Popular, Inc. (BPOP) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows strong financial performance, with higher NII growth, reduced net charge-offs, and a positive outlook on ROTCE and loan growth. The Q&A reveals confidence in credit trends and NII growth despite competitive pressures. Management's optimism and strategic focus on cost efficiency and growth further support a positive sentiment. Although some uncertainties remain, the overall outlook is promising, suggesting a positive stock price movement.
Key Financial Performance
Net Income $211 million, an increase of $1 million year-over-year. The increase was driven by higher revenues, expanding net interest margin, strong loan growth, and stable customer deposit balances.
Earnings Per Share (EPS) $3.15, an increase of $0.06 per share year-over-year. This was attributed to better net interest income (NII), noninterest income, and a lower effective tax rate, partially offset by a higher provision for credit losses.
Net Interest Income (NII) $647 million, an increase of $15 million year-over-year. This was driven by higher average deposit balances, fixed-rate asset repricing in the investment portfolio, and deposit pricing discipline.
Loan Growth $502 million in the quarter, with $357 million from BPPR and $145 million from Popular Bank. Growth was primarily driven by commercial and construction lending.
Noninterest Income $171 million, an increase of $3 million year-over-year. This was due to solid performance across fee-generating segments and a $5 million retroactive payment from a tenant related to an amended lease contract.
Operating Expenses $495 million, an increase of $3 million year-over-year. The increase was due to a $13 million noncash goodwill impairment and higher personnel costs, offset by reductions in other operating expenses.
Net Charge-Offs $58 million, an increase of $16 million year-over-year. This was primarily due to two large commercial exposures, including a $14 million charge-off related to a commercial real estate facility.
Allowance for Credit Losses (ACL) $786 million, an increase of $17 million year-over-year. The increase was driven by the impact of two commercial exposures, offset by improvements in the credit quality of the consumer portfolio.
Tangible Book Value Per Share $79.12, an increase of $3.71 per share year-over-year. This was driven by net income and lower unrealized losses in the MBS portfolio, offset by capital return activity.
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Operating Highlights
Online personal and credit card loan origination: Launched a fully online personal and credit card loan origination process in Puerto Rico and the Virgin Islands.
Digital deposit products: Expanded digital deposit products in the U.S. Mainland.
Puerto Rico economic activity: Solid business activity with favorable trends in employment, consumer spending, and tourism. Unemployment rate at 5.6%, near all-time lows.
Tourism boost: Significant increase in tourism activity due to cultural events like Bad Bunny's concert residency, showcasing Puerto Rico globally.
Amgen expansion: Amgen announced a $650 million manufacturing network expansion in Puerto Rico, expected to create 750 new jobs.
Loan growth: Loan growth of $502 million in Q3, driven by commercial and construction lending.
Net interest income: Net interest income increased by $15 million to $647 million, supported by higher deposit balances and fixed-rate asset repricing.
Cost efficiency initiatives: Exited U.S. residential mortgage origination business and closed 4 underperforming branches in New York Metro area.
Strategic framework: Focused on being the #1 bank for customers, simplifying operations, and achieving top performance with a sustainable 14% ROTCE target.
Digital transformation: Investing in modernizing branches, digital platforms, and expanding service channels to enhance customer experience and operational efficiency.
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Risk or Challenges
Credit Quality Impact: Two large commercial loans negatively impacted credit metrics. One loan to a Puerto Rican telecommunication company faced operational challenges and client attrition, resulting in a $158 million nonaccrual classification. The second loan, a $30 million commercial real estate facility for a Florida hotel, was also placed on nonaccrual status, including a $14 million charge-off.
Economic Uncertainty: The company acknowledges ongoing economic uncertainty as a key consideration, which could impact borrower performance and overall credit quality.
Deposit Balances: Ending deposit balances decreased by $704 million, with Puerto Rico public deposits declining by $842 million. This could pose challenges to liquidity and funding stability.
U.S. Construction Balances: Expected paydowns in U.S. construction balances during Q4 could create headwinds for loan growth.
Goodwill Impairment: A $13 million noncash goodwill impairment was recorded for the U.S.-based equipment leasing subsidiary due to lower projected earnings.
Branch Closures and Business Exit: The company decided to exit the U.S. residential mortgage origination business and close four underperforming branches in the New York Metro area, reflecting challenges in these segments.
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Guidance & Outlook
Loan Growth: Consolidated loan growth in 2025 is expected to be between 4% and 5%, an increase from the original guidance of 3% to 5%, despite anticipated headwinds in U.S. construction balances due to expected paydowns in Q4.
Net Interest Income (NII) Growth: NII growth is projected to be 10% to 11% in 2025, supported by anticipated NIM expansion in Q4 from repricing of fixed-rate earning assets.
Noninterest Income: Q4 noninterest income is expected to range between $160 million and $165 million, resulting in total noninterest income for 2025 between $650 million and $655 million.
Operating Expenses: Operating expenses for 2025 are expected to increase by 4% to 5% compared to the previous year.
Effective Tax Rate: The effective tax rate for Q4 is projected to be between 14% and 16%, with the full-year 2025 effective tax rate expected to range from 16% to 18%.
Return on Tangible Common Equity (ROTCE): The company aims to achieve at least a 12% ROTCE in Q4 and for the full year, with a longer-term goal of a sustainable 14% ROTCE.
Public Deposits: Puerto Rico public deposits are expected to remain in the range of $18 billion to $20 billion.
Net Charge-Offs: Net charge-offs for the full year are expected to range between 50 to 65 basis points.
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Shareholder Return Plan
Quarterly common stock dividend: Declared a quarterly common stock dividend of $0.75 per share, an increase of $0.05 from Q2.
Share repurchase program: Repurchased approximately $119 million in shares during Q3. As of September 30, $429 million remains on the active share repurchase authorization.
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Key Q&A
Q:With the securities purchases this quarter, should we assume that trend continues? Where are the new purchase yields?
A:Management believes there are strong tailwinds for yield expansion. Upcoming maturities in the investment portfolio are expected to provide significant spread pickup, even with lower rates. Public deposits are expected to benefit from the lower rate environment, supporting net interest margin (NIM) expansion in Q4 and beyond.
Q:What about new loan yields this quarter?
A:New loan yields, particularly in personal loans and auto lending, showed yield pickup quarter-over-quarter. However, auto volumes and new car sales activity are slowing, which may lead to more competitive pricing. Opportunities for repricing remain given the current rate environment.
Q:How are you looking at credit trends over the next few quarters within auto and consumer?
A:The variation in delinquency this quarter is within seasonal norms. Losses in the auto portfolio are about 45 basis points below last year. Management remains optimistic about the consumer outlook, supported by trends in Puerto Rico's employment and client liquidity.
Q:What are the specific reserves set aside for the large C&I loan, and why was it moved into nonperformers?
A:The loan continues to make payments but was moved to nonaccrual status due to deteriorating conditions and management's intent to rightsize its capital structure. Specific reserves were not disclosed, but the variance in provision this quarter was related to these loans. Resolution is expected next year.
Q:Is this large C&I loan one of the larger credits in your portfolio? How is the health of the economy from a business and consumer standpoint?
A:The portfolio has shifted from SME to corporate credit, showing strong trends. Management sees significant opportunities in Puerto Rico and remains comfortable with exposures. The economy is performing well with no signs of concern, and large customers are continuing their projects.
Q:Should we assume that margin expansion portends to NII growth as we go through rate cuts?
A:Management expects fixed asset repricing and loan growth to contribute to improving NII and margin expansion. Public deposit balances may not reach the high end of the range in Q4 due to pricing lags tied to 3-month treasuries. NII guidance incorporates these factors, with confidence in growth trends continuing into 2026.
Q:Why did you fine-tune guidance for charge-offs but leave the high end of the range for net charge-offs?
A:The high end of the range accounts for potential charge-offs related to reserved exposures this quarter. Excluding these, the rest of the portfolio is expected to perform solidly. The range also accounts for idiosyncratic events that could occur.
Q:Is there anything in 2026 we should prepare for outside of normal cost inflation?
A:Management did not provide specific 2026 guidance but emphasized ongoing cost discipline and sustainable initiatives. Recent actions, such as terminating the U.S. mortgage origination business, reflect efforts to focus on areas that add value and align with strategic goals.
Q:Do you have any update on the timing of achieving 14% ROTCE?
A:Management is closer to achieving 14% ROTCE and remains focused on sustainable performance through improving net income and operating leverage. They do not plan to stop at 14% and aim to surpass it.
Q:What is the impact of the Puerto Rico tax rate change on future tax rates?
A:The tax rate guidance for 2025 (16%-18%) is considered a clean number without significant discrete events. The change in Puerto Rico's tax law allows for reversal of related tax expenses, providing a stable basis for future tax rates.
Q:Are you seeing increased competition in Puerto Rico's deposit market or new entrants?
A:There are no new entrants in Puerto Rico's depository market. Competition is normal and vibrant, but management is confident in their position and strategy to retain good clients without irrational pricing.
Q:Have you seen changes in underwriting standards for new C&I and CRE loans?
A:Management has not observed changes in underwriting standards. They maintain a strong credit underwriting process and remain conservative. Competition is more evident in pricing, particularly in the U.S. market.
Q:How are you managing costs and investments in your transformation plan?
A:Management is focused on balancing investments with cost efficiencies. They aim to slow expense growth by reallocating savings from ongoing projects. Over 80 projects are underway, with efforts to minimize the impact of dual expenses during transitions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the reserves set aside for the large C&I loan and the exact timeline for its resolution. Additionally, they did not offer 2026 guidance or specifics on potential cost inflation, maintaining a general focus on cost discipline and strategic investments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Amgen
Banco Popular
CFO
Corporate
Investor Relations
President CEO
Relations Officer
Senior
VP
balance deposit
bond maturity
branch
cash
center
channel
concert
construction lending
customer transaction
date
duration year
efficiency
framework transformation
income increase
increase share
manufacturing
net
origination
payment
portfolio deposit
product
rate asset
relationship
service
share result
solution
tax rate
transaction activity
transformation progress
treasury note
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The earnings call reflects a positive outlook with several strong factors: increased loan growth guidance, robust NII growth, and a record in tourism sector metrics. Despite some uncertainties in consumer loan growth and management's avoidance of specific details, the overall sentiment is bolstered by optimistic guidance, positive economic impacts from onshoring, and a focus on profitability and shareholder value. The Q&A reinforced confidence in sustained ROTCE and strategic growth, contributing to a positive sentiment rating.
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The earnings call summary shows strong financial performance, with higher NII growth, reduced net charge-offs, and a positive outlook on ROTCE and loan growth. The Q&A reveals confidence in credit trends and NII growth despite competitive pressures. Management's optimism and strategic focus on cost efficiency and growth further support a positive sentiment. Although some uncertainties remain, the overall outlook is promising, suggesting a positive stock price movement.
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BPOP Slides
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