Popular (BPOP) Q2 2025 Earnings Call Transcript

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DATE

• Wednesday, July 23, 2025, at 11 a.m. EDT

CALL PARTICIPANTS

• Chief Executive Officer — Javier Ferrer
• Chief Financial Officer — Jorge Garcia
• Chief Credit Risk Officer — Lidio Soriano

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TAKEAWAYS

• Net Income: $210 million net income (GAAP) for Q2 2025, up $32 million sequentially from Q1 2025 to Q2 2025, driven by higher net interest income, increased noninterest income, and a lower provision for credit losses, partially offset by higher operating expenses.
• Earnings per Share (EPS): $3.09, an increase of $0.53 per share compared to Q1 2025.
• Return on Tangible Common Equity (ROCE): 13.3% return on tangible common equity for Q2 2025, a 190 basis point increase from the previous quarter (Q1 2025).
• Net Interest Income (NII): $632 million net interest income for Q2 2025, rising by $26 million compared to Q1 2025, driven by balance sheet growth, higher asset yields, and reduced deposit costs at both principal banks.
• Net Interest Margin (NIM): GAAP NIM expanded by 9 basis points in Q2 2025; tax-equivalent NIM expanded by 12 basis points in Q2 2025, both benefiting from lower deposit costs and greater balances in loans and tax-exempt investment securities.
• Loan Growth: $931 million overall loan growth in Q2 2025, with $681 million at Banco Popular and $251 million at Popular Bank, predominantly led by commercial and construction lending, and including $265 million retained from a major toll road financing transaction.
• Deposit Growth: Ending deposit balances rose by $1.4 billion; Puerto Rico public deposits reached $20.9 billion, up $1.3 billion; Average nonpublic deposits increased by $499 million.
• Deposit Costs: Total deposit costs fell by 5 basis points. Banco Popular costs decreased by 3 basis points to 1.52%; Popular Bank deposit costs dropped by 14 basis points.
• Noninterest Income: $168 million in noninterest income, $16 million above Q1 2025, and above the top end of quarterly guidance, mainly due to higher credit and debit card fees and a $3 million IRS reimbursement.
• Expense Growth Guidance: Operating expenses grew by $22 million to $493 million; 2025 expense growth guidance revised to 4%-5%, inclusive of up to $40 million full-year profit-sharing accrual, while underlying growth excluding profit sharing is expected to remain below 4% in 2025 compared to last year.
• Share Repurchases and Dividends: $112 million in shares repurchased at an average of $99 per share; a new $500 million incremental repurchase program announced; the quarterly dividend increased by 7% to $0.75 per share, as recently announced.
• Credit Quality Metrics: Nonperforming loans (NPLs) at Banco Popular declined by $4 million, while Popular Bank’s NPLs rose by $2 million; OREOs reduced by $6 million.
• Net Charge-Offs: $42 million in net charge-offs, or 45 basis points annualized, compared to $49 million (53 basis points) in Q1 2025; full-year net charge-offs now guided to 45-65 basis points, below prior 70-90 basis points guidance.
• Allowance for Credit Losses (ACL): Increased by $7 million to an ACL/loan ratio of 2.02%, down from 2.05% in Q1; ACL/NPLs ratio rose to 247% from 243%.
• Provision for Credit Losses: $50 million provision for credit losses, a reduction from $65 million in Q1, largely due to improved portfolio metrics and economic factors.
• Capital Ratios: Common equity Tier 1 (CET1) ratio was 15.91%, 20 basis points lower than Q1 2025, due primarily to loan growth and recent capital actions.
• Tangible Book Value per Share: $75.41 tangible book value per share, up $3.39 from Q1 2025, benefiting from net income and lower unrealized losses in the mortgage-backed securities portfolio, partially offset by capital returns.
• Guidance Updates: Management now expects full-year NII growth of 10%-11% and ROCE above 12% for 2025; noninterest income is expected at the upper end of the $155 million-$160 million quarterly range.

SUMMARY

Popular (NASDAQ:BPOP) reported higher net income (GAAP) compared to Q1 2025 and expanded its return on tangible common equity, while management announced both a new $500 million share repurchase program and a 7% increase in the quarterly common stock dividend. Deposit and loan growth remained strong, driven by commercial and construction activity, and operating expense guidance was revised to reflect the impact of profit-sharing accruals. Substantial improvements in credit quality led to lower net charge-offs and a downward revision to full-year loss guidance, supporting the company’s outlook for sustained profitability expansion.

• Jorge Garcia said, "given the results in the first half of the year, along with the anticipated NIM expansion ... we now expect to see higher NII growth of 10%-11% in 2025."
• Profit-sharing expenses may reach a cap of $40 million, which represents about 2% of the total expense base, and an accrual of $13 million occurred as earnings outpaced budget expectations.
• Loan portfolios at both Banco Popular and Popular Bank demonstrated growth pipelines, with construction payoffs in the US segment anticipated primarily in the fourth quarter.
• Deposit seasonality continues to be expected, though inflows from tax refunds and public deposits have been stronger; Garcia explained, "clients have received more tax refunds than they did last year," supporting Puerto Rico consumer strength.
• Management reiterated its commitment to efficiency measures, including both sustained cost discipline and operational transformation efforts, to offset increases driven by incentive compensation.
• The company maintains a CET1 capital ratio above regulatory minimums even after new share repurchase authorizations, with a CET1 ratio of 15.91%, allowing continued capital return and growth investment as stated by management.
• Regarding stablecoins, CEO Ferrer said, "It's early innings, but we have started moving on the opportunity," indicating monitoring but no immediate business model impact.

INDUSTRY GLOSSARY

• NPL (Nonperforming Loan): A loan on which the borrower is not making interest payments or repaying any principal.
• OREO (Other Real Estate Owned): Real estate assets owned by a bank, typically acquired through foreclosure.
• CET1 (Common Equity Tier 1): A measure of a bank's core equity capital, used to assess capital adequacy under regulatory standards.
• ACL (Allowance for Credit Losses): The reserve set aside by a bank to cover potential credit losses on loans and leases.
• ROCE (Return on Tangible Common Equity): A profitability metric that measures net income as a percentage of average tangible common equity.

Full Conference Call Transcript

Javier Ferrer: Thank you, Paul. Good morning, everybody. I am happy to be here with you in my first earnings call as CEO. I would 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. 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 if I wanted to make a meaningful contribution, this was the place to be. This idea, simple and yet powerful, continues to inspire me. 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 million and a 7% increase in our quarterly common stock dividend to 75¢ per share. These actions evidence the strength of our capital position, which allows us to continue to invest in our franchise, serve the needs of our customers, and also return capital to our shareholders.

On Slide three, I will share a few highlights from the period that reflect our strong operating performance in the second quarter. We reported net income of $210 million and EPS of $3.09 per share, an increase of $32 million and 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. Our results were driven by higher net interest income, an 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 million during the quarter.

As a notable example, we served as agent bank for a $425 million loan to the private sector entity that operates and maintains several toll roads in Puerto Rico. This transaction is one of the largest infrastructure financings in Puerto Rico executed entirely by local financial institutions. Please turn to Slide four. At the end of the second quarter, business activity in Puerto Rico continued to be solid, 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 2024. Home purchase activity continues to be strong, as demonstrated by the $158 million 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 increase by $76 million 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 Ocasio's, also known as Bad Bunny's, thirty-nine 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 million in additional local economic activity. It is also generating significant media exposure for the island, adding 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. 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. 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 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. 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 midsized 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 choice for our customers. I am confident we can improve how we work by becoming simpler, more productive, and more efficient. We will continue to leverage our position to seize 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 detail on our financial results.

Jorge Garcia: Thank you, Javier. Good morning, and thank you all for joining the call today. As Javier mentioned, our quarterly net income increased by $32 million to $210 million, and our EPS improved by 21% to $3.09 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 positives 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% ROCE for the period, an increase of 190 basis points from last quarter. As we have mentioned before, our objective is to deliver sustainable financial results.

Our prior guidance of achieving at least a 12% ROCE 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% ROCE 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. Our net interest income of $632 million increased by $26 million 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, loan growth of $931 million in the quarter was very strong, with both banks contributing to the increase. At BPPR, we saw loan growth of $681 million reflected across all portfolios, but driven primarily by commercial and construction lending. This includes the $265 million that we retained from the toll roads financing that Javier described earlier. At PVE, we saw loan growth of $251 million, driven by commercial and construction lending.

Last quarter, we guided to the lower end of the 3% to 5% loan growth range due to expected payoffs 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 US, we reiterate our original 3% to 5% guidance. In our investment portfolio, we continue to reinvest proceeds from maturities into treasuries, targeting a yield of at least 4% while trying to manage the duration of the portfolio. During the quarter, we purchased approximately $2.4 billion of treasuries at an average yield around 4%.

The duration of these was closer to 1.5 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 $1.4 billion, while average balances grew by $499 million. Puerto Rico public deposits ended the quarter at $20.9 billion, an increase of approximately $1.3 billion compared to Q1. We continue to expect public deposits to be in the range of $18 billion to $20 billion.

At BBPR, excluding Puerto Rico public deposits, ending deposit balances decreased by approximately $60 million end-to-end, and average deposits grew by approximately $440 million, with noninterest-bearing deposits accounting for $93 million of that increase. At PB, ending deposit balances increased by approximately $150 million net of intercompany deposits. Total deposit costs decreased by five basis points. At BPPR, 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 US deposits.

We are 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.

Noninterest income was $168 million, an increase of $16 million compared to Q1 and above the high end of our 2025 quarterly guidance. There were two primary drivers of the delta versus our expectation: 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 million increase in income from equity method investments and an approximately $3 million related to a reimbursement from the IRS. Based on the quarter's results, we now expect quarterly noninterest income for 2025 to be at the high end of the $155 million to $160 million range. Please turn to slide eight.

Total operating expenses were $493 million, an increase of $22 million when compared to last quarter. The largest expense variance in the quarter was the $17 million increase in personnel costs. We have had a very good first half of 2025. That can recently be assumed by our improved outlook for NII and credit. Our internal net income forecasts 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 million for profit sharing in addition to other performance-related incentives.

If we continue to outperform for the remainder of the year, the total profit-sharing expense will be capped at approximately $40 million, 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 are 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 4% to 5% when compared to last year. 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. During the second quarter, we repurchased approximately $112 million in shares at an average price of $99 per share. As of July 15, we had $33 million remaining on the share repurchase authorization announced in July 2024, in addition to the incremental $500 million announced last week. With that, I turn the call over to Lidio.

Lidio Soriano: 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. We continue to carefully monitor the performance of our book and respond 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 conditions.

Turning to Slide number 10. Nonperforming assets and loans decreased slightly during the quarter, driven by Banco Popular. NPLs in Banco Popular decreased by $4 million, reflected across all loan segments. NPLs in Popular Bank increased by $2 million, driven by a $3 million commercial NPL inflow during the quarter. OREOs decreased by $6 million, driven by sales of residential real estate properties in Puerto Rico. Inflows of NPLs decreased by $4 million quarter over quarter. In Banco Popular, inflows decreased by $5 million, driven by the commercial portfolio. In Popular Bank, NPL inflows remained flat. The ratio of NPLs to total loans held in portfolio decreased two basis points to 82 basis points. Turning to Slide 11.

Net charge-offs amounted to $42 million or annualized 45 basis points compared to $49 million or 53 basis points in the prior quarter. Net charge-offs in Banco Popular decreased by $7 million, 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-offs remained flat. 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 guidance of between 70 to 90 basis points.

The allowance for credit losses increased by $7 million, driven by higher reserves from portfolio growth and less favorable economic assumptions, offset in part by revised probability weights and changes in credit quality. We leverage multiple scenarios to estimate our ACL. In the second quarter, we slightly reduced the pessimistic weight, resulting in a $4 million decrease in the ACL. In Banco Popular, the ACL increased by $3 million, driven by auto loans due to changes in credit quality and changes in economic scenarios, offset in part by improvements in the credit quality of our commercial portfolios and changes in probability weights.

In Popular Bank, the ACL increased by $4 million, driven by the changes in economic forecast and higher qualitative reserves for the CRE portfolio. The corporation ratio of the ACL to loans held in portfolio was 202 basis points compared to 205 basis points in the prior quarter. While the ratio of the ACL to NPLs was 247% compared to 243% the prior quarter. The provision for credit losses was $50 million compared to $65 million the prior quarter. In BBR, the provision was $10 million lower, while in Popular, the provision was $7 million lower. The combined provision to net charge-off ratio for the quarter was under 117%. To summarize, credit quality metrics improved during the second quarter.

We are attentive to the evolving environment, and we 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.

Javier Ferrer: 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. 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 are 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. 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. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Gerard Cassidy with RBC. Your line is open. Please go ahead.

Forrest Hamilton: 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. 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: Well, thank you for that question. I just want to say that we are looking at it. Given that the Genius Act was approved, we put together a team to do deeper dives and start to think about potential use cases. So that's where we are. We realize that it's coming, and it will have an impact on the industry. It's early innings, but we have started moving on the opportunity.

Forrest Hamilton: Okay. Great. Thank you. And that's it for me for today.

Jorge Garcia: Thank you. Thank you.

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

Timur Braziler: Hi. Good morning.

Javier Ferrer: Good morning.

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

Jorge Garcia: So first, I remind you, Timur, the way the profit sharing works is that we have to beat our budget of net income by at least 2%. As that number increases and the payoff 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 8% applies to. So if you make more than $70,000, you don't keep accruing. And this is a great opportunity for us to share with our employee base when we really exceed plan. Whenever we execute and exceed plan, we feel that our interests are aligned between shareholders and our employees.

Having said that, 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 profit 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: Yep. Okay. Great. Appreciate that color. And then maybe a two-part question on deposits. 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 2025 versus what we saw last year?

Jorge Garcia: In terms of competition, you know, Javier likes to say we compete every day for our customers, for our business. We do it on service and sometimes on price as well. Right? And I would say that on the commercial side, we don't see as much yield-seeking behavior or pushback. I think a lot of that has been embedded in our baseline. On the retail clients, there are still many discussions and still some yield-seeking behavior. We continue to see outflows of roughly $100 million a month into our popular security subsidiaries. So there's still some yield-seeking behavior from our retail clients.

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 branches. As you know, we adjusted our compensation plans. We adjusted targets to really make sure that we were incentivizing the deposit retention behavior. When we look back 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 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 continue. But I would also say when we look at the inflows of our clients, particularly in this first half of the year, clients have received more tax refunds than they did last year. And even though last year, we had the special one-time rebate from the Puerto Rico government, inflows outside of the tax proceeds are about 6% higher. So people are earning more. You know? So it really does go 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 understand their, you know, predict their spending behavior.

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

Timur Braziler: 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: Hey, good morning. Thanks for the question here. 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 US. 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.

Jorge Garcia: Thanks, Kelly. So we do see strong pipelines, particularly into the third quarter in both Puerto Rico and the US. You know? So we like what we're seeing, still continue to see large transactions that make a difference in those numbers point to point. In the US, we continue to expect that we will see some payoffs in the construction portfolio. The speed at which that portfolio has been growing and the pipeline behind it is, you know, we expect that eventually it's going to come down. As you know, construction loans end up, they're mostly multifamily projects. We don't always succeed in retaining the takeout, the term loans after the construction project is completed.

So we do expect that decrease to happen more likely in the fourth quarter than in the third quarter.

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

Jorge Garcia: Alright. So a couple of things. I mean, let me, I just want to clarify a couple of things. 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 nonpublic deposits is what grew almost $500 million on an average basis in the quarter, including about $150 million in noninterest-bearing accounts. A hundred of that in Puerto Rico, fifty in the US. So the deposit franchise was strong. We did do some borrowings in the US. Short-term Federal Home Loan Bank borrowings that we do at any time as part of our liquidity.

We have over $25 billion 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. As you know, in the US, the alternative area of growth for us has been direct deposits on the Internet online channel. We'll continue to use that. And just if we have flexibility to fund quicker or at a better price on a short-term basis than Federal Home Loan Bank, we will do that. In Puerto Rico, we did not have any change in our wholesale borrowing.

Kelly Motta: 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 driving that. Are you pushing out some of the transformational expenses next year or realizing greater efficiencies with what you've done so far?

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

On the transformation, there are projects that get delayed, and that impacts our total expense base. Some of it is delayed because of things that we do. Other things are delayed because 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 expense delays. So it really is a combination of a lot of different things. But our teams are focused, and we want to make sure that we get to pay out on that profit sharing and also mitigate the total expense base for Popular.

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

Operator: We now turn to Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw: Hey, good morning. Hi, 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: Well, I mean, we are seeing, talking to the government agencies that are handling the federal funds and also for 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. I 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 wouldn't want to mislead you to tell you there's a pipeline on solid partnership transactions or financings of that nature. There are certain things that are being discussed in Puerto Rico.

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, you know, permitting agility, and given their good relationships with the Trump administration, what we hear and see is encouraging.

Jared Shaw: Okay. Alright. Thanks. Are you shifting just to the fee income guide? Should we assume basically sort of steady trends from here, excluding maybe the equity investment adjustment and the refund, that $6 million and other, or is there any other areas that are seeing, you know, outsized opportunity?

Jorge Garcia: I mean, there are cyclical cycles. I'm sorry for the double there. But if you look historically, second quarter and fourth quarter tend to be higher. You have more transactional activity in the second and fourth quarter. There's some insurance fees that happen in, you know, that come in the second and fourth quarter as well. Certainly, we highlighted the IRS refund. That's not something that we would, you know, that's something unusual. But the equity pickup, there was nothing unusual about that. Just had a slower first quarter and then picked up in the second quarter.

So, you know, we feel good about the updated guidance for the, you know, for the year, and it just, you know, you can do the math. It just signifies top end of the guidance for the second half of the year as well.

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

Operator: Thank you. This concludes our Q&A. I'll now hand back to Javier Ferrer, CEO, for any final remarks.

Javier Ferrer: 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. I would like to thank you for your participation. You may now disconnect your lines.

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