Banco Del Bajio Stock

Good morning, and welcome to Banco del Bajio's First Quarter 2026 Results Conference Call. My name is Sia, and I will be your coordinator today. [Operator Instructions].

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded.

Joining us today from Banco del Bajio are Mr. Carlos De la Cerda, Executive Vice Chairman of the Board of Directors; Mr. Ivan Lomeli, Chief Executive Officer; Mr. Joaquin Dominguez, Chief Financial Officer; and Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session.

For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may begin.

Good morning, everyone. Thank you for joining us to discuss BanBajio's results for the first quarter 2026. Today, we will review our quarterly performance, analyze key drivers and provide updates on our strategic execution. The industry data cited today throughout this presentation is based on CNBV's information as of February 2026, which is the most recent public available data.

Before we begin our quarterly review, we would like to welcome Mr. Ivan Lomeli, who will assume the position of Chief Executive Officer at BanBajio, effective as of 1st of May of 2026. Mr. Lomeli takes this responsibility with distinguished track record of expertise and a deep understanding of our core business. Since May 2022, Ivan delivered exceptional results as our Executive Director of Corporate Banking for the Metropolitan Area of Mexico City. And earlier this year, he extended his leadership to include the Northern and Southern regions.

Ivan's leadership in corporate segments in key regions was instrumental in building the momentum we are reporting today, ensuring a smooth transition and reinforcing our commitment to our historical business focus, company loans. Under his leadership, we will further bolster our focus on this core target base, ensuring that our pace of growth and franchise expansion remains the central pillars of our corporate strategy. Finally, we would like to express our deepest gratitude to Mr. Edgardo del Rincon for his strong leadership, strategic vision and unwavering commitment to BanBajio. We wish him every success in his future endeavors.

Having said this, let's start with the presentation of our quarterly results. As we move to Slide 3, you will see a quarter defined by a robust loan growth acceleration in the first 3 months of the year and disciplined execution with sound and stable asset quality metrics. This allow us to deliver solid performance despite the ongoing pressure on our revenue generation as a result of interest rate dynamics and the still challenging operating environment.

Starting with our growth dynamics, our total loan portfolio expanded 6.9% year-over-year, reaching MXN 286 billion. On a quarterly basis, we saw a robust 2.9% expansion, which position us firmly towards the upper end of our 8% to 10% loan growth guidance. This reacceleration of growth following 4 quarters of continued deceleration was primarily driven by our core business, company loans, which increased 7.9% year-over-year. This performance is a reflection of our enhanced focus on company loans and the early success of the evolution of our salesforce restructuring implemented in early 2026.

In addition, we have been gradually capturing early signals of investment acceleration in key regions and sectors. Furthermore, total deposits grew 8.6% year-over-year, reaching MXN 383 billion, underscoring the continued strength and growth of our franchise. During this first quarter, our risk profile remained a standard feature. The NPL ratio was stable at 1.5%, supported by an ample coverage ratio of 121.7%.

Most notably, our cost of risk came in at very sound levels at 0.56% for the quarter. Our healthy asset quality is further bolstered by MXN 399 million in additional reserves currently held on our balance sheet. This provision buffer maintained alongside our stable NPL and coverage ratio provide us with a robust cushion to withstand any unexpected impacts in the coming quarters. Regarding profitability, while we anticipated that this first quarter was going to be characterized by the continued pressure of the interest rate cycle, our results remained within our guided range. Our return on average equity stood at 16.7%, and our efficiency ratio was 44.1%. Finally, our capitalization ratio as of March 2026 stands at a solid 16%, composed entirely of common equity Tier 1 capital.

Moving to Slide 4. You can see the reacceleration in loan growth discussed earlier. As the charts illustrate, the 6.9% year-over-year and the 2.9% quarter-over-quarter expansion stands as the best start of the year in the past 6 years, driven by an accelerating pace in our core segments. This is particularly visible in the Metropolitan Area of Mexico City as well as in our newly created regional office, Western Mexico, including Guadalajara City, where we are capturing an increasing credit demand from the developing investment trends in the manufactured services and general trade sectors.

The mentioned growth in company loans, which include both corporate and SME segments and the continued and deliberate constructions in financial institutions and mortgages underscores our strategic focus on reallocating capital towards higher-margin business lines. The government loans rise in the last 12 months was driven by a specific exposure originated in December with good levels of interest margins, an opportunity aligned with our focus on profitable growth.

Turning to Slide 5. The resilience of our credit profile remains a pillar within our strategy of growth, evidenced by a risk performance that significantly outperforms the industry. Our NPL ratio stood stable at 1.5%, maintaining a wide gap with the system average of 2.2%. The highlight this quarter is our cost of risk, which reached an outstanding 0.56%. This performance validates our outlook from last quarter. The portfolio cleanup completed in the fourth quarter of 2025 position us for a healthier expansion in 2026, while our conservative underwriting standards remain unchanged.

Turning to the funding side on Slide 6. Total deposits reached MXN 383 billion, representing a robust 8.6% year-over-year increase. This quarterly rise reflects inflows captured to support the accelerated loan growth reported in the quarter. The 9.7% CAGR in total deposits since 2023 underscores the continued expansion and deepening of our client franchise.

Moving to Slide 7. You can see that despite the migration from 0 cost to interest-bearing deposits in the first quarter, we successfully delivered a significant reduction in our overall cost of funds. Demand deposits now account for 41% of our total funding mix. And notably, the cost assigned to these balances decreased by 24 basis points during the quarter. As a result, our total funding costs improved to 4.57%, a decrease of 37 basis points quarter-over-quarter and a substantial 173 basis points reduction compared to the first quarter of 2025, largely explained by the compression in market rates. Similarly, our cost of funds as a percentage of TIIE rate dropped to 62.8%.

Turning to Slide 8. The net interest margin for the first quarter stood at 5.4%. While pressure has mounted as anticipated, we kept our metrics within our targets for the year. This decline is explained by 57 basis points from rate sensitivity and 31 basis points from portfolio mix. And this year-over-year contraction should be viewed in the context that average reference rate is now 270 basis points below the first quarter of 2025 levels. Nevertheless, our NIM sensitivity per 100 basis points of reference rate cut remains disciplined at 19.5 basis points, and the decrease in the quarter was largely driven by the migration of 0 cost deposits to interest-bearing accounts.

Moving to Slide 9. Total revenues reached MXN 5.8 billion for the quarter. While our reported figures show a 9.5% year-over-year decrease, this primarily reflects the anticipated pressure on interest revenues and a significant market-driven valuation adjustment within non-interest income. Our commitment to the continued underlying performance of our core revenues remains unchanged. Our recurring revenue streams continue to show the sound growth rates reported in previous quarters. Net fees and commissions grew 9.1% with standout performances in bancassurance at 61.1%, appraisals at 30.7% and cash management fees at 15.3%.

Moving to Slide 10. Our efficiency ratio for the quarter stood at 44.1%, which remains below the system average of 45.6%. Our operating expenses have shown favorable development, reflecting our disciplined approach to cost management, a core strength of our financial performance. Operating expenses grew by a contained 6.7% year-over-year and reported a 4.2% contraction quarter-over-quarter. While revenue remains sensitive to ongoing external pressures, our strict control over our cost base allow us to partly mitigate the impact, and we remain confident in delivering this metric within our guided range of 43% to 45% for the full year.

Turning to profitability metrics on Slide 11. It is important to highlight that despite the expected quarterly compression, our return on average equity of 16.7% remained firmly within our 2026 guidance of 16.5% to 18%.

Finally, on Slide 12, we closed the first quarter of 2026 with a preliminary capital adequacy ratio of 16%. This level stands significantly above our 14% commitment and well exceeds regulatory requirements. Our robust capital position provides the bank with substantial flexibility to support our growth reacceleration while simultaneously rewarding our shareholders.

Lastly, we are pleased to announce that our Annual General Shareholders Meeting held today approved a cash dividend payment equivalent to 50% of our 2025 net income. The total distribution will amount to MXN 4.5 billion, which represents an attractive 7% dividend yield for our shareholders. As has been our practice, the distribution will take place in two equal installments of 25% each, with payments scheduled for May and September 2026.

In conclusion, the first quarter of 2026 has successfully demonstrated a robust reacceleration of our loan growth, validating the execution of our corporate strategy and our sales force evolution. While revenue will remain under anticipated pressure, our disciplined performance position us within the ranges expected for 2026, and we expect this trend to continue throughout the remainder of the year. With a resilient balance sheet, exceptional asset quality profile and a new leadership deeply rooted in our corporate DNA, we remain fully confident in our ability to meet our targets for the year and continue delivering long-term value to our shareholders.

[Operator Instructions] Our first question comes from the line of Pablo Ordonez.

Ivan, congratulations on the CEO appointment. We wish you all the success. Ivan, my question is for you. Can you give us an update on the strategic outlook? What has been the performance of the new commercial strategy? I understand from the remarks that you're starting to see early signs of this in terms of the loan demand and reaccelerating growth? And do you think that there could be upside risk to your loan growth guidance for the year? And finally, on the strategy, what would be your key priority areas? And is there anything new, anything that you would like to change?

Pablo, thank you very much for your questions. And it's important to mention that the business strategy remains unchanged. We really believe that this is an ideal moment to reinforce the bank's focus on company loans, especially in the main markets where we have smaller market share, for instance, Mexico City, Monterrey and Guadalajara. And just to give you an idea, in the loan growth of the first quarter, 80% of that came from new clients for the bank, which is very positive.

On the other hand, we have successfully completed the majority of the strategic milestones established at the beginning of the year. Opening regional branches in Mexico City and Guadalajara. We already hired about 50-plus bankers and new business centers specialized in the mid-market segment in Mexico City and Monterrey. 40% of the plan of the new branches have already opened. So the 2.9% loan growth on the first quarter, I think that it's a tangible proof that the new focus on the segments is delivering results, and we see a strong pipeline for the second Q.

Our next question comes from the line of Ernesto Gabilondo.

Ernesto Gabilondo from Bank of America. My first question will be on your net income guidance. So we noted a significant NIM pressure in the quarter. But at the same time, loan growth came at 7%, seems to be accelerating. The easing cycle seems to be at its end. And on the other hand, the asset quality remained resilient. The cost of risk in first quarter is coming below your guidance, and I believe there's still extra provisions of more than MXN 300 million that need to be released before July. So with all this, how comfortable are you to reach your guidance? And if we can expect the midpoint of the guidance range?

Then my second question is on your strategy for the consumer portfolio. We know it is small when compared to the Bajio's portfolio. But in the last administration with Edgardo, he was trying to expand it and to represent more than 5% of the loan book. So Ivan, I would appreciate your view on what will be Bajio's strategy for the consumer segment. And for my last question will be on dividends. We saw your 50% ordinary dividend payout ratio. But given your current common equity Tier 1 ratio is high and the potential earnings recovery, just wondering if there's a possibility to discuss or to evaluate a special dividend at the end of the year.

Thanks for your question, Ernesto. The NIM compression is actually not a surprise. It is exactly what we informed the market previously. Delivering a 17% return on equity in what we anticipate to be the toughest quarter of the year, proves that our point of maximum pressure even then, we're firmly within our profitability guidance and confirms that the structural resilience of our balance sheet. So I think we're going to be there.

In terms of return on equity, we will be within our guidance on a sustainable basis at a level of 18%. And this is based essentially on 2 main factors. One is, again, we're looking the loan growth strong. We see this as something that happens because of the segmentation that we did at the end of last year. And the other thing is that the core noninterest revenues are growing at a 9% level. So we're confident in that.

On the consumer part, I believe that the portfolio is currently entering a phase of healthy normalization. This strategic prudence is due to, I think, 3 different factors. One is seasonality of the portfolio. The other one is that we see the system on the overall -- there's a deceleration of this portfolio. And we've also been very focused on the risk discipline, which that's going to remain. But at the end of the day, the portfolio is going to keep growing. It's going to be growing less than historically, but mainly because of the market, our appetite for the bank is still there, and we will start -- we will keep growing strong.

Ernesto, this is Carlos. Regarding your question about the dividends. Yes, there is always a possibility that we will be considering in the second -- at the end of the second quarter or the beginning of the third to grant an additional extraordinary dividend, just in the case that the macroeconomic conditions make -- lead us to believe that at the rate that our net worth equity is growing, the capitalization rate, we don't want it to be too high, but we also don't want it to be under 14%, which is the lower limit that we like. So we will be -- depending on the loan growth that we see and we expect it to be high, we will consider an additional dividend on the second quarter.

This is Joaquin Dominguez. You were asking about the additional reserves. What we are expecting is that in the second quarter, we will be pretty close in the level of cost of risk we have guided. And there will be -- we are expecting a compensation between the regulatory reserves that we will meet in the quarter with the release of the MXN 300 million reserves. So there will be an exchange between reserves due to the regulation and the additional reserves we already have.

Okay. So at the end, it's a neutral impact and then you expect the cost of risk to be within your guidance?

That's right.

Perfect. And then just in terms of NIMs, as you were saying that it was kind of expected to you. But considering that the easing cycle is coming to an end, and also you're starting to go to the bottom line, do you think that could help in terms of what you guided for the year? I remember you guided between minus 8%, minus 9% to relatively flat net income for the year. So after this first quarter, how do you position within this guidance range? You are more like getting into the bottom, going gradually to the medium part of the guidance? How do you see it?

We believe that we're going to be on the mid part of the guidance. Again, we're focusing heavily on loan growth, is increasing the NIR and the control of our operating expenses. So I think we're going to be there.

Our next question comes from the line of Carlos Gomez.

This is Carlos Gomez from HSBC. First of all, congratulations to Ivan, and good luck in your new role. We know that there will be continuity and you will continue to deliver very well. So my questions. The first one refers to loan demand. And yes, we understand that you want to lend more and you have taken commercial initiatives that will allow you to do more, but that's true as a company.

The question is whether you have seen demand, especially corporate demand recover to any degree so far this year. We just had published -- we had figures from the Central Bank, which show a little bit of recovery in March. But at the same time, you are telling us that on the retail side, you expect less demand. So is corporate starting to pick up or not just yet? And second, you have been proactively reducing the interest rate sensitivity of the bank over the last 2 or 3 years as rates went down. Has the process finished? Or do you intend to pursue it further?

Thanks for your question, Carlos. We are seeing a pickup on the credit activity. Again, we are focusing heavily on the big markets in Mexico where we have smaller market share. So we see a lot of opportunity there to get our fair market share in those markets. We see activity particularly in 3 different industries: Real Estate, and this is essentially Commercial Real Estate, warehousing is growing there. Agri business, where, as you all know, where we have a lot of expertise with the Agri business industry, but particularly on what we call very high-end Agri business, which is focused on the export market. And the third one is Energy. We see that as activity that is going to be picking up. We have expertise there, and we're also going to focus on that part of the portfolio.

Carlos, this is Joaquin. Nice to say hello to you. Yes, in terms of rate sensitivity, it is that we are seeing that we are pretty close to the end of the lowering rates period. We are not doing any special additional action in terms to reduce sensitivity. And we feel we are very well positioned for the next cycle. We are expecting that the interest will remain stable for several quarters in the next -- in the near future. So there is no need to make an additional action. And also, as we said in other conferences, we are more focused on the organic growth, as Ivan mentioned, specifically in the loan growth.

And can you remind us of your sensitivity? You may have said it already.

It's pretty close to 20 basis points. It's a little bit lower than 20 basis points for each 100 basis points of change in the lead rate.

Our next question comes from the line of Eric Ito.

Congrats, Ivan. I have 2 questions here. One is basically a follow-up on the NIMs. So if we look at your margins in the quarter, I think, yes, we saw a compression. It was in line with your guidance. But I think if we look at the components there, we saw the cost of funding decreasing in the quarter. And I think even if we compare to your NIM sensitivity, I think the impact was a bit higher. So my first question is, how are you seeing -- I don't know if there's any specific move here that we should follow? And if you give us -- could you give us an update on the competition here on this front?

And then the second question is more towards the long term. Ivan, I don't know. I think this quarter, you mentioned 80% of growth coming from new clients. So I just wanted to get an update on how do you feel -- what's your expectation for the mix going forward? Just if you think more towards, let's say, 2027, 2028, if we could see any upside from your NIMs coming from the mix or more loan growth, for example, because of new clients are exploring new markets that you are not on yet.

This is Joaquin Dominguez. I will answer the first question. So during this third quarter, we have some several factors that impact the NIM. Someone that is very obvious, but it has some impact in our case due that our main income comes from interest margin is that February has 2 days, 3 days less in the quarter, we had 2 days less than in the fourth quarter of last year. And that means around MXN 120 million of impact. And also in terms of these lower days of operation impacts commissions and FX income. Well, the other impact is that the last reduction in the last year of the interest rate wasn't at the end of December, and that impacts the whole first quarter of this year. So that's the other one.

And another important issue is that in December and in the last quarter, that is seasonally impacted. We brought a lot in noninterest-bearing interest demand deposits, and we decreased in the first quarter. So that made a fixed impact in the cost of funding, and that was also reflected in the NIM. We are seeing that the trend is getting better in 2 ways. The demand deposits is starting to increase again. And also, we are having a better mix of assets. So that's why we are very comfortable with the guidance, as Ivan mentioned, and also being in the mid-term -- in the mid-range of the NIM guidance.

Okay. Just before you go to the second one. So can we say, Joaquin here that this quarter was close to the bottom of your NIM. Going forward, we should expect expansion?

Yes, it could be. It will depend more than the behavior of the interest rates, more and the behavior of the mix of the liabilities and assets. But we are very comfortable that we are really in the big part of the NIM.

Thank you for your question. Regarding the loan growth activity, again, it's going to be strong. We had a meeting with the leadership team last week to review the pipeline, and we strongly believe that it's going to be a second quarter in terms of growth. We're focusing also a lot in new clients for the bank. So this momentum will -- is going to be maintained. And again, the biggest opportunity for us is that in the main markets of our country, we have low market share. So if we get our fair share in those markets, the growth is significant for the bank. So we're going to focus to actually ring-fence our position in the markets where we're strong, we have strong market share and keep growing in the markets that we're underrepresented as of today.

Our next question comes from the line of Andres Soto.

This is Andres Soto from Santander. Welcome Ivan to these calls. My first question is regarding the non-interest income, which both in the fourth quarter of last year and the first quarter of this year was impacted by what I believe is related to losses from previously foreclosed assets. I would like to understand if you have any visibility of these asset sales will continue? Do you expect additional losses related to that? Or how we can think about this line going forward?

Thank you for your question, Andres. This was a specific asset that we already knew that could have an impact, but we don't see further deterioration on that part. So it's very focused. And we actually -- we believe that going forward, the performance of that part is going to be better. The good news is that it's not a portfolio issue. It's a specific issue that we had to deal with.

Understood. My second question is regarding deposits. We have seen significant increase in this line, both in the fourth quarter and also this quarter. How -- what has been the strategy there? How you guys are being able to attract deposits? Are those retail deposits or it's commercial deposits? And how much of this improvement in the funding structure is already reflected in your current NIM?

This growth in deposits has been essentially because we've been very successful with our cash management team and platforms. So the good news about these deposits as they're sticky deposits. They're related to collections, payroll payments. So we feel very confident that the deposits will be strong for the quarters to come. And it's in both segments. We're growing on the Retail piece and also on the Corporate piece. So it's a mix of both, which that's also good news.

And how much of that improvement in the funding structure do you expect to help support NIMs going forward?

The answer is yes, and that has 2 components. The sticky deposits essentially are cheaper. And then the second, that's going to improve the NIR because the cash management platform is very effective in terms of generating non-interest revenues.

Perfect. And with this, when we compare BanBajio today versus BanBajio probably pre-COVID, is it fair to assume that you are now a more structurally profitable bank with a NIM less dependent on interest rates and revenue also diversified into fee income. And therefore, equal to equals in terms of policy rate, you should aspire to higher ROE going forward?

Yes, I believe that we've developed those capabilities very strongly, and we're executing very well. So yes, for sure. Again, on the return on equity part, we believe that it's going to be improving, but we will be within our guidance.

But most likely not at the bottom of the guidance, but rather at least at the midpoint, I believe, right, after this quarter?

Well, we -- it's going to be within guidance, and we see it on a sustainable basis at 18%.

Our next question comes from the line of Brian Flores.

Thank you for the opportunity. Ivan, best of luck, a lot of success. I have a couple of follow-ups, and I have a question. So my first question is, if I understood correctly, the cost of risk perhaps in the second quarter is going to continue to be low. But then after that, I understand we see a normalization towards the guidance. Just wanted to confirm if this is the case, right?

And then my second question is perhaps on the efficiency ratio because it is a bit on the midpoint, slightly, I would say, pressured. So I just wanted to understand if there are any specific structural cost-cutting measures that you are implementing to prevent any deterioration here on the cost-to-income ratio?

And then finally, seizing the opportunity to have Ivan here. Ivan, obviously, your inheritance here is, I think Eduardo had a great administration. Obviously, he should have left some great best practices. I just wanted to understand where do you think in terms of the strategy you would like to see the bank going into a different direction, thinking about what you just mentioned, monitoring the sustainable ROE levels.

Let's answer the last part, Brian, and thank you for your question. The business strategy will not change. That's going to remain. What we are going to do is we're going to be more focused on company loans that has been historically our main strength. And we do believe that we have a competitive advantage in all segments of business loans. So the focus is definitely going to be there, and we see lots of opportunity for growth in small, medium and big companies, and we see that nationwide. On the risk -- the cost of risk, we are going to be within guideline. I need -- and this is again, we do see that this level is not sustainable. It's going to be growing a little bit, but we do believe that we will meet the guidance.

Perfect. And any comments on the efficiency side?

On the efficiency side, I mean, the operating costs are really under control. We're going to keep that momentum and tension over the operating costs. And again, the -- what is going to help us improve this, is our expectation of loan growth and the increase in the noninterest revenues. What is important here, and this is I believe it's strategic, is that the core NIR are growing at a double-digit level. And again, most of this is related to cash management initiatives that what allow us is to feel confident that deposits -- sticky deposits are going to remain there.

Our next question comes from the line of Tito Labarta.

It's Tito from Goldman Sachs. And Ivan, congratulations on your new position there. My question is on your fee and trading income guidance of 13% to 15%. Fees were down a bit on seasonality, but growing around 9% year-over-year. We did see the trading income decline significantly. I know the trading income is difficult to sort of forecast. But just to get your thoughts, one, I guess, on fees, should we expect that to accelerate for the rest of the year? And what would drive that? And any sort of thoughts on how you think the trading income can evolve to get to that guidance?

Tito, this is Joaquin Dominguez. Well, we are really -- we really feel comfortable with the guidance we provided, and we feel comfortable also that we will make that in first because we had an impact in the first quarter due to the increase in the rates along the yield curve, and that impacted a position we have in status, that create a negative valuation or decrease the positive valuation we used to have. And that is already fixed with the actual yield curve. So that is a temporary impact that not worry us in part, is a position that is with a very good rate of portfolio yield. So we will maintain that position that allows us to also provide a sustained -- a very stable NIM in terms of what we do in the money market side in the treasury.

In the other part, an important component of the non-interest income is the FX. We had a difficult quarter in terms of low volatility in the FX rate. And that -- and also the lower level of the interest rate during January and February decreased mainly in those months because March was a good month. There were very low operation of our clients. They were expecting to sell their positions with a better FX, and that happened until March. So we are seeing a normalization in the market, and we are expecting that we will take the normal or the usual and the expected income from FX. So in terms of intermediate intermediation, we feel that we will meet the guidance. For fees, I will let Ivan explain.

Tito, thanks for your question. Strategically, what we're focusing is on the core NIR. Again, the cash management platforms have been very successful. And we've been cross-selling a lot with our own client base and with the new customers that the bank is acquiring. So going forward, we're very confident that the growth of fees on the core piece are going to be there and because they're linked essentially to the payments, collections, payrolls, et cetera, of our clients. So I mean, we're going to keep doing what we've done in the last quarter and keep growing at a double-digit level. That's what -- that we want to keep doing.

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

Thank you very much, everyone, for joining us today. We remain available to address any follow-up questions via e-mail and any further meeting request. We look forward to speaking to you again in July 2026 when we release our second quarter 2026 results. Thank you very much, and have a nice day.

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

Good morning, and welcome to Banco del Bajio's Fourth Quarter and Full Year 2025 Results Conference Call. My name is Anna, and I will be your coordinator today. [Operator Instructions].

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded.

Joining us today from BanBajío are Mr. Carlos De la Cerda, Executive Vice Chairman of the Board of Directors; Mr. Edgardo del Rincon, Chief Executive Officer; Mr. Joaquin Dominguez, Chief Financial Officer; and Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session.

For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may begin.

Good morning, everyone. Thank you for joining us to discuss BanBajío's results for the fourth quarter and full fiscal year 2025. Today, we will review our quarterly and annual performance, analyze the key drivers and financial trends and share our strategic outlook for 2026. The industry data cited today throughout the presentation is based on CNBV's information as of November 2025, which is the most recent publicly available data.

Without any further ado, let's start with the presentation. Starting on Slide 3 with a look at our key financial highlights for the quarter and full year 2025. It was a year of solid execution despite the challenging operating environment with a stagnant GDP growth and a lower interest rate.

Turning to credit performance. The total loan portfolio expanded by 4.6% year-over-year. This was primarily driven by the company loans portfolio, which grew at a rate of 5.2%. On the funding side, total deposits saw a robust increase of 10.5% compared to the previous year. Regarding asset quality, our NPL ratio improved significantly to the end of the year at 1.49%, supported by a strong coverage ratio of 126.5%. This trend also drove an improvement in our risk profile with the cost of risk for the full year at 0.96%, while in the fourth quarter, it decreased further to 0.75%.

In terms of profitability, we achieved an efficiency ratio of 39.8% for the full year and 43.5% for the fourth quarter. Our return on average equity stood at 19.4% for the 12-month period and 18.1% for the quarter, while the return on average assets was 2.4% and 2.2%, respectively. Net income for the full year 2025 reached MXN 9.1 billion with the fourth quarter contributing MXN 2.2 billion. Finally, our preliminary capitalization ratio as of December 2025 stands at a solid 15.5%, composed entirely of common equity Tier 1 capital.

Moving to Slide 4. We examine our 2025 performance against the guidance provided to the market. We are very proud to report that BanBajío met or outperformed most of the targets established for the year. Starting with our balance sheet, loan growth stood slightly below our range, reflecting disciplined growth in a challenging year. Conversely, deposits outperformed expectations with a 10.5% increase, well above our 6% to 9% target. Our net interest margin landed right on target at 6%, while noninterest income, the combination of fees and trading income grew by 4.4%.

Operating expenses grew 8.2%, close to the bottom of the guided range, reflecting our ongoing commitment to cost control. This led to an efficiency ratio of 39.8%, outperforming our 40% to 42% guidance. The significant improvement in our portfolio mentioned earlier resulted in a cost of risk that our target range of 1% to 1.1%. As for our bottom line results, the delivered net income of MXN 9.1 billion significantly exceeded the high end of our guided range. This drove a strong return on average equity, which reached the upper bound of our target. Finally, regarding our asset quality and solvency, we exceeded our guidance for the NPLs, coverage and capitalization ratios.

Moving to our loan portfolio growth details on Slide 5. The total loan portfolio reached MXN 278 billion at the end of the fourth quarter, leading to the mentioned year-over-year expansion of 4.6%. This growth was primarily driven by our core business, company loans, which include both corporate and SME segments, increasing by 5.2% and now representing 86% of our total loan book. Consumer loans continued with a double-digit growth trend reported in the past quarters, growing 11.4% year-over-year.

The 12.1% expansion in the government portfolio was driven by a specific exposure originated in December with good levels of interest margins, an opportunity aligned with our focus on profitable growth. This trend, coupled with a 11.4% contraction in financial institutions, underscores our strategic reallocation of capital towards our higher-margin business line.

On Slide 6, I want to highlight the strategic evolution of our sales force as we move into 2026. This initiative is an enhancement of our existing business model and our competitive edges, designed to further accelerate loan growth by deepening our segment specialization and sharpening our operational agility. We are reinforcing this through 3 strategic pillars.

First, we are optimizing our credit process to ensure we improve our speed and responsiveness. Second, we are increasing our regional presence in major cities with an important growth in our sales force and executive bankers. This allow our bankers to focus exclusively on the specific needs of their respective segments, ensuring a higher level of expertise and tailored service. Third, we are scaling our successful SME centers. We recently opened a new hub in Mexico City, and we have 3 more scheduled for the next quarters in Querétaro, Guadalajara and a third location in Mexico City. We expect to conclude 2026 with 11 specialized centers, keeping us on our path to 20 centers by 2030.

Turning now to Slide 7. Let's examine our asset quality and risk profile. Notably, our NPL ratio improved significantly to 1.49%. This performance significantly widened the gap with the system average of 2.25% Similarly, our adjusted NPL ratio stood at 2.84% compared to the system's 4.45%. This marked improvement in portfolio health allowed us to optimize the cost of risk to 0.75% for the fourth quarter. Regarding coverage, we maintain a prudent ratio of 126.5%. And as of December 2025, we continue to hold MXN 330 million in additional reserves, which we plan to absorb over the next 6 months. These improvements allow us to enter 2026 with a healthier loan portfolio, ensuring BanBajío's position to support a more active lending environment in the upcoming year.

Turning to the funding side on Slide 8. Total deposits reached MXN 273 billion in the fourth quarter, representing a robust 10.5% year-over-year increase. This performance was underpinned by an 11.6% rise in demand deposits and a 9.4% increase in time deposits. Over the last 4 years, we have maintained a resilient 10% compound annual growth rate in total deposits, a track record that remarks the strength of our franchise and the deepening of our core customer relationships.

On Slide 9, our current funding breakdown shows that demand deposits remain the core of our strategy, representing 40% of our total funding mix. Notably, zero-cost deposits saw a significant increase during the period, now accounting for 19% of the total breakdown. This robust growth in noninterest-bearing funding was the primary driver behind the market decrease in our overall cost of funds in the quarter. This highlights the reversal of the upward trend observed in third quarter 2025 and the widening of the gap with the reference rate.

Our cost of funds for the fourth quarter reached 4.94%, a 169 basis point decrease compared to the same period last year and 50 basis points below the previous quarter. Likewise, our cost of funds as a percentage of TIIE dropped to 64.7% in the quarter, a positive divergence from the system average that saw funding costs climbing closer to the reference rate.

Moving to Slide 10. The net interest margin for the fourth quarter was 5.77%. This represents 100 basis points contraction year-over-year, primarily driven by the lower interest rate environment, which contributed 68 basis points to the decline and changes in the portfolio mix, which accounted for the remaining 32 basis points. Through active balance sheet management, we maintained rate sensitivity at around 20 basis points throughout 2025, effectively cushioning the impact of the accelerated rate cycle on our margin. While our expansion into zero-cost deposits drove a temporary uptick in sensitivity during the final quarter, we have already seen a normalization in early 2026, and we expect this stability to prevail throughout the year.

You will see the overall stable performance of BanBajío's revenues on Slide 11. Total revenues for 2025 stood at MXN 25 billion, a minor 2.6% decrease despite the significant pressure on margins. This stability was underpinned by the successful execution of our diversification strategy as normalized noninterest income grew a robust 26.2% for the full year. Net fees and commissions increased 16.3% year-over-year, driven by a 39.8% surge in cash management fees and a 38.4% increase in revenues from our digital platform, Bajionet. Additionally, normalized trading income rose 18.2% during the same period. These results validate our intentions to grow recurring fee-based income, limiting the impact of economic and interest rate cycles on our long-run performance.

Moving to Slide 12. Our efficiency ratio for the full year 2025 stood at 39.8%, successfully outperforming our guidance range. For the fourth quarter, the ratio was 43.5%. Despite this quarterly uptick, BanBajío continues to be one of the most efficient banks in the industry, maintaining a significant gap against the system's average of 46.3% and demonstrates the operational discipline and strict cost control that we have been anticipating to the market.

Turning to profitability on Slide 13. It is important to highlight that despite the quarterly compression seen throughout the year, we successfully exceeded the upper end of our net income 2025 guidance. This performance drove a robust full year return on average equity of 19.4%, effectively reaching the top of our target range, where return on average assets stood at a sound 2.4%.

Finally, on Slide 14, we closed 2025 with a preliminary capital adequacy ratio of 15.5%. This level stands significantly above our 14% commitment and well exceeds regulatory requirements. Our robust capital position provides the bank with substantial flexibility to continue with the sound levels of return of value to our shareholders while supporting our growth objectives.

Lastly, on Slide 15, we introduced our guidance for the 2026 fiscal year. Beginning with macroeconomic assumptions, we estimate GDP growth at 1.3%, stable inflation at 4% and a 50 basis point decrease in the reference rate from current 7% to 6.5% by the end of 2026. Based on these drivers, we are forecasting loan growth between 8% and 10% and deposit growth from 10% to 11%.

We target net interest margin between 5.4% and 5.5%, and we expect fee and trading income to continue to grow at a sound pace of 13% to 15%. Our cost control efforts will prevail. And operating expenses are projected to increase between 7% and 9%, maintaining our efficiency ratio within a 43% to 45% range. We forecast that these factors will lead us to a net income of MXN 8.25 billion to MXN 9 billion and a return on average equity between 16.5% to 18%. This guidance reflects a transition towards a more normalized interest rate environment while maintaining our revenue diversification strategy and top-tier cost efficiency.

Regarding our risk profile, we anticipate a cost of risk between 80 and 100 basis points, while keeping our NPL ratio below 1.7% and a coverage ratio above 1.1x. Furthermore, we maintain our commitment to a capitalization ratio above 14%. In summary, our fourth quarter and full year results report BanBajío sound fundamentals and solid balance sheet. We are pleased to have met most of our targets for the past year and remain fully committed to delivering on the guidance provided for 2026.

With this, I conclude my presentation, and we can open the call for the Q&A session.

[Operator Instructions] Our first question comes from the line of Ernesto Gabilondo.

Ernesto Gabilondo from Bank of America. My first question will be on asset quality. You were mentioning that you still have excess provisions of around MXN 400 million and that you expect to consume in the next 6 months. Looking to your guidance, you're expecting cost of risk between 0.8% to 1%. So even that you are consuming the excess provisions, you're expecting that range of cost of risk. So would that be explained because you are going to have a more credit risk appetite this year as you were saying in your now -- your new strategy for the year?

And my second question is on your guidance. When looking to your ROE expectations for the year, what is the dividend payout ratio we should be assuming? And when could we have more color of a potential special dividend this year? And lastly, I would like to pick up your brains and to see in which lines of your guidance do you see upside and downside risks?

Thank you, Ernesto. Regarding asset quality, NPL, as you saw, at 1.49%, a very similar level that we reported a year ago. So we are very happy with the improvement compared with previous quarters. And also cost of risk, actually, cost of risk was the best cost of risk reported during 2025. So yes, we have not MXN 400 million, Ernesto, we have MXN 333 million of additional reserves. The idea and the commitment with the CNBV is to use them during the following 6 months. So as we mentioned in previous calls, we are going to have a coverage ratio that is equivalent to the regulatory reserves that we need to have.

So for this year, we expect more stability. As we mentioned in 2025, we have several isolated cases that we already -- several of them we write off during the fourth quarter because of the low probability of recovery. Of course, we continue with the legal actions regarding those cases. But for this year, we feel comfortable with the level of cost of risk between 0.8% and 1%. We believe we are going to have less important cases transitioning to Stage 3. Actually, the 0.75% that we had during the fourth quarter in part because we didn't have any important case transitioning to Stage 3.

Regarding risk appetite, we are not considering increasing our risk appetite. Actually, asset quality remains a cornerstone of the strategy. So we will have additional risk appetite. The name of the game, of course, for us is to bring customers to BanBajio. And that's why we are increasing -- I mean, we are increasing the business units we have in several places, mainly in those cities like Mexico City, Guadalajara, Monterrey in which the financial system is very, very concentrated. So that means additional bankers and additional business units. So that's why we are forecasting to recover growth and to grow the loan portfolio between 8% to 10%.

Regarding dividend, Carlos, please?

Ernesto and everybody. Yesterday, the Board of Directors approved a proposal to be made in April to the stockholder meeting of a 50% payout dividend on the 2025 net profits to be paid half of it in May and the other half in September. Later on, depending on how the year is developing, the growth in the loan portfolio and so forth, we will consider an additional dividend, but that will be probably considered during the third Q.

Regarding your latest question, Ernesto, about opportunities in the guidance, we are very happy with the expense level that we reported during the year. You remember in the guidance that we provide to the market in January, we were expecting between 10% to 12%. So reaching 8%, it was very good. So we feel comfortable with the expense level of 7% to 9%. The plan, let's say, is based in the middle of that range with 8%, but we could have some opportunity there. But this expense level includes also new branches and all the new positions because of the new business units we are implementing.

And of course, all this additional expense will be through mainly the first semester because in getting that talent in place is not something that you do immediately. It's going to take a few months. I could say also we are very happy with the results in fees and trading income. Last year, we didn't have the volatility in FX, so we can have more volumes and better margins. we expect this to have a recovery during 2025.

And I could say also that the mix of the portfolio that we are expecting in terms of growth is related to having the corporate portfolio growing between 8% to 10%, SMEs that have a better margin around 15% and the consumer portfolio between 15% to 20%. So this could provide an additional yield and better margins because of the mix of the assets. So I could say those could be some opportunities in the guidance.

This is Joaquin Dominguez. Another upside risk could be in case of the sale of some disclosure assets and the recovery of some loans that we had in past due loans during the last few years.

Super helpful. Just a last question. We continue to see a super peso and a weak dollar. So what would that imply for your loan portfolio that is denominated in dollars and to your loan portfolio related to exporters. I just wanted like to understand if this could have an impact on NIM or in asset quality, for example, we have the peso at 16.5% if reaching a USMCA agreement.

Yes. Actually, we had an impact in the loan size because of the exchange rate. The impact was a little bit more than MXN 4 billion, representing 1.6% of the loan book. So this means that instead of having a growth of 4.6% with the stability in the exchange rate, it would be 6.2%. So that impact is already in place. And we don't see additional impact in 2026. Actually, that could be an opportunity.

Regarding exporters, those customers represent about 10% of the loan book, the loan portfolio. Until today, what we are seeing in the financial statements, of course, is bringing challenges, but we don't see past due loans because of that. Of course, they need to strategy looking for better expenses and better efficiency. But until today, those customers are reporting good numbers.

Our next question comes from the line of Danele Miranda.

Just a very quick one from my side on loan growth guidance. I was wondering if this 8% to 10% is assuming all positive scenarios already. I mean is this your base case with potential upside? I don't know with USMCA private investment reactivating? Or is this already your positive scenario? And also, is this guidance seasonal? I mean, can we expect acceleration in the second half of the year? Or will it remain in this 8% to 10% level all year?

Thank you, Danele. What we are seeing is, I mean, we made several changes in the organization to provide more focus. And as I said, to have additional business units. We are talking about 4 new regional corporate banking offices, one in Guadalajara. I mean, 2 in Guadalajara, 1 in Mexico City that is going to be the tier regional director and additional one in Monterrey. Of course, all of them with additional bankers. And in terms of the SME centers, we currently have 8 SME centers. Those units are to attend companies with loan sizes between MXN 30 million to MXN 100 million. We have 8 because we opened an additional one, the second one in Mexico City last December. And we are planning to open Guadalajara, Querétaro and in the second semester, an additional one in the satellite area in Mexico City to end that year with 11 SME centers.

All of this will provide support to attract more new customers to BanBajío. We are talking about between 50 to 70 additional bankers for those 2 important segments that is the core business of BanBajío. So we feel confident with the pipeline that we are seeing today that we can reach the guidance between 8% to 10%. Maybe it's too soon to say if we have an upside risk, an upside opportunity in loan growth.

Our next question comes from the line of Yuri Fernandes.

Yuri Fernandes here from JPMorgan. I have a follow-up regarding margins. And I think the explanation was already a little bit more positive one. But when you think about the implied margin decrease, this year, you mentioned that some 30% of the decrease was mix, right, and 70% was rates. For 2026, for sure, we have like maybe 50, 100 bps lower rates and the average rate in Mexico should be even lower than that. But you mentioned FX volatility maybe should be less and this can help. And then the growth of the loans, they also should help, right? I think you're growing less on the financial sector, SMEs, you mentioned around 15%. Consumer portfolio also growing a little bit less. I know it's small, but it should grow more.

So the question is the following. For 2026 for your guidance, how you are viewing the decrease on NIMs? Is this purely rates? Do you have some kind of mix inside that or funding was good this quarter, maybe you are baking in some funding deterioration. Just trying to understand a little bit like the drivers. I know rates is the big part of the answer. But if you can help us build the blocks for the margin decrease, that would be helpful. And then I can ask a second question.

Yuri, thank you for your question. This is Joaquin Dominguez. Well, first of all, our sensitivity remains around 20 basis points for each 100 basis of change of the TIIE rate. For the 2026, maybe the impact of the mix will be more important than last year's in deposit side because as you saw, we grow much more on deposits than in the loan portfolio. That means that we accumulate some investment in the treasury with lower interest rates. If our plans of growing in terms of loan growth, we do deliver as we expected, we will change the mix in assets. We will have more loan portfolio instead of securities in the treasury, and that will provide us an improvement in the total assets.

In terms of the loan portfolio, the market we are focused on has a higher interest rate than the average of the total loan portfolio. So if we do well with these SME centers, we will improve the mix of assets, and that will help to improve the NIM. And in the other side, we have been doing well in terms of deposits and increasing and especially at the end of the last year, the demand deposit accounts not bearing interest. So if we maintain that mix of the growth in demand deposits without cost, that will improve the margin, but will increase the sensitivity. And all those factors have a different result in the NIM.

But at the end of the day, what we are looking for more than a specific objective in terms of margins is improve all the lines, the mix of total portfolio, the mix of loans and the mix of deposits. And what we did for this guidance is that we maintain the composition of the assets and the deposits as they were at the end of the fourth quarter. So any change of that mix could affect positively or negatively the guidance about the sensitivity and the margins.

No, super clear, Joaquin. So let's do the blocks. Like the average rates in 2025, I think the average Banxico rate was around 8.4% maybe rates go to 6%. I'm not sure what is your estimate there, like 6%, 6.5%, maybe the average rate will decrease some 200 bps with a 20, 23, 24 bps sensitivity. This is like 40, 45. Your guidance is implying a 50 to 60 bps decrease, right, from 6% to 5.4%. So what I'm trying to get here is, is your guidance too conservative? Maybe if the mix plays well, as you mentioned, maybe the margin decrease is higher than -- it's less than the guidance is implying at this point?

I could say that it's not exactly conservative. It's just the result if you make the account considering the balance sheet in the fourth quarter, not the average. I mean, there is something that you should consider that the last reduction in the interest rate was at the end of December of the last year. That impact was not captured in the fourth quarter. It will be reflected in the first quarter of this year. And that effect runs for the rest of the year. So probably that would explain what you're saying. But we are maintaining the NIM sensitivity in our forecast and in our guidance without change.

No, no. Super clear. Just a second one on another topic, asset quality, just going back to Ernesto's questions on this. When we go to your new NPL formation, your new Stage 3 formation putting all together, right, the NPLs and the higher write-offs this quarter, it was a very good formation. It was lower. Just checking, like could we have hopes that maybe there could be a surprise on this because I think Edgardo mentioned before that you had very few cases going to Stage 3 this quarter.

So just checking if there was something specific you did something different on renegotiations, reprofile of debt and this explain or sale of portfolio because it was a good number on formation. And when I look to your guidance, the guidance implies 0.8%, 1% cost of risk, slightly higher NPL. So just trying to understand if there was any kind of a one-off in the new NPL, new Stage 3 formation for the fourth quarter.

Thank you, Yuri. Actually, no, what we saw in the fourth quarter is a reduction in the balance of Stage 3 loans and the write-off that we did is preparing us to, let's say, to clean up the portfolio. Our criteria is always those loans with low probability of recovery. We'd rather write off them and of course, continue on the recovery actions. But the level that we have at the end of the fourth quarter, let's say, is a more normalized level of NPL. And we expect to be around those levels during that year.

As I mentioned before, during 2025, we have several important but isolated cases from different sectors that transition to Stage 3. And during the fourth quarter, we didn't see any important case. Of course, that could happen in '26. We don't have, in our view, any important case at this moment. But we feel well with the 0.8% to 1% that is a more -- also more regular or normal level of cost of risk for the bank. So of course, the -- as we transition and grow more the SME portfolio and the consumer portfolio that normally have higher NPLs, that could change in time. But with the guidance that we are providing, we feel very comfortable.

Our next question comes from the line of Eric Ito.

This is Eric Ito from Bradesco BBI. I have 2 here on my side as well. The first one, I'd like to touch basically on a more strategic point here on your new sales force structure. So you are deploying a lot -- investing a lot. You have this plan of 2030 of 20 branches. So I just want to get a bit sense for, let's say, beyond 2026, 2027, what can we think about efficiency here if that should be one of the points that could continue pressuring OpEx going forward? So this is my first one, and then I can ask my second later.

If we want to have a good efficiency ratio and a good ROE, the best strategy that we can follow is to grow the loan portfolio. That's why we decided to increase the business units and sales force of the bank at the end of the fourth quarter. So as I mentioned already, we are adding 4 regional directors for the corporate segment in Mexico, Mexico City, Guadalajara, and Monterrey. And also the SME centers, we are very happy with the results we are having. Each SME center has more than MXN 1 billion in loans. And as I mentioned, is dedicated to a segment, let's say, with loan sizes between MXN 30 million to MXN 100 million. The idea for the following 4, 5 years is to get to 2030 with more than 20 SME centers. We have 8 to date.

So we are developing, let's say, a new strategy with new business units to attend that segment that is very, very profitable. But in the corporate area, we have a lot of room to grow. Our market share in commercial loans portfolio is a little bit more than 6%. So we continue with huge opportunity to attract new customers. So that is the idea.

Regarding branches, during 2025, we opened 9 branches. And we already have 10 branches that is I'm completely sure we're going to open this year. That number could increase up to 15 if we have the right location, et cetera. So those, let's say, new branches are already approved, but the number of new branches is between 10 to 15 this year. And the idea for the following years is to continue with a similar number of about 10 to 15 branches. So the bank has a lot of opportunity to grow, and we need to grow also our branches and our bankers, et cetera, to capture that opportunity.

Just to complement in the efficiency ratio side, we -- in our projections, we made the exercise considering the maximum number of branches and SME centers to open. So they will not surprise us in terms that we will be expanding more than we budget. So there is no downside risk in terms of not delivering the guidance in terms of expenses.

Okay. Super clear. And then my second one is just maybe a follow-up here, especially on the strategy to grow SMEs, which is a portfolio that you are investing a lot. How can we think about your portfolio mix? Currently, you have 50% of your book in corporate and 29% in SMEs. I don't know if you guys have a target that you could share with us, but I feel like we can continue having this much higher CAGR on SMEs.

Yes. With the internal definition of SMEs, we have an SME portfolio or more than MXN 40 billion. That is important because, I mean, we are growing very well. But the margin that we have in that segment is much better than in the corporate segment. It's about 1.5% more margin in the loan book. But more important than that, it is easier to bring the customer and to engage the customer to all the rest of the services regarding cash management, FX, et cetera. So the revenue coming from that portfolio proportionally is very, very important.

So that is the, I would say, the main segment for the bank. And I believe with these SME centers, we are putting in place a competitive advantage of BanBajío, we feel that the business model that we are implementing is working very, very well. Then that's why we are accelerating the number of SME centers in the following years.

Our next question comes from the line of Neha Agarwala.

This is Neha Agarwala from HSBC. First one on the loan growth, which stands out as a bit on the higher side, especially when compared to some of the peer numbers that we have seen. What is the expectation in terms of USMCA agreement? In your budgeting, when do you expect that to be finalized as that could be a kicker in terms of loan growth? I'll go to my second question after.

Thank you, Neha. Of course, loan demand has been affected by the uncertainty coming from the USMCA agreement and the negotiation that will happen during this first semester. In the loan growth, we are forecasting a more conservative growth during the first semester and a better second semester. So that is implied in the business plan that we are guiding. But our scenario is that we reach an agreement with the U.S. We believe that dependency that we have in those 2 markets is very important. And the best scenario for both countries is to reach an agreement. So that is the best scenario.

Okay. My second question is on the branch expansion that you've mentioned. With all of this investment to drive up the loan growth, could you compare the NIM profile for the large corporate segment and the SME segment? Because if the mix shifts more towards the SMEs, how in the next 2, 3 years should that impact your NIMs and your cost of risk? And given the expansion plan, it seems like the cost growth will probably be on an elevated level, not just in '26, but in '27, '28 as well, which could pressure the cost-to-income ratio. So how should we think about the evolution of cost-to-income ratio in the next 2, 3 years given the expansion plan?

We don't have the NIM by segment at this moment. What I can tell you is the margin in the loan book is better, but also the mix of deposits has a better margin. And also nonfinancial income person at the size of the customer or the loan is more important. So profitability is better. The cross sale ratio in SMEs is more than 5 products and services. And the corporate is a little bit more than 3.2. So as a result, let's say, the SME is much more profitable than the corporate segment.

Perfect. And cost to income, if you could give some color on that, the impact on cost to income and how should it trend given the cost growth should be slightly higher?

Neha, well, that cost to income maybe is one of the most important drivers we follow month by month. And what we saw in the last quarter is a quite increase in the cost of risk, but also an improvement in the generation of net interest income. So what we are considering for this year is that the growth on noninterest income that is well supported by a very diversified lines of products that we are offering to our clients will support the increase on expenses, even the reduction of the NIM. So we feel that we can very well supported and control the efficiency ratio due mainly to the growth of the net interest income.

Our next question comes from the line of Brian Flores.

Brian Flores from Citi. I have 2 questions. The first one is on your NIM sensitivity because the cost of funding as a percentage of TIIE has been improving, and you've mentioned the efforts you have made on the asset side. I just wanted to maybe understand how you're positioning yourself, not for 2026 because we understand what is likely to happen. But the sensitivity for further ahead, I mean, when maybe Bajio becomes a bit more stable in the policy rate. Would you be willing by design to reduce the sensitivity for further cycles? I just wanted to understand. And also, I think in the last call -- last 2 calls, maybe you have mentioned a sustainable ROE of high teens. So do you think this guidance actually shows the, let's say, structural level ROE where we should see Bajio going forward?

And then if I may, just a second one on GDP growth. In your presentation, I think you have 1.3% as a base case here. One of your peers was a bit more optimistic maybe on tailwinds from the World Cup and internal consumption in Mexico. Do you see if a scenario more similar to them, which is around 1.6% in terms of GDP plays out that there is upside on the loan growth side?

Regarding the NIM sensitivity, what we are seeing is that we do not have a specific target of NIM sensitivity because that by itself do not necessarily reflects an increase in the income or the value of the bank. What it is important for us is to maintain a healthy growth even if the NIM have a reduction, it doesn't matter if the volume of business is higher. So it is quite difficult to say that we have a specific objective of reducing the NIM sensitivity because if we just have the idea to reduce it to 10 basis points, it probably will have high cost to make -- or to create that reduction and would reduce the net income.

So it's not directly the relation between lower NIM sensitivity and higher income. So our focus is increased total income and margin income despite what happens with the NIM at itself. So what we are focusing is in improving the mix of assets and deposits, but not having a specific target of NIM sensitivity.

Regarding -- thank you, Brian. Regarding ROE, as you saw, we are considering here an additional decrease in rates of 50 basis points to get to 6.50%. And we believe we are getting closer to the floor in rates with all the geopolitical situation and inflation in Mexico, we feel that we are getting close to the floor. And with that, sensitivity will be less important. We are sure that we feel comfortable in providing a sustainable ROE in high teens that is reflected in the guidance.

And regarding GDP, we consider the average of the analysts. Actually, that bank that you are mentioning is one of the highest forecast in GDP growth, but the median of the different analysts in that analysis is 1.3%. Of course, if we can have a potential additional growth, more GDP growth that will help a lot in growing the loan portfolio, of course.

And just, I mean, do you have any sensitivity in terms of, let's say, this could add 4 bps to your base case scenario here in terms of loan growth?

If you can repeat, it was the transmission connection. You can repeat, Brian, please?

Sure, sure. No problem. No, just wondering if you have a sensitivity measure as to the multiplier. So for example, if we have some upside risks here on GDP, where could we see your loan growth compared to your base case scenario?

Actually, the multiple that we are using already in the guidance with a GDP growth of 1.3% is higher than previous years. And what we are planning to do is to gain market share and to bring more customers. So of course, with additional growth in the economy, that will help. But it's maybe difficult to forecast at this moment an upside opportunity regarding that.

Our next question comes from the line of Ricardo Buchpiguel.

This is Ricardo Buchpiguel from BTG Pactual. Just have one question here. How do you see the competitive landscape in the corporate lending environment evolving? We see that BanBajío and other peers have been expanding a lot of their branches network you also have Banamex, is a big bank in Mexico came out of a change in control and eventually could become a bit more aggressive. And at the same time, as we have been discussing in this call, you have a lot of uncertainty mainly in the first half of the year because of this USMCA deal, right?

So my question here, with a lot of uncertainty regarding how much the size of the market will grow and a lot of banks including ourselves increasing the number of branches and people, are you concerned in any way for potential pressures in rates?

I believe that is a situation that always happen in this market. Competition is important. Of course, we try to compete more with service than with price. Of course, we need to provide a competitive price to the customer. But our business model is more to be really close to the customer, have a very good communication with them, understand very well the opportunity and risk that they are seen and try to help them in all the cycles. So -- but competition is huge.

And I believe with the potential IPO of Banamex and they recover, let's say, the strategy that they used to have several years ago, competition will increase. But I mean, that is always happening. Normally in the corporate segment, we are always competing with at least one bank. We have less competition in the SME segment. But I mean, that is part of the regular scenario in this market. And I believe it's good for the market evolution and also for customers.

That's very clear. And just one quick follow-up. If you look at the last few months, not only in Q4, but a little bit in Q1, have you seen any changes in terms of competition, the pressures on rates or is overall stable?

It's a huge competition environment. And I believe the fourth quarter was similar with the rest of the previous quarters during 2025. And of course, all the banks are trying to grow and to bring the best customers possible to those banks. So -- but I feel that the environment is stable. It's the same.

Our next question comes from the line of Lindsey Shema.

Lindsey Shema here from Goldman Sachs. I just have a quick question following up on the increase in write-offs in the quarter. Given the increase in write-offs this quarter, do you see any impacts from the change in regulation to the ability to be able to deduct write-offs from your taxes, and that's why you moved them ahead? Or is that completely separate?

Thank you. We're expecting really the same level. If we consider write-off of 2025 plus the reserves associated with past due loans minus recoveries, we are talking about MXN 2.8 billion during 2025. And actually, that was the same number for '24. For '25 and with this NPL and cost of risk that we are expecting, we could have a small reduction in write-off during 2026.

Regarding the new regulation, it will have an impact in the P&L, but will delay the capacity of the bank to deduct those write-offs. It will take at least 2 years starting in the moment that we start the legal action, let's say, to recover that loan. In terms of small loans lower than 30,000 UDIs is going to be 1 year. So it to have the P&L really, but the deduction of those write-offs will take longer.

Our next question comes from the line of Federico Galassi.

Federico Galassi from The Rohatyn Group. Two questions, if I may. The first one is last year, in the last part of the year was very vocal from the government that could be some caps on fees. I don't know if you have any comment on that. And the second one, maybe you mentioned that, but if you can repeat me what is the Mexican peso that are using in your guidance from the loan growth?

Thank you, Federico. The only initiative that is on the table today is regarding interchange fees. There is not a decision yet, but it's an important reduction in interchange fees. Actually, the plan that we are proposing today to the market is not including any impact of this. But the revenues coming from interchange fees represent about 1.8% of total revenues of the bank. And as you saw in the initiative, they are putting a cap in interchange. That means that the discount rate that we are -- that the banks are charging, let's say, to the merchant, that acquiring bank will pay less interchange to the issuer.

So on that regard, our acquiring business represent about 3% of total revenue. So that could imply in the short term, a benefit for the bank because of that difference, let's say, in percentage of revenue. Nevertheless, we see this initiative as negative for the market. And let's see what is going to be the final decision regarding that. But with the initiative as it is today, it has a potential positive impact in our numbers.

Federico, this is Joaquin Dominguez. Regarding the second question, we have approximately $1,450 in loan portfolio. And what we are expecting is FX rate pretty close to MXN 80 per dollar at the end of the year. And that would imply a very marginal impact in the valuation of that loan portfolio. MXN 18.

Our next question comes from the line of Andrew Geraghty.

This is Andrew Geraghty from Morgan Stanley. Just a small question to clarify. When you guys said that you plan to open between 10 to 15 branches this year, does that consider the regional corporate banking offices and the SME centers? Or is that separate? Just wanted to clarify.

Thank you, Andrew. And it's separate branches, it's that regular branch to make transactions and to sell products and services and the SME centers and the corporate regional offices are business units mainly with bankers to attend those segments. So it's completely different.

Our next question comes from Brian Flores.

Just very quickly here, I was checking here my notes. I think one of the upside risks you mentioned here was probably a recovery of some loans, which I understand. And I think you mentioned sales of assets. Could you just give us examples as to what were you meaning by these sales of assets?

Brian, as we have mentioned in several cases, we used to take warranties in most of our collaterals in more of the loans. So during the years, not specifically last year because it takes many years to recover assets. We have some disclosure assets. We should have a MXN 0 valuation in the balance. And if we sold those assets, we will have immediately an income due to that sales.

And also, there are other cases also thanks to the guaranty collaterals that we are negotiation recovering before going the next step in the judicial process. So we have some cases in the pipeline in order to see that we can affirm that we will have some recoveries in this year due to the advanced process we have for those recoveries.

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

Thank you very much, everyone, for joining us today. We remain available to address any follow-up questions via e-mail and any meeting request. We look forward to speaking to you again in April 2026 when we release our first quarter 2026 results. Thank you very much, and have a nice day.

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

Good morning, and welcome to Banco del Bajio's Third Quarter 2025 Results Conference Call. My name is Leonard, and I will be your coordinator today. [Operator Instructions] Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded.

Joining us today from BanBajio are Mr. Carlos De la Cerda, Executive Vice Chairman of the Board of Directors; Mr. Edgardo del Rincon, Chief Executive Officer; Mr. Joaquin Dominguez, Chief Financial Officer; and Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session.

For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may now begin.

Good morning, everyone, and welcome to Banco del Bajio's conference call to discuss our third quarter 2025 results. Today, we will review our quarterly performance and discuss the strategic evolution of our key financial trends. The industry information cited throughout this presentation is based on CNBV's data as of August, representing the most recent publicly available information. Without any further ado, let's start with the presentation.

Let's start on Slide 3 with a brief look at our key financial highlights for the quarter. Our total loan portfolio expanded 5.4% year-over-year, fueled by the 7.7% growth in our company loan portfolio. This growth was supported by total deposits, which grew 13.7% year-over-year, showing a sequential growth of 4.3% in the quarter. Regarding asset quality, our nonperforming loan ratio stood at 1.97% with our coverage ratio at 1.16x. Our cost of risk stood at 109 basis points. Turning to profitability. We reported a quarterly net income of MXN 2.3 billion to an ROE of 19.7%.

Our net interest margin was 5.9% and the efficiency ratio stood at 39.5%. Looking at the 9-month period in 2025, the ROE was 19.9%. The net interest margin was 6.1% and the efficiency ratio at 38.6%. Our capital position remains strong. The preliminary capitalization ratio reached 15.9%, an increase of 136 basis points from the second quarter 2025. This increase was partially the result of our decision to no longer apply our internal methodologies for portfolio reserves and capital requirements for the SME and company portfolio. This decision increased our capital ratio by 82 basis points. Moving to Slide 4. We highlight the success of our digital transformation strategy and the evolution of the number of transactions processed through BanBajio's channels. The charts on this slide illustrate the structural shift we have executed in client transactions. Today, digital channels are by far our most important transactional channel, leading to a decrease in absolute branch transactions compared to 5 years ago when they were still dominant.

The chart below shows a similar evolution for the transacted amounts at these channels. We have achieved a compound growth rate of 24% in transacted amounts over the last 5 years. Within that period, volumes processed through BajioNet have increased by a multiple of 3.7x, while branch volumes grew only 1.5x. Transacted amounts through BajioNet now accounts for 82% of all transacted amounts, up significantly from 64% in the third quarter of 2020. The increase in volume and transacted value processed through our digital channels demonstrate an effective strategy that has led to higher client engagement in BanBajio. This is evident when you consider that transaction volume growth has outpaced the 6% CAGR in our active clients over the last 5 years. This evolution is a supportive driver of our sustained growth in our deposit base and the structural growth of our noninterest income. Our digital channels related income grew at a sound 18.2% CAGR over the past 5 years.

Moving to Slide 5. We continue to observe good growth trends for our company and consumer loan portfolios. Company loans grew 7.7% and consumer loans 13.1% year-over-year. Overall, the total loan portfolio reached MXN 268 billion, a 5.4% increase compared to the third quarter of 2024. Our total loan growth was achieved despite the contractions observed in government, financial institutions and mortgage portfolio. It is worth mentioning that during this quarter, we have successfully continued our strategic reallocation of our portfolio, supporting higher-yielding loan classes with better margins. Simultaneously, our total deposits reached MXN 274 billion, which represents a 13.7% increase year-over-year. We will detail these growth trends in our funding structure section on Slide 8.

On Slide 6, we detail the evolution of our consumer portfolio, excluding auto loans. This portfolio reached MXN 7.2 billion, with growth rising to 13.6% year-over-year compared to the third quarter of 2024. As we have emphasized in previous quarters, we view this segment of consumer loans as a strategic high-yield asset that is critical to our efforts to diversify our income generation and our overall business. We have managed to achieve this expansion with asset quality that outperformed the industry standards. As shown in the charts, this is reflected in our NPLs ratio across the board with payroll loans at 2.26%, credit cards at 2.98% and personal loans at 2.31%. Turning now to Slide 7. We will examine our asset quality trends. Our headline NPL stands at 1.97%, while the NPL adjusted ratio stood at 2.51%. Most importantly, both ratio continues to compare favorably against the industry average.

As shown in the bottom right chart, our cost of risk was 109 basis points for the quarter. We expect the cost of risk will converge to more normalized levels over the next 2 to 3 quarters. Our coverage ratio remains strong at 1.16x. Furthermore, we will continue to hold MXN 681 million in additional reserves on our balance sheet, mostly created during the pandemic. In line with our decision to cease applying our internal methodology for additional reserves and to fully transition to the standard regulatory methodology, we plan to absorb these reserves over the next 9 months. Moving on to Slide 8. Our total funding reached MXN 324 billion, reporting a 10.6% increase year-over-year. Within the funding mix, our demand deposit base reported an increase of 20.5% year-over-year, and our overall client deposit base remains stable relative to the institutional funding.

Within our funding structure, we have observed a trend over the last 2 years with clients that are gradually migrating to interest-bearing demand deposits away from zero-cost accounts, a shift that has gained relevance in the mix. The funding mix now comprises zero-cost demand deposits at 17%, interest-bearing demand deposits at 26%, time deposits at 41% and institutional funding at 14%. On Slide 9, we observed the evolution of interest margins. The net interest margin for the third quarter was 5.9%, a year-over-year decrease of 110 basis points. This reduction was primarily due to the sensitivity to rates, which accounted for 62 basis points of the reduction, while 48 basis points were driven by the negative impact on the asset liability mix. Our current ex-ante sensitivity to rates, considering the current mix of assets and liabilities stands at around 20.4 basis points of net interest margin per every 100 basis point change in the benchmark rate.

We estimate this would represent a full year impact of around MXN 730 million on revenues and MXN 460 million on net income. You will see the performance of BanBajio's revenues on Slide 10. Please note that we are excluding nonstrategic asset sales from the third quarter and the 9-month period of 2024 to provide a clear pro forma comparison. Total adjusted revenues decreased by 2.8% compared to the third quarter of 2024, which reflects an aforementioned impact of the reduction in interest rates. Consequently, our financial margin contracted 9.0%. However, our strategy is paying off in noninterest income, which grew strongly by 50% pro forma year-over-year. Our adjusted net fees plus commission and trading income grew a robust 22.7% in the third quarter. We continue to make important progress in key fee-generating businesses.

Bancassurance grew 36.9% Interexchange fees grew 5.9%. POS fees grew 13.4%, while BajioNet related fees grew 37.3%. The reported total noninterest income growth was boosted by MXN 156 million sale of our written-off portfolio in the quarter. We can see the evolution of our efficiency ratio on Slide 11. It came in at 39.5% for the third quarter of 2025. BanBajio's efficiency ratio stands strong against the industry levels. In this third quarter, expenses grew 9.6% year-over-year, consistent with a 9.1% year-over-year growth in September year-to-date and in line with our guidance. We continue to prioritize our efforts to bring down expense growth, and it is one of our priorities for this year. However, the bank continues to invest strategically in key initiatives such as branch openings and some upgrades to our infrastructure. Slide 12 presents the evolution of the profitability metrics of BanBajio. As shown in the charts, the quarterly ROE was 19.7% and the quarterly ROA stood at 2.4%.

On a per share basis, the third quarter earnings per share stood at MXN 1.91, which represents an annualized earnings yield of 17.1% computed with the average stock price for the third quarter. Moving to Slide 13. The preliminary capitalization ratio as of September 2025 was 15.89% entirely composed of core equity Tier 1 capital. Around 60% of the 136 basis points increase in our capitalization ratio from the previous quarter was attributed to the aforementioned methodological adjustments applied to our portfolios, and the remaining 40% was a result of our sound earnings generation capacity. Finally, on Slide 14, we are pleased to announce that the Board of Directors has approved a proposal to the Ordinary General Shareholders Meeting for an extraordinary cash dividend payment equal to 10% of 2024 net income, which is equivalent to MXN 0.9 per share.

This distribution, combined with the previous payouts throughout the year would result in a total payout ratio for 2025 of 60% of last year's net income with a proposed payment date set for December 3, 2025. The total of the 3 dividend payments will represent MXN 5.39 per share, equivalent to a dividend yield of approximately 12.2% calculated using the most recent share price. We will continue to closely monitor the evolution of the drivers for the fourth quarter, and we feel comfortable in our ability to deliver on the guidance that we have provided to the market.

With this, I conclude my presentation, and we can open the call to the Q&A session.

[Operator Instructions] Our first question comes from the line of Ernesto Gabilondo.

Ernesto Gabilondo from Bank of America. My first question will be on your net income guidance. When looking to the accumulated earnings as of the third quarter, it's around MXN 6.9 billion. If we analyze it, it's around MXN 9.2 billion and the growth is of minus 14%, which is above the company's guidance range of minus 18% to minus 20%. So just wondering if it will be reasonable to expect at least the high end of your guidance? And what will be your assumptions on that?

My second question will be on your expectations for dividends. As you mentioned in your last slide, you're expecting a special dividend for December 3. and you have an ordinary dividend payout ratio of 50% this year. So just wondering how should we think about the dividend payout ratio next year? And this is especially in a context in which you will no longer have a high reserve coverage ratio. As you mentioned, you are expecting it to be trending to 103% and actually is at 116%. So just wanted to know your thoughts on the dividend payout ratio? And also, how should we think about the cost of risk during the next quarters while you are transitioning into this lower reserve coverage ratio?

Thank you, Ernesto, and good morning, everyone. This is Edgardo del Rincon.

Several questions, Ernesto. So about net income, I agree with you. We believe we can be in the high end of the guidance that is MXN 8.8 billion, and we feel comfortable in general with all the guidance. Regarding the coverage ratio, there are only 2 banks in the Mexican financial system with additional reserves. The complexity of the regulatory rules that we need to comply with the CNBV and additional rules that are coming in the following months take us -- I mean, we decided to abandon, let's say, the methodology for additional reserves and go only to regulatory reserves. That's why based in the mix of our assets, the level of collaterals and guarantees that we have, we feel comfortable with the regulatory reserves.

So we still have MXN 680 million that will be -- I mean, those will be absorbed in the following 6 to 9 months, mostly at the beginning of 2026. And regarding your last question before the dividend, about the cost of risk, we are very glad with the behavior of the cost of risk in the third quarter. Actually, it came 14 basis points better than the second quarter. But for us, the good news is that it's very concentrated in few names, very well-known clients. And a few of them is very possible that they will transition to current during the fourth quarter. So we feel that in the following several quarters, maybe 2, 3 quarters, maybe 4 quarters, we should transition in cost of risk to a more normalized level, let's say, between 0.9% and 1%.

And now I pass the microphone to Carlos about the dividend.

Hello, Ernesto. Hello, everybody.

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

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

Sure. This quarter, Ernesto, we delivered an excellent ROE of 19.7%. We believe it was a strong recovery and also confirming the bank's ability to maintain solid profitability even in a more challenging environment. As we have been mentioning in the previous quarters, our view is that the sustainable ROE remains in the high teens range. During the year, interest rates declined faster than we initially expected and also that put some pressures on margins. And at the same time, we have been experiencing a higher cost of risk than originally planned.

So it is already trending down and should normalize, as I said, in the following quarters. But we really believe that the strong fee income growth, the discipline in expense control and the solid capital levels all of which support a very healthy profitability. So even in a low rate environment that we feel the trend in rates will continue to go down maybe to 6.5%, 6.25% at the end of '26, we feel confident that we can deliver high teens in ROE even under that environment.

Our next question comes from the line of Brian Flores.

This is Brian Flores from Citi.

I have 2 questions. My first question is on asset quality. Just wanted to understand the perspective on the coverage that is already below the 120% you guided. So is the fourth quarter expected to have some reversals or improvements? I think that would be great to know. And also wanted to -- on my second question, see how that is related to asset -- sorry, to loan growth. Because as you mentioned previously, Edgardo, loan growth is probably running well below historical rates, right? It's 5% year-over-year.

I wanted to ask you maybe the same question in 2 different aspects. The first one is what is happening in mortgages? Is there some anticipation on the -- I don't know, the write-off policy changes that we could see from CNBV. Is it just demand? Is it pricing? If you could share with us what is happening in mortgages that is the portfolio that is shrinking the strongest, that would be great. And also, if you could share your expectations of loan growth for 2026, I think that will be also very, very helpful.

Thank you, Brian. Let me start with loan growth. As you know, came in 5.4% year-over-year. That is below previous periods, mainly because we have been very selective on where we want to grow. Corporate lending continue performing well, up around 7%. And within corporate loans, SMEs, I mean, we are having very good momentum. On the other hand, we have been intentionally reducing exposure on government loans in mortgages, but also in financial institutions segments that we either carry lower margins or higher risk. So it's a decision based in profitability. In the case of financial institutions, you know very well what has been happening in the market with several financial institutions not related with banks that have been having problems. So we are also seeing good growth in consumer loans, and that will continue in the future, mainly in credit cards, payroll and personal loans, a little bit growing 13%, a little bit more than that.

Overall, as Carlos was saying, credit demand has been somewhat softer than we were expecting. And it's a reflection of what is happening in the economy, the uncertainty locally and globally and all the geopolitical factors that you know very well. So looking ahead, the fourth quarter typically is our strongest period, and we expect to meet the full guidance without any problem for this fourth quarter. For 2026, we believe it will depend in having more clarity about the economy, how it's going to perform the economy, the expectation today is a little bit more than 1%. So we will continue with economy, let's say, growing at a very slow speed. And also what is going to happen with the trade negotiations. I believe that will provide clarity and more certainty in the scenario and then we can have a more robust loan demand. Regarding asset quality that you mentioned, we have several quarters with several isolated cases. For example, in this third quarter, we have 3 particular corporate exposures that moved to Stage 3 during this quarter.

As I have been saying, very well-known clients of BanBajio of many years. And we expect at least the most important one in an amount to return to performing status in the fourth quarter. So yes, we believe we will continue this normalization of the cost of risk going forward. Regarding cost of risk, I mean, I already mentioned it came at 1.09%. But we believe that during the first semester of 2026, we will get to a normalized level that we should be between 0.9% and 1%. Sorry for the long answer. I don't know if I covered everything, Brian.

No, you did, Edgardo. Maybe a quick follow-up. So with the 1%, maybe the base case assumption for next year, do you think the base case for now, obviously not official, but that is very similar to loan growth for 2026, which is between 5% and 6%, I don't know, 5% to 7%, would that be, in your view, reasonable to assume? And then I don't know if you could expand a bit on mortgages, if there is some impact of the regulation, particularly the changes in write-offs that you're anticipating here also for that category of the loan book?

Actually, the decision in mortgages has, I mean, more time than the regulation that is changing today. So our decision is based totally in profitability, and we'd rather use the capital in other portfolios with better profitability than mortgages. That is the decision. Regarding 2026, and this is not, of course, any guidance for 2026. But we feel that we will continue with softer demand during the first months of 2026. And then as we have more clarity in what is going to happen with the trade agreement with the U.S. and locally and the performance of the economy in Mexico, then maybe at the end of the first semester, beginning of the second semester, we can have a better environment to grow.

Our next question comes from the line of Ricardo Buchpiguel.

This is Ricardo Buchpiguel from BTG Pactual.

The bank has been focusing a lot on growing more in SMEs. So I want to get a little bit more color on this portfolio. Can you comment what is the share of the SME portfolio today? And what is feasible to expect in the next 3 years? And also, what are the key difference between the SME and the large corporate lending in terms of overall risk-adjusted NIM and overall profitability?

And you mentioned also for my second question, you mentioned in the call that you plan to absorb the additional reserves over the next 9 months, like helping mainly 2026. But you also mentioned that the first half year of 2026, we expect cost of risk to be between 0.9% and 1%, which is a little bit below your -- sorry, a little bit above your historical levels. So I wanted to understand if it makes sense that these additional reserves will be used to absorb -- to offset a higher NPL formation over the next following quarters.

Thank you, Ricardo. The SME portfolio accounts for a little bit more than MXN 70 billion, actually MXN 72 billion. So it's an important part of the portfolio. And it's a portfolio with very good profitability with a cross-sell ratio of more than 5 products and services. So it's not only loans, but also cash management, electronic banking, FX, acquiring business, et cetera. So it's very profitable and it's the part of the portfolio that is growing more. So is what we have.

The second part of your question was about additional reserves. The idea is not to take the additional reserves and just pass through the P&L. The additional is to use those additional reserves gradually to cover the need of reserves that the bank is having in the following 9 months. That is the idea. So that is going to be a very gradual use of those reserves.

Perfect. And so it makes sense for us to expect the cost of risk around like 0.9% and 1% in 2026, right?

That's right.

Our next question comes from the line of Eric Ito.

Carlos, Edgardo, this is Eric from Bradesco BBI.

My first question here is regarding OpEx. I just want to get a sense of -- I think you guys have a pipeline of [ 50 ] new branches over the next years, if I'm not wrong, you have been deploying some over the past quarters as well. So I just want to get a bit on the opportunity here to see efficiency gains improvements in 2026? Or maybe as more deployment should happen, we could see more efficiency gains in 2027. This is my first one, and then I can ask my second later.

Sure. Thank you, Eric. Expenses continue to perform better than planned, growing, as you saw, 9.1% year-over-year for the 9 months. The idea is to keep the expense growth below 10%. That was the original guidance. So we have maintained a very strong discipline even while we continue to expand our branch network that today we have 331 branches. During the last 12 months, we have opened 10 branches. That is -- those branches are adding close to 1% to the expense growth. So it is important. The good news is that these new branches are ramping up profitability quickly. So we feel comfortable with this investment. And the idea is to continue with this expansion between 10 to 15 branches every year.

On the technology side, investment remains focused on security, cybersecurity and system stability rather than new projects. The big investment, for example, in digital banking, et cetera, was done previously. Of course, we need to continue investing in that, but the big investment is coming in cybersecurity and providing the right stability. Our priority has been to strengthen the resilience of the IT ecosystem and ensure reliable operations across the bank. Overall, expense control remains a strategic priority, and we expect to end the year below 10% growth while keeping operating efficiency under 42%, that is the guidance that we have today. That is, as you know, one of the best levels for the financial system today.

Okay. Very clear. And then my second question, real quick on the written-off portfolio sale that you guys did this quarter. Just want to get a size -- I just want to get a sense of what's the size of the portfolio that you guys sold? And if this was just an opportunistic approach or maybe we could see further sales going forward?

Yes. It was an impact of MXN 156 billion. It was a sale of an asset as the money came not from the customer, actually come from a third party that made the acquisition of the asset -- that's why we didn't record this as a recovery that in that case, we would have a very positive impact in cost of risk. Based on the accounting rules, we -- I mean, this was an additional revenue, and that's why you saw that impact in the revenue growth. So -- but even with that, nonfinancial income, as you saw, we have a very good quarter with 50% growth. But without considering this one-timer, the growth is 27%. That is still very strong.

So for us, that is very good news. We are very glad with this. And we feel that in the following quarters, we can continue at least with high teens growth in nonfinancial income. That is a very good level and much higher than the growth in active clients, that is 6% or the growth in the drivers in the loan growth portfolio, et cetera. So we are very glad with the performance this quarter in nonfinancial income, and we feel that we should continue with very good levels in the following quarters.

Our next question comes from the line of Pablo Ordonez.

Congrats on results. This is Pablo Ordonez from GBM. My question is, could you comment on your funding dynamics? Deposits have been growing way faster than the loan portfolio at 13% year-over-year. In addition to this, as you mentioned in your remarks, the mix is not improving. So why taking the additional deposits and also for next year, what level of funding cost as a percentage of the interest rate would you expect? Should we expect some improvement because we have seen some deterioration in the past year? So any color here would be very helpful.

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

Perfect. And second question is regarding the fiscal package, Joaquin, could you comment on what should we expect? I mean, I think that the change for the IPAB fee is very straightforward. But any color that you have on the potential impact for Banco del Bajio at the P&L level and the financial impact from the changes in how the write-offs will be reduced going forward with this proposal from the [indiscernible]?

Yes. What we have calculated is that -- the impact will be an increase in 2 basis points -- 200 basis points in the effective tax rate. It means it's around 3% of the net income for the next year. In terms of the write-offs, it will have no impact in the P&L, but in the -- it will increase the deferred taxes.

Our next question comes from the line of Yuri Fernandes.

Yuri Fernandes from JPMorgan.

I have a follow-up on asset quality and the written-off portfolio sale you had, and it was clear like the directional. What is not clear for me is that given the outlook for asset quality is a little bit more challenging, right, like several [ cases ] here and there, and I know they are like kind of one-timers, but still becoming somewhat frequent. Why not you use this case to increase your coverage, given you have like a coverage ratio guidance, you are slightly below. So just checking the box, why not increase like this quarter doing more provisions and take the opportunity of this kind of one-timer on the positive side? And then I have a follow-up on your Stage 2 and Stage 3.

When we try to look to the coverage of those stages, so trying to look to the amount of allowances divided by the portfolio by stages, we have been seeing an increase on the amount of reserves for Stage 2, Stage 3. So basically, Stage 2 used to be 10%, 11% allowances to loans. Now this number is going to 15%. And the same is happening for Stage 3. So Stage 3, now you are doing some 47%, 48% allowances to loans on your Stage 3. This number used to be closer to 40%. So just checking if we are going to see this to increase like basically the amount of required provisions for stages being somewhat higher in each of those buckets.

Thank you, for your question. Let me go back to the pandemia. Before the pandemia, the level of reserves that we have was very close to the regulatory methodology. So the methodology coming from the CNBV. Because of the pandemia, we decided to increase the coverage ratio because we were expecting in a stress scenario, very high losses that at the end with the measures that we take together with the CNBV didn't happen, and we have been carrying for a long period, several years, those additional reserves. We have been using those reserves in the last maybe 4, 5 quarters for those isolated cases that we have been mentioning. During this period, we realized that we -- in the financial system, there are only 2 banks.

One of those is a big, big bank. And BanBajio, we are the only ones with additional reserves. Since the pandemia, the CNBV has been very close to us reviewing constantly the methodology we are using and the calculations we use every month. But during that the last, let's say, 2 years, the regulation and the complexity to comply with that methodology has been harder and harder.

The level of coverage ratio is based on the mix of the portfolio as we have 86% of the portfolio in corporates that is very different from the G7, for example, but they carry a lot of consumer business that normally, the level of coverage ratio of those portfolio is close to 2x. So based on that mix, you can see the coverage ratio of those big banks really high, but it's not really comparable with the portfolio we have in BanBajio. We have 86% in companies with a very high level of collaterals, and we are very active using guarantees from FIRA, from Bancomext and from Nafinsa.

So because of the mix and the level of collaterals we have, the coverage ratio that we have based in regulation is very close to 1x. If you see other banks, for example, that has a lot of mortgages and auto loans, you can -- you will see that the coverage ratio is even below 1x in other cases. So we feel comfortable with that level that this is coming from the pandemia. The complexity is really high. If we don't comply with the methodology and the rules of the CNBV, we can have sanctions. So that's why we decided to abandon this methodology and have in the future, in the following months on the reserves we need based in the regulations as all the rest of the banks.

No, no. It's totally clear that part. My only question on that is that some portfolios, I don't know, mortgage, historically, they have much lower coverage, right, and you are reducing your mortgage portfolio. So in period by mix, maybe your coverage should be higher, right, because you're not growing in mortgage, you are decreasing. Government loans, I think it's tricky because you don't have a lot of allowances, but you also have a lot of [indiscernible]. But part of your portfolio is decreasing in products that should have like lower reserves also, right?

Yes. In the case of mortgages, it's not [indiscernible] reserves that are required. The decision of not growing, of course, we can cross-sell if a customer that is already with the bank ask for a mortgage, of course, we provide that mortgage that there is not a decision to grow faster the mortgage portfolio that is based on the best use of capital and profitability.

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

Yes. We feel that we will continue improving the Stage 3 portfolio. Actually, we are expecting a few recovers during this fourth quarter. And the idea is to continue improving the performance during the following quarters. Of course, there is some mathematical -- I mean, as we have been growing a very low speed 5% this quarter, that has an impact, of course, in the NPL. But we feel that we will continue trending down in the following quarters. And we are working in recovering those Stage 3 cases. Even by a legal action, as we have a lot of collaterals, there is always a big possibility of recovering those loans.

Our next question comes from the line of Tejkiran Kannaluri Magesh.

This is Tej from WhiteOak. I just want to understand with the change in methodology of capitalization that you're calculating, does the range of CET1 you're comfortable with change? Or does it remain 14% to 15%?

Yes. Thank you. The change that we have during this third quarter actually was in August. But that was something that we decided last year. And it's also a methodology that we used to have for several years, to make the calculation -- I mean, to calculate the reserves for SMEs and for the corporate portfolio as well as it's the same case that additional reserves. We decided that, that didn't provide the flexibility that we needed and any benefit and the complexity as well of the rules are every year is higher and higher and higher.

So it was very difficult to comply with all the rules. So we decided to abandon -- it's a process that took one year with the CNBV, so we have been in that process during the last 12 months. So the last month in which we saw that change, it was a couple of months ago in August. And that has an important impact in the capital levels of 82 basis points. That's why we still saw the capitalization rate going to 15.9% together with the accumulation of earnings during the last few months.

Okay. Understood. There's no 2 methodology changes. It's just one, the reserves, which also affected the capital. Understood.

Our next question comes from the line of [ Andrew Geraghty. ]

I just wanted to double-click a bit on noninterest income and then also the NIM. On noninterest income, you guys have communicated a pretty bullish outlook for going forward of continued high teens growth, faster than the client base growth, faster than loan book growth. Can you just expand a bit on what gives you confidence in this? And is it coming specifically more from the fees and commission side? Or can trading income continue to deliver the pro forma year-over-year growth was 35%. So just a little bit more detail on the noninterest income side. And then in terms of NIM, if the benchmark rate goes to, I believe you said 6.5% is your expectation for the end of next year, considering lower rates and maybe changes in mix, what is your thought process on the direction of the NIM for 2026?

Thank you, Andrew. Yes, we -- what we have been doing is, as we said in previous calls, the concentration of the bank is really providing the best digital functionality to our customers. So that is working very well. You saw the metrics, but we are very glad with the compound growth that we are seeing both in transactions and also amounts transacted. That 24% growth in amounts transacted is really, really high and it is the growth of the last 5 years. So we are very glad with that. So the use of digital transactions, digital channels from our customers is really evolving very well. And that is coming with more, what I call operational dependency of the customer with the bank. You are really the bank of the customer when you have the loans, of course, but it's very important also to manage their payroll, their sales through the acquiring business, the FX, et cetera, all the different services that we can provide.

So just the BajioNet fees that our customers are paying are growing 37% year-over-year. So that is a fantastic growth. But also all the transactions made through digital channels. That includes, for example, of course, transfers, but also for example, FX that is growing very well. Those -- all those transactions that are in that digital platform, the compound growth of that income is 18.2%. That is also let's say, much more than the growth we are having in active customers that is 6%. So we are very glad with that, and we feel that we can continue with a very good growth. Of course, we have a one-timer this quarter. But even without that one-timer, the growth was 27%. So having high teens, I think, is a very realistic expectation in nonfinancial income. I pass to Joaquin to talk about the NIM.

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

Our next question comes from the line of Andres Soto.

This is Andres Soto from Santander.

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

Thank you, Andres. And what your perception is correct. If you compare the NIM when the interest rate in the past few years was pretty close to the actual level, we had -- we used to have a lower NIM. So we have improved as well the mix and assets as in deposits. So based on that and that we are expecting to maintain this improvement in the mix in assets and deposits that we will be able to maintain a higher, of course, that 5% NIM the next year with a reference rate around 6.25% for sure.

Our next question comes from the line of Neha Agarwala.

Quick question on the trade negotiations with the U.S. What part of your loan portfolio could be directly or indirectly impacted by the upcoming trade negotiations?

Thank you, Neha. We have about 10% of the portfolio in customers that do exports, I mean, to different countries, to the U.S. mainly. But I believe the trade agreement has a broader impact, not only in those customers, but also in what we should expect for the economy. As you know, the transformation of Mexico in the last 30 years with -- at the beginning of the NAFTA, you compare the structure of the economy at that moment compared with today is completely different. So that has an impact not only with the base of customers that they do export, but also in the whole economy. So that's why it's so important.

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

Not really. As you know, our presence in the agro business is very important. It's very difficult to replace those products with production in the U.S. because of the weather and the geography of the U.S. So -- and it's very difficult even to replace Mexico as a supplier of those products to the U.S. economy.

And the investment that we have in Mexico in manufacturers, we have a lot of investment coming from the U.S. that I believe is very difficult to move again to other geography or to go back to the U.S. that is going to take a while. So not really, we don't see -- we believe our best scenario, but really what we expect is the trade agreement will come to a good end, maybe different from the one we have today. But I believe the best scenario for these 3 countries, Canada, U.S. and Mexico is to continue together with the trade agreement. And we believe it has been very positive even for the U.S. economy as well.

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

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

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