Popular, Inc. (BPOP) Q4 2025 Earnings Call Transcript
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Overview
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.
Key Financial Performance
Annual Net Income $833 million, increased by $219 million or 36% compared to 2024. The increase was driven by strong loan growth and stability in the Puerto Rico economy.
Loan Growth $2.2 billion for the year, an increase of 6%. Growth was led by commercial loans and construction loans.
Net Charge-Offs Decreased by 16 basis points to 52 basis points for the year. Improvement was due to lower consumer net charge-offs.
Common Equity Tier 1 Ratio 15.7%, indicating strong capital levels.
Tangible Book Value Per Share $82.65, increased by 21% year-over-year. The increase was primarily due to lower unrealized losses on investment securities and net income for the year, offset in part by dividends and share repurchase activity.
Share Repurchases Approximately $500 million in common stock repurchased during 2025. Since resuming buybacks in Q3 2024, $720 million worth of common stock has been repurchased.
Quarterly Net Income (Q4 2025) $234 million, an increase of $23 million compared to the previous quarter. The increase was driven by higher net interest income, expanding net interest margin, strong loan growth, and lower operating expenses.
Earnings Per Share (EPS) (Q4 2025) $3.53, an increase of $0.38 per share compared to the previous quarter.
Net Interest Income (NII) $658 million for Q4 2025, increased by $11 million. For the year, NII increased by $259 million or 11%. The increase was driven by higher loan balances, fixed-rate asset repricing, and lower deposit costs.
Net Interest Margin (NIM) Expanded by 10 basis points to 3.61% on a GAAP basis in Q4 2025. Fully tax-equivalent margin improved by 13 basis points to 4.03%.
Nonperforming Loans (NPLs) Decreased by $4 million in Q4 2025. The ratio of NPLs to total loans held in portfolio decreased by 3 basis points to 1.27%.
Net Charge-Offs (Q4 2025) $50 million or annualized 51 basis points, compared to $58 million or 60 basis points in the prior quarter. The decrease was driven by recoveries from sales of previously charged-off loans and lower commercial net charge-offs.
Allowance for Credit Losses (ACL) Increased by $22 million to $308 million in Q4 2025, mostly due to higher reserves for the commercial portfolio and consumer loans.
Operating Expenses (Q4 2025) $473 million, a decrease of $22 million compared to Q3 2025. Excluding the FDIC reversal, operating expenses were $489 million.
Effective Tax Rate 16% in Q4 2025, compared to approximately 15% in Q3 2025. For the year 2025, the effective tax rate was 17%, down from 23% in 2024, driven by a higher proportion of exempt income.
Consumer Spending (Q4 2025) Combined credit and debit card sales for Banco Popular customers increased by approximately 5% compared to Q4 2024.
Mortgage Balances (Q4 2025) Increased by $115 million during the quarter.
Tourism and Hospitality Sector Airport passenger traffic reached a record of 13.6 million in 2025, increasing by 3% compared to 2024. Hotel demand in Q4 2025 reached nearly 350,000 room nights, marking 11% year-over-year growth and driving a 4% increase in total revenue.
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Operating Highlights
Commercial cash management platform: Rolled out a new platform to enhance commercial cash management.
Consumer credit origination platform: Deployed a fully digital origination process for personal loans and credit cards in Puerto Rico and the Virgin Islands, originating approximately $36 million since launch in Q3.
Puerto Rico economic trends: Favorable trends in employment, consumer spending, construction, and tourism. Unemployment rate stable at 5.7%, consumer spending healthy with a 5% increase in credit and debit card sales, and mortgage balances increased by $115 million.
Tourism and hospitality: Record airport passenger traffic of 13.6 million in 2025, a 3% increase from 2024. Hotel demand grew by 11% year-over-year in Q4, driving a 4% increase in total revenue.
Loan growth: Achieved $2.2 billion in total loan growth for 2025, a 6% increase, with strong contributions from commercial and construction loans.
Efficiency initiatives: Exited U.S. mortgage business, optimized Puerto Rico mortgage servicing, and transformed ERP solution to a modern cloud platform.
Cost management: Operating expenses increased by only 2.5% in 2025, below the original 4% guidance, due to sustainable efficiency initiatives.
Share repurchase and dividends: Repurchased $500 million in common stock during 2025 and increased quarterly common stock dividend by $0.05 to $0.75 per share.
Capital optimization: Focused on reducing CET1 ratio to align with mainland bank peers and optimizing capital structure.
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Risk or Challenges
Credit Quality: While credit quality remained stable, there were isolated commercial credit issues in the third quarter and higher reserves for the commercial portfolio due to loan modifications and changes in FICO mix.
Deposit Trends: Ending deposit balances decreased by $323 million, driven by anticipated outflows from Puerto Rico public deposits. Public deposits are expected to remain volatile within the range of $18 billion to $20 billion.
Loan Loss Provisions: The allowance for credit losses increased by $22 million, driven by higher reserves for commercial and consumer loans. The provision for loan losses was $71 million, indicating potential risks in the loan portfolio.
Net Charge-Offs: Net charge-offs amounted to $50 million, with a slight improvement from the prior quarter. However, the annualized net charge-off ratio remains a concern at 51 basis points.
Operating Expenses: Operating expenses increased by approximately 2.5% for the year, with expectations of a further 3% increase in 2026 due to investments in people and technology.
Economic Dependency: The company's performance is heavily tied to the Puerto Rico economy, which, while currently stable, poses a risk if economic conditions deteriorate.
Capital Levels: While capital levels are strong, the company is working to reduce its CET1 ratio to align with mainland peers, which could impact financial flexibility.
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Guidance & Outlook
Loan Growth: For 2026, the company expects consolidated loan growth of 3% to 4%.
Net Interest Income (NII): Anticipates a 5% to 7% increase in NII for 2026, driven by reinvestment of lower-yielding securities, loan originations, and lower costs of Puerto Rico public deposits and online deposits.
Noninterest Income: Quarterly noninterest income is expected to remain in the range of $160 million to $165 million in 2026.
Operating Expenses: Total full-year GAAP expenses are projected to increase by approximately 3% in 2026 as the company continues to invest in people and technology.
Effective Tax Rate: The effective tax rate for 2026 is expected to be in the range of 15% to 17%.
Net Charge-Offs: Annual net charge-offs for 2026 are projected to be in the range of 55 to 70 basis points.
Capital Management: Plans to continue share repurchases at a run rate of approximately $148 million per quarter, subject to market conditions, and pursue a dividend increase later in 2026.
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Shareholder Return Plan
Quarterly Common Stock Dividend Increase: In the fourth quarter, the quarterly common stock dividend was increased by $0.05 to $0.75 per share.
Future Dividend Plans: The company expects to pursue a dividend increase later in the year, subject to market conditions and Board approval.
Share Repurchase Activity in 2025: The company repurchased approximately $500 million in common stock during 2025.
Cumulative Share Repurchase Since Q3 2024: Since resuming buybacks in the third quarter of 2024, the company has repurchased approximately $720 million worth of common stock.
Q4 2025 Share Repurchase: In the fourth quarter, the company repurchased approximately $148 million in common stock.
Remaining Share Repurchase Authorization: As of December 31, 2025, $281 million remained on the active share repurchase authorization.
Future Share Repurchase Plans: The company believes $148 million per quarter is a good run rate for buybacks going forward, subject to market conditions.
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Key Q&A
Q:What is the guidance for NII and ROTCE for 2026?
A:The NII guidance suggests slightly slower average balance sheet growth during 2026 with 5 to 10 basis points of margin expansion. Management is comfortable with a 5% to 7% NII growth guide. For ROTCE, the goal is to sustain above 14%, driven by improvement in performance and net income, while absorbing uncertainties through the cycle.
Q:What are the expectations for loan growth in 2026?
A:Loan growth is expected to be 3% to 4%, with commercial and mortgage growth leading in Puerto Rico. Consumer loan growth, particularly in auto, is expected to soften. In the U.S., the focus is on pricing for relationships and profitable loan growth.
Q:What is the outlook for fee income growth in 2026?
A:Fee income growth in 2026 will make up for $10 million of unusual items in 2025, including prior period recoveries and federal tax refunds. There is more growth embedded in the guide than it may appear.
Q:What is the management's stance on M&A activities?
A:Whole bank M&A is not a priority, but management is open to opportunities that enhance shareholder value. Criteria for M&A include complementing the U.S. business, strengthening the deposit franchise, being commercial-led, geographically consistent, right-sized, and culturally aligned.
Q:What are the expectations for expenses and investments in 2026?
A:The expense run rate is expected to remain steady, with continued investments in technology and resources. Management is focused on efficiency and sustainable savings, while balancing capacity and resource limitations.
Q:What is the outlook for deposit growth and competition in Puerto Rico?
A:Deposit growth is expected to continue, with no irrational pricing competition observed in Puerto Rico. Management is focused on defending and growing good client relationships.
Q:What is the impact of U.S. military presence in Puerto Rico?
A:The increased U.S. military presence is seen as a net positive for Puerto Rico's economy, benefiting adjacent geographies and creating opportunities for local businesses.
Q:What are the key risks management is monitoring for 2026?
A:Key risks include affordability issues impacting customers, inflation, and the unresolved PREPA bankruptcy, which affects electricity generation and economic growth in Puerto Rico.
Q:What is the impact of onshoring and reshoring initiatives on Puerto Rico?
A:Puerto Rico is benefiting from onshoring initiatives, with $2.2 billion in capital investments and over 4,600 jobs created in 2025. More announcements are expected in 2026, which will further fuel economic growth.
Q:What is the guidance for charge-offs in 2026?
A:Charge-offs are guided at 55 to 70 basis points, accounting for stable consumer portfolio performance and potential charge-offs of larger commercial relationships.
Q:What is the outlook for auto loan demand in Puerto Rico?
A:Auto loan demand is expected to soften in 2026, with new auto sales projected to be slightly down by 5% compared to 2025, but still at historically strong levels.
Q:What is the management's view on the earning asset mix and NIM?
A:Management prefers loans over securities for deeper relationships and profitability. The loan-to-deposit ratio is expected to increase, and NIM is projected to continue expanding in 2026.
Q:What is the management's approach to capital and buybacks?
A:Management is focused on reducing CET1 while evaluating opportunities for additional Tier 1 capital. Buybacks are guided by market conditions, pricing, and macroeconomic factors.
Q:Review of Unclear Management Responses
A:Management avoided providing specific spot deposit costs, asset yields, and new production rates for loans. Additionally, they did not disclose detailed breakdowns of investment expenses or specific market conditions that would impact buyback pace.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Banco Popular
CFO
Corporate
FDIC reversal
President CEO
Rico Virgin
Tier
VP
Virgin Islands
activity stock
addition
buyback
channel
cost Puerto
credit origination
dividend share
driver ROTCE
duration
goal
income loan
increase share
loan balance
loan credit
loss investment
mainland
market condition
note
passenger traffic
peer
platform
productivity
profitability
relationship
series efficiency
service
solution
tax rate
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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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