Good morning, everyone. Thank you for joining today's call. I sincerely hope you and your families are well. We're pleased to report strong first quarter results for Regional. Highlighting continued progress towards strategic objectives. Consolidated net income reached million, reflecting stable growth underscoring a disciplined approach to managing profitability. Our ROE stood firm at 20.58%, demonstrating an underlying strength of our business. On margins, although the net interest margin decreased slightly versus the last quarter, the decline was much less than the cut in the benchmark rate. Demonstrating the resilience of our portfolio and funding strategy. The NIM remained healthy at 6.55, and we continue to focus on the defending profitability through a better loan mix and a strong deposit base. Efficiency ratio rose slightly to 40.4%, reflecting ongoing investments aimed at enhancing operational capabilities and strengthening our market positioning. Non interest expense have been stable over the last four quarters considering a 4.6 inflation rate. Administrative expenses increased versus first quarter twenty twenty four, primarily due to network branch expansion and sales related costs. Including higher investments in advertising, increased transaction activity in the acquiring business and the addition of 200 new ATMs and 20 branches. This category increase is also explained by technology projects and software related costs aimed to improve customer experience customer security.

These expenses will stabilize during the next quarters at the current levels. Other taxes mainly VAT, rose because of higher expanding and higher investment. Rent and depreciation expenses as well as personnel expenses went up to the branch network as we opened 20 branches during the last twelve months. Total net interest expenses are expected stabilize between 1,800,000,000 and MXN 1,900,000,000 per quarter. Supporting growth while maintaining efficiency levels. Our loan portfolio and leasing segments continued to perform robustly, growing 12% year on year driven by a 16% expansion in business lending. Core deposits increased steadily by 13%, fueled by 40% rise in term deposits and a 10% increase in checking accounts. Reflecting strong customer trust and market confidence. Nonfinancial income also showed solid momentum, growing 14% year on year, Key contributors included TPBs, insurance and foreign exchange T fees. Notably, payment related fees surged for 45%. Insurance income rose 31% and market related revenues increased 21%. These results reinforce our success of our diversification strategy and our ability to scale complementary business lines and strengthening revenue resilience beyond traditional banking. Looking ahead, we're optimistic of our ability to sustain growth drive operational efficiency and deliver long term value to our shareholders.

Now turning to Banrejo. While we continue to see strong trajectory reflecting both strategic expansion and operation excellence. Our branch expansion strategy is progressing well, with particularly favorable responses in key regions such as Nuevo Leon, Jalisco, Mexico City. A statement of our target and market optimization efforts, Additionally, we upgraded the digital platform of Unrejo the same as Hebancos technology that continues to drive engagement and satisfaction and will drive cross selling strategies that will enhance our portfolio mix. Operational excellence remains central to Banrejo's strategy, Our efficiency ratio stood at 38.9% this quarter highlighting effective management and prudent expense control. Meanwhile, SME and retail segments continue to show sustained growth. Reinforcement reinforcing our commitment to support business and individuals alike. Loan growth was particularly strong in wholesale segment, with corporate loans 13% increase. And medium size growing 10%. Personal loans also 12%, demonstrating by the diversified approach of growth. And the funding side, checking accounts grew 10% and term deposits by 14%. Furthering strengthening their stability of our funding base. Risk management remains proactive. The cost of risk and non performing loans ratio stay within target levels, reflecting sound asset quality and effective controls. The comprehensive cost of risk remain near 1%, primarily driven by specific corporate midsize cases transitioning to stage three.

Most of these cases are isolated and are expected to resolve over the medium term reaffirming our robust risk management framework. Meanwhile, mass market portfolios auto SMEs and consumer segments are showing notable improvements. Our capital coverage ratio also remains strong, providing a solid buffer save per financial stability. Customer satisfaction continues to be high, reflecting in constantly strong Net Promoter Scores, underscoring our commitment to delivering exceptional services and building long term relationships. In summary, Bandrejio remains well positioned to capitalize the future growth opportunities, maintaining stable profitability and enhance our shareholder value. Moving to Reibanco. We continue to see strong strategic execution and positive momentum. Net income reached 47,000,000 this quarter, making a significant milestone for Hebanco. [indiscernible] breakeven ahead of expectations. This achievement reflects the positive shift in our trajectory driven by 32% increase in financial margin, a 21% rise in our financial income, Growth was particularly strong in Jepago, 43% and insurance products, 26%, highlighting our ability to diversify revenues and maintaining disciplined expense control. While operating costs rising just 9%, well below revenue growth. Our loan portfolio expanded by 4%, powered by 27% search in business loans, which reinforcing our leadership in the SME segment.

Importantly, the credit portfolio mix improved significantly shifting towards high quality and higher lending segments. Which not only enhances profitability, but also strengths our long term risk profile of the bank. Additionally, the credit quality improved as evidenced by 38% reduction in provisions, while the cost of risk remains well controlled and within our targets. Further reinforcing our profitability and risk margin management capabilities. Our funding base remains stable with traditional deposits showing resilience, performance supporting our asset growth and liquidity position. Customer loyalty continues to deepen with a Net Promoter Score of 64, reflecting a strong emotional connection our customer base and robust brand positioning. Operational efficiency improved as well, reflecting our continued focus on disciplined growth and sustainable profitability. Our operating leverage strengthened the expense growth at showing a slower pace than revenues, which bodes with well and future net income resilience. On the payment side, Reparo continues to deliver great result, total billing rising 31% year on year. Importantly, our customer acquisition and cost to serve metrics remain well below industry average, reflecting the strength of our and efficiency of our business model. This very well position provides ample room to continue investing in customer growth initiatives while maintaining healthy profitability ratios.

Looking ahead, we see significant opportunities to continue scaling Rey Banco de Pago further. Enhancing operating leverage and continue our structurally profitable growth platform. In addition, we are preparing to on becoming upcoming migration of customers currently served under Banrajio, to Rey Banco, which we expect to materialize during the next quarter. This transition will further accelerate the growth of Hebanco's active customer base and strengthening the brand positioning. In summary, the performance of Hebanco reflects our disciplined execution customer centric focus and operational strength. We are confident that this momentum will position us to continue growth and long term profitability. Looking for a broader picture, we reiterate our full year guidance. Expecting solid and sustainable growth across key metrics, through the remainder of 2025. We anticipate continued strong momentum in our wholesale segment at Manrejo, driven in healthy corporate and midsized business demand as well as ongoing strategic initiatives to capture new opportunities in target industries. We remain confident that our disciplined growth strategy and robust risk management will support steady performance and position us to deliver on our financial objectives of the year. In closing, we are confident positioned to capture future growth opportunities and deliver sustainable value to our shareholders.

Our disciplined management, sound risk practices and clear strategic vision places on an excellent position to navigate the evolving landscape and capitalize on emerging opportunities. Thank you for your continuous trust and support. We now are open the call for questions.

Ladies and gentlemen, Our first question comes from Brian Flores with Citi. Hi, team. Thank you for the opportunity to ask questions. I have two on my side.

The first one is, if you could elaborate a bit on the asset quality trends. You mentioned the cases are isolated just wanted to understand what are you seeing into April? And you mentioned there are no pressures in 2025 guidance, but would it be reasonable to expect maybe if conditions are not the best to see a trade off between growth and asset quality if necessary. And then the second point is, we just saw what happened with Vineo and Vanort right? And I think on Slide seven here on your presentation, you show LTV CAC and LTV measures for both REI and Manrejo. And it's very interesting because both are very similar. So I just wanted to understand why does it still make sense for you to keep them separate as brands? And not maybe just lever the infrastructure efforts you have made to maybe may merge them both as I know you're migrating from one to another? That would be very interesting. Thank you.

Hello, Brian. Thank you for your questions. Will start with the asset quality. Yes, As you can see in the conference call presentation, most of the deterioration came from the wholesale segment And in the wholesale segment, there are two large cases and some medium sized cases. That are fully identified We have collaterals. We have real estate collaterals on them. Then we don't see this as a trend. Have identified one more to ask about April. Then when you see CMBB data from April, you will see one more medium, large customer not not as big as the two original ones. That's that's the the reason we don't see the deterioration. Obviously, as the cost of risk is twelve month accumulated, We expect us around 0.9%. That is the upper range of the cost of risk. If you're seeing the relevant figures slide, is is mainly on Banrejio. Not not this tier on. I don't know if I answer the the trend quality and the asset quality.

Yes. I just maybe a quick follow-up because it was the final part of the question is, if you see still some pressures maybe as you say in April, the rest of the second quarter, would it be reasonable to expect maybe a lower growth to balance with asset quality?

No. In terms of growth, [indiscernible] we see positive the reduction of the policy rate we we could see it negative for NIM, pressure, for margin pressure, but we see it very positive for the easing for some customers in their monthly payments. As they have index at variable rate. The it will be reduced. Then and also for growth, that is your question, we see positive if the rate goes down it will be reflected in in our rates. Have already reduced rates for leasing and for and the Maria police automatically. Then we expect some growth with the easing of the rates. Then we'll we'll in short, we will maintain our [indiscernible] All of our guidance. But specifically talking about loan growth the 10% to 15% Right now, is 13. Obviously, some of these guidance will go to the lower end.

No. Super clear. Thank you. And and then maybe on just the digital strategy it would be very interesting. Thank you.

So the information we gave you at Van Rejut is wrong. It's completely wrong. So the the information you're saying, it's not true. So your your statement it's it's not valid. In terms of cost of acquisition. Sadly, with didn't incorporate most of the costs in Mandrej.

Okay. But then maybe from a let's say, let's say, a bird's eye view, maybe more strategic, then should we understand the the offer you're making in Hebanco is complementary to the offer you're doing at Banrej so maybe no cannibalization set. So maybe two strategies sorry, a two side strategy in terms of attacking different segments. Is is this, you know, what we should understand?

As you know, Van de Hure is well positioned for a more robust client [indiscernible] Obviously, a higher income families businesses, etcetera. And Hey Banco is much much lower. Although we're not on the base of the pyramid like new or [indiscernible] We we are in a targeting a medium medium low income which is a, I think, very I mean, it's not served correctly. The NPS in other banks is quite low. The cross selling index in those clients, even inside of Banprehilar, we have some of them. It's pretty it's pretty low. So what we're doing in Heybank producing great results in terms of the NPS and in terms of customers buying more products very easily. So in that sense, we're very positive of how the [indiscernible] middle income families are evolving in Mexico. We are very positive on that trend as income continues to rise on those families, and we see that they're buying more and more products. And I think being digital or not, I mean, it's it's secondary to the to to how the offer is positioned. Right? So as we're not obviously having branches that allows us to create a better pricing for customers.

And that's allowing us to to sustain growth. Right? So right now, our focus is to continue growth on credit. So we have 3,000 or 4,000 million pesos able to continue growing. That's our main source of will drive income further, obviously. Will drive ROE further, obviously. And and we are focusing more on business lending, [indiscernible] auto lending and those type of things that have a more robust NPL ratios obviously, much better quality, right? And because we're looking ahead in in terms of ten years. Right? So we're managing the bank we know that there are gonna be, harsh economic conditions, and we don't want to be over exposed to consumer lending. Right? So I think that's pretty dangerous. And we are diversifying a lot, and we are having a lot of great growth in terms of business lending as you can see in and we are very happy for the growth. And it's completely different segments on Manresho. We're even more exposed in Mexico City, which is great for us. And in that sense, we think that we're still very well positioned to continue growing as we're focusing on net income, as we're focusing on having an a a leverage that continues adding to the NIM.

And we're very happy with the NPL ratios that we have We're very happy with the how things are going operationally. And as we said, I mean, we, as you know, are very we like to manage our capital well, and we like to have dividends as well. And we want to continue Panrejo growing as well. And so in that sense, making profitable the operation of Hebanco was very important at this moment. So in that sense, we're very happy with our results. And we're very patient with things, and things are going well. The brand was well positioning. It has a lot of strength. It has a lot of, engagement. Through social media and and through the events that we have. And and discovering a lot of momentum. I think it's pretty it's pretty good. And and and even the authorities are very happy for how things are going. And in that sense, we can speak with other institutions because of their I don't know, what they're thinking and what their main objectives are. In that sense, For us, it's very complementary. Bantre Hill's clients and Rey Bancos are particularly very different And Asba and Reyhu is very small compared to the others.

I think that's the main difference that we have. Right? And the other thing is that we learned so much in Quebec. So so much. And now that we are translating that technology to Vandrejo, it's gonna produce great results in terms of security in terms of cross sell and index. It's gonna be, I think, amazing. And in that sense, we're very happy to be able to really make sure that we have innovation and even sustain an NPS that's much better than the average of the industry. And obviously, those customers are even worse than the average. So you can imagine that we are delivering a very good service to clientele that we're we're not served correctly, right? So in that sense, we think that Bantrejo will flourish in terms of cross selling, in terms of fraud, in terms of security which are our main objectives at the moment in Manregio, right? So I think in the digital strategy overall, we're very happy how things are going. In terms of expenses, the we stopped we stopped acquiring new, developers two years ago. So expenses will I think, seed.

Or at the beginning of next year. We will continue seeing a small hike in technology. But very small. And then I think we're going to go in terms of we should go even a bit lower next year because of the ramp up that we had in terms of the investment made in doing Kibanco, right? So but the trend will continue to going downward because the most of the technology already been made, right? So the bulk of the not gonna do a new app. We're not gonna do a new web. We're not gonna do that. We're just, bettering it and making sure that we continue to make a better experience, right? So in that sense, we're very happy. And the other thing is that technology allow us to create experiences that we don't need are not able. Right? So in terms of, most of customers in Hebronco have a low literacy rate. So how we can make the technology better for them to take more credit and and take more value out of, out of the platform? And that's what we're working on. And I think as we worked very hard on on making the product, convenient and making the product to be able to buy it digitally.

I think that's the first step. And now the next step is how can we evolve the experience in making sure that clients have more confidence in buying more credit and more value out of the of the platform. Because much of the of the clientele and the even the smaller the the medium income families, they have a good income, but, sadly, they are not confident enough to further their relationship with any bank, right? So that's the main issue that we I think we should address in the next eighteen months, right? So I think it's going pretty well. And we're very happy of how things are evolving. Clearly very ahead of the the rest, very, very well ahead of the rest.

And we're happy about that. So yeah.

No. Super helpful, Ali Enrique.

Well, this is Manuel. Well, yes, thank you very much. Next question.

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

Thank you. Hi. Good morning, Manuel, Enrique, and Alex.

Thanks for the opportunity. I have a three questions from my side. The first one will be on your NIM expectations. And for that, what will be the level of interest rates that you're assuming for the end of twenty twenty five and 2026 And what would that imply for your NIM Should we think that the loan portfolio growth should be at a higher pace when compared to the NII growth? Then for my second question is related to OpEx As you mentioned, OpEx came at a high pace. During the quarter. You have already mentioned some depreciation cost and the opening of some branches. However, considering the expected economic slowdown is there room to control OpEx? In your remarks, you were expecting OpEx between $1800000000.01900000000.0 dollars per quarter. I believe that is around 10% growth for the year. So I just want to double check that. And again, if you see there is an opportunity to reduce OpEx growth. And for my last question is on Rei. Congrats that you have reached the breakeven point. So I want two questions actually on that. First, just to clarify if the CAC of Banrejio is the only data that is wrong in your presentation or if there is something else.

My second question is, if we can expect like an ROE target or or how much could HEIG could be contributing of the consolidated earnings in the future? Thank you.

I would start with OpEx. [indiscernible] Thanks for the [indiscernible] It took a lot of effort. [indiscernible] As Manuel mentioned in the message, we expect it to stabilize. If you see the and, sadly, in the in the table, there is only two two quarters or three quarters. But in the quarterly report in the page seven, 38, You see the next quarters or the past quarters that are one point seven one point seven, and 1.9. And with all what we have done mainly on the personnel related expenses. We have control the increase of new employees. And we could see even some reductions along the year. In the rest of the items, as Manuel mentioned, it will not grow anymore.

But it will not go down. All in all, you you are right. We expect between 1012% growth of total expenses And the room that we have is mainly on nonrelated to to sales or to transactionality expenses. I don't know if that answers the OpEx and expenses question. Just a question in terms of your branch opening. So how many did you open in this first quarter? And how many did you expect to open throughout the year?

Sorry, that was an update. Because we have an update in the summaries. It looks like we opened 20 in this quarter. No. We opened 20 in the last twelve months. In this specific quarter, we opened three or at least we register them to the CMVB. But we are planning the 20 that we mentioned at the beginning of the year. We already have started seven and we are doing contracts and all the process for the other Then we open Trend, three.

And then we are working on seven for the next quarter. And then another 10 on the second quarter. Then we'll be 20,000,000 more or 17,000,000 more.

So regardless of a potential economic slowdown, you continue to open branches?

Yes, until we have more clear path because we have as long as we maintain our break break even between twelve and eighteen months, and the payback between thirty and thirty six months. Then, we we see them as part of a longer strategy. Than just this year strategy.

Perfect.

Then in terms of NIM, I will move to the first question. We have seen that the NIM has behaved as we expected and as we have been guiding. The contraction of this 150 basis points of reduction in the policy rate led to 20 basis points total NIM reduction. And 23 basis points reductions in loans NIM We expect further reductions than initially our budget And and for that reason, also part of the NIM guidance. Were done considering the final policy rate to be eight point two five or the 8.5 Right now, we believe will go below that levels. But the sensibility stays We expect a good second half in terms of investment securities portfolio. There is 46,000,000,000 pesos right now. Along with leasing and mortgage that are an auto that are all of our fixed rate that will be maintained at least for one year the securities investment rate and the other ones are longer term. That will help to hedge or defend the name, at least in the second half of the year.

So all in, how should we expect about the correlation of the NII growth when compared to the loan growth?

It should be lower as as we have seen right now.

But not we haven't done the Cal calculation. We will do it. We we have the sensibility in terms of basis points. But we we can do it very quickly and and share with you. I don't have a number right now with me. In terms of the the growth of the net interest income. Versus the growth of loan portfolio.

Okay. Okay. No. But under understand.

Okay.

And finally, in terms of the that I'm that that is wrong in the quarterly on the conference call presentation, is is also the the LTV. We will review all all the data because we we change slide.

Only on that slide? Yeah. It the the the review is going to be only that slide, Hernan?

Yes. Yes. It's that slide.

Okay. Okay. And then on your potential targets in of ROE? Or how much could be contributing to your consolidated earnings I think if we continue growing at the pace we are, I mean, as I said, if we like, grow the 3,000 million pesos that we still have or 4,000 million pesos, and we have a NIM of loans at seven or 8%. More reached I mean, it's, 8%. You cannot imagine how things are gonna be evolved. So we we think we're expecting more income. I think we should stand, I think, at around an ROE of 15% probably at the end of the year. Things move ahead. As we continue to ramp up, I mean, we continue investing in in in some areas. And in advertising, etcetera. And in terms of the percentage, I think, in the short term, it will be evolving at 10%, I guess. Around [indiscernible] Mean, the in the I will say in the next three years. Right? So it's it's it's evolving. Right? We're very happy about how things are evolving, and and and I think if things remain stable as we are right now, as we expected, I think in that sense, we will continue to drive profitability even further.

And when do you expect Rei's profitability to be at the same level of Banrejio or even to be above Manregio's profitability I don't know, in five years? Or what will be the time line for that?

Yeah. I think I think it would be in the mid I mean, three to five years.

Okay. Okay. Perfect. Thank you so much.

Thank you.

Our next question comes from Olavu Arzuso with UBS.

Hi, guys. Thank you very much, for taking my question. Actually, it's just a follow-up on Brian's question. Because a couple of macroeconomists and recently the IMF, they are now considering a recession in the country. But last week, some of your competitors did not change the guidance and seems today as Regional. And thinking about your large board of commercial loans and the balance sheet, in case considering also the possibility of policy rate going down around three percentage point this year to something around 7%. So what am I missing here?

That would explain why the bank hasn't revised some metrics of the guidance this quarter.

And if you could just share with us if the bank Regional, is assessing possible guidance revisions, for the next quarter, that would be also very helpful to all of us. Thank you very much, guys.

We're definitely open, and we talked about it at board meeting. But at the moment, we are not seeing any weakness And in that sense, we're we're think we're talking with our customers and still their their optimistic about their about their how things are panning out. And I think you have to see about the consumer economics, which are driving most of the the growth. Right? And and one sense is the rhetoric, and and the other is how things are panning out. And in that sense, definitely, we're very on the lookout. And in that we all as you know, we're always very prudent in that manner. And if things can change we definitely would do it.

At the moment, we think it's irresponsible to do so Things are evolving at the moment.

Yeah. Okay. That's great. Thank you very much, guys.

Our next question comes from Tito Labarta with Goldman Sachs.

Hello. Thank you for the call and taking my question. Excuse me.

I had a follow-up, I guess, on your outlook for asset quality and also, I guess, provisioning to extent. I mean, you mentioned that there's two specific cases, and I think you have collateral. But just given a little some of the uncertainty related to tariffs also on the prior question with the slowdown in Mexico I mean, could there be some deterioration later on in the year? And also asking because, I mean, the provisioning levels did come down a little bit. And if you look at your coverage ratio fell to around 150%. So what gives you comfort that there shouldn't be any issues in asset quality, particularly given all the uncertainty in Mexico globally. And what gives you comfort to to be reducing your coverage in this environment? And what is the right level of coverage? How do you think about it? Just to understand what outlook could be in any potential risk from an asset quality perspective? Thank you.

Yes, Tito.

We we don't see a general deterioration. And in fact, if you see in the slides of the quarterly no. In the conference call, Sorry. I I opened the wrong one. The conference call presentation in the slides so Banrejio, that is the larger portfolio, In terms of of NPLs, of the small businesses and auto and consumer and mortgage versus December or fourth quarter, there is an an slight deterioration. But versus the same year, the same quarter of the last year, most of them present improvement. Except for the consumer, that is the credit cards mainly. That it has shown some deterioration. From 2.6 to three. Then we feel comfortable in in in all these portfolio that is 42,000,000,000 pesos or all the ones that are included on on our retail banking. And in the wholesale, we present this aggregated. Is where you can see the the highest deterioration for these two large and some medium. The in fact, we're more worried about some of this medium because sometimes we we we lose visibility for their size. Until they are deteriorated. The large ones, obviously, there is a committee for workout, and there is a collections department for large customers.

There is a lot of follow following and a lot of security in terms of collaterals. That that's the reason we don't see [indiscernible] generalized in all the segments. For the not not for the second quarter, and neither for the last part of the of the year. As Manuel mentioned in the answer to Olavo, We we have to consider also our relative size and that we have been very good selecting customers and the share picking that we can still do because our size. Is not the same being the 3% of the market to growth 10% with good asset quality than being the 15 or BBVA that is the 30% of the market. We can still manage to do so.

Also, we need to remember that that 1.4% NPL it's lower than the historical average for for one ratio for regional. That number usually is around 1.6, 1.7. So even with with this increase, we're still pretty on a pretty good shape.

Remember, we used to guide less than 1.8 or even less than 2% Obviously, that that makes uncomfortable some people because if if right now is 1.4%, less than two sounds like there is a lot of room to deterioration. That's why we decided to move the guidance lower but the the short answer will be, yes. We expect a little bit more deterioration but not something drastic above 1.5 or one point six. No. We don't see either with specific cases or in the retail segment.

Okay. Makes sense. And and just thinking on the on the coverage ratio, I mean, it's lower, but if I do look a little bit further back, I mean, you've operated around one thirty, maybe one forty. In the past. Is is that maybe the the right level to think about in terms of way you feel comfortable with the coverage ratio?

Yes.

Obviously, we would love to have more. But as the provision methodology that we follow is the one that is defined by the regulator, by the CMVB. We don't have room to do additional provisions that the ones that are specified in the methodology then it's not an indicator that we can manage or or control Obviously, the higher, the better.

But we we don't feel uncomfortable with this 1.5 of this quarter.

Okay. Makes sense. Thank you very much. Thank you.

Our next question comes from Juan Dominguez.

Hi, guys. Can you hear me?

Yes, Juan. Yes, Thank you so much for for the call. I just have a follow-up on on NIM. I understand that you have a sensitivity to rates and there are also some effects to mix, right? Your wholesale grew a lot more than your retail and your time deposits grew more than demand deposits But I'm just wondering how are you seeing competition, right? Especially in your floating book for wholesale and SMEs? How are competitors behaving at the margin? Are you seeing a more benign environment for spreads? Or on the opposite, you see more competition for the best clients out there given the turmoil?

Are we talking about loans?

Yeah. Exactly. About the the the the the the spreads to t on your on your on your credit book?

Yeah.

No. In in wholesale, there there is a there has been a lot of competition in the last two to three years. We haven't seen any specific bank to be more aggressive than the other ones. Usually, the BBVA, I'm [indiscernible] lower rates comparatively, and that has happened historically around 25 bps. In some cases above, in some cases below, But not we haven't seen a change on dynamic. But there is competition. There is always when there are new loans or new projects is is difficult to find ourselves alone. Usually, the customers they require at least three or four banks to price the the loan the new loan. Then we don't see any any change yet.

Obviously, if the loan in the system doesn't grow as we expect we 5%, 6%, 7% at least. That competition will be for the same customers. And maybe at the end of the year, we could see a pressure on on price. But right now, we haven't seen it either on price or either on reduction of the loan book The prepayments that we have seen is more customers that have liquidity that are postponing their new projects for the uncertainty. And they prefer to prepare the loans. But it's not because they are moving to another bank. It's just because they have liquidity, excess of liquidity. And they prefer to prepay.

Just kind of a quick follow-up. In previous periods, where you have a lot of volatility [indiscernible] What normally happens in those cases? You see a spread enhancement or spread decrease pretty much? I'm just wondering, right? There's more risk So you would think that the spreads should go up. But also everybody is after the same clients, so spreads should go down. So just trying to understand what's the equilibrium between these two forces I've been in for many years, though. [indiscernible] It's they maintain very stable What we have seen in the last two periods, there is eight and the COVID. Mhmm. Is that some of banks they changed their policies. Their acceptance policies. Then there is less competition in in that sense We try not to move up or down our price. Unless our specific cases, very specific cases customers that have been with us many years. Then for us, it man it's very stable, At least, we haven't changed that. Since 02/2016. That it was the last time that we did some changes when the first Trump's period Since then, we decided not to do a drastic change thinking on the environment. We maintain the same policies.

And basically the same pricing on the variable side that is more than half of our loan portfolio, 62% as Alejandro said.

Perfect. Thank you.

Our next question comes from Pablo Ordonez from GBM. This Hi. Good morning, Manuel and Ricardo. Congratulations on your results and for reaching this important milestone at Hebanco. My question is regarding your retail banking portfolio. Can you comment on what should we expect ahead for this loan portfolio? What are the growth drivers? It seems like the auto loans growing at 16% year over year continue to grow very fast. And least being that these strong rates are sustainable ahead, we could send several quarters of level outperforming the rest of the industry And also for your SME portfolio, what dynamics are you serving here What type of growth rates should we expect? And do you think that this segment could be more sensitive to a potential Yes. In terms of the auto and consumer portfolio, we expect it to continue growing As we mentioned or Manuel mentioned in in the note, we have already implemented the technology that we developed in Hei Banco. We implemented in Banrejo. Then we expect additional cross selling through the app and through the technology in general It's not only the app. The app is the face to the customer. But are also the AI models, the data analytics, behind it.

And then we expect this especially consumer loans, both credit cards as well as personal loans. And auto to continue growing at these levels mid teens. That is above market, but again, relative size matters. In the SMEs, plus leasing that is the small business portfolio. We would love to to go back to 15%. Is part of the answer there I didn't provide to Ernesto. The branch network expansion is based on more bankers both for the preferred segment or the affluent segment, but as well as small businesses. That's the main driver in the small businesses. In auto and consumer is we are open, is cross selling through bankers, cross selling through technology. And its new customers that are attractive. To the branches through all the below the line or any type of advertising that we do. Around the new and existing branch, not only the new ones. Mortgage is the one that we see with lower growth. We feel comfortable with the 10% to 11% as we are not willing to go down in rates right now.

We maintain the rates mainly stable even with all the increase of the rate. Then we will try to maintain them even with all the decrease of the rate.

Thank you very much, Enrique. That that was very helpful. And and a quick second question. On your funding side, deposits continue also to grow at the mid mid teens level. Do you expect any type of slowdown ahead Are your customers more price sensitive to rates or what type of dynamics should we expect ahead for for your for your core deposits? Thank you.

For the core deposits, specifically, on the preferred banking, And in general, we are growing, as you say, 1416% in time deposits. We don't see this reducing as we have been paying for many years, not only HEY, but also Van Rejo. In the preferred banking, very good rates compared to traditional banks and even to some of the new neobanks. Close to the t then it's a very attractive rate for for preferred banking and with all the service and the advice of our bankers, private and preferred bankers. That that we have. That's the main driver for for the growth there.

Perfect. Thank you very much, Enrique.

Our next question comes from Alejandro Lavin Good morning. Thank you for taking my question. I have a follow-up question on expenses. So first of all, you already mentioned, right, that you have a I mean, sort of invested on upfront in early 02/2025, right, in in the OpEx line, non expense line with a jump of 17% year on year. Right? But the rest of the year should be relatively stable in peso terms. You you mentioned the range. Right? So just sort of recapping Right? Because if if the, you know, loan growth remains resilient and and margins remain resilient and asset quality remain resilient, if you can OpEx for the rest of the year, you can still reach your guidance, right? So I just want to make sure what your thoughts are on this sense, right? So let's say you you you maintain stable OpEx the rest of the year. Between 1.8, 1.9. Right? So then the year year on year growth begins to decline from 17 to maybe 10% to maybe high single digit by the end of the year. Right? So in in that case, you could be in a in a good position to still reach guidance And then my second question is on other operating expenses.

It's still a it's a small line, but still everything counts. Right? So you we also saw a a jump of over 20% year on year and sequentially in other other operating expense. So I also want to take a look at what your thoughts are on this, if this discount remains stable or maybe even decline the rest of the year?

Thank you.

Can you repeat the the second one? Which other line?

Yeah. It's other operating in which in this case is other operating expense of around 300,000,000 pesos. Yes. No. No. $3.00 7. Thank you for the I I am moving just in fact, it's exactly the same page Exactly.

Alright.

Well, in terms of expenses, you you are right. In this page. There is the eight It doesn't show first quarter is 1,500,000,000.0 pesos in first quarter 'twenty four. But if you see second and third is where the real increase started, this investment and increase on investment that we talk. It was mainly on third quarter that is shown in full in fourth quarter. Then that's why we are confident that we can maintain the between 1.8 and 1,900,000,000.0 for the next three quarters. There are parts that are variable, mainly for the end of the year all the transactional related costs, But the ones that are not transactional related, like, the the investments both in technology or branches or assets that are depreciating or amortizations that's that's the ones that are not going to to change. And, also, if you see the line of taxes, that is VAT mainly, Evine, Mexico VAT. [indiscernible] The next quarters are 97 or I don't have with me the the four quarters together, but it but it's above 100. Then that should be around the level we are not doing new big or larger investments than we did last year.

That's why we are confident that should be maintaining that range. I will move to the up. I I don't know if it's I was cleared with non interest expenses.

Yes. Understood. And yes, to say 10% or 12% we prefer to see 12%. Either way, we still can achieve the 10% lower range of profit or profitability increase in the in the guidance. I have seen some numb some some place some reports with 11 to sixteen. I want to clarify that is 10 to 15. And this we consider very achievable, the 10 at least, and we are aiming obviously higher. [indiscernible] line is is important also. There are two changes that we did. The the main one is that the line that is called asset sales. Is all the foreclosed [indiscernible] But we're presenting it net And last year, it was only the the income from the sale. Then it was a very positive number on the asset sales. And very negative in the last line that other income expenses. Then we netted it I don't know if you know. If if not, I will explain quickly. When you foreclose an asset, and you maintain it in your books one year, you have to adjust the value 10% every year. And in the fifth year, you have to fully depreciate it or adjust to zero. Then the negatives that you see there is this 10% that every year we have to adjust to these assets.

And when you see a positive that means that we sold an specific asset or assets or a collection of assets that in the sum is higher than their volume books. Higher than the adjustment. Say that [indiscernible] a very you will see a more regular number. Another one in the last line there is well, EPUB moves with the traditional with the core deposit. Sorry. In Spanish, it's Captacion Traditional. With core deposits, then it's 14% year on year and 2%. It will grow as we grow the word rate up that we expect similar numbers of 14% around 12 to 14% of growth in in deposits in core deposits. And the the one in below, the that aggregates a lot of items, but the largest one in this quarter is the CVA and DBA and the credit expected risk for our derivatives and investment securities portfolio. Used to be or or in the in the remediation [indiscernible] But as we change the presentation just to show the FX fees on the intermediation section, These valuations and more than evaluation is the risk adjustment with the bullet volatility and the reduction of the rates they are evaluated It's like a provision Not like it's a provision.

Of risk for derivatives and investment securities. Once we sell the security or the security reach maturity, it's reversed or if the conditions in the market change. What I am trying to say in short, is it should reverse that negative provision. Great. Thanks a lot, sixty million pesos in this quarter.

Got it. Thanks. Very thorough explanation. Thanks a lot.

Thank you, Our next question comes from Andres So to with Santander.

Good morning, Manuel, Enrique, Alejandro. Thank you.

For if you ask questions.

My question is regarding your capitalization level and your dividend outlook. You have traditionally distributed the second dividend in the second half of the year based on your loan growth and capitalization level evolution? When I look at your capital ratio, it is right now at 14%. It used to be 15% a year ago. So I was just wondering how likely you to distribute this dividend. And more generally speaking, where where do you want to be in terms capital considering the the uncertain macro and outlook for Mexico. Thank you.

Yes. [indiscernible] we we will have today, we will hold a general assembly today in the afternoon. Where we will propose and we hope they will approve. The the shareholders will approve [indiscernible] is MXN 4.6 per share. There is around MXN 1,500,000,000.0 total amount of the dividend. That's, as you mentioned, that's the first half of the dividend as we did last the last two years. We don't know what is going to happen, then we will have to wait for October to to decide if we are in position both on capitalization index or loan growth all the variables. In that we have to consider. But this first part, we will pay [indiscernible] capitalization index will move to 13%. But there is a large or consideration is that we capitalize it in the last in the fourth quarter of twenty fourteen. 1,400,000,000.0 to Heibanco, In fact, if you check, Heibanco already appears on the CMBB data, It only has 1,462,000.000 pesos.

And and is everything in securities right now as we are waiting for the migration of the customers. Once we do the migration of the customers that are around 9,000,000,000 of loans. The Banca Regional Capitalization Index will increase 1% back. Then it will be 14% around June or July. Depending the the approvals to do the immigration. That's a level that we feel very comfortable even with all the uncertainty. 14% is 2% above our risk How do you say? The our internal risk level metric or goal is above two 12%, and the regulatory one or compulsory one is ten point five. Then the four with the four thing, we feel very comfortable. And even though you will see a 13 temporarily, as long as we migrate the loans from Hei Banca to the Heibanco subsidiary. That is already active.

That's very useful. Thank you, Ricky.

Thank you, Andres.

Our next question comes from Neha from HSBC.

Just a quick one. Could you tell us the exposure you have to the agricultural sector and real estate sector? And on the demand for SME loans, with the uncertainty in the macro and the tariffs, do you see any how's the demand for loans and how do you see that evolving in the next six, nine months? Thank you so much, and congratulations on the results.

Hi, Micha. [indiscernible] is around 14% of the commercial loans.

That would be, like, 10%.

Like, 10% of the total loans. Yes.

But, obviously, we we it's a very diversified ag agro.

We companies.

Yeah.

Yes. It's it's many companies where we are not going to the primary sector. It's mainly agro business or industrial agro. Mhmm.

Both for local consumption as well as export. Export.

Yeah.

And we haven't seen a reduction on on demand.

In any segment. We haven't seen an increase either. And what we have done is we have a reinforced our specialized department We had a very good department for real estate, and we are building similar very good department for agro specialties in different regions of the country. Then we are generating our own demand through this special bankers focus on agro business. If you remember, we have talked about diversifying the portfolio. Agro business is one of the lines that we want to increase our participation. Plus to recover what we used to have in manufacturing and maintaining services and real estate that are our main sectors.

Perfect. Thank you so much.

Thank you to you, Neha.

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.

Good, everyone. Thank you for participating.

Thank you.