Popular Q2 2025 Earnings Report

Popular EPS Results

• Actual EPS: $3.09
• Consensus EPS: $2.60
• Beat/Miss: Beat by +$0.49
• One Year Ago EPS: $2.46

Popular Revenue Results

• Actual Revenue: $800.03 million
• Expected Revenue: $777.38 million
• Beat/Miss: Beat by +$22.65 million
• YoY Revenue Growth: N/A

Popular Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 23, 2025
• Conference Call Time: 11:00AM ET

Popular (NASDAQ:BPOP), through its subsidiaries, provides various retail, mortgage, and commercial banking products and services in Puerto Rico, the United States, and the British Virgin Islands. The company provides savings, NOW, money market, and other interest-bearing demand accounts; non-interest bearing demand deposits; and certificates of deposit. It also offers commercial and industrial, commercial multi-family, commercial real estate, and residential mortgage loans; consumer loans, including personal loans, credit cards, automobile loans, home equity lines of credit, and other loans to individual borrowers; construction loans; and lease financing comprising automobile loans/leases. In addition, the company provides investment banking, auto and equipment leasing and financing, broker-dealer, and insurance services; debit cards; and online banking services. Popular, Inc. was founded in 1893 and is headquartered in Hato Rey, Puerto Rico.

Popular Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: We reported $210 million in net income and EPS of $3.09, up $32 million and $0.53 respectively quarter-over-quarter, resulting in a strong 13.3% return on tangible common equity.
• Positive Sentiment: Management announced a new incremental common stock repurchase program of up to $500 million and increased the quarterly dividend by 7% to $0.75 per share, underscoring the bank’s solid capital position.
• Positive Sentiment: Loan portfolios grew by $931 million, highlighted by a $425 million local toll-road infrastructure financing, and the original 3–5% annual loan growth guidance was reaffirmed.
• Positive Sentiment: Credit metrics improved as non-performing loans and net charge-offs declined, leading to a reduction in full-year net charge-off guidance to 45–65 basis points from 70–90.
• Neutral Sentiment: Operating expenses rose by $22 million, largely due to a $13 million profit-sharing accrual, and total expense growth is now guided to be up to 4–5%, though ex-profit-sharing growth remains below 4%.

Presentation

[Operator]

Hello, everybody, and welcome to the Popular Incorporated Second Quarter twenty twenty May. My name is Elliot, and I'll be your coordinator today. I'd now like to hand over to Paul Cardillo. Please go ahead.

[Paul Cardillo, SVP & IRO at Popular]

Good morning, thank you for joining us. With us on the call today is our President and CEO, Javier Ferrer our CFO, Jorge Garcia and our CRO, Lidio Soriano. They will review our results for the second quarter and then answer your questions. Other members of our management team will also be available during the Q and A session. Before we begin, I would like to remind you that during today's call, we may make forward looking statements regarding Popular such as projections of revenue, earnings, credit quality, expenses, taxes and capital structure as well as statements regarding Popular's plans and objectives.

[Paul Cardillo, SVP & IRO at Popular]

These statements are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward looking statements are set forth within today's earnings release and our SEC filings. You may find today's press release and our SEC filings on our webpage at popular.com. I will now turn the call over

[Paul Cardillo, SVP & IRO at Popular]

to our President and CEO, Javier Ferrer.

[Javier Ferrer, President, CEO & Director at Popular]

Thank you, Paul. Good morning, everybody. I'm happy to be here with you in my first earnings call as CEO. I'd like to take a moment to recognize the impact that my predecessor Ignacio Alvarez had on this company during his tenure as well as on me as a colleague and a friend. It is an honor to follow such a great leader, so thank you, Nacho, for your partnership.

[Javier Ferrer, President, CEO & Director at Popular]

I am humbled by the opportunity to lead this iconic Puerto Rican institution. For over one hundred and thirty years, Popular has consistently demonstrated a deep commitment to Puerto Rico, its institutional values and putting our customers at the heart of everything we do. I joined Popular almost eleven years ago. I knew that if I wanted to make a meaningful contribution, this was the place to be. This idea, simple and yet powerful, continues to inspire me.

[Javier Ferrer, President, CEO & Director at Popular]

Before I discuss the highlights for the second quarter, I am pleased to report that we recently announced two capital actions, a new incremental common stock repurchase program of up to $500,000,000 and a 7% increase in our quarterly common stock dividend to $0.75 per share. These actions evidence the strength of our capital position, which allows us to continue to invest in our franchise and serve the needs of our customers, while also returning capital to our shareholders. On slide three, we share a few highlights from the period that reflect our strong operating performance in the second quarter. We reported net income of $210,000,000 and EPS of $3.09 per share, an increase of $32,000,000 and $0.53 per share respectively compared to the first quarter. Importantly, the improvement in our bottom line resulted in a very strong 13.3% return on tangible common equity.

[Javier Ferrer, President, CEO & Director at Popular]

Our results were driven by higher net interest income and expanding net interest margin and strong loan and deposit growth. We maintained our credit discipline and credit quality continued to improve. I would like to commend the lending teams at Popular, which grew loans by more than $900,000,000 during the quarter. As a notable example, we served as agent bank for a $425,000,000 loan to the private sector entity that operates and maintains several toll roads in Puerto Rico. This transaction is one of the largest infrastructure financing in Puerto Rico executed entirely by local financial institutions.

[Javier Ferrer, President, CEO & Director at Popular]

Please turn to slide four. As of the end of the second quarter, business activity in Puerto Rico continued to be solid as reflected by favorable trends in total employment, consumer spending and other key economic data. The unemployment rate of 5.5% continues to hover around all time lows. Consumer spending has been resilient and remains healthy. Combined credit and debit card sales for Banco Popular customers increased by approximately 4% compared to the second quarter of twenty twenty four.

[Javier Ferrer, President, CEO & Director at Popular]

Home purchase activity continues to be strong as demonstrated by the $158,000,000 increase in mortgage balances at Banco Popular during the quarter. While demand for new cars slowed somewhat after a very strong first quarter, we saw our auto loan and lease balances increased by $76,000,000 during the period. The tourism and hospitality sector continues to be a source of strength for the local economy. This summer, the sector is benefiting from an added tailwind during what is usually a seasonally slow period due to Benito Martinez Ogasios, also known as Bad Bunny's thirty ninth concert residency at the Coliseum in San Juan, right next to our Popular Center complex. Conservative estimates indicate that it will lead to approximately $200,000,000 in additional local economic activity.

[Javier Ferrer, President, CEO & Director at Popular]

It is also generating significant media exposure for the island, to its strong image as a compelling destination for travelers. The Popular brand is very well represented in the residences. Additionally, some colleagues and I recently had an opportunity to attend the rebranding of an emblematic hotel property in San Juan and tour one of the island's new luxury hotel and residential community developments being built on the East Coast. It's encouraging to see the scale of private investments being made on the island. And last, but certainly not least, we continue to expect that the ongoing disbursement of federal disaster recovery funds will support economic activity for several years to come.

[Javier Ferrer, President, CEO & Director at Popular]

Given what we see every day, I am convinced there are opportunities for growth in Puerto Rico and that we are uniquely positioned to leverage them. We do not take our market position for granted. We compete for it every day and are strongly committed to promoting the island's progress as we have done for over one hundred and thirty years. Before turning it over to Jorge, I would like to briefly comment on the status of our transformation. These efforts are designed to enhance our customers' lives through more personalized and seamless experiences, increase employee performance and satisfaction with more agile work processes, modernize the company's technology to enable greater innovation and security and generate sustainable and profitable growth for our shareholders.

[Javier Ferrer, President, CEO & Director at Popular]

A company wide multiyear program such as this one requires commitment, focus and patience. We are pleased with the substantial progress we have made so far. We have modernized branches to enhance customer experience and operational efficiency, reduced loan processing times for small and mid sized commercial customers at Banco Popular and launched a new digital platform to improve our commercial cash management services. These are only a small sample of the many efforts completed and in process that will ensure we are the number one bank for our customers. I am confident that we can improve how we work by becoming simpler, more productive and more efficient.

[Javier Ferrer, President, CEO & Director at Popular]

We will continue to leverage our position to size additional opportunities for growth in Puerto Rico. I am convinced there are many to drive increased profitability and continue enhancing our performance in the coming years. It's only been a couple of weeks since I officially began in this role, but I'm excited to show everyone what we can achieve together with even greater strategic focus and agility. I will now turn the call over to Jorge for more details on our financial results.

[Jorge García, Executive VP & CFO at Popular]

Thank you, Javier. Good morning and thank you all for joining the call today. As Javier mentioned, our quarterly net income increased by $32,000,000 to $210,000,000 and our EPS improved by 21% to $3.9 per share. These results were driven by better NII and noninterest income and a lower provision for credit losses offset somewhat by higher operating expenses. There are numerous positive to highlight this quarter, but most significant for us is that the improvement in net income coupled with our repurchase activity resulted in a 13.3% ROC fee for the period, an increase of 190 basis points from last quarter.

[Jorge García, Executive VP & CFO at Popular]

As we have mentioned before, our objective is to deliver sustainable financial results. Our prior guidance of achieving at least a 12% ROCCE in Q4 of this year still stands. Additionally, given this quarter's results and credit outlook, we are increasingly confident we should exceed a 12% ROCCE for the full year and not just in Q4. Longer term, we remain focused on achieving a sustainable 14% return on tangible common equity. Please turn to Slide six.

[Jorge García, Executive VP & CFO at Popular]

Our net interest income of $632,000,000 increased by $26,000,000 and was driven by balance sheet growth, asset repricing in our investment portfolio and lower deposit costs in both of our banks. Our net interest margin expanded by nine basis points on a GAAP basis and 12 basis points on a tax equivalent basis, driven by lower deposit costs and a larger balance of loans and tax exempt investment securities. After a slow Q1, growth of $931,000,000 in the quarter was very strong with both banks contributing to the increase. At BPPR, we saw loan growth of $681,000,000 reflected across all portfolios, but driven primarily by commercial and construction lending. This includes the $265,000,000 that we retained from the toll roads financing that Javier described earlier.

[Jorge García, Executive VP & CFO at Popular]

At PV, we saw loan growth of $251,000,000 driven by commercial and construction lending. Last quarter, we guided to the lower end of the 3% to five percent low growth range due to expected payoff in our construction portfolio and the uncertainty in the economic environment. However, given the loan growth realized in Q2 and continued demand in Puerto Rico and in our niche lending businesses in The U. S, we reiterate our original 3% to 5% guidance. In our investment portfolio, we continued to reinvest proceeds from maturities into treasuries targeting a yield of at least 4% while trying to manage the duration of the portfolio.

[Jorge García, Executive VP & CFO at Popular]

During the quarter, we purchased approximately $2,400,000,000 of treasuries at an average yield around 4%. The duration of these was closer to one point five years as we felt the yields on that part of the curve were more attractive, particularly when considering the extension we achieved through our loan growth. We expect to continue to invest in treasuries to lessen our NII sensitivity to lower rates, while maintaining an overall duration of two to three years in the investment portfolio. Ending deposit balances increased by $1,400,000,000 while average balances grew by $499,000,000 Puerto Rico public deposits ended the quarter at $20,900,000,000 an increase of approximately $1,300,000,000 compared to Q1. We continue to expect public deposits to be in the range of 18,000,000,000 to 20,000,000,000 At BBPR, excluding Puerto Rico public deposits, ending deposit balances decreased by approximately $60,000,000 end to end and an average deposits grew by approximately $440,000,000 with non interest bearing deposits accounting for $93,000,000 of that increase.

[Jorge García, Executive VP & CFO at Popular]

At PB, ending deposit balances increased by approximately $150,000,000 net of intercompany deposits. Total deposit costs decreased by five basis points. At BBPR, deposit costs decreased by three basis points to 1.52%, mostly due to a 10 basis point reduction in the cost of market linked public deposits. At Popular Bank, deposit costs decreased by 14 basis points as we continued our efforts to reduce the cost of our U. S.

[Jorge García, Executive VP & CFO at Popular]

Deposits. We're very happy with the efforts of our teams and their focus on deposit retention and growth strategies. However, we continue to expect third quarter deposit balances in BPPR to reflect historical seasonality and decrease as our retail client base spends Q1 and Q2 tax refunds. That said, given the results in the first half of the year along with the anticipated NIM expansion for the rest of the year from repricing of our fixed rate earning assets and deposit retention strategies, we now expect to see higher NII growth of 10% to 11% in 2025. Please turn to Slide seven.

[Jorge García, Executive VP & CFO at Popular]

Non interest income was $168,000,000 an increase of $16,000,000 compared to Q1 and above the high end of our 2025 quarterly guidance. There were two primary drivers of the delta versus our expectations. Better fees related to customer transaction activity as a result of higher credit and debit card spending and higher other operating income, which was mostly due to a $3,000,000 increase in income from equity method investments and an approximately $3,000,000 related to a reimbursement from the IRS. Based on the quarter's results, we now expect quarterly non interest income for 2025 to be at the high end of the 155,000,000 to $160,000,000 range. Please turn to Slide eight.

[Jorge García, Executive VP & CFO at Popular]

Total operating expenses were $493,000,000 an increase of $22,000,000 when compared to last quarter. The largest expense variance in the quarter was the $17,000,000 increase in personnel costs. We've had a very good first half of twenty twenty five. As can recently be assumed by our improved outlook for NII and credit, our internal net income forecast for the full year are now outpacing the original 2025 budget expectations by a significant enough margin to prompt us to begin to accrue profit sharing expense. During the quarter, we accrued $13,000,000 for profit sharing in addition to other performance related incentives.

[Jorge García, Executive VP & CFO at Popular]

If we continue to outperform for the remainder of the year, the total profit sharing expense will be capped at approximately 40,000,000 or approximately 2% of our expense base. Being in a position to share profits with all of Popular's full time employees is a terrific outcome and allows our teams to benefit from the acceleration and the improvement of our profitability. This expense was not included in our original 4% expense growth guidance at the beginning of the year. However, we're working to mitigate the impact of these costs on our total expenses for the year with sustainable efficiency efforts. We now expect the increase in 2025 expenses including profit sharing to be between 45% when compared to last year.

[Jorge García, Executive VP & CFO at Popular]

In other words, excluding profit sharing, we should see expense growth below our original 4% expectation. Please turn to Slide nine. Regulatory capital levels remain strong. Our CET ratio of 15.91% decreased by 20 basis points from Q1, mainly due to loan growth during the quarter and the effects of capital actions net of quarterly net income. Tangible book value per share at the end of the quarter was $75.41 an increase of $3.39 per share from Q1 driven by our net income and lower unrealized losses in our MBS portfolio offset in part by our capital return activity in the quarter.

[Jorge García, Executive VP & CFO at Popular]

During the second quarter, we repurchased approximately $112,000,000 in shares at an average price of $99 per share. As of July 15, we had $33,000,000 remaining on the share repurchase authorization announced in July 2024 in addition to the incremental $500,000,000 announced last week. With that, I turn the call over to Leo.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

Thank you, Jorge, and good morning. Credit quality metrics improved during the second quarter with lower NPLs, lower inflows and lower net charge offs. Our mortgage and commercial loan portfolios continue to drive the results with credit metrics significantly below pre pandemic levels, coupled with improved performance from our consumer portfolio. Over the years, we have managed credit under different macroeconomic and operating environments. And more recently, we have taken several credit tightening actions to reduce our exposure to riskier segments.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

We continue to carefully monitor the performance of our book and response to the environment accordingly. However, we are confident that the improvement in the risk profile of our loan portfolios positions Popular to operate successfully under more difficult economic condition. Turning to Slide number 10. Non performing assets and loans decreased slightly during the quarter, driven by Banco Popular. NPLs in Banco Popular decreased by $4,000,000 reflected across all loan segments.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

NPLs in Popular Bank increased by $2,000,000 driven by a $3,000,000 commercial NPL inflow during the quarter. OREOs decreased by 6,000,000 driven by sales of residential real estate properties in Puerto Rico. Inflows of NPLs decreased by $4,000,000 quarter over quarter. In Banco Popular, inflows decreased by $5,000,000 driven by the commercial portfolio. In Popular Bank, NPL inflows remained flat.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

The ratio of NPLs to total loans held in portfolio decreased two basis points to 82 basis points. Turning to slide number 11. Net charge off amounted to $42,000,000 or annualized 45 basis points compared to $49,000,000 or 53 basis points in the prior quarter. Net charge off in Banco Popular decreased by $7,000,000 driven by lower auto loans and personal loans, offset in part by a commercial loan recovery recognized in the first quarter. In Popular Bank, net charge off remained flat.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

Given our credit performance during the first half of the year and our outlook for the second half, we now expect net charge offs to be between 45 to 65 basis points for the full year, below our original guidance of between 70 to 90 basis points. The allowance for credit losses increased by $7,000,000 to $770,000,000 driven by higher resource from portfolio growth and less favorable economic assumptions, offset in part by revised probability weights and changes in credit quality. We leveraged multiple scenarios to estimate our ACL. In the second quarter, we slightly reduced the pessimistic weight resulting in a $4,000,000 decrease in the ACL. In Banco Popular, the ACL increased by 3,000,000 driven by auto loans due to changes in credit quality and changes in the economic scenarios, offset in part by improvements in the credit quality of our commercial portfolios and changes in probability weights.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

In Popular Bank, the ACL increased by $4,000,000 driven by the changes in economic forecast and higher qualitative reserves for the CRE portfolio. The compression ratio of the ACL to loans held in portfolio was two zero two basis points compared to two zero five basis points in the prior quarter, while the ratio of the ACL to NPLs was 247% compared to 243% in the prior quarter. The provision for credit losses was $50,000,000 compared to $65,000,000 in the prior quarter. In BBR, the provision was $10,000,000 lower, while in Popular, the provision was $7,000,000 lower. The combined provision to net charge off ratio for the quarter was 117%.

[Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group at Popular]

To summarize, credit quality metrics improved during the second quarter. We are attentive to evolving environment, but are confident that the improvement in the risk profile of our loan portfolios will allow us to operate successfully under different economic conditions. With that, I would like to turn the call over to Javier for his concluding remarks. Gracias.

[Javier Ferrer, President, CEO & Director at Popular]

Thank you, Lidio and Jorge for your update. I am extremely pleased with our financial performance in the second quarter. We increased net interest income, grew loans and deposits and maintained strong credit metrics. We have had a strong first half of the year. We will continue to execute on our objectives and I am urging our teams to remain focused on deposit retention, loan generation and particularly on our expense discipline.

[Javier Ferrer, President, CEO & Director at Popular]

We are committed to generating value for our shareholders and to achieving our ROCE objectives. We will continue to execute our transformation program determined to be the number one bank for our customers and to simplify our operations to improve efficiency and drive sustained performance. We're also focused on reinvesting in the communities we serve and believe we are making a meaningful difference. These efforts are highlighted in our corporate sustainability report, which we published in June. I want to give a shout out to our colleagues and recognize their hard work.

[Javier Ferrer, President, CEO & Director at Popular]

I see what they do every day in our branches, call centers and centralized offices. We are pushing ourselves to deliver more for our clients every day, and I am incredibly grateful for their commitment. We are now ready to answer your questions.

[Operator]

Thank you. First question comes from Jared Cassidy with RBC. Your line is open. Please go ahead.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Hi, guys. This is actually Forrest Hamilton in Gerard's place for today. Nice quarter. And just one quick question. There's been a lot of recent highlights and headlines on stablecoins.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

And I was just curious how you guys see stablecoins potentially impacting Popular's business and deposits and kind of the medium to long term outlook.

[Javier Ferrer, President, CEO & Director at Popular]

Well, thank you for that question. I I I just wanna say that we're looking at it given that the Genius Act was approved. We put together a team to to do deeper dives and start to think about potential use cases. So that's where we are with it. We realized that it's coming and it will have an impact in the industry.

[Javier Ferrer, President, CEO & Director at Popular]

It's early innings, but we have started moving on the opportunity.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Okay, great. Thank you. And that's it for me for today. Thank you.

[Operator]

We now turn to Timur Braziler with Wells Fargo. Your line is open. Please go ahead.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hi, good morning. Good morning. Looking at the level of current accruals for the profit sharing, I'm just wondering what the interplay is between the $13,000,000 that's accrual today versus the max of $40,000,000 and the revenue guide that's out there. Does the revenue guide imply that current accrual is the right number and you need to top that in order to get closer to the $40,000,000 Or as we get closer to to hitting that new guide, that accrual should continue inching higher?

[Jorge García, Executive VP & CFO at Popular]

So I first, I I you know, I'll you, Timur, you know, the way the profit sharing works is that we have to beat our our our budget by of net income by at least three percent. And as that number increases and the payoff gets gets greater, it's capped off. It's up to 8%, of our employee salary up to a maximum total compensation of $70,000. That's where the the 8% applies to. So if you make more than 70,000, you don't keep accruing.

[Jorge García, Executive VP & CFO at Popular]

And this is a great opportunity for us to sharing with our, employee base when we really exceed plan. Whenever they executes, and exceed plan, we feel that our interests are aligned between shareholders and our and our employees. Having said that, you know, the guide that we have provided, which includes increasing, net interest income as well as increasing expenses. The expense rates that we have, we are, certainly expecting to accrue the max of of property sharing and that's embedded in our guidance. So we don't take lightly Javier's comments of making sure our team continues to be focused and executing.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Yeah. Okay. Great. Appreciate that color. And then, maybe a two part question on deposits.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

I think I heard commercial deposit competition was maybe picking up on the island, driving some of the higher costs there. And then appreciate the comments on typical seasonality in 3Q. I'm just wondering if you can frame how that seasonality looks in in 2025 versus what we saw last year.

[Jorge García, Executive VP & CFO at Popular]

In in terms of of competition, you know, Javier, like I say, we we compete every day, for for our customers, for our business. We do it on on service and and and sometimes on price as well. Right? And, I would say that on the commercial side, we're we don't see as much yield seeking, behavior or pushback. I think a lot of that has been embedded in our in our baseline.

[Jorge García, Executive VP & CFO at Popular]

On the retail clients, there are still many discussions and still some yield seeking behavior. We continue to to see outflows of roughly 100,000,000 a month into our popular security subsidiary. So there's still some some yield seeking behavior and from our retail clients. The the one thing that is different than last year, you know, for your question is that our teams are much more focused on deposit gathering and deposit retention strategies in our in our branches. As you know, we adjusted our compensation plans.

[Jorge García, Executive VP & CFO at Popular]

We adjusted targets to really make sure that we were incentivizing, the the the deposit retention behavior. When we look back pre pre pandemic where you don't have all the noise that we saw during the pandemic, it is clear that there's a trend where our our client base gets more inflows in the first half of the year. They tend to spend, some of that in the third quarter and then you see stability and maybe an uptick in the fourth quarter. We expect those trends to to continue. But I would also say, when we look at the inflows of our clients, particularly in this first half of the year, our clients have received more, tax refunds than they did last year.

[Jorge García, Executive VP & CFO at Popular]

And even though last year, we had the special one time rebate from the Puerto Rico government, and inflows outside of the tax proceeds are about 6% higher. So people are earning more, you know, so it it really does go to to to demonstrate the strength of the consumer in Puerto Rico. So we are confident in our teams, but, you know, there is a seasonality. We have over a million, retail clients. It's very difficult to to understand their you know, predict their spending behavior.

[Jorge García, Executive VP & CFO at Popular]

But that all is accounted in our NII guide, Timur.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Great. Thank you for the color. Appreciate it.

[Operator]

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

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good morning. Thanks for the question here. I thought maybe kicking it off to the loan side of things, you had a really strong quarter and you highlighted the larger infrastructure project. I believe the guidance bakes in some planned runoff in The U. S.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Can you give us a bit more color as to what that is, one? And two, the activity in Puerto Rico, I feel like the second half of the year, usually is better for you. So I'm wondering if you could help, provide additional color on both parts of the business. Thanks.

[Jorge García, Executive VP & CFO at Popular]

Thanks, Kelly. So we we do see strong pipelines, particularly into the third quarter in in in in both Puerto Rico and The US. You know, so so like what we're seeing, still continue to see large transactions that make a difference in those in those, jumps some point to point. In The US, we continue to expect that we will see some payoffs in the construction portfolio. The the, you know, the speed at which that portfolio has been growing and the pipeline behind it is, you know, we we expect that eventually it's gonna come down.

[Jorge García, Executive VP & CFO at Popular]

As you know, those construction loans end up, they're mostly multifamily projects, and we don't always succeed in retaining the takeout, the term loans after the construction is project is completed. So we do expect that decrease to happen, more likely in the fourth quarter than than in the third quarter.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. That that's helpful. And on the funding side, it looks like most of the deposit growth was on the government side, and you you took out some borrowings to bridge the gap. Wondering especially with the deposit seasonality as you look ahead, do you the expected cash flows cover the loan growth you're expecting or would you anticipate necessitating some more borrowings here to to fund your growth outlook?

[Jorge García, Executive VP & CFO at Popular]

Alright. So so a couple of things. I mean, let let me I just wanna clarify a couple of things. We we did see end to end growth that was mostly, the public funds. But on an average basis, the public funds were I think they grew maybe $5,060,000,000. Really, the the nonpublic deposits is what grew almost 500,000,000 on an average basis in the quarter, including about a 150,000,000 in in non interest bearing accounts, about a 100 of that in Puerto Rico, 50 in The US.

[Jorge García, Executive VP & CFO at Popular]

So the the deposit franchise was was strong. We did do some borrowings in The US, short term for their home loan bank borrowings that we do at any time as part of our liquidity. We have over $25,000,000,000 in off balance sheet and on balance sheet liquidity in both banks combined. And, you know, so it's more about, you know, being able to fund. We as you know, in The US, the alternative area of growth for us has been direct deposits on the Internet online channel.

[Jorge García, Executive VP & CFO at Popular]

We'll continue to use that, Joseph. If have flexibility to fund quicker or at a better price on a short term basis than Federal Home Loan Bank, we we will do that. In Puerto Rico, we did not, have any, change in our in our wholesale borrowing.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Thanks. Last quick question from me is on the expense side. You rightly pointed out that with the profit sharing expense, your operating expenses are actually lower than what you had previously expected. Wondering if you could offer what's what's driving that.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Are you pushing out some of the transformational expenses next year or realizing greater efficiencies with what you've done so far?

[Jorge García, Executive VP & CFO at Popular]

It it really is, all of the above. I mean, we are, we do have as part of the transformation efforts, we do have work streams that are focused on efficiency. We are finding opportunities and sustainable efficiencies that are operational and technology, expenditures. Just managing, data purge exercises, how how we manage, you know, different different operational accounts with more precision and, you know, you know, urging our teams for a commitment of excellence and and not not being just being on top of their responsibility and and making sure that we have that discipline. We are incentivizing people on expense control and that usually, you know, warns people to start paying attention and and they are focused on that.

[Jorge García, Executive VP & CFO at Popular]

On the transformation, they they are projects that get delayed and made that it that impacts our total expense base. Some of it is delayed because of things that we do. Other things are delayed because of of bigger picture things like, you know, there's a recent conversion in Fedwire that impacted the entire, banking sector, and that got delayed about a quarter. So you see some of that in our in our expense delays. So, it it really is a combination of a lot of different things.

[Jorge García, Executive VP & CFO at Popular]

But, our teams are focused, and, we wanna make sure that we get to pay out on that profit sharing and also mitigate the total expense base for Popular.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Thanks for the color. I'll step back.

[Operator]

We now turn to George Shaw with Barclays. Your line is open. Please go ahead.

[Jared Shaw, Managing Director at Barclays Capital]

Hey, good morning.

[Jorge García, Executive VP & CFO at Popular]

Hi, Gerard.

[Jared Shaw, Managing Director at Barclays Capital]

Maybe on the loan growth, you highlighted the large deal that you led. Are you now at the point where you're starting to see the federal stimulus money or federal investments really start to get traction? Should we start to expect more of these larger deals? And I guess what's your comfort with sort of the upper end of hold size on those?

[Javier Ferrer, President, CEO & Director at Popular]

Well, mean, we are seeing talking to the government agencies that are handling the federal funds and also to our customers, we are seeing deployment of those funds in Puerto Rico. We expect to have more projects announced in the next few weeks to months. Don't think that we're going to be seeing in the next few weeks anything on public partnership activity. That doesn't mean that there won't be more, but I won't want to I wouldn't want to mislead you to to tell you there's a pipeline on public partnership transactions or financings of that nature. There are certain things that are being discussed in Puerto Rico.

[Javier Ferrer, President, CEO & Director at Popular]

And definitely, we are the go to bank locally when the government and third parties want to come in and participate in P3 projects. So again, I don't think that I can share at this moment things that are being discussed, but we're committed to financing and participating in those deals. So I mean and I want to say also, I think the government is very much focused on economic development, permitting, agility and given their good relationships with the Trump administration, what we hear and see is encouraging.

[Jared Shaw, Managing Director at Barclays Capital]

All right. Thanks. Shifting just to the fee income guide. Should we assume basically sort of steady trends from here excluding maybe in the equity investment adjustment and the refund that $6,000,000 and other? Or is there any other areas that are seeing outsized opportunity?

[Jorge García, Executive VP & CFO at Popular]

I mean, are cyclical cycles. I'm sorry for the, the double, there. But, if you if you look historically, second second quarter and fourth quarter tend to be higher. You have more transactional activity in in the second and fourth quarter. There's some insurance fees that happen and, you know, that come in in the second and fourth quarter as well.

[Jorge García, Executive VP & CFO at Popular]

Certainly, we highlighted the IRS refund. That's not something that that we would you know, that's something unusual. But the the equity pick up, there there was nothing unusual about that. Just had a slower first quarter and and and picked up in the second quarter. So, you know, we we feel good about the updated guidance for the, you know, for the year and it just you know, you can do the math.

[Jorge García, Executive VP & CFO at Popular]

It just signifies top end of the guidance for the second half of the year as well.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. Okay. Thanks. And then just finally on the capital and the buybacks, good level of buybacks this quarter. Is this sort of a pace you feel comfortable with given the broader capital backdrop and growth outlook?

[Jorge García, Executive VP & CFO at Popular]

I think it's a reasonable pace and we still feel that our share price is very attractive at these levels.

[Jared Shaw, Managing Director at Barclays Capital]

Thank you.

[Operator]

This concludes our Q and A. I'll now hand back to Javier Ferrer, CEO for any final remarks.

[Javier Ferrer, President, CEO & Director at Popular]

Well, thanks again for joining us and for your questions. We look forward to updating you on our third quarter results in October. Thank you.

[Operator]

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

Participants

Executives

• Paul Cardillo, SVP & IRO
• Paul Cardillo, SVP & IRO
• Javier Ferrer, President, CEO & Director
• Jorge García, Executive VP & CFO
• Lidio Soriano, Executive VP & Chief Risk Officer of Corporate Risk Management Group

Analysts

• Gerard Cassidy, Managing Director at RBC Capital Markets
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)
• Jared Shaw, Managing Director at Barclays Capital