Popular, Inc. Q2 FY2025 earnings call

• Javier Ferrer started as CEO, recognized predecessor's impact and emphasized Popular's commitment to Puerto Rico. • Announced $500 million common stock repurchase program and 7% increase in quarterly common stock dividend. • Net income improved due to higher net interest income, expanding net interest margin, and strong loan/deposit growth. • Credit discipline maintained with improving credit quality. • Puerto Rico's economy showed solid business activity with low unemployment, resilient consumer spending, and strong home purchase/mortgage activity. • Transformation efforts ongoing to enhance customer experience, employee performance, and technology, with progress in modernizing branches and launching digital platforms.

Net income for the second quarter was $210 million, with EPS of $3.09 per share, an increase compared to the first quarter. Net interest income was $632 million, driven by balance sheet growth, asset repricing, and lower deposit costs. Loan growth was over $900 million during the quarter, with Banco Popular growing loans by $681 million and Popular Bank by $251 million. Deposit balances increased by $1.4 billion, with Puerto Rico Public deposits ending at $20.9 billion. Noninterest income was $168 million, above guidance, driven by customer transaction fees and other operating income.

• Aim to achieve at least 12% ROTCE in Q4 2025, and now increasingly confident of exceeding 12% for the full year. • Long-term focus on 14% ROTCE. • Reiterate loan growth guidance of 3% to 5%. • Expect NII growth of 10% to 11% in 2025. • Profit sharing expense capped at approximately $40 million, with expense growth including profit sharing expected to be between 4% and 5% in 2025.

• Need to carefully monitor credit portfolio performance in evolving economic environments. • Potential impact of stablecoins on the business, though in early stages. • Uncertainties in deposit seasonality and potential need for borrowings to fund growth.

Q: How does Popular see stablecoins impacting its business and deposits in the medium to long term?

A: Javier Ferrer said they're looking at it given the GENIUS Act approval, put together a team to explore potential use cases, recognizing it will impact the industry though in early innings.

Q: Interplay between $13 million profit sharing accrual, max $40 million, and revenue guide?

A: Jorge García explained profit sharing caps at 8% of employees' salary up to $70,000 total compensation, and the guide is embedded with expectation to accrue max profit sharing.

Q: Loan growth, runoff in U.S. construction portfolio, and deposit funding?

A: Jorge García noted strong pipelines in Puerto Rico and U.S., expected payoff in U.S. construction portfolio likely in Q4, and deposit growth mostly on government side with plans to manage funding through liquidity and deposit strategies.

Q: Expense side and profit sharing impact?

A: Jorge García said it's a combination of transformation efficiencies, operational discipline, and delayed projects, with teams focused on mitigating expense impact while paying out profit sharing.