Hello, and welcome to the Popular Incorporated Fourth Quarter Earnings Call. My name is Elliot and I'll be your coordinator today. I would now like to hand over to Paul Cardillo, Investor Relations Officer. Please go ahead.

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

Good morning and thank you for joining the call. In 2024, we delivered results that reflect the strength of our franchise and the continued stability of the Puerto Rico economy. Our annual net income of $614 million compared to $541 million in 2023. On an adjusted basis, we achieved net income of $646 million, 10% higher than in 2023. The adjusted variance was mainly driven by higher net interest income, offset in part by a higher provision for credit losses and higher operating expenses. Our strong fourth quarter loan growth helped bring our total loan growth for the year to $2 billion, an increase of 5.8%. BPPR generated loan growth across most business segments, led by commercial loans, reflecting the continued strength of the local economy and our diversified product offerings. Popular Bank achieved growth in commercial and construction loans. Credit quality remained stable throughout 2024. Non-performing loans decreased slightly while net charge-offs remained below our historic normalized levels. Our capital levels are strong, ending the year with a common equity tier 1 ratio of 16%. Our tangible book value per share of $68.16 increased by 14% year-over-year, primarily driven by lower unrealized losses on investment securities and net income for the year, offset in part by dividends and our share repurchase activity. Our robust capital and liquidity position allowed us to continue returning capital to our shareholders. During the quarter, we announced the resumption of buybacks with a $500 million stock repurchase authorization. In total, during 2024, we repurchased 2.3 million of our shares for approximately $220 million. 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 $0.08 to $0.70 per share. Please turn to Slide 4. We closed the last quarter of 2024 on a strong note, achieving net income of $178 million, an increase of $23 million from the third quarter. These results were primarily driven by higher net interest income and a lower provision for credit losses. Credit quality trends remained stable in the period. Our net interest income increased by $18 million in the quarter and net interest margin expanded by 11 basis points to 3.35%, mainly driven by lower deposit costs. As I mentioned before, loan growth was very strong in the quarter with balances increasing by $913 million or 2.5%. We were happy to see that both banks contribute equally to this growth. During the quarter, we purchased approximately 160 million shares at an average price of roughly $96. Tangible book value per share decreased by $0.88 to $68.16, driven by higher unrealized losses in our investment portfolio and share repurchase activity in the period, offset by our quarterly net income. Please turn to Slide 5. Business activity in Puerto Rico remains solid as reflected in the favorable trends in total employment, consumer spending and other economic data. The current unemployment rate of 5.4% is not something that I would have expected to see in my lifetime. Consumer spending remained healthy. Combined credit and debit card sales for BPPR customers increased by approximately 5% compared to the fourth quarter of 2023. Mortgage loan balances at BPPR increased by $114 million in the fourth quarter, driven primarily by home purchase activity and our current strategy of retaining FHA loans in portfolio. Our auto loan and lease balances increased by $43 million compared to the third quarter as demand for new cars continued to be strong in Puerto Rico. The tourism and hospitality sector continues to be a source of strength for the local economy. Recently, several prominent luxury hotel brands have announced development plans for Puerto Rico. Passenger traffic at the San Juan International Airport increased by 10% in the fourth quarter compared to the fourth quarter of 2023 and hotel occupancy continues to be healthy. For the year, a record 13.2 million travelers visited Puerto Rico. We expect the ongoing disbursement of federal funds will continue to support economic activity for several years. We remain optimistic about the future of our primary market and are well positioned to support our clients during the coming years. On that note, I now turn the call over to Jorge for more details on our financial results.

Thank you, Ignacio. Good morning and thank you all for joining the call today. Please turn to Slide 6. We're pleased with the quarter's results, particularly with the net interest income growth and the expansion of the net interest margin. As Ignacio stated, in the fourth quarter, we reported net income of $178 million, $23 million higher than the prior period. Net interest income increased by $18 million, driven primarily by lower deposit costs in both of our banks. We finished the year with a 7% year-over-year increase in net interest income. Loan growth was strong, increasing by $913 million in the quarter with each of our banks contributing similar amounts towards that growth. At BPPR, consistent with the activity throughout the year, we continue to see increases across nearly all categories, led by commercial lending, auto and mortgage originations. And at Popular Bank, we saw increases in commercial and construction lending. Ending customer deposit balances at BPPR, excluding Puerto Rico public deposits increased by approximately $600 million while average balances decreased by approximately $100 million. At Popular Bank, ending balances decreased by approximately $190 million and average balances decreased by approximately $30 million. At the end of the fourth quarter, Puerto Rico public deposits were $19.5 billion, an increase of approximately $750 million when compared to Q3. Average balances for public deposits were lower by $125 million. Going forward, we expect public deposits to continue to be in the range of $18 billion to $20 billion. Our net interest margin expanded by 11 basis points on a GAAP basis and 15 basis points on a tax-equivalent basis driven by lower deposit costs and higher loan balances. Non-interest income was $165 million, flat versus Q3. In December, we completed the sale of the daily car rental business from our Popular Auto subsidiary. This business was not a material contributor to net income as the fee income it generated was mostly offset by depreciation expenses. This sale was completed at roughly book value and going forward there is little to no impact on the bottom line. This transaction helps to further simplify our business and will increase borrowing capacity at the Fed discount window. In 2024, this rental business contributed approximately $30 million to non-interest income. Therefore, in 2025, we expect quarterly non-interest income to be in the range of $155 million to $160 million, including the impact of the sale, offset in part by initiatives geared towards increasing fee income. Credit metrics remained stable during the fourth quarter. The provision for credit losses decreased by $5 million to $66 million. Total operating expenses were $468 million, flat with last quarter. The largest expense variance in the quarter were related to higher professional fees, seasonal promotional expenses and personnel costs driven by incentives. These increases were offset by lower technology costs related to our transformation efforts as some of our IT projects have reached the development stage and the costs are now being capitalized and lower equipment expense mainly due to a decrease in the vehicle fleet depreciation as a result of the sale of the daily rental business. In 2025, we expect total full-year expenses to increase by approximately 4% compared to 2024. Our effective tax rate in the fourth quarter was 20%, driven by higher tax expense income. For the full year, the effective tax rate was 23%. In 2025, we expect the effective tax rate for the year to be in a range of 19% to 21%. Please turn to Slide 7. During the quarter, we continued to reinvest bond maturities into two-to-three-year US treasury notes, buying approximately $600 million at an average yield of around 4%. We expect to continue this strategy as a way to lessen our sensitivity to lower rates. In BPPR, deposit costs decreased by 22 basis points to 1.67%, mostly due to a 56 basis point reduction in the cost of market-linked public deposits. At Popular Bank, deposit costs decreased by 15 basis points during the quarter. This change reflected recent market repricing and lower volumes in high-cost deposits. Economic activity and demand for credit in Puerto Rico remains strong. In our US market, demand for credit improved during the fourth quarter, and we benefited from continued draws in construction lines and our condo association lending business in Florida. In 2025, we expect consolidated loan growth of 3% to 5% with the rate of growth improving as the year progresses. We anticipate 2025 net interest income will increase by 7% to 9%, driven by continued reinvestment of lower-yielding securities and loan originations in the current rate environment, as well as lower costs of Puerto Rico public deposits and online deposits at Popular Bank. We expect net interest margin expansion to continue in 2025. Our ability to continue to reduce the cost of the deposits in the US and the deposit mix in Puerto Rico will continue to present the biggest risk to achieving the expected level of expansion in net interest margin. Please turn to Slide 8. Regulatory capital levels remained strong. Our CET1 ratio of 16% decreased by 39 basis points from Q3, mainly due to an increase in risk-weighted assets from loan growth and the effects of capital actions during the quarter. Tangible book value per share at the end of the quarter was $68.16, a decrease of $0.88 per share from Q3, mostly resulting from an increase in unrealized losses in our mortgage-backed securities portfolio, our stock repurchase activity, and dividends in the quarter. During the fourth quarter, we repurchased approximately $160 million in shares at an average price of roughly $96. At the end of December, we had repurchased approximately $220 million of our existing $500 million authorization. Return on tangible equity for the quarter was 11.2%, an increase from 10% last quarter, driven by higher net interest income, lower provision expense, and our buyback activity. We continue to anticipate we will achieve at least 12% ROTCE in the fourth quarter of 2025. And longer term, we as a management team, continue to be focused on achieving a sustainable 14% return on tangible common equity. With that, I turn the call over to Lidio.

Thank you, Jorge, and good morning. Credit quality metrics remained stable during the fourth quarter with the mortgage and commercial portfolios reflecting credit metrics significantly below pre-pandemic levels. Consumer portfolios reflected increased delinquencies and net charge-offs driven by auto, personal loans, and credit card portfolios. However, we are encouraged about the outlook given the performance of the most recent vintages. We believe that the improvements over recent years in risk management practices and the risk profile of our loan portfolio position Popular to continue to operate successfully under the current macroeconomic environment. Turning to Slide number 9. Non-performing assets and non-performing loans decreased during the quarter, driven by Popular Bank. NPLs in the US decreased by $14 million, driven by the sale at book value of $17 million in commercial non-performing loans. NPLs in BPPR increased by $3 million, driven by a $6 million increase in auto loans and leases. OREO decreased by $6 million, driven by sales of residential real estate properties in Puerto Rico. Inflows of NPL increased slightly by $2 million. In BPPR, total inflows increased by $11 million driven by the mortgage portfolio. In Popular Bank, inflows decreased by $9 million as the prior quarter included the impact of a single $17 million mortgage loan. The ratio of NPLs to total loans held in portfolio decreased 5 basis points to 0.95%. Turning to Slide number 10. Net charge-offs amounted to $77 million or annualized 74 basis points compared to $59 million or 65 basis points in the prior quarter. Net charge-off in BPPR increased by $8 million, driven by higher consumer losses by $6 million. In Popular Bank, net charge-offs remained flat quarter-over-quarter. For the full year, net charge-offs were 68 basis points at the low end of our 65 basis points to 85 basis points guidance for the year. As we have discussed in the past, prior to the COVID pandemic, Popular's net charge-offs were generally between 75 basis points to 125 basis points. For 2025, we expect net charge-offs for the full year to be between 70 basis points to 90 basis points given current trends and the macroeconomic environment. Please turn to Slide number 11. The allowance for credit losses increased by $2 million to $746 million. In BPPR, the allowance for credit losses increased by $4 million driven by a reserve increase of $11 million in consumer loans, in part offset by a $6 million decrease in reserves for commercial loans. In Popular Bank, the allowance for credit losses decreased by $2 million driven by improvements in risk ratings of US commercial loans, offset in part by portfolio growth. The corporation ratio of the allowance for credit losses to loans held in portfolio was 2.01% compared to 2.06% in the prior quarter, while the ratio of the allowance for credit losses to non-performing loans was 213% compared to 206% in the previous quarter. The provision for credit losses was $69 million compared to $73 million in the prior quarter. In BPPR, the provision decreased by $10 million, while in Popular Bank, the provision was $2 million compared to a benefit of $4 million in the prior quarter. To summarize, credit quality metrics remained stable during the fourth quarter. We are attentive to the evolving environment. We'll remain encouraged by the performance of our loan book. With that, I would like to turn the call over to Ignacio for his concluding remarks. Gracias.

Thank you, Lidio and Jorge, for your updates. 2024 was a good year for Popular, continuing our positive earnings trajectory with a 10% increase in adjusted net income and improved operating leverage. Our results were driven by higher revenues, solid loan growth across each of our regions, stable credit quality, and continued customer growth. In addition, we are pleased to resume our share repurchase activity and increase our quarterly dividend. We made great progress in our transformation efforts and some of the initiatives are already producing encouraging results. We will continue to transform our organization to ensure success for many years to come. This entails meeting the rapidly changing needs of our customers, providing our colleagues with a workplace where they can thrive, promoting progress in the communities we serve, and generating sustainable value for our shareholders. I am thankful for the hard work and dedication of our employees throughout the year. We enter 2025 on a strong footing and optimistic about our prospects for the year as we leverage the continued stability of the Puerto Rico economy and the strength of our franchise. We are now ready to answer your questions.

Thank you. The first question comes from Brett Rabatin with Hovde Group. Your line is open. Please go ahead.

Hey guys, good morning.

Good morning.

I wanted to start with the funding costs. And last quarter, you had the phenomenon of some high-net worth and retail deposits leaving the bank and seeking some higher yields. It seems like that abated significantly this quarter. Can you talk maybe about what you saw in trends with the core bank, high-net worth and retail related to changes in the funding costs and balances?

Sure, Brett. Good morning. It's Jorge. We were pleased with the increase in deposits during the fourth quarter and the overall activity. If we examine Puerto Rico independently, non-public deposits rose by approximately $600 million within the quarter, with an average decrease of about $100 million. Regarding high-net-worth and commercial clients, that activity has persisted. We have established a pace of roughly $100 million monthly into our subsidiary, Popular Securities, for asset management. As noted in our presentation, assets under management grew by over 30% this year, largely driven by this client growth. The increase in the fourth quarter also benefitted from some seasonal activity among commercial clients. Additionally, our branches have made significant efforts in retaining clients and increasing deposits, particularly around rate exceptions. During the fourth quarter, we introduced a new product aimed at our mass-affluent clients, leading to a transition from zero-cost demand deposits to a low-cost transactional account, affecting about $660 million in balances in December. You should be able to see this in our detailed reports in our press release. Overall, we are continuing to seek a baseline for our deposits, around the $600 million to $800 million level we discussed in Q3, which remains our estimate of potential risk. Nevertheless, considering the results and the hard work of our teams, we are very pleased with the activity in the fourth quarter.

Okay. That's helpful. If you mentioned it, I didn't catch it, but margin expectations are higher for the year, though you didn't specify the amount. If I calculate it based on the net interest income guidance, it looks like about a 10 basis points increase for the year. When I examine Slide 22 and the maturities of the treasury notes, it appears that could be even stronger. Are you anticipating that loan deposit betas will increase, or do you have any insights on the margin from this point onward and why it wouldn't be a bit better than a 5 or 10 basis points increase throughout the year?

Yes, we don't provide any net interest margin guidance, Brett. We do believe it's going to continue to expand in 2025, driven in part by lower deposit costs. As you know, the Puerto Rico public deposits are market linked, short term rates did come down by around 100 basis points in the fourth quarter and we haven't seen that full benefit in the 56 basis points that the deposits came down. And certainly, as we continue to reinvest maturities of the investment portfolio that's still running at about $1 billion a month at higher rates than what they're coming off our books, that should help with the expansion of the net interest margin and contribute to net interest income growth.

Okay. It just seems like that net interest income guide could be double digit. And if I could sneak in one last one around the credit card portfolio on Slide 28, it looks like it continues to increase in terms of charge-offs. Any color that you're seeing regarding retail in Puerto Rico or consumers in terms of any weakening relative to what you're noticing with or what's trending with the card portfolio over the past few quarters in particular?

I believe we were slightly delayed compared to the US regarding when Puerto Rico entered the cycle of delinquencies and charge-offs. In my opinion, we are now in the later stages of that process in Puerto Rico. We are very optimistic about our performance, as I mentioned earlier, with our recent vintages and the overall outlook for consumers being positive given the macroeconomic conditions and recent trends.

Okay. Fair enough. Congrats on a strong finish to 2024.

Thank you.

Our next question comes from Kelly Motta with KBW. Your line is open. Please go ahead.

Hi, good morning. Maybe circling back to the margin, I appreciate the commentary that the biggest risk to achieving that is still the potential deposit pressures, the $600 million to $800 million level that you identified. I'm wondering, underlying that guidance, are you able to provide how much you're still expecting of that $600 million to $800 million to roll off? I'm just wondering how much of that risk is already kind of baked into the outlook that you provided here?

Yes. I mean, certainly the outlook considers our best estimates of when and how that corresponds, but I can tell you that we're working very hard so that doesn't happen. So we hope to under promise and over-deliver on retention of those.

Okay. So if I'm hearing you correctly and please correct me if I'm wrong, the guidance includes some outflow of the $600 million to $800 million, but not potentially all of it because of the efforts that you're doing?

Correct, Kelly. It includes our best estimate of that guidance. We expect some seasonality, as first quarter deposits usually benefit from the start of tax returns in mid to late March. Last year, we saw this trend continue into the second quarter. We're trying to determine where that baseline settles and when that will occur. Our retail customers still have over 30% higher balances compared to pre-pandemic levels, and we are working with our teams to gain more insight on that. However, our expectations and the associated risks with outflows are factored into our guidance.

Got it. Thank you for the clarification. That's helpful. And then with your fee guidance, I appreciate there's about $5 million a quarter. I think you said that's a $30 million impact to your outlook for fees potentially related to that business you sold, that implies some growth in some of the core businesses, I believe. Can you just take a minute to explain where you're seeing good traction? I know you've, through your efficiency efforts, been working towards some of these initiatives here.

Well, on the fee income, we've had some success with what we call price for value with some of our commercial clients are still rolling out, some of those efforts. Also, a big contributor to our fee income is credit card activity, both from retail and commercial clients. And we see continued demand in purchasing activity from our clients that benefit our non-interest income.

Got it. Last question for me and then I'll step back. The net charge-off guidance of 70 basis points to 90 basis points suggests an increase from last year, and you've mentioned the normalization of consumer behavior. I'm curious if you have any insights on the timing related to this, considering that you mentioned being slightly late in tightening standards on the consumer portfolio. Do you think the charge-offs will be more pronounced in the first part of the year, and could you help clarify how you expect this to evolve?

Yes, generally, I expect to see improvements over time. As mentioned in the prepared remarks, we have observed better performance from our recent vintages, and as these vintages become more significant in our overall balances, we will see improved performance. With that said, this quarter we are at 74 basis points, which is within the range we projected for the full year. In terms of cadence, I would anticipate slightly higher figures in the first half and lower in the second half, considering what you mentioned.

Okay, thank you. I will step back.

We now turn to Frank Schiraldi with Piper Sandler. Your line is open. Please go ahead.

Good morning.

Good morning.

Just one more on deposits on the, Jorge, the $600 million to $800 million. Just thinking through it, I mean, the work you've done there, I assume that reflects sort of specific deposits in specific places. I'm just curious if that's the wrong way to think about it? And did you see any of that maybe already flow out in 4Q and maybe replaced by other deposits?

In terms of our observations, we focus more on average balances, which decreased by about $100 million in Puerto Rico and in public during the quarter. Regarding sources, we understand that some client activity is shifting to asset management for better yields, particularly among commercial clients. We have strong connections with the CFOs and treasurers of our large clients, giving us valuable insights. We don’t anticipate this shift resulting in significant outflows going forward. The primary drivers are small-business and retail clients, who are benefiting from higher balances and may be spending more or making different choices regarding working capital and borrowing. I would be overstating it to suggest we can pinpoint specific behaviors that directly link to the increase in balances we observed at the end of the fourth quarter.

Okay. So you're saying the $600 million to $800 million is still potentially on the table. I think that's the number at risk as of the end of the quarter.

Yeah. And maybe the high bound is lower by the $100 million that already went out, right?

Got it. Okay.

I think the key takeaway is that we are actively working on initiatives that we believe will support our retention and deposit growth. When you look at the focus and efforts of our teams, along with the incentives being assessed to ensure we promote the right activities, all of these factors give us confidence that we're moving in the right direction.

Got you. Okay. And then just on buybacks, just trying to think through cadence going forward. I think it was 1.7 million shares this quarter. Last quarter, it was about 600,000, although I think that was only two months' worth. So I guess would you say you were a little more optimistic here with the stock price down? Should we expect to see more of that sort of a little bit of volatility given where the stock price is as opposed to just assuming the same cadence every quarter here going forward, is that a more reasonable kind of expectation?

Yes, I believe that's a reasonable expectation. Over time, you may gain a clearer understanding of our normalized level of stock buybacks. Our objective is to maintain the same level of flexibility as our peers. We noticed a decline in the stock price following our third quarter results, and we took advantage of that by purchasing shares at a lower price. We find the current price appealing and will continue our efforts. Eventually, you will have a clearer view of our repurchase activities.

Okay. Lastly, regarding normalized capital levels, as a systemically important bank in Puerto Rico, I assume some excess capital is necessary compared to peers, but I don't think it's as high as 400 or 500 basis points. I'm curious if you could share your thoughts on a more normalized CET1 ratio or how that might trend over time.

Yes, beyond wanting it to be lower, and that we would not do a step function, right? We would favor a more gradual reduction in that. But we agree with you that while we do believe we need to operate with a higher margin given our concentration in Puerto Rico, it does not require 400 basis points or 500 basis points.

Okay. All right. I appreciate it. Thank you.

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

Hi, Jorge. Hi, Ignacio.

Hi. Good morning, Gerard.

Good morning, Ignacio. I was struck by your comment about the unemployment rate being so low and that you didn't believe it could be achieved in your lifetime, if I understood correctly. My question is about something I remember from about 10 years ago when Puerto Rico faced significant challenges. At that time, there was a steady out-migration from the island to the mainland, and people weren't leaving because they disliked the island but rather due to a weak economic environment. Now that the economy is strong, are you noticing any signs of people returning to Puerto Rico from the mainland, or has the outflow diminished significantly? Any insights on that would be appreciated.

Well, I'm happy to report, Gerard, that the Census Bureau has reported that for the first time in many years, we had positive net in-migration. Very small, 15,000, but it was positive. So yes, the trend has reversed and albeit it's small, it is positive. So that has changed. I mean, I think we're seeing a reversal of the trend that was typical for many years. So that’s quite a progress.

Very good news. Yeah.

So you're anticipating the trends.

Yes, that's great to hear. Congratulations. Regarding the broader question about the significant federal funds that have come into Puerto Rico due to the natural disasters and COVID, as well as the insurance money which I assume has been fully allocated, can you provide any insight on the remaining dollar amount of aid that Puerto Rico is expected to receive from the federal government?

Yes. If we look at the majority of the recovery volumes related to Maria, there is approximately between $45 billion and $47 billion remaining. This funding is from FEMA and HUD, with about $44.8 billion already obligated by Congress. There is a significant amount of money available, and these are the two main programs we have.

Got it. Can you provide some insights into the major projects that are still pending and where the funding might be allocated for rebuilding the electrical grid or other significant municipal projects?

There are really two categories. One is FEMA, which focuses mainly on the electric grid and water projects. This includes various initiatives for wastewater treatment, water filtration plants, and flood control, among others. There is significant work happening on the electric grid and numerous projects aimed at revitalizing dams to enhance flood control. The second major area of funding is related to HUD, primarily for housing purposes. There are several programs designed to construct housing for individuals affected by Hurricane Maria. These represent the two main focus areas.

And is it safe to assume that it's a three to five year type period that this all would be rebuilt or will take longer?

I think it will take longer. Different things will take longer.

Okay.

I think some of the basic building of bridges and roads will be sooner, but the electric grid is a 7-year to 10-year project, I would say. Of course.

Got it.

Hey, it won't all be done at once, but I think you'll see the money for the grid go out over a longer period of time. It's a more complex operation.

Got it. Thank you. Appreciate the color. Thank you.

Thank you.

Our next question comes from Jared Shaw with Barclays. Your line is open. Please go ahead.

Hi, this is someone on for Jared.

Hi, good morning.

I guess maybe just sticking on this area of investments in infrastructure. There was that outage on New Year's that left a lot of the island without power. I guess, were you able to see any change in, I guess, due to the investments in the maybe speed of getting back up to power or just the overall response to an outage like that relative to in the past?

There is still a long way to go with the electrical grid. I can't speak to the exact response time, but LUMA likely responded faster than previously and managed to restore power a bit sooner this time. However, it's important to note that much of the work completed was foundational, focusing on bringing the system back online. Significant improvements to the system are currently underway, but we cannot expect dramatically different results just yet since much of the investment in the distribution system and new generation is still being developed. This leads to my point about the seven to ten-year timeframe for substantial change. While some adjustments have been made, such as tree trimming—since trees account for about 40% of power outages in this tropical environment—these efforts are just the beginning. Although the system has been restored and we anticipate fewer blackouts in the future, true advancements in grid stability will necessitate further investments in the distribution system and new generation sources.

Okay, great. That's good information. Regarding the loan growth trajectory, it seems like reaching the upper end of the 3% to 5% range by the end of the year suggests a greater than 5% annualized growth rate in the second half of the year and potentially into 2026. Would that be a good starting point for you?

The 3% to 5% is the year-over-year growth. It would be what measuring, we stand at the end of December of 2025 and compare back to 2024.

Okay. Was there any pull-forward into the fourth quarter in terms of loan growth given the higher level it seems?

Yes, this is Ignacio. We had a very strong fourth quarter, and both banks and significant loans contributed to that. This will likely affect the start of the first quarter slightly since many of those loans were finalized at the end of the fourth quarter. However, we are pleased to begin with those balances that are recorded from day one. Overall, this will be very positive for us.

Yeah. Okay. That's good color. And then just last one from me. It sounds like you're adding securities to the book at around 4% yield. What are they rolling off at over the next, like, six months, twelve months?

Yeah, under 2%, like 1.5%. Yeah.

Okay.

Those are our longer-dated bonds, not our shorter-term ones.

Okay, great. Thanks. That's all I had. Thank you.

Thank you.

Thank you.

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

Hi, thank you for allowing me to speak again. I have a few housekeeping items and one larger question I would like assistance with. First, the deposit flows were strong this quarter, and I think you mentioned that part of it might be due to seasonal trends. Is there a way to assess how much of those inflows could be attributed to seasonality? Also, could you remind us about the seasonal patterns now that we've experienced a couple of unusual years with excess liquidity in the system? It would be helpful to have a clearer understanding of how that pattern typically progresses throughout the year for our modeling purposes.

In the first quarter, we observed some tax refunds for our retail clients, reflecting an increase that carried into the second quarter. This was due to their typical tax returns and a one-time rebate from the Puerto Rican government in 2024. Earlier in the second quarter, we benefited from higher average balances due to this activity, but by its end, we noticed stabilization. For the third quarter, we haven't identified any new inflows as a driver. In the fourth quarter, the current activity reflects some historical trends, but there have been instances of outbound amounts due to the COVID relief funds. We're working to understand the baseline for these trends, which is why we're providing a broad estimate of what we perceive as at risk. Importantly, we are actively seeking ways to manage this activity.

Okay. That's helpful. And then a housekeeping question regarding your expense guidance, the 4% increase for the year. I just wanted to clarify if that's relative to GAAP reported expenses for the year or you had an FDIC special assessment, I believe another kind of $6 million adjustment in Q1 that was higher? I was hoping you could just clarify the correct starting base on which sort of our plan.

Yes, we provided the guidance on a GAAP basis for all the metrics.

Got it. And last question for me. I know it's early and it's kind of hard to know how these things play out, but I saw last night Trump had an executive order on the flow of federal funds. I'm not sure if it impacts Puerto Rico or if anyone knows, but I was wondering if you could just give an update on how you're thinking of it and the potential risk or noise that could come from his ability to gum up the works here?

Yes, as you mentioned, it's still early, and the language in some of the executive orders is quite broad. However, I personally don't think they are aimed at the recovery funds based on the administration's own statements. They have indicated that their focus is more on green energy initiatives, the TEI initiatives, and promoting electric vehicles. We will see what the last executive order clarifies in two weeks. I believe it does not target the recovery funds, although the language is broad. I remain confident that the infrastructure recovery funds coming to Puerto Rico should not be affected by their statements. Puerto Rico is being treated the same as any other state or territory. We will monitor the situation closely, but I'm relatively optimistic that we are not the focus of these initiatives.

Got it. Thank you so much for entertaining the question.

We have a follow-up from Gerard Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. And as a follow-up question and I apologize if you guys addressed this in the prepared remarks. You mentioned about changing, I think, the underwriting standards for the credit cards a little later than maybe some of the mainline banks. Can you share with us what type of underwriting changes you made for the new originations for credit cards versus what it was like 12 months or 24 months ago?

Thank you, Gerard. This is Lidio. To clarify, when I mentioned the performance of our credit card book compared to the US, we experienced higher delinquency levels and net charge-offs later than the mainline banks. That's the distinction. Regarding the changes we've made to our underwriting criteria, we have tightened them significantly. The FICO scores of the borrowers we are lending to are now considerably higher than they were when these changes were implemented.

Very good. Thank you.

This concludes our Q&A. I'll now hand back to Ignacio Alvarez, CEO, for any final remarks.

Thanks again for joining us today and for your questions. We look forward to updating you on our first quarter results in April. And so everyone, have a great day. Thank you very much.

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