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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional's First Quarter 2026 Earnings Conference Call. We are joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramirez, Chief Financial Officer; and Alejandro Gálvez, Head of Strategy and Planning and Investor Relations. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Manuel Rivero Zambrano. Thank you, and please go ahead.

Thanks. Good morning, everyone. I hope you and your families are well. We're presenting our first quarter 2026 results, which reflect our continued focus on disciplined execution amid a more challenging environment. Mexico's economic environment has become more challenging, slower GDP growth and trade policy uncertainty are affecting business confidence in ways we are actively monitoring. Our commercial strategies continue to focus on expanding our presence in key regions while maintaining strict cost control and credit underwriting discipline.

We remain focused on diversifying our income streams particularly through nonfinancial revenue growth as well as increasing the share of fixed rate loans, which provide partial compensation for margin pressures. Net income for the quarter reached MXN 1,515 million, a 7% year-on-year decrease.

Our return on average equity contracted 224 basis points year-on-year to 18.4% on a last 12-month basis. While this reflects pressure from operating environment, profitability remains at solid levels and continues to reflect our focus on maintaining asset quality and long-term returns. Asset quality remained resilient during the quarter. Our consolidated nonperforming loan ratio stood at 1.3%, a 7 basis points improvement year-on-year, while cost of risk contracted 3 basis points to 1%, both metrics reflecting the discipline of our underwriting standards. We continue to monitor credit trends closely, particularly given the current macro environment.

Regional delivered 9% year-on-year loan growth with particularly strong performance in Jalisco and solid wholesale momentum in Mexico City, where the portfolio grew 13% quarter-on-quarter, our strongest sequential performance in the region in recent periods.

On the funding side, core deposits grew 33% year-on-year, reflecting continued client engagement across our network. Together, volume growth in core lending and deposits drove 3% expansion in the financial margin. Our densification efforts showed progress with core merchant fees growing 12% year-on-year and insurance fees 41% year-on-year. Nonfinancial income grew 5% year-on-year, continued progress toward a more diversified revenue base.

Operating expenses grew 11% year-on-year, driven primarily by technology investments and geographic expansion, both deliberate decisions that support our medium-term growth agenda. This resulted in an efficiency ratio of 43.0%, a 265 basis points increase year-on-year. As the investment cycle matures, we expect expense growth to moderate and efficiency to improve progressively from current levels.

The wholesale loan portfolio grew 9% year-on-year, with particularly strong performance in Mexico City at 25% of the book and Jalisco at 23%. We have been seeing some moderation in origination demand as business has been adopting a more cautious stance, a trend we believe in sector-wide and consistent with the current macro environment. Wholesale banking time deposits increased 63% year-on-year, reflecting a strong institutional client activity.

Despite this growth in deposits, our CASA ratio stood at 41.5%, supported by continued momentum in demand deposits across retail and commercial clients. Retail banking continues to show healthy momentum with the preferred banking core deposit growing at 50% year-on-year, reflecting solid client engagement and trust.

Our branch network continues to expand in a disciplined manner, focused on the high potential locations and aligned with evolving customer needs. Notably, consumer and auto loans both grew 10%, an indicator of growing client acquisition and deepening relationships. Asset quality remains a key strength with nonperforming loans ratio at healthy levels across all segments. Wholesale 1%, consumer at 2.9% and auto at outstanding 0.6% and mortgage at 1.1%. These figures reflect the effectiveness of our underwriting standards and the resilience of our customer base.

Hey Banco continues to advance in its strategic shift toward profitability over growth, prioritizing higher-quality customers over volume expansion. This disciplined approach is delivering results. The individual loan portfolio grew 10% year-on-year, while our business loan portfolio reached MXN 4,559 million, a 23% increase, demonstrating strong traction in target segments.

Hey Banco reported financial margin of MXN 282 million and net interest margin reached 10.4%, an increase of 271 basis points year-on-year, reflecting improved asset yields and a more profitable customer mix. Our efficiency ratio improved to 53.0%, a 196 basis point year-on-year reduction, highlighting the progress in cost containment even as we continue investment in automation and digitalized capabilities.

Our active individual customer base stands at 458,000, consistent with our strategy of prioritizing quality over scale. We reduced our cost of risk by 76 basis points to 5.6%, while remaining vigilant on credit trends. Net income for the quarter reached 7 million (sic) [ 7% ], up 59% year-on-year. And given the progress we have made in the customer mix, pricing discipline and cost containment, we expect profitability to continue trending higher. The spin-off is complete and Hey Banco is operating as a fully independent entity.

Turning to Hey Banco. Total billing increased 90% year-on-year, with growth primarily driven by payment facilitator segments of 53% year-over-year, reflecting broader adoption of acquiring and processing solutions among partner merchants. Stable contributions from aggregators and large corporate clients continue to support volume diversification.

In conclusion, our results this quarter reflect the investment cycle and a more challenging macro environment, both of which we anticipate. What gives us confidence going into the rest of 2026 is not the headline growth rate, but the underlying quality of our franchise. Asset quality remains resilient. Capital stands at 15.7%, the strongest in recent years.

Hey Banco is reaching profitability in our core business, continues to generate consistent returns. We expect NIM to begin normalizing from the second quarter onwards as deposits repricing stabilizes. And we anticipate top line dynamics to improve substantially through the year. We remain focused on executing against our 2026 targets, and we are confident in our ability to deliver them.

Moving forward, we will continue to enhance our operations and explore new opportunities fully committed to our strategic goals. We're confident that Regional will maintain our strong financial performance, ensuring superior profitability and asset quality for the benefit of -- for all the shareholders. Thank you very much. We appreciate any questions.

[Operator Instructions] Our first question comes from Maria Mazzoni from Bradesco.

This is Eric Ito. congrats on the results. I have a question regarding your margins. We have noticed a meaningful decrease this quarter. Can you give us some color on the main drivers for this? Your cost of funding was stable quarter-on-quarter. So we want to understand like how much came from your sensitivity to interest rates? Anything else on mix or competition?

Yes. Thank you for your question. There is -- as you mentioned, there are two main drivers. The assets are repricing faster than expected. Basically, all the business loans portfolio is variable indexed to TIIE and is the main reason of the decrease. And on the other hand, the deposits is taking longer.

And as you saw or maybe you don't saw, but there is also a change of mix between time deposits and demand deposits. Basically, that's the main explanation. What should we expect to the future is to recover not fully, not all the way to the 6%. But we have already seen in April, the repricing of time deposits that is lagging and usually on that way. And we continue shifting the mix of the portfolio to segments like small businesses and consumer lending that as they are very small portfolios compared to the medium and large companies segment or the wholesale as we call it.

It will take for the next 2 quarters but basically, the improvement that you will see in the next quarters will come from the repricing of the time deposits that is taking longer than -- not than expected, is longer than the loans. Loans next month, at the end of the month, the rate is changed and time deposits usually is 90 days, then it will take 2 more months to reprice the whole deposits.

That's super clear. If I may do a follow-up regarding your guidance for NIM, right? So you're currently below the guidance. So you mentioned that you expect a gradual recovery over the quarters. So looking at the full year, where your expectation for now, should it stand in the middle or more to the lower end of your guidance?

No, to the lower end of the guidance to the 6%, we also have to delete some small impacts, but at the end, our impact on the spin-off and the management of the two treasuries on the consolidated level was an impact. It was planned in terms of how excess of liquidity in both banks once they were totally separated.

But right now, we are managing an integrated treasury to delete that excess of liquidity that is expensive. If you saw we increased up to MXN 5 billion [indiscernible] Versatilis, the security invest -- no, no, it's not security investment. It's the debt that we issue in the leasing company, the [indiscernible]. And we are -- it's our more expensive liability or funding. Then there are some room, but not all the way to the 6.3%, obviously, on the 12 months is more close to the 6%.

Our next question comes from Brian Flores with Citi.

I wanted to maybe check with you because as my colleague was mentioning, I think the delta, right, from your consolidated figure for the first quarter versus the run rate as of February, which is the public data from CNBV, showed as you mentioned, better trends in NII, which we now understand is coming and should continue coming from the funding side.

And we also saw some, I would say, pressures on the provisioning side again during March. So I just wanted to check with you, Enrique, if the run rate from provisioning is higher. We also noted that during the quarter, you had some help from reclassification of NPLs towards current loans. So I just wanted to understand if this is to be expected also to continue helping or if we should see maybe a higher level here on provisioning?

On provisioning, no. On provisioning, we had in January, we had how do you say, we wrote off some of the portfolio on Hey. You can see the improvement on the NPL on Hey Banco before the spin-off. That's one of the explanations.

And in March, we have been mentioning these 5 to 6 cases. There are 6 large cases that we are managing in the wholesale business in Banregio that one deteriorated, but is in the process of improving. We should see an improvement in Banregio wholesale segment on the next quarter.

All in, consolidated, we should remain between 0.9% and 1% for the full year basically in the two ends. What we have seen is that Hey Banco improved the provisioning and should be maintained not only because the write-offs, but also because the improvement of the credit quality of the portfolio of individuals. The small business is pretty healthy and the auto is more healthy. And in Banregio as the whole year has been the wholesale and there are still 2 out of the 6, then we are working -- we are almost there on the foreclose and the asset disposal that should maintain below 1%. We maintain our guidance up to 1%.

Perfect. Just confirming, so you're still comfortable with the range. So unlike maybe in the NIM that is more on the lower part, here is maybe the midpoint. Is that correct?

Yes.

Great. And if I may do a second question very quickly. We saw yesterday the announcement from President Sheinbaum regarding this maybe coordinated plan to waive commissions from electronic fuel payments on gasoline-related acquiring fees.

So I just wanted to see with you if you have any color on this, if you have -- I know it's a short-term impact, obviously, expected to be, I would say, remunerated by higher transactions down the road. But if you could give us some color on this coordination, that would be -- I think it would be great for investors.

Yes. It's not in the acquiring business that is something that is misunderstood. It's on the issuing business. Obviously, we also have an impact, but it's very small. Even if it were in the acquiring business, we have a very reduced number of agencies, oil and gasoline agencies.

But in the issuing business is where the commission is moving to 0%. If you saw the percentages where makes sense is the commission that we call the intermediation commission that goes to the issuer of the credit or debit card. The acquiring, that is the other 1% usually, it's like 1% and 1%. In this case, it's 1% and 0.75% and 0.49%. The 0.75% for credit card and the 0.49% for debit is the part.

We haven't -- we don't have a number of specific transactions. We can -- if you call Alejandro maybe in 2 weeks, we can have the historic income. It should not be that large and should benefit in other parts, as you mentioned, more transactionality. And the full objective that we fully agree with the government is to reduce the use of cash and increase the use of electronic payments.

Our next question comes from [indiscernible] from GBM.

My question is regarding Hey Banco. We saw in the CNBV data from February that it delivered an ROE above 20%. So we would like to understand like where this could go forward? And what would you expect to reach in the end of the year?

Yes. Can you repeat the number? You saw 20%...

We saw an ROE of above 20% in February from the CNBV data.

No, no, no. To be very, very clear and transparent, we are -- as I mentioned, we did write-offs in advance. And right now, we are not -- we have two expenses that are missing in February and March. Yes, the normal should be like MXN 30 million. That month was MXN 40 million and March was MXN 33 million. And the expectation is around 15% of ROE for this year. MXN 260 million out of the MXN 2.1 billion equity.

Our next question comes from Ernesto Gabilondo with Bank of America.

I have three questions from my side. The first one is when analyzing the first quarter net income, we see there's an 8% contraction for the full year. So how are you seeing your 2026 guidance after this first quarter?

And then my second question is in terms of your NII growth. I think you explained it a little bit in terms of NIMs, but how should we think about NII growth in the next quarters? We saw it was kind of limited this quarter, as you explained, because of lower rates.

Also, there has been soft lending activity, but it was especially in the first 2 months. But then you started to see stronger demand in March and actually, you ended at a high single digit above some of your peers. So thinking more on the next quarters that the easing cycle is almost ending, that you posted this high single digit and you probably will have higher financial interest in the next quarter. Then you have Hey Banco, which is growing the loan book at the double digit. So how should we expect the NII growth going forward? Should it start to go from a mid-single digit to start going more to a mid- to high single digit? Any color on that will be helpful.

Then my second question is on noncredit-related revenue. So we noted fees came at mid-single-digit year-over-year growth. So just wondering if you start to see more transactions or better economic activity, if we can start to see also this line with a little bit of upside. And then also in the noncredit-related revenues, we saw other income. Other income, we saw there was a wider loss in the quarter. I don't know if this is related to seasonality in loan recoveries and sale of assets. So maybe some of those materialize at the end of the year.

So I also wanted to know your thoughts on that. And my last question is on OpEx. We know it came below the double-digit growth. It was a good quarter from that. But having said that, you have said in the past that we should expect double-digit growth for '26, and that is explained because of branch openings, technology investments or all of what you have said. So I just wanted like to all of these questions, how can I expect the guidance for the year? Is there -- where should I be seeing like the tailwinds to feel comfortable that you can still achieve your guidance?

Thank you for your questions, Ernesto. I will start with the last question. We will maintain the guidance. We know that if we consider an average of MXN 1.7 billion looks challenging, but our budget, that is really what guide us and our commercial activity is increasing and then I will move to the parts that will help to the increase.

We are below our budget, but not for MXN 200 million to recover. In terms of -- I will go backwards on the questions. Operating expenses, OpEx, we have seen an impact on salaries and benefits. That happens in the first quarter because it's where we see the general increase. And also we have to consider other parts that is not like the increase that is 1% additional every year and some related provisioning. But the total number of employees is 300 less employees than last year.

If you remember, we disclosed in the third quarter a reduction of around 10% of the people, like 7% of the cost. It will be shown on comparison every quarter on salaries and benefits. And the other expenses, the two main reasons that increased and that will be maintained is all the investment that we are doing on the expansion, geographic expansion as well as all the investment that we have done in technology for both banks and also for the spin-off as shown in the recurring depreciation or amortization of the projects.

That will lead to the low teens in the whole year that is maintained. The good news or bad news as you want to see it, is that all the investment done in the expansion is already done and it's very easy to project because it's depreciation for the next 5 or 10 years. And the same happens with the project. So the investment done that you can see in the intangible assets, it will amortize in 7 years then you can project it.

That's -- it's a bad news because you cannot reduce or depreciate faster, but it's a good news because also gave stability on the projection to maintain our guidance or our expectation because it's not a guidance officially that the mix of the both salaries and benefits and OpEx will go to low teens even it could go a little bit lower, but we didn't have the impact on the what we call other benefits. We were monitoring very closely the base salary. Base salary is almost not increasing at all, but all the other government-related and accounting-related ones provisioning increased more than expected in this quarter and should not do it in the next quarters.

In terms of net interest income, as I mentioned, we have already seen in April, it's not yet public information, it's internal one, the repricing of time deposits, at least by 10 basis points in the first 15 days, then that will help the NIM and the loans is not repricing anymore because there was not a change on the policy rate this month. Then also the growth. We don't have a bulk number or a total number growth. We maintain mid-single digit for the growth of margin as an amount, and we maintain high single digit for the loans.

As you have seen, March was especially good as we are increasing the pipeline and liberating some of the loans that were approved last year, but was fully contracted and executed this first quarter and the pipeline is good for wholesale and small businesses. I don't know if I missed any of the questions.

Only in terms of the market -- noncredit-related revenues. So any color on fees and any color on other income?

Yes. On fees, we have the FX is recovering. If you remember, in the third quarter, we did a close of very aggressive of the business to review and to do a full due diligence to our largest customers in FX. The due diligence took longer than expected until the end of the year.

This quarter, we saw an increase, and you can see versus the third and fourth quarter that were the lowest ones, where we are not that well in derivatives, all the IRS market-related income. Other market-related income, there is no FX. But in FX, that is our largest one, we have seen a recovery, and we expect to continue recovering all the way that it was on July or June before what happened with the other two institutions and that we decided to be more strict and more to do a full due diligence to all the companies.

Even we closed in our electronic banking, the international transfers and we are opening once we have finished each -- one by one, each customer that make international transfers, especially to the countries that we decided mainly the Far East say that. In the other...

Just before other income in terms of fees, so it was around 5% year-over-year growth in the first quarter. Should we expect this trend? Or should we start to think it could be between mid- to high single digit?

It should move to mid- to high single digit, closer to 10%, but not above. The 15% that we had last year would be very difficult for -- in all the lines. I won't go. And in other income, we had high expense, as we mentioned in the last conference call. In the second quarter, we created a lot of provisions for securities investments and derivatives from customers.

We adjusted our methodology to reflect the real risk and then we freed all the provisioning on the last quarter. This quarter, the provisioning was very small, like MXN 10 million. But it shows the contrast, but we should see the second quarter where all the expense was done, and we are not changing again the methodologies. Basically, we were over-provisioning and all our securities investment portfolio is government is mainly and a little bit of bond. There is no commercial paper there, then the methodology was not considering that. Then it was a mistake to provision that we corrected on the last quarter, and we freed all that provisioning.

For example, in terms of other income, we saw minus MXN 335 million. So how should we think about this line like going forward, should we expect the same minus MXN 335 million per quarter or should be kind of lower or is there a seasonality?

No. As you can see, historically, there is variation there, but should be negative for the -- all the concepts that are in there. But it should be around MXN 250 million per quarter negative. But it depends also on the -- mainly on the variations on the assets. We have some impact also with the dollar related is what it is strong.

Excellent. And just the last question, I promise. Is related to the USMCA renegotiation. So any color that you can provide us on what your expectations about it, I think, will be helpful.

We haven't included in our guidance any improvement or very big improvement, even though we know that the second half could be much better. We have seen good advances in terms of the negotiation. In terms -- even in dates, we were expecting to be finished more close to the official date of October.

And if you have seen Secretary Ebrard is talking about July, not October. It's a little bit optimistic. We hope that is finished. And again, we expect to improve mainly we see some sectors like the agro business and in general, the agricultural that is being affected by the exchange rate. We expect that if the exchange rate move a little bit up and all these taxes and everything and they can continue exporting to see an improvement over there.

On the other lines of business, we don't see either a big impact or a big improvement. Basically, the only line of business where we have seen already an improvement in advances warehouses and industrial real estate, mainly here in the North, but also some of Bajio region. That's mainly what we expect. We are cautiously optimistic. I like a phrase of Mr. Ebrard in terms that maybe we will not see a 0% tax or 0% tariff, but it won't be worse than we already have. And basically, he was saying it will be less than the ones that we already have. That will be -- any improvement is welcome.

Our next question comes from Tito Labarta with Goldman Sachs.

Just one question actually. Good level of capital here at 15.7% in core Tier 1. Just how are you thinking about your capital base, your ability to return dividends? And maybe, I guess, along those lines, loan growth was fairly good in the quarter. I mean, can that accelerate further from here? And just to put that also in your need for capital or ability to return capital?

Thank you, Tito. We have already paid a dividend on April that it was not shown in the 15.7% because that's the last official that we have that is February. It will be shown in the adjustment in April that it was paid around the 9th of April. It was MXN 4 per share, around it was MXN 1.6 billion. Say that, it moves to 14%, is still a very good level. We will maintain the second dividend in October if everything is as planned. In terms of the growth of loans, as I mentioned, we have a good pipeline in the wholesale business, but not enough to talk about breaking to single digit -- the two digits, sorry, the 10% of growth, but we are optimistic to maintain the high single digits, 8% or 9% is achievable as long as the wholesale is maintained in that range. And Hey Banco, as mentioned, is in 20%. It should maintain that rate.

Okay. No, that makes a lot of sense. And just, I guess, 14% then the right core Tier 1. Could you go lower? Just to think, I guess, about additional dividends is kind of where I was going with it.

Yes, it's -- if understood right, the question is 14% the official one, and it will increase with the profits and then it will go back to around 14% once we pay the second dividend...

Our next question comes from Danele Miranda from Santander.

Just a quick follow-up from my side on margins. I know you mentioned it should improve in the coming quarters. But just trying to understand what portion of your assets is still expected to reprice over the next, let's say, 12 months?

I mean, how much of your loan book has not yet fully adjusted to the current rate environment and could, therefore, continue to put pressure on margins more on the asset side rather than the improvement in cost of funds.

Give me a second. Well, it has already adjusted, as I mentioned, to the last policy rate and is directly indexed to the TIIE [Foreign Language] that it's called in Spanish. It will be the funding or funding rate that we changed the index because Central Bank changed the regulation.

Say that it will be MXN 118 billion as of March out of the MXN 181 billion. And if you help me doing it, 65% of the loan book that is being repriced after every movement of the rate. Then we expect two more reductions this year, we should see that portion of the balance to reduce basically in that amount.

Okay. Perfect. Very clear. And on the funding side, I know deposits should start to reprice and relieve some of that funding. But we did see a shift towards time deposits this quarter. Could you help us reconcile these two dynamics? I mean what is driving this mix shift? And to what extent could it offset the benefit from repricing?

Yes. On the funding side, we have -- let me do quickly -- is 109 plus. Yes. I will do the math to give you the percentage, but it's around the 63% that should reprice, but it doesn't reprice fully because a part is indexed to TIIE, that part, like 30%, is it fully repriced, but it takes longer. But the time deposits that are indexed to is moving slowly and it's not indexed as a percentage of, then that's the reason of the difference between the balancing. And the other part, the MXN 60 billion of check, well, MXN 80 billion of as of March, that doesn't reprice.

Our next question comes from [indiscernible]

I had two questions. I'm sorry if you had mentioned this before, but I couldn't -- I wanted to understand there is this line in your fee income called other fee income, other fees, which was MXN 133 million in 1Q '25, MXN 160 million in 4Q and MXN 120 million today. What sits in this line? And why did it decline 10% Y-o-Y? I have another question on corporate spreads, but maybe I'll take it after this. Sorry, I'm referring to the other fees line on Page 7 of your quarterly report.

You said Page 7. Sorry, just to understand well, you are referring to the other income.

Yes, yes. In other income, there is a line called other fees in the fee income breakdown, which went down 10% year-on-year, and it's MXN 120 million in first quarter of 2026. I wanted to understand what is sitting in that other fees line and the reason for the 10% decline.

Okay. What is included there is basically some commissions for credit card operations. That is the one that is showing the reduction.

Also, just for transparency, what is there is the appraisals. We charge a fee for appraisals and we have the mutual funds that we sell, we have also a commission. There are the three largest and also we have letters of credit. We have a reduction in letters of credit and also on the credit card. On the credit card, more than volume is all the other transactions commissions that we charge the customers that are variable, mainly the nonpayment or what we call in Spanish for collection as we have improved the quality of the portfolio, mainly in Hey Banco there is not that amount being collected quarter-on-quarter. Also on the letters of credit is very variable. It depends on the -- it's not a line of business that is very large, but it impacts in this line.

Thank you, Enrique, for the detailed answer. Just a quick question on the yield side as well. On your business loans, is interest rate decline the only reason for reduction in interest income? Or has there been any impact on the spreads you charged on TIIE also?

It's mainly that it's indexed to the TIIE and our pricing has not changed. There is some pressure in the wholesale business in some specific segments. It's not all across. But it's mainly the base rate rather than the margin above that rate.

Our next question comes from [ Juan Dominguez ].

Yes. I actually have a follow-up from the previous question about spreads. You mentioned that pricing has not changed, but you saw some pressure in some segments in wholesale. Can you provide more details on where are you seeing pressures? And also if you see any sort of irrationality in the market at this point? And I have a second question related to your insurance business. You had actually a pretty good quarter in terms of insurance revenue growth. I wonder if the -- if this is something recurring or you guys, I don't know, had something that we should think as extraordinary during the quarter?

Yes. In terms of insurance, we have some annual payments that happened in the first quarter and in the last quarter, is recurrent in terms that is every year, we do this calculation with our two partners, Quálitas and Chubb. And if we reach some goals or some -- or we improve the base salary, I don't know if that's the right word, but the recoveries, we receive a bonus. Then I was just trying to be clear that it's recurrent, but it's not monthly.

So it's seasonal.

It's seasonal, yes.

Perfect.

And the largest ones are paid in the first quarter and in the last quarter because it depends on the year, on the month that is renovated the whole premium. And in terms of -- the other question was?

Pricing, right? So you mentioned that spreads also.

The pressure on price. No, it's basically on large tickets, mainly on the construction side, we have designed a product. We have a large portfolio for bridge loans to homebuilders where the project is going on, the risk is higher, then the rate is higher.

Once the project is finished and is rented or leased, we proactively reduced the rate because we were seeing that the large banks, this is the portfolio where they were pressuring more to get the customers with them. That's basically the -- we don't see as irrational. It's just that once the -- whatever we are financing is finished and then is leased, the risk is different. Then that's the main reason. We don't see any competitor being irrational. We are monitoring Banamex that has been claiming publicly that they are back, but we haven't yet seen any irrational behavior.

Our next question comes from Federico Galassi.

The first one, and I will continue with the wholesale business [indiscernible], Enrique. But the question is you have a huge growth in time deposit in the quarter-over-quarter and part of that, you're funding the growth in loans.

The question is, is there any change in the chase of time deposits? And the second question is, and you mentioned that they are not offering cheaper assets, cheaper loans, but you increase the assets in the lower pricing sectors as a corporate or something like that? That is part of the explanation.

It's part, but it's not a big part. I don't know if we did the conference call, give me a second, Federico.

Yes. I'm taking the Slide 10 in your presentation, Wholesale business.

Wholesale business, no, it's all included. Well, out of that growth of MXN 7 billion between fourth quarter and first quarter, like MXN 3 billion is in corporates, corporates and governments. As we disclosed, we entered the syndicate with many other banks that is coordinated by the government to fund Pemex, I guess, it's a large syndicated loan.

We don't do individual government loans. But we do some corporates, and that is part of the explanation in this growth. But it's not what is driving, as I mentioned, is more than out of this MXN 139 billion, a large proportion is indexed to TIIE.

Okay. Perfect. And the second question, and you mentioned the pipeline and you believe that you can achieve this high single digit in loans growth. But when we see -- we have only -- The information we have for February was negative. This Friday, we will have the GDP for the -- at least for the first quarter, and it looks like the activity continues to be weak. Your pipeline is -- when you see your pipeline is for the second quarter, is for the second part of the year? I'm trying to understand how is the visibility for the second part of the year.

Well, the actual pipeline, we only have visibility for the next 3 to 4 months. That is what is already in our -- either the CRM as prospects or in the credit system in the process of the -- how do you say the BPM process manager. But say that we believe that if we see this good pipeline for the next 4 months and nothing has changed in terms of the USMCA agreement should be better. But to be very transparent, we don't have specific projects for the second half. It's month-to-month that we are monitoring.

Okay. And the last one, Enrique, if I may. When I see the quality of the portfolio, nonperforming provisions, it looks like everything is under control. Do you see or have you worried for any sector or region on the country? And that is the last question.

No, not as a sector, not as a region. In the wholesale, as we have been mentioning are specific cases that affects. And in medium-sized businesses, well, I mentioned already one. Yes, we have one worry that is agricultural, I mentioned in the last question. We don't see still any deterioration significant. But we know that the agro business customers are having difficult times to pay.

They say that it's mainly because of the exchange rate and the price they have already negotiated. That's the only one. We don't have that much exposition. I cannot say that it's the whole segment, but it's the only one where we have seen some medium-sized businesses or loans that are having problems are loans around MXN 20 million to MXN 30 million that are being renegotiated, restructured and everything that is in our hands to help these customers.

Since there are no more questions, on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks. If additional questions arise, please don't hesitate to reach out to Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.

Thank you very much.

Thank you, everyone.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional's Fourth Quarter 2025 Earnings Conference Call. We are joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Gálvez, Head of Strategy and Planning and Investor Relations. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead.

Good morning, everyone. I hope your families are doing well. Today, we are presenting our fourth quarter results, which reflect disciplined execution and continued focus on operating performance. We're operating in a certain environment as Mexico GDP's growth has slowed and there remains uncertainty around trade policies.

Our commercial strategy continues to prioritize expanding our presence in key regions while maintaining strict cost control and disciplined credit underwriting. We also remain focused on diversifying our income streams, particularly through nonfinancial revenue growth as well as increasing cross-selling, which helps partially offset lower demand.

Net income for the quarter reached MXN 1,814 million, representing a 7% year-on-year increase. Return on average equity decreased by 224 basis points year-on-year, reaching 19.1%. While this is lower than our prior period remains at healthy levels and reflects our continued prioritization of asset quality and profitability.

Our consolidated NPL ratio remained at 1.3 and 1 basis point year-on-year, and our cost of risk declined by 3 basis points to 1%. Overall, we are pleased with portfolio health and have observed any significant deterioration in credit quality. We remain disciplined in underwriting and risk management. Regional delivered solid year-on-year loan growth of 8%, supported by sustained commercial activity, particularly in high-performing regions such as Jalisco and segments like SMEs and auto loans.

On the funding side, core deposits grew 13% year-on-year, highlighted by continued client trust and engagement. Growth in both loans and deposits contributed a 7% expansion in the financial margin, supported by higher volumes and disciplined pricing. Our diversified efforts continue to gain traction, while card merchant fees up 17% year-on-year and insurance fees 25% quarter-on-quarter.

Nonfinancial income increased 10% quarter-on-quarter, providing some offset to the margin pressure we anticipate further in future periods. Operating expenses increased 17% year-on-year, driven by technology expenses, strategic investments in geographic expansion and inflationary pressures and operating costs.

As a result, the efficiency ratio rose to 40.2%, an increase of 258 basis points year-on-year. The wholesale loan portfolio grew 7% year-on-year, while the notable strength in Jalisco growth reached 21%. We continue seeing the same environment, although the increase of policy could start motivating more demand.

Wholesale banking demand deposits increased 42% year-on-year, bringing our CASA ratio to 45.7%. Retail banking continued to show healthy momentum with preferred banking demand deposits growing 9%, reflecting solid client engagement and trust. Our branch network continues to expand its disciplined manner, focus on higher potential locations that align with evolving customer needs.

Notably, auto and consumer loans grew 13% and 10% respectively, an indicator of growing client acquisitions and deepening relationships. Asset quality remains in key strength with nonperforming loans ratios at healthy levels across all segments. The wholesale portfolio reported an NPL ratio of 1% consumer portfolio 3.2%, auto and outstanding of 0.6% and mortgages 1.2%.

These metrics reflect the effectiveness of our underwriting standards as a resilience of our customer base. While we remain vigilant amid shifting and macroeconomic environment, we believe we are well positioned to navigate potential challenges through proactive risk management and a diversified portfolio.

Hey Banco continues to advance in a strategic shift forward profitability over pure growth prioritizing high-quality customers over volume expansion. This disciplined approach is delivering results individual demand deposits grew 20% year-on-year, while our business loans portfolio grew an impressive 33%, demonstrating strong traction in targeted segments.

Hey Banco reported a financial margin of MXN 297 million, and net interest margin reached 10%, an increase of 302 basis points year-on-year, reflecting improved asset yields and a more profitable customer mix.

Our efficiency ratio improved to 57.6%, a 1,403 basis points year-on-year reduction, highlighting progress in the cost containment even as we continue investment in automation and digital capabilities to mitigate structural cost pressures.

Our active individual consumer base now stands at 476,000, consistent with our strategy of prioritizing quality over scale. We reduced our cost of risk by 166 basis points to 5.47% while remaining vigilant on credit trends in the current environment.

We are happy to announce that the spin-off process of Hey Banco will be completed this weekend. Profitability continues to improve as Hey Banco, we are encouraged by the ongoing upward trend. Net income for the quarter reached MXN 55 million. And given the progress we've made in customer mix, pricing discipline and cost containment, we expect profitability to continue trending higher going forward.

Turning on Hey Payment, we continue to see positive performance across our payment businesses. Total Billing increased 34% year-on-year. Growth during the quarter was primarily driven by the payments facilitator segment, which increased by 150% year-on-year, reflecting a broader adoption of the acquiring and processing solutions among partner merchants.

At the same time, we continue to see stable contributions from aggregators and large corporate clients supporting diversification of volumes. Looking ahead, we expect payment business to remain an important contributor to growth while maintaining a disciplined focus on scalability, operating efficiency and profitability.

Our results this quarter reinforce the strength of our core operations and the consistency of our strategic priorities while continuing to generate sustainable growth even amid a more challenging environment. This momentum we've seen across our key business lines together with our prudent risk management and ongoing cost discipline give us a high degree of visibility and confidence in meeting targets we set to 2026.

While this solid foundation and growing momentum, we anticipate delivering top results again in 2026, guided by our targets of total loan growth between 5% to 10%, total deposits growth between 5% to 10%, net interest margin between 6% and 6.3%, efficiency ratio around 42%, net income growth between 5% to 10%, return on equity between 8% and 19%, cost of risk between 0.8% and 1%, NPL ratio below 1.8, loan growth between 15% to -- excuse me, Hey Banco's guidance, loan growth between 15% to 20% and net income growth between 65% to 90%.

Moving forward, we will continue to enhance our operations and explore new opportunities, fully committed to our strategic goals. We are confident that Regional will remain a strong financial performance in the coming years, ensuring superior profitability and asset quality within the system. Thank you very much. We appreciate any questions.

[Operator Instructions] Our first question comes from Eric Ito from Bradesco BBI.

I have 2 here on my side. The first one is on your guidance on NPLs. You're guiding for 1.8%, but you ended the year with 1.2%, 1.3%. So I just want to understand if you expect major deterioration throughout the year.

And then my second question, which is also linked to this one, is regarding the potential regulatory changes. So if we look at your write-offs, it went up from around MXN 400 million in the third quarter to almost MXN 800 million in this quarter.

So I just want to understand what should we think about the recurring level for these write-offs going forward in 2026? And then the last one, if you could comment on your updated estimated impact from the potential changes from the interchanges would be good.

Thank you. In terms of NPLs, our guidance, as you can see on the screen, we usually guide below 1.8%. We expect some deterioration, normal or regular around 1.5%. But we wanted to have room for specific cases that is what was happening for the whole year at the end of the year.

And I will move to the second one. At the end of the year, we managed to reduce the NPL to 1.3%, 1.28% based mainly on the recovery of -- well, the foreclosure of one of these large customers, we foreclosed many flats from a building.

And then in the other one, we managed to restructure and they paid at least 3 payments during the year. That's the main part that is on the move from NPL to regular ones. And as you mentioned, we wrote off -- usually, we do at the end of the year, this -- we evaluate all the loans that has been past due. And with the new methodology of provisions also we validate the possibility of recovery because we have -- most of them are on the legal process.

And we decided to roll off all the ones where we don't see possibilities of recovering. That is around MXN 300 million that you can see on the quarterly report. That explains the increase. We don't guide or we don't have an expected regular amount of write-offs. Mainly, we can project in consumer or mortgage or small businesses, but in large or what we call [indiscernible], we don't forecast write-offs.

We don't see a large amount in the next 2 or 3 quarters similar to the ones on the fourth quarter. But just regular day-to-day in consumer, we write off regularly once they reach 180 days, 6 months past due. In small businesses, basically after 1.5 years, 18 months. But in large business it's really when we have the certainty that there is no possible recovery.

Then we don't see -- the main impact that we see in terms of regulatory changes is not in write-offs, even though the regulation change and it will take longer to do the deductibility in taxes. The process is similar. And for this year, the rule is that after 2 years of starting the legal procedure or demanding the customer suing -- sorry, suing the customer legally, we can write off.

Usually, we take longer than it won't affect in the large customers, we take longer than that period. The other one that is already reflected on the net income growth is the non-deductibility of the 75% of the [indiscernible]. As you know, the government say that it's more a tax than an expense. Then, we cannot deduct the 100%, only the 25%. You will see that our tax effective rate will be increased in the next quarters due to that change. It's the only real material one. The other ones will not have a lot of impact at least for us.

Okay. And could you...

In terms of the interchange is still on consultation, the request for information from the government to the many different entities that we participate on the payment market is finished the next Friday, the 31st -- officially 31st the Saturday, but the next Friday, they are open to receive feedback, and then they will decide if they apply the change to the interchange fee.

But right now, we are not considering any change in our budget. We are considering the same level of fees both on debit cards as well as in credit cards as we will expect -- we will wait, and we are expecting that process to finish during the next 2 quarters.

Okay. Perfect. And then just a follow-up, if I may. Just on your effective tax rate, you mentioned that you expect to increase in the next quarters due to the APA change. Could you give us some color here on the expectation on the levels that could go up?

Yes. It has been between 25%, 26% for the last quarters, and we expect it to move to 27%, 28% for the next quarters.

Our next question comes from Ricardo Buchpiguel from BTG Pactual.

I have 2 here on my side. So first, it will be interesting if you could provide more details on what should be the main segments and regions driving loan growth this year? And also comment if you do believe any new resolution or agreement in the USMCA deal is necessary to reach this 5% to 10% loan growth or eventually a resolution on this topic would be like a potential upside risk to share loan growth numbers.

And for my second question, [indiscernible] finished the year with nearly 15% capital ratio. So if you could also remind us what is your target capital ratio and what should be your dividend policy for '26? And also comment that if you eventually be a bit below -- a bit above the target capital ratios because of eventually a potential weaker loan growth, if it makes sense to expect any additional payments that you usually pay compared to historical levels?

On the first question, I will move to the second part first. No, our budget doesn't take into account an immediate solution or agreement, but it considers a better second half. That's where it is implicit, but it's not -- it will be more an upside risk than downside risk if there is not an agreement.

We are expecting it for October, even though the dates that the government, especially the Secretary of Economy, he mentioned the July date that is on the agreement, on the USMCA agreement. Our improvement is only on the last quarter. Then for the most part of the year, it's not included any benefit or improvement from the USMCA agreement.

It includes a small improvement due to the rate reduction and it's in all the regions. It's more by segment than really for region. It's mainly on small businesses, small and medium, not only small. And in terms of products, also auto, auto lending is a segment where we have been growing around 20% because it's growing both in Banregio as well as in Hey. And basically will be the 2 main segments.

Large customers will be in line with the guidance between 5% to 10% is -- the other 2 are above 10%. That will be in terms of capital ratio, yes. And as Manuel mentioned, this weekend, we will have the spin-off, the migration of the customers of Hey Banco to Hey Banco legal entity or the new license, their own license operating fully because right now, it's operating just with the equity.

Say that the capital ratio for Banco Regional will improve. And yes, we are planning to present to the general assembly a dividend. We will follow the same strategy that we are following for the last 3 years that is to pay the 25% pay out this after this general assembly, the ordinary general assembly that will take place someday in April. We have not yet defined a specific date.

And then in October Board meeting, we will again review the possibility. We see, as we mentioned in last quarter conference call, that there is a higher possibility to pay the fully 50% this year once the Hey migration is done.

That's clear. Just one quick follow-up. What would be the gain in capital ratios from the spin-off of Hey?

Because we will migrate the around MXN 10 billion loans from Banco Regional legal entity to the Hey Banco, but Hey Banco already have the equity, then it will be reduced the loans in Banco Regional. And it will be very low reduction on the equity. It will be not proportionally because if you remember last year, we paid dividends to capitalize or to increase the capital of Hey Banco legal entity. Then basically, the short answer is the MXN 10 billion will be reduced on the loan book of Banco Regional without further significant reduction of the equity.

Our next question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.

The first one is, if you can provide a little bit more color on your NIM expectations. You guided between 6% to 6.3%. And I remember you ended with around 6.3%. So that will imply a NIM pressure of 30 basis points in the low end. So what is the level of interest rates that you are assuming for 2026? And how are you picturing the lower rate to go throughout the year? Do you think it will be throughout all the year in the first half? It could give us a little bit color on what will be the evolution of the NIM.

And then my second question is in terms of your operating expenses. I believe it was a little bit high than what we were expecting. It was around 14% for the full year in 2025. And I believe you were expecting more like a high single digit, low double digit. So I just wanted to understand if you're anticipating some expenses for 2026? And how should we think about the OpEx growth in 2026?

Yes. In terms of the policy rate reduction, we are expecting between 6% to 6.5% or say on the opposite, between 2 and 4 cuts along the year. Our budget is in the middle with 3 cuts, but the last one doesn't have a real impact. We expect 2 in the first semester and in the second half of the year. That is about the rate expectancy for us.

In terms of NIM, you are right. As you -- as the NIM is an average of 1 year, we will see the capture of the reduction after 1 full year of the reduction of the policy rate, then we expect to continue reducing not all the way of the 30 basis points, but some point in the middle.

As you -- as we have been also mentioning in previous conference calls, part of the -- instead of hedging or something like that, as you have suggested on other occasions or question -- not suggestion, sorry, question if we are doing -- we have increased our investment, our portfolio on Certis mainly as a defensive way for at least 1 year.

Our portfolio have increased to MXN 53 billion. And then that could help to reduce the impact immediately. But after 1 year, we will continue renewing the Certis portfolio, the investment securities portfolio. That is mainly Certis or bonds are government bonds.

In terms of operating expenses, yes, as we mentioned, it's basically the same items. What we expect for the -- there is technology and the expansion plan for this -- last year, we opened 10 new branches. And for this year, we expect around 15, mainly in the first half of the year. Then that's the part that will be not reducing cost is even though it's an investment is reflected as an expense mainly for rents and for people.

But the effort that we did in the third quarter for cost reduction on people will be shown this quarter, the first quarter of '26 and for the whole year. Then in summary, we expect a small increase in cost for salaries and benefits, I guess, is the way that is mentioned on the quarterly report, but not yet in the other expenses nor the ones related to the expansion nor the ones related to technology.

That part should be around mid-teens for the whole year until '27. In total, we will be very close to 10%. But as you have access to our split data, at least in 4 or 5 lines, you will see that salaries that is the larger number will be below 10%, but the other 3 will not be below 10%.

Perfect. No, this is super helpful, Enrique. Just a last question in terms of the strong peso, we have been -- it's already below 17.5%. So just wondering if there's like a sensitivity for a peso appreciation? What does that imply for your dollar portfolio? And also, if you are seeing like it could eventually have an impact in exporters?

Not really. It doesn't have really a big impact. We have around MXN 16 billion denominated in dollars. That will be the amount that we have in deposits. Then when we do the valuation every month, it will show less deposits. In terms of loans, is half of that, then it is less than -- it's around 5% of the loan book is denominated in dollars. Then it doesn't have a big impact.

And that's the level we have on direct exporters. As you remember, we have been doing this analysis about exporters and impacts on the USMCA treaty. And it's very small, the number of exporters that are our customers. Mainly our -- we have some indirect impacts in terms of providers of exporters, but not -- we haven't seen any large customer that is only dependent on exportations.

Our next question comes from Brian Flores from Citi.

I have 2 questions. The first one is on Hey Banco. I think the unit economics are showing continuous improvement. Very good traction, I would say, across individuals and businesses. And as you mentioned, it is now an independent operation.

So I just wanted to ask, how do you see Hey Banco in 3 to 5 years? I think at some point, it was mentioned a possibility was an IPO. I know maybe for now, it is not the base case, but I think in terms of the strategy, it would be great to hear from you how are you thinking about this asset? And then related to this, I wanted to ask you if the spin-off brings the focus from management entirely back to Banregio? Or are we going to see some still split focus or attention in the 2 entities?

Thank you for your question. Well, the focus remains on Regional, right? So obviously, the technology we've been developing here in Hey has already produced great results in Banregio already. So we've been very happy with this evolution. And in that sense, I guess, the whole group continues evolving in that manner.

In terms of a capital raise from Hey Banco individually, I think it will remain a question about ROEs, right? So we will see a better capital cost if we have an ROE above Banregio. So in that sense, we want to continue evolving Hey Banco to have more credit because we'll still have a super [indiscernible] on deposits, and we've been having it for many times -- for many years.

So in that sense, we still continue growing, and that's the main focus, as you can see in our guidance. And that we'll continue to bring on more profitability. And in that sense, we want to maintain a continued growth on income from fees, which will, I think, be happening in the next 12 to 24 months.

So it takes a little bit more time, but definitely something that will continue to drive profitability going forward. And I think there's -- I mean, Hey Banco in that sense is a complement to Banregio because, as I said, Banregio doesn't want to be like BBVA that has 2,000 branches, right?

So Banregio is -- will continue growing branches, I think, up to 350 at the most, right? So in that sense, Hey Banco has the reach to go to all the other segments, right? So -- and the segments that are more prone to productivity, more prone to understanding financial products better because they understand technology better. And in that sense, Hey Banco strategy and offering will have a greater impact.

Banregio as a brand is not working for -- in that sense, it's not something that it won't work for everyone, right? So in that sense, Hey Banco complements it very well as a brand portfolio in that manner, right? So we are the ones that are the best in class in Mexico in terms of the amount of products we have that digitally offer. So no one has -- no Nubank or Revolut even that has only started. We are the entity that has the most digital products out there, both for individuals and sole proprietors and businesses. So we have the full spectrum.

We have all the services. We have payments. We have everything going on. So in that sense, what we have right now is the opportunity to focus on growth. And that will drive profitability and efficiency and being able to really have the best-in-class productivity entity as Regional out there. So I think it's amazing what we have been able to achieve, and we're very happy with the results and profitability is being a pretty good effort on our side.

And I think as you might know already, that's what we thrive on. And there's other players with other plays, which is fine. But our is a story of consistency, right? So in that sense, we're very happy with the results and how things are evolving. And we're open for any opportunities that might arise on that matter, right?

Great. And if I may, just 2 quick follow-ups on sensitivity. You mentioned, I think, on Eric's question, you're not considering the impact of higher interchange fees. I don't know if you have run any sensitivities in terms of if the law passes as it is suggested, if you have any sensitivity as to how much it could impact earnings? And then also, if you could remind us of your NIM sensitivity, I think it was around 13 bps per 100 bps in [indiscernible], right? I just wanted to confirm if this has changed or you have adjusted slightly the sensitivity.

For the second question, our sensitivity for the whole loan book is around 13 basis points or for the whole asset book. For the loans, it's around 15, as you mentioned. But the total NIM is around 13 per 100. And as I mentioned, it takes a full year to absorb the change or to reflect it in the full NIM, yearly NIM. If you do the calculation of quarterly or monthly, it will be reflected faster.

In terms of the sensitivity about the interchange rate, we have done some scenarios where -- but obviously, it's reduced the income in terms of the one that we present as transactional, but we -- it's not material for Regional. That's as much as we can say because it will be a speculation in terms of -- because we see an upside in the acquiring business if we interpret correctly the proposal, but then we prefer to wait and see the final proposal for both sides.

It has an impact -- negative impact, a reduction of fees in the issuing business, but it has a potential benefit in the acquiring business, not totally offsets one to the other, but it could partially offset the impact.

Our next question comes from Pablo Ordóñez from GBM.

Congratulations on your results and on the spin-off of Hey Banco. My question is also on the noninterest income lines. Can you help us with the outlook or guidance? What are you expecting in terms of growth of this year? I saw 13% in 2025 driven by cards and merchant fees. So what growth can we expect from these income lines, commissions, insurance and [indiscernible] fee? And thinking on the quarter, there was MXN 238 million other income line. What is driving this income? Can you give us some color on this?

Yes. I will start with the second one that is very direct is the last quarter, we explained that we did some provisions based on our risk methodology that we were using at that moment for both mark-to-market on the derivatives that we sell to the customers, not the ones that we have. And the other big part that it was the largest provision that we did, it was related to the increase of the securities investment that it was -- we were increasing the portfolio to offset the impact of the rate.

Say that, as it was a very high number for us, we did some advisory, we pay that advisory to understand if there was a better way to calculate this risk. And the result is that we freed up or reduced the provision, mainly on the investment securities.

And the mark-to-market of the derivatives, we didn't change the methodology, but it's very sensible to the peso, dollar and to the expectations we use vectors that we buy from public entities, mainly the Indeval and Bolsa companies. That's the main. And there is a third line that we usually in December, we validate the level of provisions of other items.

And some years, we increased the provision and it's not related to credit risk provision. It's more to the operational risk. And this was a very good year for us in terms of fraud prevention, then we free some provisions over there. For the next year, we expect a full year very similar, but will be a full year.

It doesn't consider a specific quarter because you will see that third quarter was very negative and fourth quarter was very positive. No, we expect a very similar full year, and we will continue monitoring the methodologies that our risk department uses to do that provision.

And for the guidance for the growth rates of other noninterest revenue lines?

We usually don't guide. It will be around 10%, but we expect growth, mainly drive by the acquiring business and the insurance business. As you can see, the market-related ones that is mainly foreign exchange business was reduced, both for the reduction on the spread in the foreign exchange business as well as all the new controls that we put in the second half of the year to align to the U.S.A. regulation, not only to comply with the Mexican one, but also we are fully compliant with the U.S.A. regulation.

One last question. Correct me if I'm wrong, but I recall that you mentioned in the past call that Payment business is going to be migrated to Hey Banco. Is that still the case? And which lines would be affected by this?

Part of the -- yes, the merchant business or the acquiring business will be migrated to Hey Banco. The business, we call it Hey Pago, but will be seen in the books of Hey Banco, the income, yes.

Our next question comes from Lindsey Shema from Goldman Sachs.

Maybe taking a step back, can you give a quick overview of where you see upside and downside risk? In another way, what will it take for you to get to that 10% net income growth versus the 5%?

Well, I guess it will depend on loan growth for sure because that's our main driver. And wholesale lending, which is some -- as you've seen, the increase has been sluggish. In that sense, things, I think, might -- because in that sense, the cost of funds, I mean, we have ample liquidity. We have ample capital. We have very good results in cross-selling. Fees are growing at a very good rate.

So I think the last thing of the puzzle will be loan growth. So I think that's -- and in loan growth, we have great results right now in auto loans, mortgages. NPL ratios have been in great control. So in that matter, I just pinpoint the fact that wholesale, as you know, has been sluggish in that sense, will depend much more on macro and the trade policies that we already experienced.

So I think next year, the renegotiation of the treaty will definitely have a better understanding on where we're at and how things are going to continue to evolve. And the other thing is that we are relatively small compared to the other players.

We've already taken advantage for sure of taking more market share, and that's where we continue to evolve. And I mean, we have that in our favor. That's why we're growing at a much faster pace than our competitors. But obviously, there's the headwinds, as I said before. So yes. I don't know if that’s...

Our next question comes from Neha Agarwal from HSBC.

Congratulations on the results. Just a quick follow-up on Hey Banco. After the spin-offs, should we expect any change in strategy? Should we expect more aggressive growth with Hey Banco? In the past, you've mentioned that you concentrate more on the relatively higher income segments and not necessarily go after the same customers that a Nubank would go after. Does that still remain the case? Or would you be a bit more open to going after Class C, Class D customers?

No. The short answer is no. We are not changing the strategy in terms of growth aggressively, at least not at the beginning. Right now, our full technical and operative team is focused on the migration that will happen next weekend, starting February 1 or February 3, that is the first business day in Mexico on February. But in terms of strategy for the full year, we will continue growing small business lending. That's the main line of growth and the main focus right now.

And we will be focused improving all the credit and credit scoring and not only the credit scoring, the automating the whole lending or loan origination. On the deposit side, on the individual side, we will continue growing credit card, but not aggressively faster than this year, but not aggressively, and the same for auto lending.

And in terms of market positioning, it is the same. We have been mentioning that we want to focus on customers that are already bankerized. We are not competing in terms of -- we don't know what is the market for Nubank, but I guess what you mean is for non- bankerized or for inclusion. No, that won't be the case, at least not for this year for Hey Banco. We believe there is still this week, we saw that BBVA launched a new promotion for their 34 million customers they say they have.

And we believe they have the 34 million customers. We will be very happy to take 1 million out of that. It's enough a lot of customers. And if you add up all the millions that Santander, Banamex and Banorte have and HSBC and Scotiabank. That's our main aim to gain market share on the already bankerized customers, mainly because we want to do cross-sell and we want to become the main bank.

As Manuel mentioned, we are very happy with all that we have built, and we have all the financial products already working in Hey Banco, then that's our main market is not really to go for inclusion or new customers to the banking sector.

Got it. Very clear, Enrique. If I could just quickly ask about competition. And I'm not just referring to Hey Banco here, but the general environment that you're seeing for the banking system, both on the lending side and on the deposit side. Are you seeing more competition and especially on the deposits with you giving higher yields with Hey Banco, a lot of the other digital players are giving higher yields.

Do you see that chipping away any of your deposit base for regional for the core bank? It would probably be less impactful for you than for the universal banks. But do you see any impact, any movements in the system in the dynamics for both loans and deposits?

No, for sure, that's not the case. And I mean, the -- all the digital players gave a great yield, but only up to MXN 25,000, right? So those very small accounts are not of an interest to us as much because the cross-selling ratio there is like very low and very unprobable compared to other regions like Brazil, for example.

So in that sense, no, we're not seeing any pressure. I mean the cost of funds has been in a very good rate at this moment. It's been not any pressures, and we see no risks going forward. We have a lot of deposits. We have a lot of liquidity. So yes.

Our next question comes from Yuri Fernandes from JPMorgan.

Actually, on this point on deposits that Neha asked, I have a follow-up. Maybe your guidance is looking a little bit conservative for core deposits, right? It's 5% to 10% that is similar to the loan growth. But when we look this year, 2025, you grew your deposits way more than loans, right? So you keep bringing activity, clients. I understand the challenge on lending given uncertainties in Mexico. But couldn't you see deposits growing more and your LDR continue to drop and maybe not a funding increase, but a funding reduction for you and maybe a tailwind for margins. So this is the question number one.

Then I have just a follow-up on Eric's point about the write-offs moving to 2 years on tax deductions. I just want to confirm that the write-off period is not changing, like the deductions for tax purpose is changing, but the policy of write-off remains the same. I'm asking this because of the NPL ratio increase.

So I just want to confirm that there is nothing changing on the term of the write-offs, and this is not impacting NPL as a result. And then I can ask a third question if there's time.

In terms of write-off, as I mentioned, the main change that it was already published is that the deduction, the tax deduction will only take place after 2 years of the -- I say of the swing and people is correcting me here is on the past due, basically is when the loans have 2 years.

As I mentioned, right now, for business, we have an 18-month period to do the write-off then will be increased from 18 to 24 is not really material. We will continue doing provisions and mainly temporarily will increase a little bit the cost of risk, but within an 18-month period will be exactly the same.

And as I mentioned, for the large customers, it's not based on time or even on the legal status is really in terms of possibility of recovery, then the short answer is no. We are not changing our policies because even though we could do the write-off, the law doesn't prohibit us to do the write-off is the time when we can do the deductibility in place, then it's not material. And for the small loans for consumer hasn't changed at all. It is for around MXN 36,000 and above were started changing.

And in terms of funding, we have 2 very different strategies in Banregio and Hey. In Hey, we have been reducing the rate. We are obviously monitoring to the large players on the digital banks. And as you can see, most of them or all of them have reduced the rate.

And as Manuel mentioned, they are -- they have thresholds or caps until '25 or the largest ones is MXN 250,000, but not above. Then we will continue reducing the rate as well in Banregio is not floated, but it's related to the Certis cost. Then customers came mainly for the service to Banregio mainly. Then if it keeps growing as long as it's an additional income, even though it could hurt the NIM, we prefer to have more customers and more liquidity at the right cost.

No, super clear, Enrique. So no change in the policy of write-offs or no major change. And what has changed is just the deductibility. So this should not impact the NPL ratios or anything like this? And on funding, even if there is opportunities here, you are going to be cautious like maybe it's better to keep liquidity high and keep some deposits, right? That's the message.

Yes.

I just have a follow-up on OpEx. And for this year, I think the message is clear. You have some pressure a little bit on the top line, and there is a carry, right, on the cost from 2025 into 2026. But looking ahead, would we see Regional or Banregio and Hey together having lower OpEx.

Why I'm asking this question? Like in the past 4 years, I think your OpEx was growing between low to mid-teens, right, low teens to mid-teens. Inflation in Mexico is lower. I know you are growing to new geographies. There is a lot happening in Hey. But just checking if maybe in '27, '28, we could see OpEx moving to single digits.

For '27, maybe not. But for -- well, first, as I mentioned, the full OpEx, including personnel plus everything else, this year will be in the low 10s. And for '27 and '28, it should be below 10% if inflation remains where it is right now, 3.7%, even 4%.

But I was explicit splitting personnel that should continue the reduction based on the use of technology, improvements in efficiency. But where the carry is in the investment that we are doing both in technology and in the expansion. Say that if you adopt everything as OpEx, yes, we could see in '27 or '28, single-digit increase.

Since there are no more questions on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks. If additional questions arise, please don't hesitate to reach out to Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.

Thank you, everyone. Thank you for your participation today.

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Regional's Third Quarter Earnings Conference Call. We are joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Gálvez, Head of Strategy and Planning and Investor Relations. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Manuel Rivero Zambrano. Thank you, and please go ahead.

Good morning, and thank you for joining us. Today, I'll walk you through the third quarter results. In a mixed macro backdrop, we delivered resilient profitability and healthy growth and continued progress on our strategic priorities. The third line is disciplined execution, balancing selective growth, strong credit quality and a more diversified revenue mix. Mexico's growth has moderated and uncertainty around trade policy has increased. Against the backdrop, we stayed close to our clients and focused on the drivers we control, put it on and driving disciplined pricing and a more diversified balance of revenues.

We continue to expand in high potential regions while keeping a tight rein on costs, and we increased the mix on fixed-rated loans and fees to cushion future margin normalization. Net income for the quarter reached MXN 1,531 million, a 5% year-on-year contraction. Our return on average equity contracted 248 basis points year-on-year to 19.3%. While this represents a decline from previous quarters, it remains at healthy levels and reflects our focus on maintaining asset quality and profitability as priorities. Our consolidated NPL ratio increased to 1.6% from 1.3% a year ago, and our cost of risk rose to 1%. While this remain at manageable levels, we continue to tighten early warning monitoring, maintain conservative underwriting standards and proactively manage exposures.

Regional posted solid year-on-year growth -- loan growth of 9%, fueled by sustained commercial activity, particularly in higher-performing regions such as Jalisco. On the funding side, core deposits grew 9% year-on-year, while the total deposits increased by a strong 14%, highlighting the continued trust and engagement of our clients. This dynamic growth in both lending and deposits contributed to a 7% expansion in the financial margin, supported by higher volumes and disciplined pricing strategies. We continue to broaden our revenue mix through nonfinancial income. Card merchant fees increased 35% year-on-year and insurance fees 18% year-on-year. Overall, nonfinancial income grew 4% year-on-year.

Operating expense grew 12% year-on-year, driven by technology expenses, strategic investments in geographic expansion as well as inflationary pressures on operating costs. This resulted in our efficiency ratio increasing to 41.7%, reflecting a 221 basis points year-on-year increase. We are prioritizing productivity levers, automation, process redesign and vendor optimization to stabilize expense growth while protecting client experience and risk capabilities. Wholesale loans grew 9% year-on-year, led by Jalisco with 23% growth. Demand deposits rose 29% year-on-year, bringing our CASA ratio to 44.6%. Our relationship banking model, coupled with disciplined pricing, continued to differentiate us.

Retail banking continues to show healthy momentum with preferred banking time deposits growing 17%, reflecting solid client engagement and trust. Our branch network continued to expand in a disciplined manner, focusing on high potential locations that align with evolving customer needs. Notably, individual checking accounts rose 13% year-on-year, an indicator of growth client acquisition and deepening relationships. Though we remain -- we anticipate a normalization of this space going forward, the NPL ratio remained very healthy levels across the segments, like wholesale 1.4%, consumer at 2.8% and auto at 0.6% and mortgages at 1.3%.

In wholesale, NPLs increased this quarter, reflecting a deterioration in a few specific cases rather than a systemic trend. Levels remain within the segment's historical range and exposures are well secured. We are executing fragmented workout and derisking actions, tightening early warning triggers and accelerating recoveries and are focused on bringing the ratio down over the coming quarters. We're enthusiastic at Hey Banco's results. We continue incrementing the profitability, prioritizing quality over volume. Individual deposits grew 23% year-on-year and the business loan portfolio reached MXN 4,443 million, up 26%, showing strong traction in targeted segments.

Hey reported a financial margin of MXN 253 million and a NIM of 9.2%, up 234 basis points year-on-year, supported by improved asset yields and a better risk-adjusted client mix. The efficiency ratio improved 64.4%, even as we keep investing in automation and digital to mitigate structural costs. After customers reached 482,000, the cost of risk decreased 198 basis points to 5.7%, and we reduced our cost of risk by 188 basis points to 5.71%. Though we remain vigilant about credit trends in current environment, the spin-off process remains on course for completion this following semester. We are advancing our loan diversification strategy with emphasis on high-quality customers across regional core sectors.

The new Banregio app design will consist with -- consistent experience to Hey Banco will enable deeper cross-selling, especially in consumer products. This helped mitigate the NIM pressure while leveraging our proven risk management capabilities. Wrapping up, I want to mention that the Board has approved the arrangement of a shareholders' meeting to request an approval for the second dividend payment, underscoring our underwing commitment to create sustainable value for our shareholders. Our results this quarter reinforces the strength of our core operations as consistency of our strategic priorities while continue to generate sustainable growth even amid a more challenging environment.

Moving forward, we continue to enhance our operation and explore new opportunities fully committed to our strategic goals. We are confident that Regional will maintain strong financial performance in the upcoming years, ensuring superior profitability and asset quality than the system. Thank you very much. We appreciate any questions.

[Operator Instructions] Our first question comes from Brian Flores with Citi.

Just I have 2 questions. The first one is on the guidance, right? I just wanted to check with you if you have any updates, particularly as the implied needed fourth quarter would be or needs to be very strong to reach the midpoint of the guidance. So I just wanted to understand if you have any revisions, any adjustments, I think that would be very important to understand. And if you want after that, I'll ask my second question.

In terms of guidance, I guess that you are asking about net profit, obviously, that is the one that is challenging because on the other ones, we feel comfortable. I won't go for all of them, but total loan growth and core deposits, the NIM that is in range in 6.3%, even the quarterly. But about net income growth, yes, we know it's very challenging. We don't believe we will get it. We expect a very good fourth quarter, but not as good to reach the 5%. Then -- well, we are not changing the guidance is the last quarter, but we accept that we are doing everything to improve the profitability for the next quarters.

We have been taking advantage of many of the automations we have been doing to reduce our staff, but the improvement in costs will be shown until the first quarter of 2026. Then in cost and managing the operating expenses, we have some improvements that will be reflected on the next quarter, mainly because all the severances that we paid this quarter will be shown -- will be balancing or netting with the savings. Say that again, and being concrete, yes, it's very challenging, and we believe we will be close but below.

Super helpful. And then my second question is on growth. I think you are one of the banks that maintains the double-digit growth. And as [ Joe ] just mentioned, it seems like you remain comfortable, right, with that level.

Well, we revised in July the total loan growth and the core deposits from 7% to 10%. And we believe we can still get is challenging also the 10%, but it looks more like 8% or 9% because the fourth quarter, if you see versus December is 6% already December to September, 5.7% to be more exact. Then we believe we can -- we have a good pipeline in loans, but what we cannot manage is prepayments. We don't know if we are going to receive some prepayments as many customers are very liquid right now. But yes, in that line, we are on guidance between 7% and 10%, and we feel very comfortable above the 7%.

Okay. No, I just wanted to understand if you see this trend with similar levels of GDP in 2026 as the base case right now from the median survey of [ Banxico ], do you think maybe this 7% to 8% is reasonable? And if you can explain a bit on the asset quality side, you are seeing any particular segment affected.

In the asset quality, if you see our conference call presentation in the -- it's basically the wholesale segment. We won't say any more specific cases. Obviously, there is always specific cases. What we were trying to say is that it's not general, but are different cases in different regions. It's not a generalized problem. But -- and it's mainly in the wholesale segment, if you see -- I don't have it. This one is -- it increased from 0.6 -- no 0.9 to 1.5 and is our loan book, the largest loan book, MXN 130 billion. That's what is increasing the whole deterioration.

Also, we have seen some but not relevant in small businesses, both in Hey as well as in Banregio, but improvements in auto and mortgage, then we feel very comfortable in general. The only one that we are looking very closely for the size of the tickets of the loans, specific customers is in wholesale.

Super helpful...

And we -- going back guidance, we have explained that the guidance look very wide at the beginning of the year that we were on 1.2, 1.3. We guided below 1.8. For sure, we are sure that we are not crossing the 1.8. Right now, it's 1.6. It could go to 1.7 and then back. Reading some of the analysts yesterday, I agree that it's not -- it depends that we can collect or foreclose one of these large loans that we have been having during the year to go down. But even if we don't recover any of them, it won't cross the 1.8.

Our next question comes from Eric Ito from Bradesco BBI.

I have 2 here on my side as well. The first one, just a follow-up on your NPL ratio. I think you mentioned during your presentation that you're having some efforts to bring down, improve the collections. So I understand that will depend on the collection of some foreclose of the loans that had some issues in the quarter. But maybe looking at 2026 and thinking about your cost of risk, what do you think could be the sustainable one? I think during the revision of the guidance in the middle of the year, you increased from 0.7% to 0.9% to 0.9% to 1%. So just thinking if we could go back to those levels next year?

And then my second question is on Hey Banco. I think a good recovery in profitability. Maybe we can annualize around MXN 150 million of net income for Hey Banco this year, which would represent 2% to 2.5% of your whole net income in 2025. So I just want to pick your brains here and understand if you could share some numbers on how much do you think it could represent of your total net income maybe in 2026 or maybe a longer term if you have a goal here? And also, lastly, if you could share latest updates on competition and most aggressive players with Hey would be great.

Well, I will go first to the first question that is about cost of risk. No, yes, we move, as you know, the guidance also to 0.9% to 1%, a more sustainable before not -- beyond '25 is 0.9. I would love to say that we will go back to 0.7% that was very stable for many years. But right now, we see 26%, at least that is the one that we have been budgeting already between 0.8% to 0.9%, a more stable number.

In terms of Hey Banco, we believe in the next 2 years, it could be between 5% and 10% of the profitability of Regional. As you can see, we are growing and that will continue, both growing the loans, mainly SMEs but also continuing the efficiency, improving the cost efficiency ratio.

Okay. And on competition, if you could share the latest updates here?

No, no, no. We don't see any difference yet. We know that Revolut will start operation soon. Bineo already closed and was sold. No, we haven't were sent any impact from open bank or new bank recently. Obviously, we have some impact in December 2023, but not anymore. Let's see. And we know that Plata yesterday announced -- Revolut announced yesterday some different products and Plata is working on the starting of operations. We monitor all of them, but really, we continue believing that the largest competitors are still the incumbent banks like BBVA, Banorte, Santander and all of them, Banamex and HSBC.

And we're the only one out there that's really having all the products that clients need to consider our offer to be the main bank for those compared to any, we're very well ahead.

Okay. And just to confirm, this 5% to 10% profitability of Regional with Hey Banco, that would be what, like 3 years from now, 2027, 2028, something like that?

'27, '28. It won't be '26.

Our next question comes from Lindsey Shema from Goldman Sachs.

I have 2 questions on my end. The first is loan growth looks like it's going to be within your updated guidance of 7% to 10%. I was just wondering, I mean, you were originally expecting 10% to 15% for this year. Do you think it could accelerate back to that 10% to 15% in 2026? And if so, what are the main drivers you're looking at for loan growth next year? Is it the USMCA being renegotiated? Or is there any other kind of factors there? And then my second question is just a quick one. Other operating income, we saw a really big decrease down to negative MXN 110 million. Was that anything specific there?

Yes. Thank you, Lindsey. I will start with the second one because it's the easiest one to answer. Yes, in that line, I will refer to the table in the quarterly report on Page 8 that splits the other income that is in the income statement in 4 lines. There are all the asset sales for foreclosed assets that includes both the valuation plus the sale and profit if there is any on the sale of the foreclosed assets.

And then I will move to the other 2 are very directly. Credit operation refers to all the cost of credit bureau plus all the development banks, all the premium or commissions that we pay to development banks. IPAB is also direct payment, the premium that we pay for the IPAB is type of the FDIC. And finally, the one that has this changed [ 110 ] negative. Basically, in that line, what we account for is many provisions and valuations of different parts of the balance.

In this specific case, the provision that was made for expected losses for the securities investment portfolio. That's the largest one and some valuation of the swaps that we do with customers even though we -- every swap that we do with a customer, we have a counterpart with a larger bank. There is always a risk expected loss from the customer, obviously, not from the large bank.

Then both parts of the balance are valuated and also our provisions for expected losses as we have been increasing the investment securities is more than MXN 50 billion right now, and we started around MXN 35 billion. That's what is presented there. We don't expect -- I will anticipate the next question, neither this next quarter or the next 3 quarters to increase that provision because we don't expect to increase more the securities investment, the portfolio on securities investment.

We are comfortable with the number around MXN 55 billion. And as we have been explaining in previous conference calls, we didn't hedge against the reduction of the rate, but increasing the securities was part of our protection to protect our NIM. Then -- but also has this issue, let's call that you have to do the valuation and the expected losses provision.

In balance, we have around MXN 105 million net that if you consider the MXN 52 billion portfolio is a very small 0.14 something like that percent of provision. That's the main line. And in that line, it goes up and down, positive and negative is because there are -- I won't say many, but different provisions mainly for operational risk in all the businesses, leasing, all of them and the main ones are leasing and acquiring. And we maintain a target. When we reach that target, we free some of these provisions, then the line go positive. And then when we create them, the line go negative.

In terms of the second question for the loan growth, we expect to go back to double digit, but not 10% to 15%. Maybe we are not yet guiding, but we expect above 7%, but below 12%. And it will depend mainly on 2 main factors. One is the rate. Once the rate reached some levels below 7%, we believe the demand for loans will be increased, mainly some projects that has been postponed because of the cost of the funding. And also, as you mentioned, the more clarity, maybe not the final negotiation of the new USMCA, but at least some clarity that hearing the Secretary of Finance or the Ministry of Finance, [ Mr. Ebrard ] yesterday was saying that for April, maybe we will have more clarity, but any clarity will help. Any good signs will improve the demand of new projects and new loans.

Our next question comes from Ernesto Gabilondo with Bank of America Merrill Lynch.

My first question will be on operating expenses. As you mentioned, you have been taking efforts on saving costs and staff reduction. So how should we think about the OpEx growth next year? And then I have a follow-up in terms of taxes. Given that the banks will no longer have these tax deductions, you are posting an effective tax rate of 27% in this third quarter. So how should we think about the effective tax rate next year?

And for my last question, 2025 has been very challenging for Regional, but it is also creating easy year-over-year comps. So -- would it be reasonable to expect earnings growing again at double digit next year? And what do you think will be the key drivers for that?

Yes. OpEx, as I mentioned, and you can see also in the same page on the Page 8, that is where we disaggregate the total expenses. In compensation and benefits, we will see an improvement on next quarter, not fourth quarter, but first quarter of 2027. And that's the main line because it's the highest one is where we are focusing. We are doing a lot of automation that will be seen first in Hey Banco, but then in Banregio also. Then we can expect a continuous improvement in that line along the next year.

And about the question, what we can expect for next year, in total, we can expect very close to 10%, maybe a single digit. We still need to see the improvements during this final quarter, fourth quarter of 2025. But for 2026, it's very feasible to have finally 1 year of single digit, also considering that we expect the inflation to close below 4% this year. That is the one that impacts the expenses of next year. We are moderating the number of branches. We were opening 20 per year. This year, we will finish 10 and around 10 more for the next year. We will continue opening most of the ones that we have already selected and located, but not the 20s per year. That will also help on the cost.

Tax. In terms of the deduction from the IPAB, as you can see in the line has been stable around MXN 180 million per quarter and the deduction being our rate 26% and what was approved by the Congress is the 75% will be nondeductible. We expect an impact around MXN 170 million on taxes, that implies around 1.5% more of effective rate. There are other parts moving, but that's the main impact. Then you could say 27%, 28% for the next year. About earnings double digit, that's very tricky, very close, still not yet finished the budget and obviously not the guidance. Probable or feasible, but not -- but challenging. Then we believe, as you said, it's a lower comparable, but also it depends on the questions that Lindsey made about loan growth, especially in wholesale, it will depend on the right economic situation.

Our next question comes from Yuri Fernandes with JPMorgan.

I would like to explore a little bit more Hey Banco. And I think it was clear that you expect this to become 5% to 10% of the earnings. But I remember in the past back, I think 2023, like you were calling for maybe MXN 200 million of earnings for Hey. I was just checking the regulatory data here, and I think you had like MXN 47 million in the first 8 months. So we are tracking light in 2025, not even 2024. Number of clients, I remember maybe 1 million, then 650,000, number of clients are decreasing.

So if you can help us understand the road map, like why Hey will get there in this number of clients? And I know like clients is not a good example. You mentioned many, many times that you look more for profitability. But the way he is today, looking to the equity allocated, you would be making more money allocating the money on securities than on Hey, right, like the ROE implied is around like 4%, 5% nowadays on the Hey based on the regulatory data. And again, correct me if I'm wrong because maybe there are adjustments to be made in this data from [indiscernible].

But I want to understand because this has been a project for many years. I believe the bank like Banregio has a lot of opportunity, a lot of growth. And sometimes, I think maybe Hey can be a distraction. So if you can help me to understand a little bit more why Hey now can be much better in 3 years because the way we see it is very competitive in the market, right? And maybe you are seeing something that we are not. So if you can provide a little bit of more color on the road map for profitability, we would appreciate.

So there's -- BBVA has 2,000 branches. Out of those, around 350 branches are for the same segments that Banregio covers. So the rest, 1,650 branches are for the segment that we consider like very -- a massive retail segment. So regional continues to evolve. In 30 years, we've been expanding our segments that we're in. And this looks like a great opportunity. So there's a lot of people going into the economy, wages are growing. They're demanding a lot of credit, demanding a lot of financial services, both individuals, so proprietors and business segments. So I don't know where -- what are you missing? Do you see now the opportunity?

No, I see don't get me wrong...

Do you think that we need to -- I mean, it would be better to put on branches? Would it be like more intelligent? Just want to understand.

No, I'm just saying that you have been promising things on Hey and not executing, right? You said 1 million back in a day, 200 million. And I don't know why should we be confident that this time will be different that we're going to execute on the guidance of Hey because in the past years, this has not been the case.

No. I mean, definitely, we've had setbacks. Definitely, we have been understanding the segment. Definitely, we've been learning a lot, and you can see it in the progress. I mean there's a traction going on. I don't know how much confidence you need. But anyways, I mean, keep on watching, I guess.

No Great. And if I may, just a follow-up on asset quality. If you can provide a little bit of more outlook into 2026, if 2026 should be a better year for asset quality or not or another transition year. Just a little bit on Banregio per se. If with lower rates, maybe we could see a better -- a much better outlook for -- and Manuel, you already mentioned, we should not see 0.7% on cost of risk, but maybe if we could see a little bit better than 1% just checking on asset quality.

You're talking about Regional, I guess...

Yes, correct.

Yes, not specifically only Hey. About NPLs in Regional, as I mentioned, it could deteriorate a little bit more, but also it could improve with collections because not all the cases are customers that cannot pay anymore. We are doing day-to-day business in restructuring and collecting and foreclosing assets. As you know, we have a lot of collaterals, more than 50% of our loans, business loans have collaterals, then that's part of the business. But as I mentioned earlier, we are not crossing the 1.8 neither this year, and we don't see it either next year.

And in terms of cost of risk, we expect an improvement, not for this quarter, for fourth quarter, but for the whole '26, going back around 0.9%, we don't see the 0.7% feasible at -- not in this environment. But the 0.9% is very feasible and very achievable for the next year.

Our next question comes from Ricardo Buchpiguel from BTG Pactual.

I have 2 questions here on my side. In recent years, we saw that Regional hasn't grown loan as much above the market like it did before 2017, but it still has a relatively small market share when you compare especially to incumbents, right? That said, can you comment what was the rationale for that change in performance? It was related mainly because Regional got too big and eventually, you got too big for the key regions where you operate and now you need to move to new ones.

And can you comment if we should expect Regional to reaccelerate market share gains over the next, I don't know, 3 years and what exactly would support this? And for my second question, could you give us more color on NIM dynamics for next year? Should it be mainly driven by the interest rate sensitivity, which is correct me if I'm wrong, I believe it's close to 12 bps reduction for every 100 bps moving the interest rates? Or are there any other effects that we should incorporate in our projections?

I think the main aspect of the growth in loans has to be the environment, definitely. I mean it started with Trump first term, then came Lopez Salvador, then came the pandemic. So it's been a tough 5 years definitely. It's not -- confidence has not been as good, for example, when Peña Nieto with the Mexican moment, if we can remember that. But definitely, we're gaining market share. As you can see in Jalisco, for example, we're growing at a faster pace than our competitors. And that's the case most on the geographies that we've been. And we've not entered the big ticket. So we've not entered governments or government lending or corporate lending.

So we've stick to our stories, stick to our core clients and being able to really have relationship -- long-term relationship with them. So it's -- in a sense, this is a demand that they're having and it will have, I think, it will need more confidence, more certainty on -- you can see that, for example, the investment rate has declined in the last 12 years. So definitely, we've seen the hit there. So in that manner, I think we're more prepared to gather up growth. I mean, definitely, we see ourselves as we can have more information than our competitors, and we've always been able to grow faster than them.

But we don't have those handles like the government lending or the corporate lending that big banks use when loan growth, for example, right now is pretty weak, right? So I mean -- but definitely, you can see how we've been managing to increase our loan growth even in other segments and being able to cross-sell more, being able to really achieve better growth within complementary segments and that's helping a lot in terms of diversifying our income and diversifying our loan mix, right? So I think it's been very helpful. I mean we have the highest ROA out there. I mean we have a very healthy NPL ratio compared to any. So we've been able to really do a great job even so that we've not been able to grow at 15%, 20% per year as we've been, right?

So the main message, I think it's we're pretty ready. I mean we're very well efficient. We are in the best manner. I mean, we have the greatest team. We have the exposure to all the geographies that we need. We have all the talent that we need. We have all the technology. We are very confident that we've been able to grab much more market share. I mean every big bank CEO always talks about Banregio, it's ridiculous. It's ridiculous. It's amazing how they really like our model. But sadly, they can't copy it because they're -- I mean, they're reporting to the corporate in London or Canada or whatever, and it's pretty difficult to really make decisions here as we do and making sure that we take advantage of those because definitely, it really makes a difference.

And for next year, we definitely think that loan growth will be better. We've seen that the interest rate has ceded that will help, and it will continue helping for the next couple of years. And I think it will be easier for the big companies to be more confident in gaining or reallocating more capital to continue growth -- growing because there's a lot of -- I mean, the consumer segments are growing at a very fast pace. We have a lot of people entering into economy. As I said before, there's a lot of demand for new products and services. And in that sense, I think the economy will continue to evolve.

There are headwinds definitely. I mean, we have the renegotiation of the treaty next year. That will be definitely an issue. So it would be very helpful to continue having more information on that. And definitely, as things continue to hopefully going in a good manner, right? So the U.S.-Mexico relationship has it been at the moment, I think that will be very helpful.

Very clear. And in terms of the NIM dynamics for next year, what is reason we should expect?

In terms of the NIM, we expect, as we have mentioned, once the rate -- the policy rate or the TA that is the one that we use remains stable to continue going back. It's the same sensibility that you mentioned, 12 to 14 bps is lower, is tending to 12 if you do the NIM for the whole assets -- for all the productive assets, including the investment securities portfolio. But it's 14, if you only consider the loans.

Either way, as I mentioned, we have been increasing the portfolio of securities investment, but also the other consideration is that we have been increasing auto leasing that are fixed rates and with better margin than wholesale loans as well as small businesses. That's where we continue growing more than double digit, not in the whole loan book, but in the specific segments and loans with better margins and longer duration. Then we expect to maintain the margin above 6%, but it will continue growing -- decreasing -- sorry, decreasing as long as the rate decrease.

Our next question comes from Andres Soto with Santander.

Sorry to go again to the loan growth question. When I look at your loan growth in 2025, you guys were not affected by the decrease in government loans that we saw for the other banks. And yet the final results appears to be below your initial expectation. What was the main surprise for you guys in terms of credit demand this year or it was a matter of asset quality and you tightening your origination standards. What is in the end, what make you deliver loan growth in the, let's say, 10% instead of the 15% that you were expecting initially?

The main driver is prepayments. We are -- we have good new loans pipeline along the year. The demand was there, and we haven't changed our approval of loans policies or credit risk policies. It was mainly that some of the customers, they had liquidity, extra cash, and they decided not to invest it, but just to prepay their loans. And for our bankers was challenging not just to lend all the amortization plus the prepayments plus the growth, and that's the main reason.

And when you look into 2026, some of the other banks that have already reported mentioned they expect like a 2-phase year weak demand in the first half, strong demand in the second half. Is that the same type of pattern that you imagine for your loan growth next year?

For wholesale, yes. For small businesses and auto, it's more stable. We see a very good year for small businesses and auto, both in Banregio as well as in Hey. For wholesale business, yes. As I mentioned, we need to see more clarity on where are the negotiations of the USMCA trending about what will be the new level of tariffs, if any? Then I agree in that statement, but only for the wholesale, that is larger businesses, larger projects that requires more certainty. For the small businesses and auto and even for the small part of consumer lending that we have, we don't see they are as affected as the wholesale.

Understood. And what percentage will be wholesale versus SME in your total loan book?

Right now, it's 80% wholesale -- 80% is commercial. No, 71% is wholesale.

Perfect. And regarding the expansion plan, any changes to your expectation regarding branch openings and expansion into the central part of Mexico?

No, just the speed. We expect still to cover more than 280 branches in the next years. Right now, we are closing on [ 2,010 -- 2,200 -- 200 to 210 ], and we expect 280 at most. This year will be around 10 fully operating. We have another one in process. For the next year, will be 15 -- between 10 and 15. It depends on all the process of construction and opening, but that will be the split between 10 and 15 per year.

That will be -- and what we have not changed is reinforcing the presence in the regions where we already have a presence. It's not going to new states and being more efficient is most -- at least 50% of the branches that we are opening this year and more than 70% of the branches of the next year are without tellers or physical cashiers. It's mainly ATMs and the commercial team, the advisers and the bankers.

But all in all, you will say expenses should continue growing in real terms next year.

Yes. But as I mentioned, expenses next year, we expect single digit, still high, close to 10%, but single digit.

Our next question comes from Pablo Ordóñez with GBM.

My question is related to dividends. Now that you're looking to slow down expenses on branch. Do you think that there is more room for dividends and to increase the payout relative to previous years? And also what level of capitalization do...

Yes. For this quarter, yesterday was approved a dividend of MXN 1.1 billion that is 40% in the whole year, 40% payout dividend. And for the next year, we expect a higher payout, at least MXN 3,000 million or MXN 3 billion that we expect to be around 40%, but it could be higher once we finish the spin-off of Hey Banco to Hey Banco new license that we are expecting to happen some point during the first quarter of next year.

And on the capitalization, what level do you think...

No, I couldn't understand your question, sorry.

Your capitalization level is currently at 14.6%.

No. Once we pay this dividend this year that we will be calling for an assembly -- shareholders' assembly today. Today, we will send the call for the next 2 weeks and will be paid. And during November, it will be 14%. And then again, we'll go up with the profits of the next quarter.

Our next question comes from Carlos Gomez-Lopez from HSBC.

Two minor things. First, you mentioned the high growth that you had in the region of Jalisco. Could you give us the reason for that? Is this a physical expansion or that part of the country is actually growing more? And what should we expect there for the coming year or 2 years? And second, in terms of asset quality in the auto portfolio, we have seen some trouble in the U.S., not so much in auto lending directly, but in business direct -- related to auto lending. Has there been any signs of concern? Is that something that you intend to continue to grow without any restriction?

In terms of Jalisco, yes. Basically, it is the region where we have increased more our presence. We went from 13 branches to 21 and still there are 2 more coming during the next year, then it is already being felt. And also, we have increased the number of bankers for wholesale banking. Then yes, it's directly related to the expansion. What we can expect at least double digit. I cannot say we expect another 23%, but still is the regions -- one of the regions where we are growing faster, and we have seen the economies also very well in general in the West side, not only in Jalisco state.

So is this for Jalisco or for the entire Jalisco and Bajio region?

No, the growth is for Jalisco and Bajio region, but the specific 23% is only Jalisco state. In terms of deterioration, well, we don't know what is happening in United States in auto, but not. We haven't seen that both in Hey as well as in Banregio, all the auto lending and also the leasing are the ones with the better NPLs because we are focused on quality customers, we are not doing subprime or something like that.

Since there are no more questions on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks. If additional questions arise, please don't hesitate to reach out to Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional's Second Quarter 2025 Earnings Conference Call. We are joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Lobeira, Head of Strategy Planning and Investor Relations.

[Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker, Manuel Rivero Zambrano. Thank you, and please go ahead.

Good morning, everyone. I hope you and your families are doing well. We're presenting our second quarter results, which reflect our disciplined execution and operating focus. We are operating in an uncertain environment with GDP's growth having slowed and with uncertainty around trade policies. Our commercial strategies continue to focus on expanding our presence in key regions while maintaining risk cost control and credit underwriting discipline. We remain focused on diversifying our income streams, particularly through nonfinancial revenue growth and the increase in fixed rate loans, which provide some compensation from margin pressures.

Net income for the quarter reached MXN 1,639 million, a 2% year-on-year increase. Our return on average equity contracted 228 basis points year-on-year to 20.1%, while this represents a decline from prior periods, it remains at healthy levels and reflects our focus on maintaining asset quality and profitability as priorities. Our consolidated NPL ratio increased to 1.5%, up from 1.3% a year ago. Our cost of risk rose to 1%, while it remains at manageable levels, we are closely monitoring credit trends and maintaining conservative underwriting standards.

Regional posted a solid year-on-year loan growth with 10%, fueled by sustained commercial activity, particularly in high-performing regions such as Jalisco. On the funding side, core deposits CASA grew 7% year-on-year, while the total deposits increased by a strong 14%, highlighting the continued trust and engagement from our clients. This dynamic growth in both lending and deposits contributed to a 9% expansion in the financial margin supported by higher volumes and disciplined pricing strategies.

Our diversification efforts continued to show progress with card merchant fees growing at 19% and insurance fees growing 25% year-on-year. Nonfinancial income posted 8% year-on-year increase, providing some offset to margin pressures we anticipate in the future periods. Operating expenses grew 11% year-on-year, driven by technology expense, strategic investments in geographic expansion and our commercial workforce as well as inflationary pressures and operating costs. This resulted in our efficiency ratio increasing to 40.8%, reflecting a 188 basis points year-on-year increase.

While we expect some stabilization in expense growth, we acknowledge the inflationary environment continues to present pressures as we actively manage expenses. The wholesale loan portfolio grew 10% year-on-year, while particularly strengthening in Jalisco at 18% growth. However, we are seeing some moderation in demand and business adopt a more cautious stance. We anticipate that loan demand may remain subdued until the greater clarity on trade policies and economic direction. We maintain a cautious approach to risk management given current uncertainties, while our direct exposure to cross-border dynamics represent 2% only of our total loan portfolio and having 10% indirect ties to the United States, we're closely monitoring potential impacts from trade policies.

Wholesale banking demand deposits increased 23% year-on-year, while help improve our CASA ratio to 47.1%. Retail banking continues to show healthy momentum and demand deposits grew 11% and time deposits grew 14%, reflecting solid client engagement and trust. Our branch network continues to expand in a disciplined manner, focused on high potential locations and aligned with the evolving customer needs. Notably, individual checking accounts rose 19% year-on-year, an indicator of growth, client acquisition and deepening relationships, though we anticipate a normalization of this space going forward.

Our asset quality remains a key strength with non-performing loans ratio at healthy levels across all segments, SME and consumer portfolio with state-of-the-art NPLs with 2.9% and auto loans with 0.5% and mortgages at just 1.3%. These figures reflect the effectiveness of underwriting standards and the resilience of our customer base. While we remain digital in shifting macroeconomic environment, we are well-positioned to navigate potential challenges, thanks for proactive risk management and diversified portfolio strategy.

Hey Banco continues advancing its strategic shift towards profitability over pure growth, prioritizing higher-quality customers over volume expansion. This disciplined approach is yielding results. Individual deposits grew 22% year-on-year, while our loan portfolio reached -- our business loan portfolio reached MXN 4,215 million, an impressive 23% increase, demonstrating solid traction in target segments. Hey Banco reported a financial margin of MXN 229 million with an net interest margin of 8.5%, a notable increase of 130 (sic) [ 137 ] basis points year-on-year, reflecting improved asset yields and a more profitable customer mix.

Our efficiency ratio improved to 69.9%, reflecting the progress in cost containing even as we continue investing in automation and digital capabilities to mitigate structural cost pressures. Our active customer base now reaches 508,000 customers, fully aligned with our strategy to prioritize quality over scale. We reduced our cost of risk by 160 basis points to 6.10%, though we remain vigilant about credit trends in the current environment. The spin-off process remains on course for completion this semester.

Following the 2 quarters of performance below our original budget, we are updating the market guidance by the remainder of the year. We anticipate loan growth moderation over the next quarters due to macroeconomic uncertainty. Given these conditions, we are adjusting our loan growth expectations between 7% and 10%, Down's from previous 10% to 15% guidance. Our loan diversification strategy continues maintaining focus on high-quality customers across regional operating sectors. The new Banregio app designed consistently with Hey Banco will drive cross-selling opportunities, especially in consumer credit products. This diversification approach helps mitigate NIM pressure by leveraging our proven credit risk management capabilities.

We are maintaining our NIM guidance between 6% and 6.5%, reflecting the stability of our core generation capabilities. Similarly, our deposit growth expectations are being adjusted between 7% and 10% from previous 10% to 15% range, aligning with a more conservative credit environment with strong capital and liquidity positions, we continue investing in Regional's future through infrastructure expansion and operational modernization. Our automation initiatives proven successful at Hey Banco will be implemented at Banregio, delivering enhanced results at scale.

Advanced in machine learning and Generative AI present compelling alternatives to workforce-dependent solutions, while primary benefits will materialize in 2026, we expect initial results in the upcoming quarters. By developing proprietary technology capabilities, Regional eliminates intermediaries and captures full execution advantages. We expect to maintain efficiency around 40% -- below 40%, offsetting potential income or expense pressures, evolving, developing platforms, reduce coding requirements while accelerating infrastructure deployment. This acknowledging developments support our optimistic outlook.

As we navigate the environment, we are taking a more prudent approach to provisioning, our cost of risk guidance moving from 0.8% to 1% from the previous 0.7% to 0.9% range. This conservative position ensures we maintain strong asset quality standards with our NPL target remaining as previous guidance. This reinforced our commitment to operational excellence and customer service, strengthening security capabilities and market reach. The combination of these factors leads to adjust our net income growth expectations between 5% to 10% down from our previous 10% to 15% guidance, primarily reflecting expected margin normalization as interest rates decline.

Consequently, our ROE target moves from 19% to 20% from the previous 20% to 21% range, still representing healthy profitable levels that reflect our disciplined approach to delivering consistent results in the current environment. We believe this updated guidance provides a realistic foundation for the remainder of 2025 while maintaining our strategic focus on long-term value creation and operating excellence. Thank you. We appreciate any questions.

[Operator Instructions] Our first question comes from Brian Flores from Citi.

Maybe a quick question on the guidance updates you just made. The NPL ratio remains stable. As you mentioned, you want to be a bit more maybe aggressive on provisioning, more cautious, if you will. Can you explain if what you're seeing is an increase on isolated cases? Is this generalized? Just any -- a bit more color on that would be helpful. And then a second question on the other line, which is growth that you revised. You mentioned lower demand. Is this also coming in particular states, particular segments of the economy? Any color here would be really helpful.

Yes, Brian. Thanks. In terms of NPLs and cost of risk, we expect a very similar next 2 quarters in general, but specifically in these two lines. NPL, as we have mentioned, we are very sensible for specific large loans. They are not concentrated. Obviously, almost half of our loan book is related to real estate and the largest loans that we have are real estate related, mainly homebuilders or rental for commercial and industrial properties.

The largest cases in past due loans are there. There is not a concentration in geography or even the type of builders, homebuilders are specific cases. And most of them as we have the real estate collateral will be sold in time. It's just a matter -- we have just finished two large foreclosures, then we have to sell all the flats. These two specific cases are flats in Mexico City.

But for the rest are diversified from agro, a couple of agro business, a couple of manufacturing from the large ones. In terms of cost of risk and provisioning, as Manuel mentioned, we are being very prudent. We are following the CNBV methodology with no exceptions. And some of the changes to Stage 2 that you can see in the report also generate provisions. We don't expect a large deterioration or to increase a lot NPLs. I don't know if that was clear about NPLs and cost of risk.

Yes. No, super clear. So just following this up, should we expect maybe better NPL creation trends, right, from going forward? This is basically to match the numbers you put in the guidance?

Maybe not better. The guidance, can you put it back, please? We maintain it in 1.8%. It's not because we believe we can reach that. It's maybe 1.5%, 1.6% at most for the whole year as some of them will roll off, others will be collected, then there are new entrants and some exits.

Okay. Perfect. Understood. And on loan growth?

On loan growth, basically, yes, we have seen due to the uncertainty, we have seen less demand in general, in particular, in industrial parks. We haven't seen any vacancy or any aggressive cancellation. But what we have seen is less demand for new industrial parks in general in the North, mainly Nuevo León and Coahuila states. But the lack of demand for new investments, we see a lot of demand to increase the lines for working capital but not for capital expenditure.

Some of the customers or businessmen, they explained that they are waiting until all these tariffs and trade are resolved or to see some clarity to new investments. And some of the other customers that have liquidity are paying that also affects the growth on loans. It's not only the demand for new loans, but also -- and it's not that they are moving to other bank or competition or some sort of that type of effect is they have liquidity, they prefer just to prepay their loans.

Our next question comes from Olavo Arthuzo with UBS.

Actually, I have two. And the first one is related to your margins and the NII that you guys presented. And we are in the midst of easing monetary policy cycle in the country. So just wanted to hear from you an update on the sensitivity to your margins or NII 100 bps change in the policy rate? And my second question is related to the payout strategy because I just wanted to understand what is the target for capital of the bank because it stood at around 14.1% this quarter. And I was just trying to understand at what levels should we work with for your capital ratio going forward?

In terms of the margin, we still maintain the same sensibility. We have been projecting 13% to 14%. What we have seen in reality in the last 250 reduction of the policy rate is 14 basis points. It's showing -- as we show the NIM is last 12 months, it looks like it doesn't move. But if you do the calculation for the quarterly or even with the CNBV with the monthly, you can see year-on-year, month of month, the last one available is May, that is basically 14 basis points per 100. Then once it's finished all the reductions, it should be around that stable.

In terms of capitalization index or capital strategy, our risk appetite, our level -- internal level for the Board and for the risk committee is 12.5%. That's our own internal minimum considering with and without enhancers, then we should not expect in any future close time to reach that level above in order to decide the dividend. If you remember, we have decided to split the dividend in two payments, one in April with the general assembly for the results and then another one in October, November after the Board. Then at that moment, we will decide if it still is as we are planning above 14%, there is still ample room to do it. And also remember that this level is only for regional bank, Banco Regional already being capitalized Hey Banco. Then once the migration of customers is approved, it will increase for Banco Regional the capitalization index.

That was my follow-up, but you already answered. So that's very, very clear.

Our next question comes from Ricardo Buchpiguel from BTG.

I have two here on my side. So during the quarter, I understand that Regional's NIM faced two headwinds, right? So you had a change in asset mix because of the increase in repos portfolio and also you had a reduction in reference interest rates and you have the sensitivity that you just mentioned about changes in the reference rate, right? Still, we saw the NIM remain flat quarter-over-quarter. So I wanted to understand what tailwinds helped to support NIM during this quarter and whether we can expect that going forward? And also, could you also provide an update on what we should expect in terms of growth and profitability for Hey in the coming quarters?

In terms of the NIM, as you mentioned, we have been renewing in advance or buying in advance securities investments. Basically, what we are acquiring, our portfolio is basically 2-year status. Then the securities investments has helped the NIM and will continue helping to protect the NIM. It's not a hedge. It's basically that we decided to increase the repo business and to do some of the renewals in advance. That's the main reason, but still the sensibility that I mentioned is very similar once all the reductions finish.

By the way, one of the main changes or reasons, as Manuel mentioned, to change the guidance is in margin as we -- if you remember, we were expecting 8.5% policy rate at the end of the year when we did the budget and when we did the guidance. And right now, we are expecting a 7.25%. But that's the reason. And also, it helps the mix. We have been growing especially autos and leasing. Leasing not so much in this quarter, but the previous quarters has been above 20% this quarter slowdown. But auto is continue about 18%, 16% and is only fixed rate.

Very clear. And about Hey?

About Hey, we will continue growing the loans to small businesses, and also auto. Basically, if you see the loan growth is coming -- we have made a split of auto to differentiate auto for individuals from auto for companies. Then in the business section, you can see the auto for companies. In general, auto for businesses and commercial loans, as we call in Mexico, that are business loans in general, both simple lines or working capital or revolving lines. Both of them are growing. That's our main focus on loans.

In individuals, we are growing back credit card, but not as aggressive as we did 2 years ago, mainly focused also in auto and personal loans. In terms of number of customers, as we have been mentioning, we are not focused to do a very large growth, but more profitable growth, both asset quality as well as better balances in deposits.

And just a quick follow-up. We saw that Hey bottom line decreased a little bit quarter-over-quarter and the cost of risk also went down. So if you could comment what drove this slight reduction in the bottom line and if we can expect like a recovery in the bottom line more towards the second half of the year as you keep growing in this more less risky credit lines and grow the portfolio.

It was partially provisions as well as expenses in between first quarter and second quarter. Yes, expenses on marketing on the second quarter. We -- it's seasonal, and we are doing an alliance with Sami Rivers. There is a very well-known influencer in Mexico. And also, we are sponsoring again some music festivals. That's the main difference. And also in provisions, even though the cost of risk year-over-year or quarter-over-quarter reduces, which could publish the quarterly one to see the difference, but it was higher provisions, mainly in credit card and small businesses.

What changes? To be more concrete on the answer, yes, we expect it to recover. As Manuel mentioned, we are doing a lot of efficiencies and a lot of automation in Hey Banco then later on, we will do in Banregio. But in Hey Banco will be shown this next 2 quarters, the efficiencies.

Our next question comes from Ernesto Gabilondo with Bank of America.

I have three questions from my side. The first one is a follow-up on your NIM expectations. So you mentioned that you're expecting interest rates to be at 7.25% by the end of 2025. What do you see the interest rates next year? Where do you see the interest rates normalizing? And my last -- my second question is on OpEx. I believe you didn't mention anything related to OpEx. You have mentioned in the past to be around the double digit. So if you can give us some color, if you still want to open some branches in the second half? Also, if you can talk a little bit about the promotions that you're doing at Hey, how much of the OpEx is related to that? Any color on OpEx will be very helpful.

And my last question is on your net income growth guidance. Just wondering how you see the trends for the earnings growth in the second half? We have seen first half practically flat. So just wondering if we can start to see the double-digit earnings growth in the third quarter? Or do you think it's something that it will more likely to come in the last quarter when you have better than seasonality and when it tends to be the highest quarter?

In terms of the expectation for the TA even though we haven't started the budget for next year. We expect, in general, around 6.25% or 6% at most. And we believe that will be on a stable rate. And we maintain the sensibility, maybe for the investment securities I already mentioned, if the rate goes down faster will help to defend the margin temporarily for a couple of quarters. Then that's about normalizing TA or policy rate.

In terms of OpEx, yes, we expect, as we mentioned since the last quarter, to converge between 10% to 12% growth, the full OpEx line, including both salaries and general operating expenses. Then that will be -- we usually don't guide, but it's what we expect between 10% to 12% of growth for the end of the year. Branches, yes, we will open maybe not the 20 during the next 6 months, but at least we have more than 10 in process. And the team is focused on the 20 focusing, as Manuel mentioned, on profitability and location where it makes sense. We are not opening branches just for the sake to fulfill a budget. It's where it makes sense, where we forecast that we will be more profitable every point, every single point.

Maybe for October, we will have a more precise number. But right now, we are working on 12 and we have 8 more on the line. Then if everything happens legally in contracts as well as in adaptations and construction in time, maybe we could end up with the 20, maybe 16, 18, but we are not stopping. That will be the summary. We are not stopping the opening of branches, but also we are not rushing. We are selecting very carefully the each location.

And in terms of OpEx of Hey, as I mentioned, some of the promotions and some of the marketing investment that is not marketing -- digital marketing is, as I mentioned, sponsorship and alliances and some promotions in terms of what we call super cashbacks. We are giving for a short period of time, higher cashbacks, 10% in selected merchants. Then yes, it's included in the OpEx, but it's not the main reason of the increase. The main reasons are still the branches, the new branches, plus, as we mentioned last time, all the technology investments that were made in the last 2 years that we are amortizating in these quarters.

Excellent. Enrique, the last question.

Yes. Let me -- I will open my file. Your question is...

About the trend.

Two digits, but barely two digit, we see it for the fourth quarter, but it will depend on seasonality, as you will say it. As you know, the last quarter is a lot of transactions and a lot of loans, but it will be the only one where we see two-digit growth. And I don't have the projection for the next year.

Our next question comes from Neha from HSBC.

Could you tell us what is your exposure to the real estate sector, agribusiness, and to the exporters?

Okay. Sorry, let me open my -- Sorry. To construction for the whole loan book is 23% construction and rental property that we consider also real estate because the collateral in real estate is 11% then should be 33%. I mentioned in a couple of questions, a different proportion because I was thinking only on the business loans side once you put all the individuals plus Hey, plus auto, plus mortgage is 33% to real estate in general including construction 22% and rental property 11%. And for agro is 7%, 6.9%.

And exporters?

Exporters is direct exporters only 2% and indirect at another 4%.

Okay. And these are the segments where you're seeing most of the pressure from tariffs from the macro environment?

Mainly in construction and partially in rental property.

Okay. And are most of the problems in your view, kind of identified and all new originations in the past few months have been more cautiously? Or do you believe that in the coming months, we could see more problems come up with some of the loans that have been given out already?

Sorry, I couldn't understand it.

Sorry for the background noise. Have you identified most of the issues in this segment? Or do you think more problems, one-off cases could come up in the coming months?

Well, not as big as the ones that we have been talking in these first 2 quarters. There is always customers in Stage 2 that can move to Stage 3, but not a specific one that we can identify right now.

For Hey Banco previously, I think we talked about loan growth being more than 20%. You just mentioned that you're focusing more on quality versus growth. What kind of loan growth can we expect for Hey Banco for this year? And what will be the main drivers for that?

It's around 15% to 20%, what we expect, and it's mainly on auto and SMEs, small and -- well, it's mainly small because the largest loan in Hey Banco is MXN 20 million. And the drivers is basically our bankers and all the efficiencies that we have done in the credit process. We are automating -- fully automating the credit process. The bankers are more for selling, for contacting the customers, for fraud prevention to ensure that the customer exists and it sells what it sells. But after that, all the process is being automated, streamlined, then that's why we are focusing more on SMEs, and that's it.

Last question from my side. You just revised the guidance slightly downwards. Where do you see the most risk of not meeting the new guidance provided?

In total loan growth, that will be -- loan growth is where there is the highest risk. As I mentioned, if there is still prepayments or the demand doesn't pick up as we expect, seasonally, the second semester is always better. That will be the more challenging part because cost of risk is -- right now is 0.91, 0.93 should remain around, and it's already included in the new guidance. And as we have been mentioning, expenses should convert to below 12%, 10% to 12% then everything else is in place and the NIM already considers the policy rate then the only one that is at least from my point of view is total loan growth.

Our next question comes from Pablo Ordóñez from GBM.

I have a follow-up on your guidance for the loan growth. With this new range of 7% to 10%, what are you expecting in terms of the wholesale and the retail banking loan growth? Should we expect a slowdown in the consumer and the auto loans from the double-digit growth rates that we have observed in the previous quarters? And also, can you comment on the competitive dynamics that you are observing? Some other banks are mentioning that they are looking to grow the portfolio by taking market share. So what -- how are you seeing the competitive dynamics? Are you seeing some pressure on your spreads for the commercial loans? Any color on that would be very helpful.

Well, as I answered to Neha, basically, our main concern is in wholesale. Wholesale, we expect exactly what it says the total loan growth, 7% to 10%. And as is the largest portfolio, we are the one that will drive the whole growth for businesses, small businesses and in general, consumer, we still expect mid-teens between 15% to 20% growth. We see a lot of demand.

And in terms of competition, we haven't seen any change in any way, it's not like in other situations than some banks are more cautious or reduce their risk appetite. We haven't seen that. But we haven't seen the opposite. Nobody is more aggressive either on growth or price. There are some exceptions in some regions, but it's mainly the drive of the local managers is not like a whole bank pushing faster. But at the same time, we haven't seen -- well, maybe the only exception is Banamex that for natural reasons, they were in a spin-off last year, this year, they are more active, but not in irrational or that would impact the market.

Our next question comes from Tito Labarta from Goldman Sachs.

A couple of questions, if I can. One, I guess, a follow-up a little bit on margins. But just to understand the dynamic between loan -- since you have the slower loan growth, but you maintained the NIM guidance. Should the slower loan growth impact NIM in any way? I mean, is that offset just because deposits will also grow less or also because you have the higher repos that kind of potentially offsets any pressure on NIM from slower loan growth?

Just to understand if we isolate the impact of loan growth on NIM and any impact that can have? And then my second question, just on fees, fee growth has remained fairly healthy, growing double digits year-over-year. Do you think that trend sort of continues? Would that be impacted at all from the slower loan growth? So if you give any color on the outlook for fee income.

Yes. In terms of loan growth impact on NIM, yes, it affects, but affects positively in terms of the mix. As I mentioned, we still expect mid-teens for small businesses and consumer that are higher margins. And even though proportionally are still less than 20% of the loan book, they help to increase or to protect a little bit the NIM. And the one that is growing slower than we expected, that is wholesale are the portfolios that are mainly indexed to. It helps a little bit this change, but not that much. It's not to change the 14 basis points of impact, not.

In terms of the repo business and deposits, if we don't see the growth as we usually do when we have excess of liquidity, we channel that to the repo business and to buy more investment securities. That could affect a little bit the NIM as the margin is lower. But as I mentioned, we have acquired in advance some of the -- for the next 2 years, investment securities, basically then that should help to not be affected for that not growth and change the deposits from time deposits to the repo business.

Okay. That's very clear. And on the fee income?

In terms of fee income, as you can see in the quarterly report where we split the growth. Basically, there are some impact on the foreign exchange, mainly because the price reduction of the peso or the exchange rate peso dollar, we weren't expecting the reduction right now is below MXN 19 that are affected and has stayed there for the last almost 6 months, then the spread has been reduced and the volume also. Then that's one line where we don't see a very big increase. We were expecting more than 15%. Right now, we're expecting around 10%.

And the other one is you see is mix, we will split it for future quarters. It's mix, it's merchant -- and in that line is included both the cards, the credit card fees that we charge plus the acquiring business. The acquiring business is growing very well, and we expect that to be maintained more than 20% year-on-year. But the credit card specifically in Hey has decreased the transactionality. And also, we have some impact on the exchange rate as the cost of the credit card is in dollar, is denominated in dollars. In general, we expect still double digit, but not above 15% that we were expecting at the beginning of the year. All the other lines are in line of our expectations.

Okay. No, that's clear. Very helpful. Maybe just one on the insurance income, which was down a bit in the quarter, but still very strong year-over-year. Should that trend continue also?

Yes. If you remember last year, around November, we signed a 10-year renewal of our alliances with Chubb and Qualitas. And we have improved our conditions and also we are improving the new sale of insurance. We should see an improvement. There are months that are better because some quarters, we have what we call profit sharing, but more than profit sharing really is that we meet some goals and we have annual incentives. We cannot disclose every single incentive of the deals.

But what we can say is that we don't have as used to be the previous agreement just once in a year. But every quarter, we review some goals, and we have extra incentives. And the base is still very, very strong. It's mainly, as we have said, related to loans, auto loans, as long as auto loans grows 20%, 18% that is growing right now. We'll continue the auto insurance plus the self buy in the branches. And in Life, we are growing also pretty fast.

Our next question comes from Danele Miranda from Santander.

Just a quick one from my side. We noticed your coverage ratio decreased to 140% from over 160% last year. And you also mentioned some real estate collaterals. So just wondering how would your coverage would look like including those collaterals? And also, is this new 140 level you're comfortable with going forward?

Sorry, I don't have the measure including the collaterals we can calculate, but what we can say is that 97% of our loan book has any type of collateral. And out of that, 50% have real estate collateral. Usually, we request 1.5 in real estate-related loans. But an exact number of plus collaterals, I don't have it. In terms of feeling comfortable, yes, anything above 1x is good. But as you remember, we follow very strictly the CNBV rules for provisioning, well, for credit rating and then after the rating, the provisioning. Then we don't have any more as we used to have a goal for coverage ratio. We feel comfortable with 1.4, yes. And as soon as we solve some of these loans, large loans that we are negotiating or foreclosing either way or restructuring, we expect that to go back at least at 1.5x the NPLs.

Since there are no more questions on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks. If additional questions arise, please don't hesitate to reach out Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.

Thank you, everyone.

Thank you very much.