. We reported net income of $266 million and earnings per share of $4.21. A decrease of $0.14 per share from the second quarter. Results reflected higher net interest income and stable underlying credit trends. Partially offset by higher operating expenses and lower noninterest income. Compared with the third quarter of last year, earnings per share increased by 34%. Our ROTCE was 15.8%, compared with 17% in the second quarter and 13.1% in the third quarter of 2025. Held in portfolio increased by $293 million, driven by growth in commercial and mortgage lending.

Total deposits decreased by $1.5 billion, primarily reflecting lower Puerto Rico public sector balances. Excluding public funds, customer balances decreased by approximately $289 million. Delta was consistent with our expectations and third quarter seasonality. Credit performance remained stable. Net charge-offs declined from the second quarter while nonperforming loans increased. Primarily reflecting a commercial relationship at BPPR that was placed on non-accrual. We continue to return capital to shareholders, repurchasing $179 million of common stock in the quarter. We also increased the quarterly dividend to $0.90 per share, beginning with the payment on October 1. While some indicators have moderated from the strong levels experienced over the last several years, Economic conditions and business activity in Puerto Rico remain stable.

The labor market continued to be healthy. Total employment increased to approximately 1.26 million in September. Its highest level of the year. As the labor force grew by roughly 24 thousand people in the quarter, employment grew by 18 thousand jobs. The unemployment rate increased modestly to 6.2% largely reflecting a higher participation rate rather than job losses. Job growth was strongest in leisure and hospitality, with most other sectors showing modest growth or broadly stable conditions. Consumer spending was solid during the quarter, as evidenced by Popular's customers' debit and credit card sales volume, which increased by approximately 7% year over year. Tourism was another source of meaningful support for the Puerto Rico economy.

Through August, hotel occupancy improved by more than 4 percentage points to approximately 79%. Cruise passenger arrivals increased by 27% through September. Air passenger traffic is moderated from record levels but remains healthy, declining approximately 3% year over year. Construction activity is supported by public and private investment, including the ongoing deployment of federal disaster-recovery funds and a growing pipeline of private sector projects. We continue to see demand in the energy sector as well as in warehousing and logistics. Overall, Puerto Rico's economic environment is stable, supported by healthy employment, tourism, infrastructure investment, and private sector development.

At the same time, we are monitoring affordability pressures that are being driven by inflation, and the higher cost of fuel and energy. We continue to focus on the 3 objectives we have shared previously. Being the number 1 bank for our customers, being simple and efficient, and being a top performing bank. We are on the right path, and we will continue to execute with discipline. Being the number 1 bank for our customers means building stronger relationships and continuing to strengthen our deposit franchise. 1 of our most important competitive advantages. That starts with giving customers the flexibility to bank through the channel that best meets their needs.

While continuing to enhance our products and maintain our high service standards. On the retail side, this quarter, we launched a simpler deposit product that encourages behavior such as direct deposits to eliminate banking fees. That will help us build deeper relationships over time. We also launched an account for college students to establish relationships earlier in their financial journey. These efforts advance our segment led strategy which leverages specialized offerings to unlock opportunities and deepening customer relationships. Our successful health care professional program is 1 example of this segment led approach. The program supports deposit retention and has also generated more than $90 million in loans. In new loans this year.

On the commercial side, we completed the final wave of customer onboarding to our new cash management platform. Concluding a multiyear effort. The platform provides greater flexibility and mobile access enhanced money movement capabilities for our commercial clients. This strengthens our value proposition for business clients and further differentiates our commercial banking franchise in Puerto Rico. And gives us a platform to continue to enhance functionality. Together, these initiatives demonstrate that our strategy is translating into tangible results. I look forward to building on this momentum with our teams as we continue advancing our objectives. I will now turn the call over to Lidio for more details on our financial and credit performance.

Lidio V. Soriano: Thank you, Jorge and good morning, everyone. As Jorge said, we delivered another solid quarter. Our focus on generating sustainable returns remained evident this quarter with ROTCE of 15.8% compared with 17% in the second quarter. Please turn to Slide number 7. Net interest income increased by $6 million to $699 million driven by higher income from investment securities and commercial loans. On a GAAP basis, net interest margin declined by 3 basis points to 3.63%, and on a taxable equivalent basis, NIM was 4.16%. 1 basis point lower than last quarter. Ending loan balances increased by $293 million driven by commercial and mortgage loans.

We now expect full year loan growth for 2026 of approximately 2%, primarily reflecting lower auto and lease activity and more moderate commercial growth. Our investment portfolio, we have maintained our strategy of reinvesting proceeds from US treasury note maturities into 2- and 3-year notes. During the quarter, we invested approximately $1.4 billion with an average duration of 2.7 years, an average yield of approximately 4.3%. This represented a pickup of approximately 206 basis points on the notes that matured during the quarter. Ending deposits were $68.7 billion down $1.5 billion from the second quarter. Puerto Rico public deposit decreased by $1.2 billion to $21.5 billion.

On an average basis, total deposits increased by $52 million excluding Puerto Rico public deposits, average customer deposits decreased by $619 million. Customer balances were consistent with historical patterns and continue to reflect the strength of our deposit franchise. We continue to expect Puerto Rico public deposits to remain between $20 billion and $22 billion for the rest of the year. Total deposit cost increased by 7 basis points to 1.64% primarily reflecting higher rates on market linked Puerto Rico public deposit that increased by 11 basis points. Excluding these balances, deposit cost increased by 3 basis points to 1.13%.

Including an increase of 2 basis points in private sector deposit cost at BPPR and a 1 basis point increase at Popular Bank. For the year, we expect net interest income to increase by approximately 8.5%. Please turn to slide number 8. Non interest income decreased by $5 million to $176 million but remained above our guidance range. The quarter included a $5 million benefit associated with a commercial loan refinancing. Compared with the third quarter of 2025, noninterest income increased by 3% reflecting growth in debit and credit card fees of 10% and 8%, respectively. And a 60% increase in brokerage and asset management fees. These results demonstrate the benefit of a broad product offering.

We expect fourth quarter non interest income of $170 million. Please turn to slide number 9. Operating expenses increased by $21 million to $506 million. The increase was primarily related to higher personnel costs, including annual salary adjustments higher profit sharing expenses, and increased performance based compensation, linked to the corporation's financial results. Based on current trends, we now expect full year operational expenses to increase by approximately 2% including the maximum profit sharing contribution. Our effective tax rate was 14% during the quarter, driven by higher taxes and income. For the full year, we expect an effective tax rate of 14%. Turning to credit. Overall credit quality remained stable during the third quarter.

Consumer performance remained favorable with net charge-offs continuing at a historically low level despite a seasonal increase in other losses. Mortgage performance also remains strong. with historically low delinquencies and net recoveries. Commercial credit metrics were influenced by developments involving 2 unrelated commercial and industrial relationships. We placed a $74 million relationship on non accrual status and recorded a $34 million partial charge-off on a credit that entered non performing status in the second quarter. The 2 credits are in different industries, and do not share a common risk factor. In each case, the deterioration was driven primarily by borrower specific issues. Please turn to Slide number 10.

Total nonperforming assets decreased by $37 million reflecting the sale of the $84 million nonperforming loan held for sale. While total NPLs increased by $52 million to $466 million The NPL ratio increased to 1.16% from 1.04% in the prior quarter. Excluding consumer loans, NPL inflows decreased by $56 million from the second quarter. Turning to Slide 11, net charge-offs were $73 million or an annualized 73 basis points compared with $104 million or 1.05% in the prior quarter. Given our year-to-date commercial charge-offs and NPL inflows this quarter, we now expect net charge-offs to be in the range of 80-90 basis points for the full year.

While we will provide formal 2027 guidance, when we report fourth quarter results in January, Looking ahead to 2027, our initial expectation is that net charge-offs will be in the range of roughly 60 to 75 basis points. Overall, underlying credit metrics were stable and reserve coverage remained strong. We remain vigilant and continue to take a disciplined approach to managing risk. Turning now to capital. Please turn to Slide 12. Tangible book value per share decreased by $1.64 to $86.30 primarily reflecting lower market values on available for sale investment securities. The tangible common equity ratio of 7.05%, down 13 basis points from the second quarter.

Remain comfortable with both the absolute level of TCE and the real sensitivity of the securities portfolio to changes in interest rates. Capital actions will continue to balance the need to support growth, maintain capital strength, and return excess capital to shareholders. During the quarter, we returned $236 million to shareholders including $179 million through common stock repurchases. We also increased our early common stock dividend by 20%. In the fourth quarter, we expect to repurchase between $150 million and $200 million of common stock. Based on current conditions, we expect quarterly repurchases to remain within a similar range during 2027. And finally, continue to target a 14% to 17% annual RoTCE.

With that, I will turn the call back to Jorge for his concluding remarks.

Jorge Jose García: Thank you, Lidio. My first 2 months as CEO, I have been visiting branches, regional offices and customers across our markets. I have experienced firsthand the trust our customers place in us and their deep connections with our teams. I also continue to hear from customers that they are up optimistic about Puerto Rico's long term opportunities And how vital it is that we play a role in that outcome. Staying connected also extends to the communities we serve. 2 weeks ago, as we celebrated our 1 133rd anniversary, I joined hundreds of colleagues who volunteered at food banks, youth centers and other nonprofits as part of our embracing our communities day of service.

These experiences reaffirmed what I already knew. What makes Popular special is our people. Our pride and commitment are the foundation of our sustainable success. I am fortunate to step into this role with a strong capital position, a solid franchise, a talented team, and real momentum. Our responsibility is to carry that forward and continue creating long term value for our customers, shareholders, colleagues, and our communities. I am grateful to my colleagues for their commitment and the results they deliver every day. We intend to be active participants in shaping what lies ahead. And not simply react to it. With that, we are now ready to take your questions.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder to ask a question, you will need to press *1 on your cell phone and wait for your name to be announced. To withdraw your question, please press *1 again. Please standby while we compile the Q and A roster. And our first question comes from the line of Jared Shaw with Barclays. Your line is now open.

Jared Shaw: Hi, good morning. Good morning. Good morning. Thanks. Maybe just starting with credit. In walking through some of the items you spoke about. So the, the 1 new commercial non performer, I mean, I guess, we without that, commercial nonperformers would have been lower. And then when we look at the net charge off guidance for fourth quarter, I guess that implies about 100 basis points. So is there-- is that going to be some loss content in that commercial loan? Or is that just more overall weaker expectations in the portfolio?

Analyst: Good morning. This is Luis.

Jorge Jose García: I would say that our net charge-off guidance for the fourth quarter mainly reflects our potential scenarios, including the C&I deals that we have disclosed. Think if I can add, I mean, what is important is that we have. We see the core portfolios continue to behave very well as we said in the prepared remarks. Both consumer and mortgage portfolio exhibited strong performance in the third quarter, and that is our expectation going to the fourth quarter. The guidance that we provided reflects some of the cases that we are working out.

Jared Shaw: Okay. Okay. So overall, though, apart from the 1 offs, you still feel pretty good about credit? It sounds like. Okay. And then any update on, the outlook for preferred issuance or any capital restocking beyond the buyback?

Lidio V. Soriano: Oh, Jared, I mean, the rates continue to not be attractive to us. I mean, as we have said, this is really a discretionary transaction. We still can have plenty of room to continue our repurchase activity. This is something that makes things better for our capital stack, I mean, optimizes it. And we will be strategic and take advantage if we see an opportunity. But right now, we are not just going to force a transaction that does not make sense.

Jared Shaw: Okay. Thanks. If I could just sneak 1 third 1 in. Just what is. Do you know what the update of the balance of federal spending is? You talked about continued spending from that $48 billion out there. what is remaining left of allocated but not spent?

Jorge Jose García: Yeah. Slightly over $43 billion. And 1 thing important there, we did see a pickup. In spend in the third quarter from, you know, the FEMA funds that are managed through the local core 3. Group. That, that, you know, basically year-to-date, we are running just slightly below the entire year or the end of the third quarter, we are slightly below the total of last year, almost 40% higher than at the same time last year. So we are glad to see a little bit of that pickup. Thanks.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Terence McEvoy with Wells Fargo. Your line is now open.

Analyst: Hi. Good morning. Can you hear me?

Jorge Jose García: Yes, we can. Good morning, Terry, and thank you for picking up coverage. Welcome to the call. Thank you. Much appreciated. First question, the new consumer deposit product was that in response to market demand or customer demand? Are your competitors offering that? And then financially, what would-- what is the full quarter impact was rolled out in August? And how should we think about maybe a full year impact of what that could mean to fee income? Yeah. So a couple of things. I mean, certainly, it is something that we hear from our customers that they want simpler products, lower fees.

So the idea is to launch a product that gives them the opportunity to establish relationships and deepening that relationship that go along with the primacy-- customer primacy that we are targeting. The other thing with launching the project, it just continues to be part of our strategy to create segment led strategies. We believe that there is still great opportunity in Puerto Rico for us to be able to deepen and provide more value and enhance-- enhance functionality to certain segments, both in the retail as well as in the commercial. So, you know, that is a big driver.

In terms of the fee, what we did is we did reclassify over a million accounts into these new products to be able to give existing clients the benefit and not essentially put the onus on them on having to change accounts. That resulted, I think, with a reduction in the quarter of around $2 million decrease in fee income. So on an annualized basis, you know, it is probably somewhere between $8 million and $10 million. Of course, you know, we expect to be able to gain traction and increase our deposits to offset some of that. And, you know, it is embedded in the guide for the fourth quarter.

A $170 million target for fees for the fourth quarter. Great. Thank you. And then maybe as a follow-up, how could a higher for longer rate environment impact loan demand? And then on that same theme, are there particular industries within your commercial portfolio that are more sensitive to higher rates that you are monitoring today? So we. In the past, when we look at our models and stress test, we do not see a lot of stress related to, you know, 1 or 2, you know, moves in the rate and certainly not where the rates are at today.

In terms of where we are at, you know, in hire for longer will help us continue to take benefits of our. The tailwind of the repricing of our investment portfolio. We certainly look forward to stability. You know, if we can you know, the rhythm of change and the movement of particularly the short term and of the of the curve create some noise given the exposure we have and the repricing of our public funds. But overall, you know, hire for longer, it is it is favorable for us. We get to take a higher benefit on tax advantages of some of the investments.

And we have not found particularly these levels where there is significant stress to our borrowers from those rates. Demand in Puerto Rico continues to be strong. A lot of the transactions are not gonna be rate sensitive. We do see some more rate sensitivity in The US at times, But, you know, frankly, right now, the pipelines around. Particularly around commercial projects construction projects in The US continues to be strong even looking through to the current rate environment. that is great. Thanks for taking my questions.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Timur Braziler with UBS. Your line is now open.

Timur Braziler: Hi. Good morning. Starting on the reinvestment rate, I think it was $1.4 billion purchased at 4.3%. I guess, why 4.3%? I mean, it is decent amount lower than the 2 and 3 year yields were during the quarter. And I guess as we roll forward into 4Q and beyond, should that reinvestment rate more so mirror that 2 and 3 year rate, or are we call it, you know, 40, 50 basis points below it going forward?

Analyst: Yeah. Good morning. This is Juan Pablo, treasurer. Yeah. I mean, of the reflection is if we recall the quarter, it did not start out where it ended up. Right? So, you know, we are effectively, you know, purchasing, you know, bonds as they mature during the month. And, you know, any given period like this 1 where you start out lower and ended up higher, or is you are going to miss out on the higher rate. Right? So I think of it more as on average during the quarter and not just the endpoint as the quarter.

So that is that is in effect what we are doing as we got about $1.5 billion-$1.6 billion coming due every quarter. And we just kind of continue that mechanical process.

Lidio V. Soriano: I would just add that, I mean, as you see, we have some of the slide in the appendix. We have a significant amount of investments that we are repricing on a quarterly basis around $1.5 billion to $1.6 billion. Out of which $600 million-$700 million relates to legacy investments that were 1 and a quarter percent. And even the newer investments were 3 and a quarter percent. So going forward, we will continue to see a significant pickup in the yield of that portfolio given the repricing dynamics and given the interest rate environment that we have today.

Timur Braziler: Okay. Great. And then maybe looking at the public funds you guys have been closer in guiding those balances. More recently. But I am wondering, particularly going into the 28 election, is there any kind of empirical data that you can point to as to, you know, projects kicking off? Like, is there a risk through 2027 that some of the public funds that are sitting on balance sheet are actually being utilized, or maybe looking at history is different versus this time when there is a little bit more flush in liquidity.

But I guess, what is the way that you guys are framing risk around public funds balances in reference to the election that is coming up 2 years from now?

Jorge Jose García: So I think a couple of things, Timur, I mean, number 1, yes, I think we would expect some pickup in activity related to municipal spending. Particularly at the municipal level, maybe not as much as the central government level. But couple of things there. First, you know, remember that there are a lot of projects that they are still rebuilding, you know, with FEMA and federal funds. Lot of those projects are at the municipal level. So what we. Where we think we will see some of the first impact is in seeing a speed up or a pickup in the activity. Maybe you know, the mayors and the municipalities, prioritizing either projects that can.

That are of big scale or that can be completed quickly. Since that money is gonna be coming in from federal funds as a flow. Right? So it is in and out. Those monies are not sitting on our balance sheet right now. So other than that, you also have the federal oversight board that is still manages for a balanced budget, and the government needs to be able to those budgets approved and execute to those approved budget. Budgets by the oversight board. So I mean, it. You know, so we give ranges, and in those ranges, we tend to incorporate scheduled payments, like, for pensions or kind of the continued value.

The continued value bonds that and then some sense of operating accounts but and certainly competition. Right? I mean, we actively bid on retaining certain, you know, excess funds from the government client. So. But in terms of predicting or projecting that we are gonna see significant declines because of infrastructure spend, out of these funds that is not something that we think will be significant. Great. For that color.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Arren Cyganovich with Truist Securities. Your line is now open.

Arren Cyganovich: Thanks. Maybe you could just talk a little bit about the loan growth expectation, modest slowdown in loan growth into the fourth quarter. Makes sense in terms of the you know, auto and consumer side, but commercial has been pretty strong over the past couple of quarters. So what is driving the kind of more moderate expectation there into the quarter?

Jorge Jose García: Yes. So certainly, you look at from the original guidance and where we are at now, the auto portfolio is 1 of the areas where, you know, we have been under our expectations for the year, so that certainly has an impact. The other thing is that we are trying to be a lot more disciplined in our US business as well. Historically, you know, we drove the teams to kind of hit their budget targets.

And, you know, that has resulted in a lot of, you know, single product clients that we are not deepening those relationships, and we are pushing our teams to really create deeper relationships, lead with deposits, And even in CRE and multifamily transactions, we wanna make sure that we have a whole relationship, and that is certainly slowing down the production of our US team. We are also expecting some payoffs in our construction portfolio in The US like we saw in this quarter. There are strong pipelines coming behind those, but as you can imagine, those construction projects take a little bit more time to start seeing the effect. In Puerto Rico, you know, there is still good demand.

I think the issue in Puerto Rico is more about supply. We have been benefiting from 6% to 9% growth over the last few years. Some of that growth has been driven by tax incentives. And there is only so many large transactions that can occur in Puerto Rico. So I still see a lot of positive movement in Puerto Rico, a lot of positive demand, but just the scale and supply of it is you know, reducing. Okay.

Arren Cyganovich: Mean, I guess that does not-- I know you are not going to give 2027 guidance, but does that impact your you know, view in terms of loan growth you know, post this quarter? I mean, it sounds like you have some headwinds there.

Lidio V. Soriano: I mean, we. We have talked in the past that we have been growing, outpacing the Puerto Rico economy and GDP significant significantly given our size, over time, should be we should be growing closer or above, you know, slightly above the Puerto Rico economy. I think what is important as we look forward, Arren, is that we will continue to see NII growth. We look at our projections into 2027, particularly in this environment, given the tailwinds that we have with the investment portfolio repositioning and the loan demand that we are seeing and the prices. Current prices we do expect to continue to see creating operating leverage in 2027. Okay.

Arren Cyganovich: And can you just remind me on the on the RoTCE updated guidance of 14% to 17% that you put out there last quarter or I think it was last quarter. That. that is more of a kind of a longer term expectation. Right? Like, just over time, not necessarily No. I know, expectation of your insurance. With No.

Lidio V. Soriano: We are-- I mean, I guess-- we, I mean, I know you are now. We are-- I know you are earning that now, but Yeah. Yeah. You know, I just did not know if that was, like, if you are always expecting to earn between that seems you know, I mean, always is a tough it is a tough word, but we are basically based on the environment that we are seeing, you know, the balance sheet structure and all our plans and the execution that we are seeing from our teams, we felt very comfortable giving the guidance of the 14 to 17% on an annual basis, and, you know, that is what we are driving our teams to.

I think what is important, I mean, we wanted it to also be sustainable. So it takes into account potentially different operating environments, So that is why maybe a little bit of the wider range and why so wide. I mean, it is for us, the sustainable part is as important as just hitting the target. Got it. Okay. Thank you.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Kelly Motta with KBW. Your line is now open.

Jorge Jose García: Good morning, Kelly.

Kelly Motta: Morning. Thanks for the questions here. So, piecing together the outlook for loan growth coming in a little bit weaker with auto being a higher yielding category. Just wondering as we think through the outlook ahead for specifically loan yields, if there could be some pressure off offsetting the rate hikes from just a change in mix and overall how new origination yields are coming in. Thanks.

Lidio V. Soriano: I think with the higher rates, I mean, the. Those. The current higher rates impact those consumer loans a lot more, right, than the commercial And we have been. If you if you look over the last I would say, probably since the Fed started moving rates down, we had been seeing kind of incremental yields in our loan portfolio every quarter, and this quarter, was, I think, the first time that we see a decline in those yields. As the. As I think the portfolio starts stabilizing. I mean, the way, you know, I look I look at it, I think given the ins and outs of the portfolio, I mean, auto, for example, we.

Our originations are even this quarter where we did not grow, I think the originations were, like, $450 million. So it is significant amount of volume that is coming in. it is gonna depend on obviously, the credit risk profile of those clients, the terms of those loans. But right now, I do not think loan yield is something, you know, that is putting pressure, you know, in terms of as we look forward. it is not a it is not a concern for us. Again, the NII, we do see NII continuing to expand in 2027. And, yeah. Got it.

Kelly Motta: Okay. that is that is helpful. And then and then on expenses, I appreciate you lowered it to the lower end of the guide, which is you know, nice given the incentive compensation with revenue coming in so strong. Just wondering the drivers of that, if additional you were better at getting some costs savings out or if maybe projects have been kicked out till next year? Thanks.

Jorge Jose García: We have not made any conscious decisions to move projects. I mean, for us, the rhythm of the project is more about capacity, how much we can continue. We have actually thrown in some nonbudgeted or unanticipated projects this year. The teams have done a great job in delivering efficiencies $50 million in recurring efficiencies have been implemented and identified. Expect that amount to be a benefit next year. Obviously, it is not. At some point, we are gonna start seeing expense growth again, but the teams have done an awesome job. The 2% includes the, as you mentioned, probably sharing. We are expecting a disrate to max out that profit sharing payment based on our formulas.

And that is all embedded in into that guide. But it goes to just a lot of effort from a lot of people that are just. We call it a lot of buns and singles Nothing huge to create those efficiencies and savings. Great. I will step back. Thank you.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Gerard Cassidy with RBC Capital Markets. Your line is now open.

Analyst: Hi, Jorge. Hi, Lidio. Hi, Kelly. How are you? Jorge, now with Terry covering you, maybe you guys can do your call from Portland in July. The weather's nice. I figured October was. it is not that cold and the leaves are pretty. So I will leave you with that. it is. It is gorgeous up here today. that is for sure. Thank you. Question for you. Can you guys share with us, how much of your US deferred tax asset do you expect to utilize over the next 2 to 3 years? And what needs to change to support a release of that large, you know, valuation allowance? And then what are the implications for.

If you are able to do that, of course, what are the implications for cash taxes and CET1 capital?

Lidio V. Soriano: What. Should that happen or when that happens? Let me just give you some of the numbers, and then I give you what it take. What it will take in order for us to be able to utilize more of that DTA. The DTA number, gross, is around $100 million, net of an allowance of close to $385 million that gives a net of $250 million of DTA. That majority of that DTA expires between the years 2028 and 2031. And the 1 way that we can use it is to become more I mean, that.

Jorge Jose García: that is it. I mean, the more money we make, the more we are gonna be able to use our DTA. We have done. The team has done a great job of improving profitability in the US. So this year and last year, and that is something that, obviously, we feel very proud of. Something that we continue to work hard in order to realize as much as we can from those NOLs. Yeah.

Lidio V. Soriano: 1 thing, Gerard, the DTA in The US is NOL based. it is not part of regulatory capital. There are there are some limitations. So even if you were in a situation where you could reverse more of that DTA, it is not gonna have a benefit on CET 1. And now the flip side of that is that the income that The US business is generating, you know, that capital is actually accruing at a. Essentially a pretax level instead of at the after tax amount that you see on a GAAP basis. Very good. Correct.

Analyst: And then just to circle back to credit, you know, when you think about the large credit that went into non accrual in the second quarter and now it is off, of course,, and you took a charge as well. And then the large credit that showed up this quarter, When you guys do the, like, post op analysis, of what went wrong with the credit or, you know, the underwriting, What did you learn? Or can you share with us, you know, what were some of maybe the shortfalls in the underwriting possibly or just. Really, what did you learn from those 2 experiences?

I mean, in those 2 experiences in particular, I would say, I mean, part of the learnings. I mean, in 1 of the cases, it was a client that was extending into a new venture. I think that is always something that we look very carefully from underwriting standpoint. So that is something that we need to keep bringing our teams as you are diversifying your industry. that is something that also brings risk with it. I think the other 1 is a long-standing client. We have a very profitable relationship. Over time, he is in the food service industry, but over time, competition and market conditions in the island. I-- from there, I mean, I do not know.

I am not sure. I mean, other than having a closer look at the client and being on top of the client on a day to day basis, I do not think that from underwriting perspective, there was anything that we needed to change.

Jorge Jose García: And I think, Gerard, I mean, given our position in Puerto Rico, we wanna lend to some of these deals. You know, the telecom transaction was, you know, a fairly large deal. It makes sense to us as the primary bank in Puerto Rico to lend into an acquisition of a large telecom provider in Puerto Rico. You know, unfortunately, you know, these are operational issues that the integration of the acquisition did not go well. And, you know, we ended up, you know, having to take the hit for it.

I think the other part that is important is that, you know, we have been able to work through you know, a handful of these, you know, C and I loans over the last few quarters, but we still have still been able to perform or have slowed those losses. And be able to continue to improve our profitability. I mean, just to Yep.

Analyst: To finalize, as you are-- I mean, when you look at it, we have thousands of relationship, and we have had issues with maybe 2 cases last year and 3 cases this year. So just to keep in mind that the performance of our book has been very, very strong. Notwithstanding the fact that every now and then, we may have issues with 1 of our customers. Appreciate the color. Thank you.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Manuel Navas with Piper Sandler. Your line is now open.

Jorge Jose García: Hi, Manuel.

Manuel Navas: Hey, guys. How should I think about the near term NIM I hear you on the NII guide for the year. NII improvement for next year. And I just kind of want to think about the near term NIM and how it could enter next year, especially if there is, like, a December rate hike as well.

Lidio V. Soriano: I mean, I. As you look at our name, I think we have, as Jorge mentioned in earlier. In the commentary, we have a. Still a lot of tailwinds related to the repricing of our investment portfolio, so that is going to lead to an increase in asset yields as well as well as the repricing of some of our short term short term assets and short term liabilities. We have also. We guided. We said we expect net interest income to continue to grow. Continue to be the guide for us as our organization.

So that regard, I mean, you think you can think of we will see a ascending trajectory that is going to depend upon the mix between assets. Our assets between and investment. Sorry, between investments and loans.

Jorge Jose García: I think the other the other factor is the level of public deposits. You know, this. that is really a big driver Manuel. I mean, if we continue to see growth in public deposits, that does put pressure on NIM. it is not good for NIM. But it does contribute nicely to NII, and we will take the NII growth. Yep. Got it. And just switching over to growth for a second.

Manuel Navas: What dynamics would need to come into play for loan growth to accelerate? I hear you that perhaps the tendency is more towards GDP levels of Puerto Rico, where that is the longer term trend. But what would take what would give you some tailwind on loan growth?

Jorge Jose García: Yeah. I mean, I think when. You know, 1 of the cool things about going from the accounting and finance world to the CEO role is being able to spend time with clients and spending a lot of time with our customers. And you hear a lot of people enthusiastic about the opportunities in Puerto Rico. And these are people thinking, you know, 3, 5, 10 years down the road, And you see some of their projects, some of their visions, some of those dreams, And if they start coming to petition, you see acceleration.

We are able to bring in and see population growth in The US, attract the professionals, and the diaspora to Puerto Rico, you see, you know, $4 billion of manufacturing jobs. Or I am sorry. $4 billion of manufacturing investment announced. As those things starts coming in, if you are seeing a shift, in population, in the ecosystem that goes around some of those investments, certainly, you know, those are things that could help the entire economy of Puerto Rico. And we will benefit from that lift. I appreciate that. The last question here is shifting over to the ROTCE guide.

Manuel Navas: What are kind of the biggest drivers of the high end of that guide or the low end of it? You know, it is through the cycle. But if. As you look into next year, just kinda thoughts on what could really drive it towards the high end? But potentially what could drive it to the lower end.

Jorge Jose García: We love the ROTCE guidance because it captures everything, Manuel. So, certainly, you know, when you when you look at that band, you know, credit cost, you know, provision is a factor. Now NII growth. Continued NII growth is a is a positive factor. You know, the our ability to be able to execute on our segment led strategies in Puerto Rico and deepening deposit relationships in Puerto Rico, which we believe we can do. That will help the top end of that range. So these are all things that, you know, drive profitability in banks, and it is no different for us. I appreciate the commentary. Thank you.

Operator: Thank you. I have no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.