Financial Data and Key Metrics Changes - The company reported net income of $1.8 billion, or $4.35 per share, reflecting strong performance across the franchise [4] - Total revenue reached a record $5.9 billion, up $254 million, or 4% from the previous quarter [12] - Non-interest expense increased by $78 million, or 2%, resulting in over 200 basis points of positive operating leverage [13] - The net interest margin (NIM) was 2.79%, a decline of one basis point, but expectations remain for NIM to exceed 3% in 2026 [14][15] Business Line Data and Key Metrics Changes - In retail banking, consumer demand deposit accounts (DDAs) grew 2% year-over-year, with a notable 6% growth in the Southwest region [5] - The asset management business saw client growth and positive net flows, particularly in expansion markets [7] - Commercial loans increased by $3.4 billion, or 2%, driven by growth in the commercial and industrial (CNI) portfolio [9] Market Data and Key Metrics Changes - Average deposits increased by $9 billion, or 2%, with strong growth in commercial interest-bearing deposits, which rose by 7% [11] - Non-interest income reached $2.3 billion, an increase of $161 million, or 8%, driven by broad-based growth across categories [15] - The company anticipates average loans to be stable to up 1% in the fourth quarter of 2025 [18] Company Strategy and Development Direction - The company is focused on organic growth and strategic acquisitions, such as the recent announcement to acquire FirstBank, which will enhance its market share in Colorado [7] - The management emphasized the importance of maintaining a strong retail franchise alongside the CNI franchise to ensure balanced growth [33] - The company aims to reduce costs by $350 million in 2025 through a continuous improvement program [17] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economy, noting resilient consumer spending and corporate clients' positive outlook [4][5] - The company expects real GDP growth to be below 2% in 2025, with unemployment peaking above 4.5% in mid-2026 [18] - Management remains confident in credit quality, with non-performing loans stable and charge-offs down [64] Other Important Information - The company returned $1 billion of capital to shareholders during the quarter, including $679 million in common dividends and $331 million in share repurchases [9] - The allowance for credit losses totaled $5.3 billion, or 1.61% of total loans, indicating strong credit quality [18] Q&A Session Summary Question: Margin performance and outlook - Management expects NIM to expand and reach 3% by 2026, despite a temporary decline due to commercial deposit growth [21][22] Question: Expense expectations for the fourth quarter - Expenses are expected to rise due to seasonal factors and increased business activity, with a full-year guidance adjustment to 1.5% [24][27] Question: Scale and growth opportunities - The company is focused on organic growth and selective acquisitions, with the FirstBank deal seen as an opportunity to enhance retail dominance [33] Question: Commercial real estate loan growth - Management anticipates a turnaround in commercial real estate balances at the beginning of next year [35] Question: Capital levels and rating agency perspectives - The company is well-capitalized with a CET1 ratio of 10.6%, and management is assessing capital levels in light of recent developments [58][60] Question: Loan demand and credit quality outlook - Management sees strength in loan growth possibilities and maintains a positive outlook on credit quality, with charge-offs expected to remain low [64]

Core Insights - The article highlights the significant unrealized losses on investment securities held by the U.S. banking system, which have reached record levels since 2022 due to rapid interest rate hikes by the Federal Reserve [1] Group 1: Investment Securities - The chart from the Federal Deposit Insurance Corporation (FDIC) illustrates the difference between the book value and market value of investment securities from 2006 to 2025 [1] - Since 2022, the U.S. banking system has experienced a dramatic decline in bond values, leading to unrealized losses on "available-for-sale" and "held-to-maturity" securities [1] - The total unrealized losses approached $800 billion, significantly higher than any previous period [1]

Financial Data and Key Metrics Changes - The company reported a net income of $80 million, translating to a return on assets of 1.69%, driven by record net interest income and solid loan production [5][13] - Pre-tax pre-provision income was slightly below the prior quarter but up 9% compared to the previous year [5] - The efficiency ratio was sustained at 50%, within the target range of 50% to 52% [5][20] Business Line Data and Key Metrics Changes - Total loans grew by 6% on a linked quarter annualized basis, primarily driven by strong commercial loan production in Puerto Rico and Florida [6] - Commercial lending pipelines remain strong, indicating a positive outlook for the second half of the year [6][11] - Customer deposits saw a reduction, mainly from a few large commercial accounts, while retail deposits remained stable [6][32] Market Data and Key Metrics Changes - Economic conditions in Puerto Rico and Florida are trending favorably, with a strong labor market reflected in the lowest unemployment rate in decades [9][10] - The company is seeing encouraging trends in disaster relief inflow, supporting economic activity and infrastructure development [10] Company Strategy and Development Direction - The company continues to invest in technology to achieve long-term growth and improve efficiency [10][68] - Supporting economic development in its markets remains a strategic priority, with a focus on lending to both consumers and corporations [11] - The company aims to deploy 100% of its earnings to shareholders through capital actions, including dividends and stock buybacks [12][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid-single-digit loan growth for the full year, despite some uncertainties in the broader market [11][42] - The company is closely monitoring consumer credit and is seeing improvements in recent vintages due to prior credit policy adjustments [24][33] Other Important Information - The company executed a capital deployment plan, redeeming subordinated debentures and repurchasing stock [25][26] - The tangible book value per share increased by 5% during the quarter to $11.16 [26] Q&A Session Summary Question: Clarification on the expected tax rate - The effective tax rate for the full year is estimated to be around 23%, based on the forecasted mix of exempt and taxable income [29] Question: Insights on deposit decline - The decline in deposits was primarily due to non-recurring business activities and high-yielding behaviors among large commercial customers [32][40] Question: Sustainability of charge-offs - Management believes the current level of charge-offs is sustainable and may improve for consumer portfolios [33] Question: Expectations for loan growth in the second half - Loan growth is expected to be driven by both Puerto Rico and Florida, with stability anticipated in deposits [42][44] Question: Loan yields and funding costs - Loan yields have seen slight reductions, and there is potential to continue lowering funding costs as market conditions evolve [53][55]