Popular, Inc. Q3 FY2025 earnings call

• Financial Performance: Net income increased, EPS improved, net interest and noninterest income contributed, effective tax rate lower. Exceeded 13% ROTCE, expects 12% ROTCE in Q4 and full year, long-term focus on 14% ROTCE.
• Puerto Rico Economic Activity: Solid business activity with low unemployment, resilient consumer spending, strong home purchase and construction momentum, tourism boost from events like Bad Bunny's concerts.
• Strategic Framework: Focus on being #1 for customers, simple and efficient, top performing bank. Investing in digital solutions, online loan origination, and expanding digital deposits.
• Expense Management: Total operating expenses increased $3 million, with noncash goodwill impairment offset by other expense reductions. Focus on expense discipline and strategic investments.

Net income was $211 million with EPS of $3.15, an increase of $1 million and $0.06 per share respectively. Net interest income was $647 million, up $15 million, driven by higher average deposit balances, fixed rate asset repricing, and deposit pricing discipline. Loan growth was $502 million, with BPPR seeing $357 million and Popular Bank $145 million growth, both from commercial and construction lending. Ending deposit balances decreased by $704 million, but average balances grew by $793 million. Puerto Rico public deposits ended at $20.1 billion, down $842 million from Q2. Credit quality saw NPLs to total loans increase to 1.3% due to 2 commercial exposures, but excluding these, metrics were stable. Net charge-off was $58 million, annualized 60 basis points.

• Loan Growth: Consolidated loan growth in 2025 now expected 4%-5% vs original 3%-5%, despite U.S. construction paydowns.
• NII: Expect NII growth 10%-11% in 2025. Q4 NII guidance within range, considering public deposit balances and lag in deposit pricing.
• ROTCE: Expect at least 12% ROTCE in Q4 and full year, long-term focus on 14% ROTCE.
• Tax Rate: Q4 effective tax rate range 14%-16%, full year 16%-18% due to higher exempt income and tax code changes.

• Credit Quality: Impacted by 2 large commercial loans with borrower-specific issues, but not broader concerns.
• Deposit Competition: Competition in Puerto Rico depository market, but no new entrants noted, and focus on rational competition.
• Expense Management: Potential challenges in sustaining expense discipline and managing investment vs savings.

Q: On margin and asset yields, will securities purchase trend continue?

A: Lidio Soriano says they believe strong tailwinds continue, expecting NIM expansion in Q4 and beyond due to fixed asset repricing and deposit pricing.

Q: On credit trends in auto and consumer, outlook?

A: Lidio Soriano says variation is seasonal, consumer trends in Puerto Rico are positive, losses in auto portfolio below last year.

Q: On large C&I loan reserves and resolution timing?

A: Lidio Soriano says loans are current, placed in nonaccrual due to management's intent to rightsize capital structure, planned resolution likely next year.

Q: On competition in deposits and loans, underwriting standards?

A: Javier Ferrer-Fernández and Jorge Garcia state no relaxation in underwriting standards, strong credit process, competition seen in pricing but not underwriting.