Popular, Inc.

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&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. 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 to our president and CEO, Javier Ferrer.

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. I am humbled by the opportunity to lead this iconic Puerto Rican institution. For over 130 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 11 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. 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 cents 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 million, an EPS of $3.09 per share, an increase of 32 million and 53 cents 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 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 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 finances in Puerto Rico, executed entirely by local financial institutions. Please turn to slide four. So at 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 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, 39 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. 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. 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 130 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 multi-year 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 long 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. 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.

Thank you, Javier. Good morning, and thank you all for joining the call today. As Xavier 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 non-interest income and a lower probation 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% RODSI 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% RODSI 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% ROCSE 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 gap 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 a 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 PBE, we saw loan growth of $251 million driven by commercial and construction lending. Last quarter, we got it to the lower end of the 3% to 5% low growth range due to expected payoffs in our construction portfolio and the uncertainty in the economic environment. However, given the long 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 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 and an average yield of 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 to $20 billion. At BBPR, excluding Puerto Rico public deposits, ending deposit balances decreased by approximately $60 million end-to-end, and an average deposit grew by approximately $440 million with non-interest-bearing deposits accounting for $93 million of that increase. At PV, ending deposit balances increased by approximately $150 million 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. 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 BBPR to reflect historical seasonality and decrease as our retail plan base spends Q1 and Q2 tax refunds. That said, given the results in the first half of the year, along with the anticipated name 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. Non-interest 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 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 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 non-interest income for 2025 to be at the high end of the $155 to $160 million range. Let's 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've had a very good first half of 2025, as can reasonably be assumed by 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 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, 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 4% and 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 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 15th, we had $33 million remaining on the share repurchase authorization announced in July of 2024, in addition to the incremental $500 million announced last week. With that, I turn the call over to Lidio.