Popular Q4 2024 Earnings Report

Popular EPS Results

• Actual EPS: $2.51
• Consensus EPS: $2.04
• Beat/Miss: Beat by +$0.47
• One Year Ago EPS: N/A

Popular Revenue Results

• Actual Revenue: ($1.82) billion
• Expected Revenue: $748.64 million
• Beat/Miss: Missed by -$2.57 billion
• YoY Revenue Growth: N/A

Popular Announcement Details

• Quarter: Q4 2024
• Date: 1/28/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 10:00AM ET

Popular (NASDAQ:BPOP), headquartered in San Juan, Puerto Rico, is a financial holding company and a leading provider of banking services in the United States mainland and Puerto Rico. Through its primary subsidiaries—Banco Popular de Puerto Rico and Popular Bank—the company delivers comprehensive commercial and consumer banking solutions. It offers deposit products, lending facilities, cash management services and payment-processing solutions designed for individuals, small businesses and large corporations.

The company’s product suite encompasses checking and savings accounts, certificates of deposit, residential and commercial mortgage loans, business lines of credit and credit cards. In addition to its core banking offerings, Popular provides asset management, brokerage services and retirement planning through its wealth advisory channel. A dedicated merchant services division supports electronic payment acceptance, treasury management and merchant financing, enabling clients to optimize cash flow and streamline daily operations.

Tracing its roots to the founding of Banco Popular de Puerto Rico in 1893, Popular, Inc. has expanded its footprint to serve customers across Puerto Rico, Florida and select markets in the U.S. mainland and the Caribbean. The institution leverages a mix of branch locations and digital channels to deliver convenient banking experiences. With an emphasis on customer service and community engagement, Popular continues to reinforce its market position through targeted investments in technology and strategic partnerships.

Popular Q4 2024 Earnings Call Transcript

Key Takeaways

• Adjusted 2024 net income rose 10% year-over-year to $646 million, driven by higher net interest income but partly offset by increased credit loss provisions and operating expenses.
• Total loan balances grew 5.8% ($2 billion) in 2024, with strong contributions in commercial, auto and mortgage lending across both Puerto Rico and U.S. banks.
• Credit quality remained stable, with nonperforming loans declining slightly to 0.95% of the portfolio and net charge-offs at 68 basis points—near the low end of the bank’s historic normalized range.
• Capital and shareholder returns strengthened, with a 16% CET1 ratio, 14% tangible book value growth to $68.16 per share, resumption of up to $500 million in buybacks (with $220 million repurchased) and a dividend increase to $0.70 per share.
• For 2025, Popular expects 3–5% loan growth, 7–9% net interest income growth, further net interest margin expansion, a 19–21% effective tax rate and net charge-offs of 70–90 basis points.

Presentation

[Operator]

Hello, and welcome to the Popular Incorporated fourth quarter earnings call. My name is Elliot, and I'll be your coordinator today. If you would like to register a question during today's events, please press star one on your telephone keypad. I'm now going to hand over to Paul Cardillo, Investor Relations Officer. Please go ahead.

[Paul Cardillo, Investor Relations Officer at Popular, Inc]

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 García, and our CRO, Lidio Soriano. They will review our results for the full year and fourth 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 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.

[Paul Cardillo, Investor Relations Officer at Popular, Inc]

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 CEO, Ignacio Alvarez.

[Ignacio Alvarez, CEO at Popular, Inc]

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 million, compared to $541 million in 2023. On an adjusted basis, we achieved net income of $646 million, 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 fourth quarter loan growth helped bring our total loan growth for the year to $2 billion, an increase of 5.8%. BPPR 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.

[Ignacio Alvarez, CEO at Popular, Inc]

Non-performing loans decreased slightly, while net charge-offs remained below our historic normalized levels. Our capital levels are strong, ending the year with a Common Equity Tier 1 ratio of 16%. Our tangible 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 million stock repurchase authorization. In total, during 2024, we repurchased 2.3 million of our shares for approximately $220 million. We continue to believe that our shares are attractive at current prices. Additionally, in the fourth quarter, we increased our quarterly common stock dividend by $0.08 to $0.70 per share. Please turn to slide four.

[Ignacio Alvarez, CEO at Popular, Inc]

We closed the last quarter of 2024 on a strong note, achieving net income of $178 million and an increase of $23 million from the third 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 million in the quarter, and net interest margin expanded by 11 basis points to 3.35%, mainly driven by lower deposit costs. As I mentioned before, loan growth was very strong in the quarter, with balances increasing by $913 million, or 2.5%. We were happy to see that both banks contributed equally to this growth. During the quarter, we purchased approximately 160 million shares at an average price of roughly $96.

[Ignacio Alvarez, CEO at Popular, Inc]

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 five. Business activity in Puerto Rico remained 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 fourth quarter of 2023. Mortgage loan balances at BPPR increased by $114 million in the fourth quarter, driven primarily by home purchase activity and our current strategy of retaining FHA loans in portfolio.

[Ignacio Alvarez, CEO at Popular, Inc]

Our auto loan and lease balances increased by $43 million compared to the third quarter, as demand for new cars continued 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 fourth quarter compared to the fourth quarter of 2023, and hotel occupancy continues to be healthy. For the year, a record 13.2 million travelers visited Puerto Rico. We expect the ongoing disbursement of federal funds will continue to support 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.

[Ignacio Alvarez, CEO at Popular, Inc]

On that note, I now turn the call over to Jorge for more details on our financial results.

[Jorge García, CFO at Popular, Inc]

Thank you, Ignacio. Good morning, and thank you all for joining the call today. Please turn to slide six. We're pleased with the quarter's results, particularly with the NII growth and the expansion of the NIM. As Ignacio stated, in the fourth quarter, we reported net income of $178 million, $23 million higher than the prior period. Net interest income increased by $18 million, 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 million in the quarter, with each of our banks contributing similar amounts towards that growth. At BPPR, 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.

[Jorge García, CFO at Popular, Inc]

Ending customer deposit balances at BPPR, excluding Puerto Rico public deposits, increased by approximately $600 million, while average balances decreased by approximately $100 million. At PB, ending balances decreased by approximately $190 million, and average balances decreased by approximately $30 million. At the end of the fourth quarter, Puerto Rico public deposits were $19.5 billion, an increase of approximately $750 million when compared to Q3. Average balances for public deposits were lower by $125 million. Going forward, we expect public deposits to continue to be in a range of $18 billion-$20 billion. 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. Net interest income was $165 million, flat versus Q3. In December, we completed the sale of the daily car rental business from our Popular Auto subsidiary.

[Jorge García, CFO at Popular, Inc]

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 million to non-interest income. Therefore, in 2025, we expect quarterly non-interest income to be in a range of $155 million-$160 million, including the impact of the sale, offset in part by initiatives geared towards increasing fee income. Credit metrics remained stable during the fourth quarter. The provision for credit losses decreased by $5 million to $66 million. Total operating expenses were $468 million, flat with last quarter.

[Jorge García, CFO at Popular, Inc]

The largest expense variance in the quarter was 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 fourth 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%-21%. Please turn to slide seven.

[Jorge García, CFO at Popular, Inc]

During the quarter, we continued to reinvest bond maturities into two-year to three-year U.S. Treasury notes, buying approximately $600 million at an average yield of around 4%. We expect to continue this strategy as a way to lessen our sensitivity to lower rates. In BPPR, deposit costs decreased by 22 basis points to 1.67%, 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 fourth quarter, and we benefited from continued draws in construction lines and our condo association lending business in Florida.

[Jorge García, CFO at Popular, Inc]

In 2025, we expect consolidated loan growth of 3%-5%, with the rate of growth improving as the year progresses. We anticipate 2025 NII will increase by 7%-9%, driven by continued reinvestment of lower-yielding securities and loan originations in the current rate environment, as well as lower costs 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 eight. 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.

[Jorge García, CFO at Popular, Inc]

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 increased unrealized losses in our MBS portfolio, our stock repurchase activity, and dividends in the quarter. During the fourth quarter, we repurchased approximately $160 million in shares at an average price of roughly $96. At the end of December, we had repurchased approximately $220 million of our existing $500 million 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 fourth quarter 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.

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

Thank you, Jorge, and good morning. Credit quality metrics remained stable during the fourth quarter, with the mortgage and commercial portfolios continuing to reflect credit metrics 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 nine, non-performing assets and non-performing loans decreased during the quarter, driven by Popular Bank. NPLs in the U.S. decreased by $14 million, driven by the sale at book value of a $17 million commercial NPL loan.

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

NPLs in BPPR increased by $3 million, driven by a $6 million increase in auto loans and leases. OREO decreased by $6 million, driven by sales of residential real estate properties in Puerto Rico. Inflows of NPL increased slightly by $2 million. In BPPR, total inflows increased by $11 million, driven by the mortgage portfolio. In Popular Bank, inflows decreased by $9 million, as the prior quarter included the impact of a single $17 million mortgage loan. The ratio of NPLs to total loans held in portfolio decreased 5 basis points to 0.95%. Turning to slide number 10, net charge-offs amounted to $77 million, or annualized 74 basis points, compared to $59 million or 65 basis points in the prior quarter. Net charge-off in BPPR increased by $8 million, driven by higher consumer losses by $6 million. In Popular Bank, net charge-off remained flat quarter-over-quarter.

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

For the full year, net charge-offs were 68 basis points, at the low end of our 65 basis points-85 basis points guidance for the year. As we have discussed in the past, prior to the COVID pandemic, Popular's net charge-offs were generally between 75 basis points-125 basis points. For 2025, we expect net charge-offs for the full year to be between 70 basis points-90 basis points, given current trends and the macroeconomic environment. Please turn to slide number 11. The allowance for credit losses increased by $2 million to $746 million. In BPR, the ACL increased by $4 million, driven by a reserve increase of $11 million in consumer loans, in part offset by a $6 million decrease in reserves for commercial loans. In Popular Bank, the ACL decreased by $3 million, driven by improvements in risk ratings of U.S. commercial loans, offset in part by portfolio growth.

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

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 the ACL to NPLs was 213% compared to 206% in the previous quarter. The provision for credit losses was $69 million, compared to $73 million in the prior quarter. In BPPR, the provision decreased by $10 million, while in Popular Bank, the provision was $2 million compared to a benefit of $4 million in the prior quarter. To summarize, credit quality metrics remained stable during the fourth quarter. We are attentive to the volatile 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 at Popular, Inc]

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.

[Ignacio Alvarez, CEO at Popular, Inc]

I am thankful for the hard work and dedication of our employees throughout the year. We enter 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.

[Operator]

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Brett Rabatin with Hovde Group. Your line is open. Please go ahead.

[Brett Rabatin, Head of Equity Research at Hovde Group]

Hey, guys. Good morning.

[Brett Rabatin, Head of Equity Research at 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 García, CFO at Popular, Inc]

Sure, Brett. Good morning. It's Jorge. First, we were very happy with the increase in deposits in the fourth quarter and the general activity. If we look at Puerto Rico on a standalone, the non-public deposits were higher by about $600 million in the quarter and about, on an average basis, $100 million down. You asked about the high net worth and commercial clients. That activity has continued. We've set a pace of about $100 million 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 fourth quarter did benefit from some seasonal activity for commercial clients.

[Jorge García, CFO at Popular, Inc]

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 fourth quarter, we also launched a new product targeted at our mass affluent clients. This resulted in a shift in what used to be zero-cost demand deposits into a low-cost transactional account. This affected about $660 million 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 million-$800 million 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 fourth quarter.

[Brett Rabatin, Head of Equity Research at Hovde Group]

Okay. That's helpful. And then just, yeah, 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 22 and the maturities of the treasury notes, it would seem like that could be stronger. Are you guys assuming that deposit betas pick up? Or any thoughts on the margin from here and why it wouldn't be a little better than 5 basis points or 10 basis points increase throughout the year?

[Jorge García, CFO at Popular, Inc]

Yeah. 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 fourth 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 billion 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.

[Brett Rabatin, Head of Equity Research at Hovde Group]

Okay. It just seems like 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 the, or what's trending with the card portfolio over the past few quarters in particular?

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

I mean, 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-offs. 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, Head of Equity Research at Hovde Group]

Okay. Fair enough. Congrats on a strong finish to 2024.

[Jorge García, CFO at Popular, Inc]

Thank you.

[Operator]

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

[Kelly Motta, Managing Director at KBW]

Hi. Good morning. Maybe circling back to the margin, I appreciate the commentary that the biggest risk to achieving that is still the potential deposit pressures, the $600 million-$800 million level that you identified. Wondering, underlying that guidance, are you able to provide how much you're still expecting of that $600 million-$800 million 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 García, CFO at Popular, Inc]

Yeah. 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 and over-deliver on retention of those.

[Kelly Motta, Managing Director at KBW]

Okay. So if I'm hearing you correctly, and please correct me if I'm wrong, the guidance includes some outflow of the $600 million-$800 million, but not potentially all of it because of the efforts that you're doing.

[Jorge García, CFO at Popular, Inc]

Correct, Kelly. I mean, it does include our best estimate of that guidance. I mean, remember that we do expect to see some seasonality. First quarter deposits tend to benefit from the beginning of tax returns in mid to late March. And last year, we saw that continuing to the second quarter. So what we're looking to see is where does that baseline settle, and when does that happen? Our retail customers still are experiencing over 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, Managing Director at KBW]

Got it. Thank you for the clarification. That's helpful. And then with your fee guidance, I appreciate there's about $5 million a quarter. I think you said the $30 million 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 García, CFO at Popular, Inc]

Well, 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 from purchasing activity from our clients that benefit our non-interest income.

[Kelly Motta, Managing Director at KBW]

Got it. Last question for me, and then I'll step back. The net charge-off guidance, 70 basis points-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 first 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.

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

I mean, generally, I will say, Kelly, that everything being equal, I would expect to see improvements over time. And as I mentioned in the prepared remarks, we have seen improved performance 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, this quarter, we're at 74 basis points. So we are within the range that we stated for the 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, Managing Director at KBW]

Okay. Thank you. I will step back.

[Operator]

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We now turn to Frank Schiraldi with Piper Sandler. Your line is open. Please go ahead.

[Frank Schiraldi, Managing Director at Piper Sandler]

Good morning. Just one more on deposits on the Jorge, the $600 million-$800 million. Just thinking through it, I mean, the work you've done there, I assume that reflects sort of specific deposits in specific places. 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 García, CFO at Popular, Inc]

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 million 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 treasuries 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, maybe making different decisions on working capital, lending, borrowing activity, things like that.

[Jorge García, CFO at Popular, Inc]

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 fourth quarter, at the end of the fourth quarter.

[Frank Schiraldi, Managing Director at Piper Sandler]

Okay. So I guess that you're saying the $600 million-$800 million is then still potentially on the table. I think that's what you said. That's still the number at risk as of the end of the quarter in broad strokes.

[Jorge García, CFO at Popular, Inc]

Yeah, and maybe the high bound is lower by the $100 million 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 give us some comfort that we're on the right track.

[Frank Schiraldi, Managing Director at Piper Sandler]

Gotcha. Okay. And then just on buybacks, just trying to think through cadence going forward. I think $1.7 million shares this quarter. Last quarter, it was about $600,000, although I think that was only two 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 García, CFO at Popular, Inc]

I think that's a fair expectation. I mean, 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 third quarter 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, Managing Director at Piper Sandler]

Okay. And just lastly, just tied to that, when we think about normalized capital levels, obviously, as a systemically important bank in Puerto Rico, I would assume some excess capital is required there over peers. But I don't think it's whatever, 400 basis points-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 García, CFO at Popular, Inc]

Yeah. 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.

[Frank Schiraldi, Managing Director at Piper Sandler]

Okay. All right. I appreciate it. Thank you.

[Operator]

We now turn to Gerard Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Hi, Jorge. Hi, Ignacio.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Good morning. Ignacio, 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. My question is this: I recall about 10 years ago when Puerto Rico was really in a tough spot. The outmigration from the island to the mainland was very steady. 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 at Popular, Inc]

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. Yes, the trend has reversed, and albeit it's small, it is positive. That has changed.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Oh, very good news. Yeah.

[Ignacio Alvarez, CEO at Popular, Inc]

You anticipated the trend.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Yep. 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. Can you share with us, do you have 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 at Popular, Inc]

Yeah. I think if you look at the majority, if we're talking about the recovery funds, basically related to Maria, it's about between $45 billion- $47 billion left. And that's between FEMA and HUD, which are the most. Of that, about $44.8 billion is obligated by the Congress. So there's a lot of money there. And those are the two principal programs that we have.

[Gerard Cassidy, Managing Director at 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 where that money might go to in terms of rebuilding the electrical grid or other types of major municipal-type projects?

[Ignacio Alvarez, CEO at Popular, Inc]

There really are two categories. One is 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 filter plants. Flood control is another one. There's a lot, and there's some for highway. So mostly, I'd say, it's infrastructure. So it's mostly the electric grid. There's a lot on the water. A lot on flood control. For example, the dams are being revitalized. They're dredging the dams, making them stronger. So there's mostly a basic infrastructure. Then there's another big slug of funds, which has to do with HUD, and that's mostly related to housing. And so there's a number of programs to build housing for the persons who were impacted by Hurricane Maria. So those are the two big areas.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Is it safe to assume that it's a three-year to five-year-type period that this all would be rebuilt, or will it take longer?

[Ignacio Alvarez, CEO at Popular, Inc]

I think it'll 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 eight-year to 10-year project, I would say, seven-year to 10-year project. Oh, of course.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Got it. Okay.

[Ignacio Alvarez, CEO at Popular, Inc]

I'm not going to say it won't all 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.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Got it. Thank you. Appreciate the color. Thank you.

[Operator]

Our next question comes from Jared Shaw with Barclays. Your line is open. Please go ahead.

[John Rao, Equity Research Analyst at Barclays]

Hi. This is John Rao. I'm for Jared.

[Jorge García, CFO at Popular, Inc]

Hi. Good morning.

[John Rao, Equity Research Analyst at Barclays]

I guess maybe just sticking on this area of investments and infrastructure. There was the outage on New Year's that left a lot of the island without power. I guess, were you able to see any changes in, I guess, due to the investments and 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 at Popular, Inc]

Yeah. 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. We've had some major blackouts. 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 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 seven to 10-year period. I mean, they have done some adjustments.

[Ignacio Alvarez, CEO at Popular, Inc]

I think they're doing very basic stuff like pruning the trees because Puerto Rico is a tropical island. So believe it or not, they claim that 40% of blackouts are caused by trees hitting the lines. So they have a major investment in that. But basically, I think that 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 blackouts to be less over time. But the real improvement of grid stability is going to require those investments in the distribution system and in new generation.

[John Rao, Equity Research Analyst at Barclays]

Okay. Great. That's good color. And then I guess just on the loan growth trajectory, kind of ramping into the, seems like the upper end of that 3%-5% range by the end of the year, is that 5%+ 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 García, CFO at Popular, Inc]

The 3%-5% is the year-over-year growth. It would be measuring we stand at the end of December of 2025 and compare it back to 2024.

[John Rao, Equity Research Analyst at Barclays]

Okay. Was there any pull forward into the fourth quarter in terms of loan growth, just with kind of the higher levels seemed?

[Ignacio Alvarez, CEO at Popular, Inc]

Yeah. Yeah. Yeah. So we had a very strong fourth quarter. And from both banks, a lot of big loans came in. So obviously, that will probably impact the beginning of the first quarter a little bit because of all those loan quotas at the end of the fourth quarter. But we're happy to start with those balances on our books day one. So it's going to be very positive for us.

[John Rao, Equity Research Analyst at Barclays]

Yeah. Okay. That's good color. And then just last one from me. It sounds like you're adding securities to the book at around 4% yield. What are they rolling off at over the next six months-12 months?

[Jorge García, CFO at Popular, Inc]

Yeah. Under 2%. And like 1.5%. Yeah.

[John Rao, Equity Research Analyst at Barclays]

Okay. Sorry.

[Jorge García, CFO at Popular, Inc]

Those are our longer-dated bonds, right? Not our T-bills.

[John Rao, Equity Research Analyst at Barclays]

Okay. Great. Thanks. That's all. Thank you.

[Jorge García, CFO at Popular, Inc]

Thank you.

[Operator]

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

[Kelly Motta, Managing Director at 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 García, CFO at Popular, Inc]

Yeah. I mean, in the first quarter, 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 second quarter 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, if you remember, even in the we benefit on the higher average balances from all that activity early on in the second quarter. But I think by the end of the second quarter, we had seen some stabilization of point-to-point. Third quarter, there's really nothing that we've identified as a driver that would help, that would be an inflow. And in the fourth quarter, the activity that we saw today or this quarter, I'm sorry, there's some historical evidence to show it.

[Jorge García, CFO at Popular, Inc]

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 have active efforts to try to mitigate that activity.

[Kelly Motta, Managing Director at 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 million adjustment in 1Q that was higher. I was hoping you could just clarify the correct starting base on which to go forward.

[Jorge García, CFO at Popular, Inc]

Yeah. We give the guidance on a GAAP basis for all the metrics.

[Kelly Motta, Managing Director at KBW]

Got it. 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 works here.

[Ignacio Alvarez, CEO at Popular, Inc]

Yeah. Well, like you said, it's very early. And the language in some of the executive orders are very broad. But I personally don't believe that they're directed at the recovery funds. By their own statement to 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 we'll see. The last executive order, I say they have to clarify in two weeks. I don't believe it was directed towards 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. 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.

[Ignacio Alvarez, CEO at Popular, Inc]

But again, at least I'm relatively optimistic that we are not the target of many of these initiatives.

[Kelly Motta, Managing Director at KBW]

Got it. Thank you so much for entertaining the question.

[Operator]

As a final reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We have a follow-up from Gerard Cassidy with RBC Capital Markets. Your line is open. Please go ahead.

[Gerard Cassidy, Managing Director at 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 mainland 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 months or 24 months ago?

[Lidio Soriano, Chief Risk Officer at Popular, Inc]

Thank you, Gerard. This is Lidio. Let me clarify that. What 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 mainland. So that's the difference. But in terms of changes that we have made to underwriting criteria, I mean, we tightened our underwriting criteria. The FICOs that we lend to are much higher than they were when we made the changes.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Very good. Thank you.

[Operator]

This concludes our Q&A. I'll now hand back to Ignacio Alvarez, CEO, for any final remarks.

[Ignacio Alvarez, CEO at Popular, Inc]

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

[Operator]

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Paul Cardillo, Investor Relations Officer
• Jorge García, CFO
• Lidio Soriano, Chief Risk Officer
• Ignacio Alvarez, CEO

Analysts

• Kelly Motta, Managing Director at KBW
• John Rao, Equity Research Analyst at Barclays
• Gerard Cassidy, Managing Director at RBC Capital Markets
• Frank Schiraldi, Managing Director at Piper Sandler
• Brett Rabatin, Head of Equity Research at Hovde Group