Popular, Inc. Q3 FY2024 earnings call

Financial Results - Net income was $155 million, down $23 million from Q2, driven by higher credit losses due to loan growth at BPPR. - Net interest income increased $4 million, impacted by $1.8 billion deposit reduction at BPPR but offset by loan growth and investment repricing. - Loan growth was strong, up $603 million, led by BPPR's commercial, auto, and mortgage originations. - Net interest margin expanded 2 basis points to 3.24% on GAAP basis. - Noninterest income was $164 million, down $2 million from Q2 due to lower mortgage banking income. - Provision for credit losses $71 million, $25 million higher than Q2, due to loan growth and consumer loan charge-offs. - Operating expenses $467 million, down $2 million from prior quarter, impacted by lower professional fees but higher technology and personnel costs. ### Business Activity in Puerto Rico - Business activity remains solid with favorable employment, consumer spending, and tourism data. - BPPR customers' combined credit and debit card sales increased ~4% Y/Y. - Auto loan and lease balances up $105 million, mortgage loan balances up $104 million. - Passenger traffic at San Juan International Airport up 5% Y/Y, hotel occupancy healthy. ### Transformation Efforts - Modernizing customer channels and improving customer experience, with Puerto Rico consumer digital banking app releases 30% faster over past two years. - Increasing personalization of offerings to deepen customer relationships.

In the third quarter, Popular Incorporated achieved net income of $155 million, a decrease of $23 million from the second quarter. Net interest income increased by $4 million compared to the second quarter, but was impacted by a $1.8 billion reduction in deposit levels at BPPR. Loan balances increased by $603 million or nearly 2% during the quarter, driven by BPPR's commercial segment and Popular Bank's commercial loans. The net interest margin expanded by two basis points to 3.24% on a GAAP basis. Noninterest income was $164 million, a decrease of $2 million from Q2, primarily due to lower income from mortgage banking activities. The provision for credit losses was $71 million, $25 million higher than the second quarter, due to loan growth and charge-off activity in the consumer loan portfolio. Operating expenses decreased by $2 million to $467 million.

Loan Growth - Anticipate consolidated loan growth in Q4 ~1%, full-year 2024 loan growth ~4% within original 3%-6% range. ### NII - Expect Q4 NII to increase ~1.5%-2% compared to Q3, 2024 Y/Y NII growth ~6%-7% below prior 8%-10% guidance. ### ROTCE - No longer expect 14% ROTCE by end of Q4 2025, now anticipate at least 12% ROTCE in Q4 2025; long-term target is sustainable 14% ROTCE. ### Public Deposits - Expect public deposits to be in range of $17 billion to $19 billion at year-end.

• Deposit balance contraction risk: Public deposits may contract, and deposit costs could rise. - Macroeconomic risk: High interest rates and inflationary pressures may impact borrower performance. - Competition risk: Intense deposit competition in US markets could affect deposit costs and NIM expansion.

Q: Brett Rabatin asked about deposit trends on the retail side, specifically high net worth and corporate clients moving deposits and expenditure levels.

A: Jorge Garcia responded that high net worth and corporate clients have been moving deposits for yield enhancement, this quarter saw an acceleration of money moving to higher-yielding assets, and retail clients' tax refunds were spent more than usual, with average retail deposit balances still ~30% above prepandemic levels but some risk of $600 million-$800 million in deposit base at risk.

Q: Frank Schiraldi asked about deposit repricing, specifically public deposits, retail/commercial in Puerto Rico, and US deposits.

A: Jorge Garcia said public deposits in Puerto Rico are market-linked and seeing benefits, retail/commercial in Puerto Rico have low betas on the way down, US deposits have high betas with opportunities to reduce but subject to competitive dynamics.

Q: Kelly Motta asked about loan growth outlook and credit in Puerto Rico and US.

A: Ignacio Alvarez said loan demand in Puerto Rico is strong across sectors, especially commercial, and Jorge Garcia added US is seeing pickup in credit demand in construction and community association lending in Florida, while Lidio Soriano said credit metrics stable with commercial and mortgage portfolios below pre-pandemic levels but consumer portfolios have increased delinquencies.

Q: Jared Shaw asked about ROTCE target and credit charge-offs.

A: Jorge Garcia said NII is driver of profitability, and Lidio Soriano said short-term charge-offs not expected to migrate back up significantly with strong commercial and mortgage portfolios.

Q: Benjamin Gerlinger asked about consumer credit trends and expenses.

A: Jorge Garcia and Lidio Soriano discussed consumer credit trends with vintage performance positive and early delinquencies improving, and transformation efforts ongoing with expenses shifting but not reducing.