Earnings call transcript: Popular Q4 2024 beats EPS forecast, stock dips

Popular Inc . (NASDAQ:BPOP) reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $2.51 compared to the forecasted $2.06. Despite this positive earnings surprise, the stock saw a slight decline in pre-market trading, down 0.05% to $103.72. The company’s revenue also slightly exceeded projections, coming in at $755.46 million against a forecast of $754.72 million. With a market capitalization of $7.2 billion, Popular has demonstrated strong financial health, earning a "GOOD" rating from InvestingPro analysts, who have identified 10+ additional investment insights for this stock.

Key Takeaways

• Popular’s Q4 2024 EPS exceeded expectations by 21.8%.
• Revenue for the quarter was slightly above forecasts.
• The stock experienced a minor dip in pre-market trading despite strong earnings.
• The company announced a new product targeting mass affluent clients.
• Popular’s net interest margin expanded to 3.35%, reflecting improved profitability.

Company Performance

Popular Inc. demonstrated robust financial performance in the fourth quarter of 2024, with net income rising to $178 million, an increase of $23 million from the previous quarter. The annual net income reached $614 million, up from $541 million in 2023. The company also saw significant growth in its loan portfolio, particularly in commercial and construction loans, contributing to a 5.8% increase in loan growth. The bank maintains a healthy dividend yield of 2.72% and has raised its dividend for six consecutive years, showcasing its commitment to shareholder returns.

Financial Highlights

• Revenue: $755.46 million, slightly above forecasts.
• EPS: $2.51, surpassing the forecast of $2.06.
• Net income for Q4: $178 million, up from the previous quarter.
• Net interest margin: 3.35%, an increase of 11 basis points.

Earnings vs. Forecast

Popular’s EPS of $2.51 exceeded the forecasted $2.06, marking a significant earnings surprise of 21.8%. This performance continues the company’s trend of surpassing earnings expectations, reflecting effective cost management and revenue growth strategies.

Market Reaction

Despite the earnings beat, Popular’s stock price dipped slightly by 0.05% in pre-market trading to $103.72. This movement contrasts with the broader market trend, where stocks often rally on positive earnings surprises. Trading at a P/E ratio of 11.97, the stock remains close to its 52-week high of $106.46, indicating strong investor confidence over the past year. InvestingPro analysis suggests the stock is currently undervalued, with five analysts recently revising their earnings expectations upward for the upcoming period.

Outlook & Guidance

Looking ahead, Popular projects consolidated loan growth of 3-5% in 2025 and expects a 7-9% increase in net interest income. The company anticipates net charge-offs to range between 70-90 basis points and plans to continue reinvesting securities at an approximate 4% yield. For deeper insights into Popular’s growth potential and comprehensive financial analysis, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with expert analysis and actionable intelligence.

Executive Commentary

"We entered 2025 on a strong footing and optimistic about our prospects," said CEO Ignacio Alvarez, highlighting the company’s strategic positioning. CFO Jorge Garcia added, "We are actively making efforts that we believe will help us in retention and deposit growth," emphasizing the focus on strengthening the company’s financial foundation.

Risks and Challenges

• Potential impacts from recent executive orders affecting the financial sector.
• Challenges in deposit retention amid increasing competition.
• Economic uncertainties in Puerto Rico, despite a positive net migration trend.
• Ongoing transformation efforts and their execution risks.
• The long-term project of upgrading the electric grid, which could affect operational costs.

Q&A

During the earnings call, analysts inquired about Popular’s deposit retention strategies and the slower pace of credit card underwriting. Executives also discussed the recovery of federal funds for Puerto Rico’s infrastructure and addressed concerns regarding recent executive orders.

Full transcript - Popular Inc (BPOP) Q4 2024:

Moderator/Operator: I’d now like to hand over to Paul Cardillo, Investor Relations Officer. Please go ahead.

Paul Cardillo, Investor Relations Officer, Popular: Good morning and thank you for joining us. With us on the call today is our CEO, Ignacio Alvarez our President and COO, Javier Ferrer our CFO, Jorge Garcia and our CRO, Lidio Soriano. They will review our results for the full year and Q4 and then answer your questions. Other members of our management team will also be available during the Q and A session. Before we begin, I would like to remind you that on today’s call, we may make forward looking statements regarding Popular such as projections of revenue, earnings, 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 popularwater.com. I will now turn the call over to our CEO, Ignacio Alvarez.

Ignacio Alvarez, CEO, Popular: Good morning, and thank you for joining the call. In 2024, we delivered results that reflect the strength of our franchise and the continued stability of the Puerto Rico economy. Our annual net income of $614,000,000 compared to $541,000,000 in 2023. On an adjusted basis, we achieved net income of $646,000,000 10% higher than in 2023. The adjusted variance was mainly driven by higher net interest income, offset in part by a higher provision for credit losses and higher operating expenses.

Our strong 4th quarter loan growth helped bring our total loan growth for the year to $2,000,000,000 an increase of 5.8%. BPBR generated loan growth across most business segments, led by commercial loans, reflecting the continued strength of the local economy and our diversified product offerings. Popular Bank achieved growth in commercial and construction loans. Credit quality remained stable throughout 2024. Nonperforming loans decreased slightly, while net charge offs remained below our historic normalized levels.

Our capital levels are strong, ending the year with common equity Tier 1 ratio of 16%. Our tangible book value per share of $68.16 increased by 14% year over year, primarily driven by lower unrealized losses on investment securities and net income for the year, offset in part by dividends and our share repurchase activity. Our robust capital and liquidity position allowed us to continue returning capital to our shareholders. During the quarter, we announced the resumption of buybacks with a $500,000,000 stock repurchase authorization. In total, during 2024, we repurchased 2,300,000 of our shares for approximately $220,000,000 We continue to believe that our shares are attractive at current prices.

Additionally, in the 4th quarter, we increased our quarterly common stock dividend by $0.08 to $0.70 per share. Please turn to Slide 4. We closed the last quarter of 2024 on a strong note, achieving net income of $178,000,000 an increase of $23,000,000 from the 3rd quarter. These results were primarily driven by higher net interest income and a lower provision for credit losses. Credit quality trends remained stable in the period.

Our net interest income increased by $18,000,000 in the quarter and net interest margin expanded by 11 basis points to 3.35 percent, mainly driven by lower deposit costs. As I mentioned before, loan growth was very strong in the quarter with balances increasing by $913,000,000 or 2.5 percent. We were happy to see that both banks contributed equally to this growth. During the quarter, we purchased approximately 160,000,000 shares at an average price of roughly $96 Tangible book value per share decreased by $0.88 to $68.16 driven by higher unrealized losses in our investment portfolio and share repurchase activity in the period, offset by our quarterly net income. Please turn to Slide 5.

Business activity in Puerto Rico remains solid as reflected in the favorable trends in total employment, consumer spending and other economic data. The current unemployment rate of 5.4% is not something that I would have expected to see in my lifetime. Consumer spending remained healthy. Combined credit and debit card sales for BPR customers increased by approximately 5% compared to the Q4 of 2023. Mortgage loan balances at BPR increased by $114,000,000 in the 4th quarter, driven primarily by home purchase activity and our current strategy of retaining FHA loans in portfolio.

Our auto loan and lease balances increased by $43,000,000 compared to the 3rd quarter as demand for new cars continue to be strong in Puerto Rico. The tourism and hospitality sector continues to be a source of strength for the local economy. Recently, several prominent luxury hotel brands have announced development plans for Puerto Rico. Passenger traffic at the San Juan International Airport increased by 10% in the Q4 compared to the Q4 of 2023, and hotel occupancy continues to be healthy. For the year, a record 13,200,000 travelers visited Puerto Rico.

We expect the ongoing disbursement of federal funds will continue to support that activity for several years. We remain optimistic about the future of our primary market and are well positioned to support our clients during the coming years. On that note, I now turn the call over to Jorge for more details on our financial results.

Jorge Garcia, CFO, Popular: Thank you, Ignacio. Good morning and thank you all for joining the call today. Please turn to Slide 6. We’re pleased with the quarter’s results, particularly with the NII growth and the expansion of the NIM. As Ignacio stated, in the Q4, we reported net income of $178,000,000 $23,000,000 higher than the prior period.

Net interest income increased by $18,000,000 driven primarily by lower deposit costs in both of our banks. We finished the year with a 7% year over year increase in NII. Loan growth was strong, increasing by $913,000,000 in the quarter with each of our banks contributing similar amounts towards that growth. At BBBR, consistent with the activity throughout the year, we continue to see increases across nearly all categories led by commercial lending, auto and mortgage originations. And at PB, we saw increases in commercial and construction lending.

Ending customer deposit balances at BPPR, excluding Puerto Rico public deposits, increased by approximately 600,000,000 while average balances decreased by approximately $100,000,000 At PV, ending balances decreased by approximately $190,000,000 and average balances decreased by approximately 30,000,000 dollars At the end of the Q4, Puerto Rico public deposits were $19,500,000,000 an increase of approximately $750,000,000 when compared to Q3. Average balances for public deposits were lower by 125,000,000 dollars Going forward, we expect public deposits to continue to be in the range of $18,000,000,000 to $20,000,000,000 Our net interest margin expanded by 11 basis points on a GAAP basis and 15 basis points on a tax equivalent basis, driven by lower deposit costs and higher loan balances. Non interest income was $165,000,000 flat versus Q3. In December, we completed the sale of the daily car rental business from our Popular Auto subsidiary. This business was not a material contributor to net income as the fee income it generated was mostly offset by depreciation expenses.

This sale was completed at roughly book value and going forward there is little to no impact to the bottom line. This transaction helps to further simplify our business and will increase borrowing capacity at the Fed discount window. In 2024, this rental business contributed approximately 30,000,000 dollars to non interest income. Therefore, in 2025, we expect quarterly non interest income to be in a range of $155,000,000 to $160,000,000 including the impact of the sale, offset in part by initiatives geared towards increasing fee income. Credit metrics remained stable during the Q4.

The provision for credit losses decreased by $5,000,000 to $66,000,000 Total (EPA:TTEF) operating expenses were $468,000,000 flat with last quarter. The largest expense variance in the quarter were related to higher professional fees, seasonal promotional expenses and personnel costs driven by incentives. These increases were offset by lower technology costs related to our transformation efforts as some of our IT projects have reached development stage and the costs are now being capitalized and lower equipment expense mainly due to a decrease in the vehicle fleet depreciation as a result of the sale of the daily rental business. In 2025, we expect total full year expenses to increase by approximately 4% compared to 2024. Our effective tax rate in the 4th quarter was 20% driven by higher tax exempt income.

For the full year, the effective tax rate was 23%. In 2025, we expect the effective tax rate for the year to be in a range of 19% to 21%. Please turn to Slide 7. During the quarter, we continued to reinvest bond maturities into 2 to 3 year U. S.

Treasury notes, buying approximately $600,000,000 at an average yield of around 4%. We expect to continue this strategy as a way to lessen our sensitivity to lower rates. In BBPR, deposit costs decreased by 22 basis points to 1.67 percent, mostly due to a 56 basis point reduction in the cost of market linked public deposits. At Popular Bank, deposit costs decreased by 15 basis points during the quarter. This change reflected recent market repricing and lower volumes in high cost deposits.

Economic activity and demand for credit in Puerto Rico remained strong. In our U. S. Market, demand for credit improved during the Q4 and we benefited from continued draws in construction lines and our condo association lending business in Florida. In 2025, we expect consolidated loan growth of 3% to 5% with the rate of growth improving as the year progresses.

We anticipate 2025 NII will increase by 7% to 9%, driven by continued reinvestment of lower yielding securities and loan originations in the current rate environment, as well as lower cost of Puerto Rico public deposits and online deposits at Popular Bank. We expect NIM expansion to continue in 2025. Our ability to continue to reduce the cost of the deposits in the U. S. And the deposit mix in Puerto Rico will continue to present the biggest risk to achieving the expected level of expansion in NIM.

Please turn to Slide 8. Regulatory capital levels remain strong. Our CET1 ratio of 16% decreased by 39 basis points from Q3, mainly due to an increase in risk weighted assets from loan growth and the effects of capital actions during the quarter. Tangible book value per share at the end of the quarter was $68.16 a decrease of $0.88 per share from Q3, mostly resulting from increase on realized losses in our MBS portfolio, our stock repurchase activity and dividends in the quarter. During the Q4, we repurchased approximately $160,000,000 in shares at an average price of roughly $96 At the end of December, we had repurchased approximately $220,000,000 of our existing 500,000,000 dollars authorization.

Return on tangible equity for the quarter was 11.2%, an increase from 10% last quarter, driven by higher NII, lower provision expense and our buyback activity. We continue to anticipate we will achieve at least 12% ROTCE in the Q4 of 2025. And longer term, we as a management team continue to be focused on achieving a sustainable 14% return on tangible common equity. With that, I turn the call over to Lidio. Thank you, Jorge,

Lidio Soriano, CRO, Popular: and good morning. Credit quality metrics remained stable during the Q4 with the mortgage and commercial portfolios continue to reflect credit metric significantly below pre pandemic levels. Consumer portfolios reflected increased delinquencies and net charge off, driven by auto, personal loans and credit card portfolios. However, we are encouraged about the outlook given the performance of the most recent vintages. We believe that the improvements over recent years in risk management practices and the risk profile of our loan portfolio positions Popular to continue to operate successfully under the current macroeconomic environment.

Turning to Slide number 9. Nonperforming assets and nonperforming loans decreased during the quarter driven by Popular Bank. NPLs in the U. S. Decreased by $14,000,000 driven by the sale at book value of a $17,000,000 commercial NPL loan.

NPLs in BBBR increased by $3,000,000 driven by a $6,000,000 increase in auto loans and leases. OREs decreased by $6,000,000 driven by sales of residential real estate properties in Puerto Rico. Inflows of NPL increased slightly by $2,000,000 In BPR, total inflows increased by $11,000,000 driven by the mortgage portfolio. In Popular Bank, inflows decreased by $9,000,000 and the prior quarter included the impact of a single $17,000,000 mortgage loan. The ratio of NPLs to total loans held in portfolio decreased 5 basis points to 0.95%.

Turning to Slide 10. Net charge offs amounted to $77,000,000 or annualized 74 basis points compared to $59,000,000 or 65 basis points in the prior quarter. Net charge off in BBPR increased by $8,000,000 driven by higher consumer losses by $6,000,000 In Popular Bank, net charge off remained flat quarter over quarter. For the full year, net charge offs were 68 basis points, at the low end of our 65 to 85 basis points guidance for the year. As we have discussed in the past, prior to the COVID pandemic, Popular’s net charge off were generally between 75 basis points to 125 basis points.

For 2025, we expect net charge off for the full year to be between 70 to 90 basis points, given current trends and the macroeconomic environment. Please turn to Slide number 11. The allowance for credit losses increased by $2,000,000 to $746,000,000 In the EPR, the ACL increased by $4,000,000 driven by a reserve increase of $11,000,000 in consumer loans, in part offset by a $6,000,000 decrease in reserves for commercial loans. In Popular Bank, ACL decreased by $3,000,000 driven by improvements in rich ratings of U. S.

Commercial loans, offset in part by portfolio growth. The corporation ratio of ACL to loans held in portfolio was 2.01% compared to 2.06% in the prior quarter, while the ratio of ACL to NPLs was 2 13% compared to 2 0 6 percent in the previous quarter. The provision for credit losses was $69,000,000 compared to $73,000,000 in the prior quarter. In DBPR, the provision decreased by $10,000,000 while in Popular Bank, the provision was $2,000,000 compared to a benefit of $4,000,000 in the prior quarter. To summarize, credit quality metrics remained stable during the Q4.

We are attentive to the evolving environment, but remain encouraged by the performance of our loan book. With that, I would like to turn the call over to Ignacio for his concluding remarks. Gracias.

Ignacio Alvarez, CEO, Popular: Thank you, Lidio and Jorge for your updates. 2024 was a good year for Popular, continuing our positive earnings trajectory with a 10% increase in adjusted net income and improved operating leverage. Our results were driven by higher revenues, solid loan growth across each of our regions, stable credit quality and continued customer growth. In addition, we are pleased to resume our share repurchase activity and increase our quarterly dividend. We made great progress in our transformation efforts and some of the initiatives are already producing encouraging results.

We will continue to transform our organization to ensure success for many years to come. This entails meeting the rapidly changing needs of our customers, providing our colleagues with a workplace where they can thrive, promoting progress in the communities we serve and generating sustainable value for our shareholders. I am thankful for the hard work and dedication of our employees throughout the year. We entered 2025 on a strong footing and optimistic about our prospects for the year as we leverage the continued stability of the Puerto Rico economy and the strength of our franchise. We are now ready to answer your questions.

Moderator/Operator: Thank you. First question comes from Brett Rabatin with Hovde Group. Your line is open. Please go ahead.

Brett Rabatin, Analyst, Hovde Group: Hey guys, good morning.

Jorge Garcia, CFO, Popular: Good morning.

Brett Rabatin, Analyst, Hovde Group: Wanted to start with the funding costs and last quarter you had the phenomenon of some high net worth and retail deposits leaving the bank and seeking some higher yields. It seems like that abated significantly this quarter. Can you talk maybe about what you saw in trends with the core bank high net worth and retail related to changes in the funding costs and balances?

Jorge Garcia, CFO, Popular: Sure, Brad. Good morning. It’s Jorge. First, we were very happy with the increase in deposits in the Q4 and general activity. If we look at Puerto Rico on a standalone, the non public deposits were higher by about $600,000,000 in the quarter and about on an average basis $100,000,000 down.

You asked about the high net worth and commercial clients. That activity has continued. We’ve set a pace of about $100,000,000 a month going into our subsidiary Popular Securities for asset management. As you saw in our deck, the assets under management increased about over 30% during this year. A lot of that is supported by that growth from those clients.

The increase in the 4th quarter did benefit from some seasonal activity for commercial clients. We also saw a lot of good traction in efforts from our branches in retaining clients and growing deposits, particularly around rate exceptions. During the Q4, we also launched a new product targeted at our mass affluent clients. This resulted in a shift in what used to be 0 cost demand deposits into a low cost transactional account. This affected about $660,000,000 in balances during the month of December.

I think you can see that in some of our detailed reports in our press release. But overall, we continue to work towards finding that kind of baseline of our deposits that $600,000,000 to 800,000,000 level that we talked about in Q3. I think that’s still kind of the estimate of potential at risk. However, given the results and the efforts of our teams, we’re very happy with how the activity in the Q4.

Brett Rabatin, Analyst, Hovde Group: Okay. That’s helpful. And then just if you gave it, I didn’t hear it, but margin expectations are higher for the year, but you didn’t really quantify that. If I back into it with the NII guide, it’s about 10 basis points during the year. And when I look at Slide 20 2 and the maturities of the treasury notes, what seemed like that could be stronger.

Are you guys assuming that loan beta that deposit betas pick up or any thoughts on the margin from here and why it wouldn’t be a little better than 5 or 10 basis points increase throughout the year?

Jorge Garcia, CFO, Popular: Yes. We don’t provide any NIM guidance, Brett. We do believe it’s going to continue to expand in 2025, driven in part by lower deposit costs. As you know, the Puerto Rico public deposits are market linked. Short term rates did come down around 100 basis points in the 4th quarter and we haven’t seen that full benefit in the 56 basis points that the deposits came down.

And certainly as we continue to reinvest maturities of the investment portfolio that’s still running about $1,000,000,000 a month at higher rates and what they’re coming off our books that should help with the expansion of the NIM and contribute to NII growth.

Jared Cassidy, Analyst, RBC Capital Markets: Okay. It just seems like

Brett Rabatin, Analyst, Hovde Group: that NII guide could be double digit. And if I could sneak in one last one around the credit card portfolio on Slide 28, it looks like it continues to increase in terms of charge offs. Any color that you’re seeing with retail in Puerto Rico or consumers in terms of any weakening relative to what you’re noticing with or what’s trending with the card portfolio over the past few quarters in particular?

Lidio Soriano, CRO, Popular: Generally, I would say that we were a little bit late in terms of when you compare Puerto Rico to the U. S. In terms of coming into the cycle in terms of delinquencies and charge off. I think we are my view is that we are at the late stage of that process here in Puerto Rico. We are very encouraged by the performance, as I mentioned in the prepared remarks.

Our recent vintages and within the outlook for consumers as a whole is favorable given the macroeconomic environment and recent trends.

Brett Rabatin, Analyst, Hovde Group: Okay, fair enough. Congrats on a strong finish to 2024.

Lidio Soriano, CRO, Popular: Thank you.

Moderator/Operator: Our next question comes from Kelly Motta with KBW. Your line is open. Please go ahead.

Kelly Motta, Analyst, KBW: Hi, good morning. Maybe circling back to the margin, I appreciate the commentary that the biggest risk to achieving that is the still the potential deposit pressures, the $600,000,000 to $800,000,000 level that you identified. Wondering underlying that guidance, are you able to provide how much you’re still expecting of that $600,000,000 to $800,000,000 to roll off. I’m just wondering how much of that risk is already kind of baked into the outlook that you provided here?

Jorge Garcia, CFO, Popular: Yes. I mean, certainly, the outlook considers our best estimates of when and how that corresponds, but I can tell you that we’re working very hard so that doesn’t happen. So we hope to under promise on over deliver on retention of those.

Kelly Motta, Analyst, KBW: Okay. So if I’m hearing you correctly and please correct me if I’m wrong, the guidance includes some output of the $600,000,000 to $800,000,000 but not potentially all of it because of the efforts that you’re doing?

Jorge Garcia, CFO, Popular: Correct, Kelly. I mean, it does include our best estimate of that guidance. Remember that we do expect to see some seasonality. 1st quarter deposits tend to benefit from the beginning of tax returns in mid to late March. And last year, we saw that continue into the Q2.

So what we’re looking to see is where does that baseline where does it settle and when does that happen. Our retail customers still are experiencing were 30% higher balances at pre pandemic levels. So we’re continuing to work with our teams and try to get some more visibility on that. But certainly, our expectations and the risk with those outflows are part of our guidance.

Kelly Motta, Analyst, KBW: Got it. Thank you for the clarification. That’s helpful. And then with your fee guidance, I appreciate there’s about 5,000,000

Ignacio Alvarez, CEO, Popular: dollars a quarter.

Kelly Motta, Analyst, KBW: I think you said the $30,000,000 impact to your outlook for fees potentially related to that business you sold. That implies some growth in some of the core businesses, I believe. Can you just take a minute to explain where you’re seeing good traction? I know you’ve, through your efficiency efforts, been working towards some of these initiatives here.

Jorge Garcia, CFO, Popular: On the fee income, we’ve had some success with what we call price for value with some of our commercial clients. We’re still rolling out some of those efforts. Also a big contributor to our fee income is credit card activity, both from retail and commercial clients. And we see continued demand in purchasing activity from our clients that benefit our non interest income.

Kelly Motta, Analyst, KBW: Got it. Last question for me and then I’ll step back. The net charge off guidance, 70 to 90 basis points implies an uptick from this last year and you’ve spoken of the consumer normalization. Just wondering if there’s any cadence you’re thinking of as you said you were a little bit late to tightening standards on the consumer book, if the charge offs would be more towards the 1st part of the year? Or just kind of wondering if we could walk through some of the moving pieces of that and the cadence of if there is some on how to expect that to flow through?

I

Lidio Soriano, CRO, Popular: mean, generally, I will say, Kelly, that everything being equal, I respect the just to see improvements over time. And as I mentioned in the prepared remarks, we have seen improved performance by of our recent vintages. As those vintages become more prevalent in our overall balances, that is going to lead to improved performance. Having said that, I mean, we are this quarter, we’re at 74 basis points. So we are within the range that we stated for the full year.

So in terms of cadence, I would say maybe slightly higher in the first half to lower during the second half given everything that I just said.

Kelly Motta, Analyst, KBW: Okay. Thank you. I will step back.

Moderator/Operator: We now turn to Frank Schiraldi with Piper Sandler. Your line is open. Please go ahead.

Frank Schiraldi, Analyst, Piper Sandler: Good morning. Just one more on deposits on the Jorge, the $600,000,000 to $800,000,000 Just thinking through it, I mean, the work you’ve done there, I assume that reflects sort of specific deposits in specific places. I’m just curious if that’s the wrong way to think about it. And did you see any of that maybe already flow out in 4Q and maybe replaced by other deposits?

Jorge Garcia, CFO, Popular: I mean, I think in terms of where we’re seeing it, we look at it more on the average balances. I think that would be more our focus and those were down about $100,000,000 in the quarter in Puerto Rico non public. In terms of sources, we know some of the client activity moving to asset management for higher yield, particularly when it comes from commercial clients. We have a lot of access to the CFO thresholds of our large clients. So we have a good perspective.

We don’t see necessarily that being a significant source of outflows going forward. It’s really general use of small business retail clients that are benefiting from higher balances and they’re just spending more and maybe making different decisions on working capital, lending borrowing activity and things like that. So I’d be exaggerating that I can tell you individual behaviors that we can tie to how that corresponds to the increase in balances that we saw in the Q4 at the end of the Q4.

Frank Schiraldi, Analyst, Piper Sandler: Okay. So I guess that you’re saying the $600,000,000 to $800,000,000 is then still potentially on the comp. I think that’s what you said. You’re still that’s still the number at risk as

Jorge Garcia, CFO, Popular: of the end of the quarter. Yes. And then maybe the high bound is lower by the 100 that already went out, right? I mean, I think the important message here is that we are actively making efforts that we believe will help us in retention and deposit growth. I think when you look at the focus of the teams and the efforts, incentives that are being evaluated to make sure that we are encouraging the proper activities by our teams.

I think all those things make it give us some comfort that we’re on the right track.

Jared Cassidy, Analyst, RBC Capital Markets: Got you.

Frank Schiraldi, Analyst, Piper Sandler: Okay. And then just on buybacks, just trying to think through cadence going forward. I think 1,700,000 shares this quarter. Last quarter, it was about 600,000, although I think that was only 2 months’ worth. So I guess, would you say you’re a little more optimistic here with the stock price down?

Should we expect to see more of that sort of a little bit of volatility given where the stock price is as opposed to just assuming the same cadence every quarter here going forward? Is that a more reasonable kind of expectation?

Jorge Garcia, CFO, Popular: I think that’s a fair expectation. I mean, we I think over time, maybe you’ll get a sense of kind of a normalized level of buyback. But our goal with what we’re doing is to have the level of flexibility that all of our peers have. And certainly, we saw some softening on the stock price after our Q3 results, and we were opportunistic in buying into the lower price. But we do like the price where it’s at, and it’s still attractive, and we’ll continue our efforts and I think over time you’ll get a better sense of our repurchase activity.

Frank Schiraldi, Analyst, Piper Sandler: Okay. And then just lastly just tied to that, when we think about normalized capital levels, obviously as a systemically important bank in Puerto Rico, it’s I would assume some excess capital is required there over peers. But I don’t think it’s whatever 400, 500 basis points. So just curious, any color you can provide on your thoughts on a more normalized CET1 ratio or maybe just how that trends over time?

Jorge Garcia, CFO, Popular: Yes. Beyond wanting it to be lower and that we would not do a step function, right. We would favor a more gradual reduction in that. But we agree with you that while we do believe we need to operate with a higher margin given our concentration in Puerto Rico, it does not require 400 basis points or 500 basis points.

Ignacio Alvarez, CEO, Popular: Okay.

Lidio Soriano, CRO, Popular: All right.

Frank Schiraldi, Analyst, Piper Sandler: I appreciate it. Thank you.

Moderator/Operator: We now turn to Jared Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

Jared Cassidy, Analyst, RBC Capital Markets: Hi, Jorge. Hi, Natchezio.

Jorge Garcia, CFO, Popular: Hi, good morning, Gerard.

Ignacio Alvarez, CEO, Popular: Can you guys

Jared Cassidy, Analyst, RBC Capital Markets: good morning. Inacio, I was caught by your comment about the unemployment rate being so low and you really didn’t think it could be reached in your lifetime, if I heard you correctly. And my question is this, I recall about 10 years ago when Puerto Rico was really in a tough spot, the out migration from the island to the mainland was very steady and people weren’t leaving the island because they didn’t like it, it’s because the economic environment was pretty weak. Now it’s very strong. Are you seeing any evidence of people coming back to Puerto Rico from the mainland or the amount of people leaving has really diminished?

Any color there?

Ignacio Alvarez, CEO, Popular: Well, I’m happy to report, Gerard, that the Census Bureau has reported that for the first time in many years, we had positive net in migration, very small, 15,000, but it was positive. So yes, the trend has reversed and albeit it’s small, it is positive. So that has changed. So you’re anticipating the trends.

Jared Cassidy, Analyst, RBC Capital Markets: Yes. That’s really good to hear. Congratulations. The second bigger picture question, because of the unfortunate natural disasters the island has experienced over the years and then of course COVID that we all experienced. There was an enormous amount of federal monies that came into Puerto Rico as well as the insurance monies, which I assume have all been dispersed from the natural disasters.

Ignacio Alvarez, CEO, Popular: Can you share with us do you have

Jared Cassidy, Analyst, RBC Capital Markets: any idea what’s left in terms of the dollar amount of the aid that Puerto Rico expects to receive from the federal government?

Ignacio Alvarez, CEO, Popular: Yes. I think the if you look at the majority if we’re talking about the recovery funds, basically related to EMEA.

Jorge Garcia, CFO, Popular: Right.

Ignacio Alvarez, CEO, Popular: It’s about you could there’s about between $45,000,000,000 $47,000,000,000 and that’s between FEMA and HUD, which are the most of that about $44,800,000,000 is obligated by the Congress. So there’s a lot of money there and those are the 2 principal programs that we have.

Jared Cassidy, Analyst, RBC Capital Markets: Got it. And what are some of, if you could give us some insights, what are some of the major projects that are remaining with some where that money might go to in terms of rebuilding the electrical grid or other types of major municipal type projects?

Ignacio Alvarez, CEO, Popular: There really are 2 categories. 1, FEMA, and FEMA would be mostly centered around the electric grid as well as water. So there’s a number of water projects for wastewater, water filtered plants, flood control is another one, there’s a lot. And there’s some for highway. So mostly, I’d say between it’s infrastructure.

So it’s mostly the electric grid, there’s a lot on the water, a lot on flood control. For example, dams are being the dams are being revitalized, dredging the dams, making it stronger. So there’s mostly a basic infrastructure. Then there is another big slug of funds, which has to do with HUD and that’s mostly related to housing. And so there is a number of programs to build housing for the persons who were impacted by Hurricane Maria.

So those are the big the 2 big areas.

Jared Cassidy, Analyst, RBC Capital Markets: And is it safe to assume that it’s a 3 to 5 year type period that this all would be rebuilt or will it take longer?

Ignacio Alvarez, CEO, Popular: I think it will take longer. Different things will take longer. I think some of the basic building of bridges and roads will be sooner, but the electric grid is an 8 to 10 year project, I would say 7 to 10 year project.

Jared Cassidy, Analyst, RBC Capital Markets: Of course. Got it. Okay.

Ignacio Alvarez, CEO, Popular: But I think it won’t be done at once, but I think you’ll see the money for the grid go out over a longer period of time. It’s a more complex operation.

Jared Cassidy, Analyst, RBC Capital Markets: Got it. Thank you. Appreciate the color. Thank you.

Ignacio Alvarez, CEO, Popular: Thank you.

Moderator/Operator: Our next question comes from Jared Shaw with Barclays (LON:BARC). Your line is open. Please go ahead.

John Rau, Analyst, Barclays: Hi. This is John Rau on for Jared.

Jorge Garcia, CFO, Popular: Hi, good morning.

John Rau, Analyst, Barclays: I guess maybe just sticking on this area of investments in infrastructure. There was that outage on New Year’s that left a lot of island without power. I guess, were you able to see any change in, I guess, due to the investments in the speed of getting back up to power or just the overall response to an outage like that relative to in the past?

Ignacio Alvarez, CEO, Popular: Yes. I mean, there’s a long way to go still on the electrical grid. So I don’t know the response this time. Luma would say they probably responded faster than in the past. And perhaps they did and we’ve engineered back out.

So it came back a little bit sooner. But I think what people understand is that a lot of the work that has been done was simply the basics of putting the system back up. The thing of improving the system, a lot of that is in the works now. So you haven’t you can’t expect radically different results yet because a lot of the investment for the distribution system and for new generation is in the works. So again, that’s why I say it’s a 7 to 10 year period.

I mean, they have done some adjustments. I think they’re doing very basic stuff like putting the trees because, probably there’s a tropical island, if we were not, they claimed that 40% of blackouts are caused by trees hitting the line. So they have a major investment in that. But basically, I think that I think we’re still in the early stages of the actual improvement of the system. The system is back up and they put it back up and we expect work outs to be less over time.

And the real improvement of doing its stability is going to require those investments in the distribution system and in new generation.

John Rau, Analyst, Barclays: Okay, great. That’s good color. And then I guess just on the loan growth trajectory, kind of ramping into the it seems like the upper end of that 3% to 5% range by the end of the year. Is that like 5% plus annualized growth rate in the, I guess the second half of the year and maybe into 2026 a good jumping off point for kind of a steady run rate for you guys?

Jorge Garcia, CFO, Popular: The 3% to 5% is the year over year growth. It would be measuring we stand at the end of December of 2025 and compare back to 2024.

John Rau, Analyst, Barclays: Okay. Was there any pull forward from end of the Q4 in terms of loan growth just with the higher levels seen?

Ignacio Alvarez, CEO, Popular: Yes, this is Ignacio. We had a very strong Q4 and from both banks and a lot of big loans came in. So obviously that probably impacted the beginning of the Q1 a little bit because of all those loan close at the end of Q4. But we’re happy to start with those balances on our books they want, so it’s going to be very positive for us.

John Rau, Analyst, Barclays: Yes. Okay. That’s a good color. And then just last one for me. It sounds like you’re adding securities to the book at around 4% yield.

What are they rolling off at over the next 6, 12 months?

Jorge Garcia, CFO, Popular: Yes. Under 2%, like 1.5%. Yes. Those are our longer dated bonds, right?

John Rau, Analyst, Barclays: Okay, great. Thanks. That’s all. Thank you.

Jared Cassidy, Analyst, RBC Capital Markets: Thank you.

Moderator/Operator: We have a follow-up from Kelly Motta with KBW. Your line is open. Please go ahead.

Kelly Motta, Analyst, KBW: Hi. Thank you for letting me jump back on. I just had some housekeeping items and one bigger picture question I was hoping to get help on. One, I mean, the deposit flows were great this quarter, and I think you mentioned part of it could be seasonality in those trends. Is there a way to quantify how much of those inflows could be seasonal?

And can you remind us about the cadence of seasonality now that we’re it’s been a couple kind of odd years with the excess liquidity in the system. Just if we could get a refresher on kind of how that cadence goes through the year that would be helpful from a modeling perspective?

Jorge Garcia, CFO, Popular: Yes. I mean in the Q1, we see some of the tax refunds to our retail clients. I think that was an increase that we saw last year that went into the Q2 as people benefited not only from their normal tax return, but also a one time rebate that the government of Puerto Rico did in 2024. And obviously, we and if you remember, even in the we benefit on the higher average trial losses from all that activity early on in the Q2. But I think by the end of the Q2, we had seen some stabilization of point to point.

Q3, there’s really nothing that we’ve identified as a driver that would help, that would be an inflow. And in the Q4, the activity that we saw today or this quarter, I’m sorry, if There’s some historical evidence to show it, but we’ve also seen headquarters where we saw outbound amounts because of all that COVID money. So I mean, we really are trying to get our arms around kind of that baseline, Kelly. It’s part of why we’re giving such a broad range of what we believe is at risk. But again, I think the important message that we want to provide is that we are we have active efforts to try to mitigate that activity.

Kelly Motta, Analyst, KBW: Okay. That’s helpful. And then a housekeeping question regarding your expense guidance, the 4% increase for the year. I just wanted to clarify if that’s relative to GAAP reported expenses for the year or you had a FDIC special assessment, I believe another kind of $6,000,000 adjustment in 1Q that was higher. I was hoping you could just clarify the correct starting base on which

Jorge Garcia, CFO, Popular: the growth of 4Q was at. Yes. We give the guidance on a GAAP basis for all the metrics.

Kelly Motta, Analyst, KBW: Got it. Last question for me. I know it’s early and it’s kind of hard to know how these things play out, but I saw last night Trump had an executive order on the flow of federal funds. I’m not sure if it impacts Puerto Rico or if anyone knows, but I was wondering if you could just give an update on how you’re thinking of it and the potential risk or noise that could come from his ability to gum up the words here?

Ignacio Alvarez, CEO, Popular: Yes. Well, like you said, it’s very early and the language in some of the executive orders are very broad, are very broad. But I personally don’t believe that they’re directed at the recovery funds by the own statements of the administration. They’ve stated that their target is more the green energy initiative, the DEI initiatives, initiatives related to electric vehicles, promoting electric vehicles. So I we’ll see the last significant Board has said they have to clarify in 2 weeks.

I don’t believe it was directed toward against the recovery funds, but we’ll see. It’s broad language. But I’m very confident that most of the funds coming to Puerto Rico in terms of infrastructure recovery should not be impacted by their own words. So but we’re not being singled out. Puerto Rico is being treated like any other state or territory.

So obviously, we’ll be watching carefully. But again, at least I’m relatively optimistic that we are not the target of many of these initiatives.

Kelly Motta, Analyst, KBW: Got it. Thank you so much for entertaining the question.

Moderator/Operator: We have a follow-up from Jared Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

Jared Cassidy, Analyst, RBC Capital Markets: Thank you. As a follow-up question, and I apologize if you guys addressed this in the prepared remarks. You mentioned about changing, I think, the underwriting standards for the credit cards a little later than maybe some of the mainline banks. Can you share with us what type of underwriting changes you made for the new originations for credit cards versus what it was like 12 or 24 months ago?

Lidio Soriano, CRO, Popular: Thank you, Gerard. This is Leo. Let me clarify that. That I mentioned was when you look at the performance of our credit card book or consumer book compared to the U. S, we entered delinquency levels and net charge off or you saw the gradual increase in delinquencies and net charge off later than it occurred in the May.

So that’s the difference. But in terms of changes that we have made to underwriting criteria, I mean, we have we tightened our underwriting criteria. We the FICO that we lend to are much higher than when they were when we make the changes.

Jared Cassidy, Analyst, RBC Capital Markets: Very good. Thank you.

Moderator/Operator: This concludes our Q and A. I’ll now hand back to Ignacio Alvarez, CEO for any final remarks.

Ignacio Alvarez, CEO, Popular: Thanks again for joining us today and for your questions. We look forward to updating you on our Q1 results in April. And so everyone have a great day. Thank you very much.

Moderator/Operator: Ladies and gentlemen, today’s call has now concluded. We’d like to thank you for your participation. You may now disconnect your lines.

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