Popular (BPOP) Q2 2025 Earnings Call Transcript
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Popular (BPOP) Q2 2025 Earnings Call Transcript

July 23, 2025
03:00 PM
14 min read
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Research suggests that Image source: The Motley Fool. DATEWednesday, July 23, 2025, at 11 a. On the other hand, In contrast, EDTCALL PARTICIPANTSChief Executive Officer — Javier FerrerChief Financial Officer...

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real estate

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July 23, 2025

03:00 PM

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Re suggests that Image source: The Motley Fool

DATEWednesday, July 23, 2025, at 11 a

On the other hand, In contrast, EDTCALL PARTICIPANTSChief Executive Officer — Javier FerrerChief Financial Officer — Jorge GarciaChief Credit Risk Officer — Lidio SorianoNeed a quote from one of our analysts

Meanwhile, [ tected]TAKEAWAYSNet Income: $210 million net income (GAAP) for Q2 2025, up $32 million sequentially from Q1 2025 to Q2 2025, driven by higher net interest income, increased noninterest income, and a lower vision for credit losses, partially offset by higher operating expenses

Additionally, Earnings per (EPS): $3

On the other hand, 09, an increase of $0. 53 per compared to Q1 2025

Moreover, Return on Tangible Common Equity (ROCE): 13, in today's financial world. 3% return on tangible common equity for Q2 2025, a 190 basis point increase from the previous quarter (Q1 2025), given the current landscape

Net Interest Income (NII): $632 million net interest income for Q2 2025, rising by $26 million compared to Q1 2025, driven by balance sheet growth, higher asset yields, and reduced deposit costs at both principal banks

Nevertheless, Net Interest Margin (NIM): GAAP NIM expanded by 9 basis points in Q2 2025; tax-equivalent NIM expanded by 12 basis points in Q2 2025, both benefiting from lower deposit costs and greater balances in loans and tax-exempt investment securities

Loan Growth: $931 million overall loan growth in Q2 2025, with $681 million at Banco and $251 million at Bank, predominantly led by commercial and construction lending, and including $265 million retained from a major toll road financing transaction

Deposit Growth: Ending deposit balances rose by $1. 4 billion; Puerto Rico public deposits reached $20. 9 billion, up $1

At the same time, 3 billion; Average nonpublic deposits increased by $499 million

Deposit Costs: Total deposit costs fell by 5 basis points

Banco costs decreased by 3 basis points to 1

Furthermore, 52%; Bank deposit costs dropped by 14 basis points (remarkable data)

Noninterest Income: $168 million in noninterest income, $16 million above Q1 2025, and above the top end of quarterly guidance, mainly due to higher credit and debit card fees and a $3 million IRS reimbursement

Moreover, Expense Growth Guidance: Operating expenses grew by $22 million to $493 million; 2025 expense growth guidance revised to 4%-5%, inclusive of up to $40 million full-year fit-sharing accrual, while underlying growth excluding fit sharing is expected to remain below 4% in 2025 compared to last year

Repurchases and Dividends: $112 million in s repurchased at an average of $99 per ; a new $500 million incremental repurchase gram announced; the quarterly dividend increased by 7% to $0. 75 per, as recently announced

Credit Quality Metrics: Nonperforming loans (NPLs) at Banco declined by $4 million, while Bank’s NPLs rose by $2 million; OREOs reduced by $6 million (an important development)

Net Charge-Offs: $42 million in net charge-offs, or 45 basis points annualized, compared to $49 million (53 basis points) in Q1 2025; full-year net charge-offs now guided to 45-65 basis points, below prior 70-90 basis points guidance

Allowance for Credit Losses (ACL): Increased by $7 million to an ACL/loan ratio of 2. 02%, down from 2, in this volatile climate. 05% in Q1; ACL/NPLs ratio rose to 247% from 243%

Vision for Credit Losses: $50 million vision for credit losses, a reduction from $65 million in Q1, largely due to imved portfolio metrics and economic factors, given current economic conditions

Capital Ratios: Common equity Tier 1 (CET1) ratio was 15, in today's market environment

Additionally, 91%, 20 basis points lower than Q1 2025, due primarily to loan growth and recent capital actions

Tangible Book Value per : $75. 41 tangible book value per, up $3. 39 from Q1 2025, benefiting from net income and lower unrealized losses in the mortgage-backed securities portfolio, partially offset by capital returns

Guidance : Management now expects full-year NII growth of 10%-11% and ROCE above 12% for 2025; noninterest income is expected at the upper end of the $155 million-$160 million quarterly range

Additionally, 32%) reported higher net income (GAAP) compared to Q1 2025 and expanded its return on tangible common equity, while management announced both a new $500 million repurchase gram and a 7% increase in the quarterly common stock dividend, in this volatile climate

Deposit and loan growth remained strong, driven by commercial and construction activity, and operating expense guidance was revised to reflect the impact of fit-sharing accruals

Substantial imvements in credit quality led to lower net charge-offs and a downward revision to full-year loss guidance, supporting the company’s outlook for sustained fitability expansion

Jorge Garcia said, "given the results in the first half of the year, along with the anticipated NIM expansion (an important development)

We now expect to see higher NII growth of 10%-11% in 2025 (this bears monitoring). "fit-sharing expenses may reach a cap of $40 million, which represents 2% of the total expense base, and an accrual of $13 million occurred as earnings outpaced budget expectations (something worth watching), given the current landscape

Additionally, Loan portfolios at both Banco and Bank demonstrated growth pipelines, with construction payoffs in the US segment anticipated primarily in the fourth quarter

Nevertheless, Deposit seasonality continues to be expected, though inflows from tax refunds and public deposits have been stronger; Garcia explained, "clients have received more tax refunds than they did last year," supporting Puerto Rico consumer strength

Management reiterated its commitment to efficiency measures, including both sustained cost discipline and operational transformation efforts, to offset increases driven by incentive compensation

The company maintains a CET1 capital ratio above regulatory minimums even after new repurchase authorizations, with a CET1 ratio of 15

Additionally, 91%, allowing continued capital return and growth investment as stated by management, in today's financial world

Regarding stablecoins, CEO Ferrer said, "It's early innings, but we have started moving on the opportunity," indicating monitoring but no immediate model impact

INDUSTRY GLOSSARYNPL (Nonperforming Loan): A loan on which the borrower is not making interest payments or repaying any principal (noteworthy indeed)

However, OREO (Other Real Estate Owned): Real estate assets owned by a bank, typically acquired through foreclosure

CET1 (Common Equity Tier 1): A measure of a bank's core equity capital, used to assess capital adequacy under regulatory standards

Furthermore, At the same time, ACL (Allowance for Credit Losses): The reserve set aside by a bank to cover potential credit losses on loans and leases

Nevertheless, ROCE (Return on Tangible Common Equity): A fitability metric that measures net income as a percentage of average tangible common equity (remarkable data)

Nevertheless, Full Conference Call TranscriptJavier Ferrer: Thank you, Paul

On the other hand, Good morning, everybody

Additionally, I am happy to be here with you in my first earnings call as CEO

I would to take a moment to recognize the impact that my predecessor, Ignacio Alvarez, had on this company during his tenure, as well as on me as a colleague and a friend

It's an honor to such a great leader

Additionally, So thank you, Nacho, for your partnership, amid market uncertainty

I am humbled by the opportunity to lead this iconic Puerto Rican institution

Nevertheless, For over one hundred and thirty years, has consistently demonstrated a deep commitment to Puerto Rico, its institutional values, and putting our customers at the heart of everything we do

I joined almost eleven years ago, given current economic conditions

In contrast, I knew if I wanted to make a meaningful contribution, this was the place to be (quite telling) (an important development)

What the re reveals is idea, simple and yet powerful, continues to inspire me

However, Before I discuss the highlights for the second quarter, I am pleased to report that we recently announced two capital actions: a new incremental common stock repurchase gram of up to $500 million and a 7% increase in our quarterly common stock dividend to 75¢ per

These actions evidence the strength of our capital position, which allows us to continue to invest in our franchise, serve the needs of our customers, and also return capital to our holders

Furthermore, On Slide three, I will a few highlights from the period that reflect our strong operating performance in the second quarter, considering recent developments

In contrast, We reported net income of $210 million and EPS of $3. 09 per, an increase of $32 million and 53¢ per, respectively, compared to the first quarter

Importantly, the imvement in our bottom line resulted in a very strong 13

However, 3% return on tangible common equity

Our results were driven by higher net interest income, an expanding net interest margin, and strong loan and deposit growth (which is quite significant)

We maintained our credit discipline, and credit quality continued to imve, in light of current trends

I would to commend the lending teams at, which grew loans by more than $900 million during the quarter

As a notable example, we served as agent bank for a $425 million loan to the private sector entity that operates and maintains several toll roads in Puerto Rico (noteworthy indeed)

This transaction is one of the largest infrastructure financings in Puerto Rico executed entirely by local financial institutions

Please turn to Slide four

At the end of the second quarter, activity in Puerto Rico continued to be solid, reflected by favorable trends in total employment, consumer spending, and other key economic data (fascinating analysis)

The unemployment rate of 5

Additionally, 5% continues to hover around all-time lows, in light of current trends

Consumer spending has been resilient and remains healthy

Combined credit and debit card sales for Banco customers increased by apximately 4% compared to the second quarter of 2024

Purchase activity continues to be strong, as demonstrated by the $158 million increase in mortgage balances at Banco during the quarter (an important development)

While demand for new cars slowed somewhat after a very strong first quarter, we saw our auto loan and lease balances increase by $76 million during the period, amid market uncertainty

Furthermore, The tourism and hospitality sector continues to be a source of strength for the local economy, given the current landscape

This summer, the sector is benefiting from an added tailwind during what is usually a seasonally slow period due to Benito Martinez Ocasio's, also known as Bad Bunny's, thirty-nine concert residency at the Coliseum in San Juan, right next to our Center complex, in light of current trends

Conservative estimates indicate that it will lead to apximately $200 million in additional local economic activity

Moreover, It's also generating significant media exposure for the island, adding to its strong image as a compelling destination for travelers

However, The brand is very well represented in the residences

Additionally, some colleagues and I recently had an opportunity to attend the rebranding of an emblematic hotel perty in San Juan and tour one of the island's new luxury hotel and residential community developments being built on the East Coast, given the current landscape

At the same time, It's encouraging to see the scale of private investments being made on the island

Last but certainly not least, we continue to expect that the disbursement of federal disaster recovery funds will support economic activity for several years to come

However, Given what we see every day, I am convinced there are opportunities for growth in Puerto Rico and that we are uniquely positioned to leverage them, given current economic conditions

We do not take our market position for granted (noteworthy indeed)

We compete for it every day and are strongly committed to moting the island's gress as we have done for over one hundred thirty years

Before turning it over to Jorge, I would to briefly on the of our transformation

On the other hand, These efforts are designed to enhance our customers' s through more personalized and seamless experiences, increase employee performance and satisfaction with more agile work cesses, modernize the company's nology to enable greater innovation and security, and generate sustainable and fitable growth for our holders, in this volatile climate

Additionally, A company-wide multiyear gram such as this one requires commitment, focus, and patience

We're pleased with the substantial gress we have made so far, in today's financial world

We have modernized branches to enhance customer experience and operational efficiency, reduced loan cessing times for small and midsized commercial customers at Banco, and launched a new digital platform to imve our commercial cash management services

Conversely, These are only a small sample of the many efforts and in cess that will ensure we are the number one choice for our customers, given the current landscape

Nevertheless, I am confident we can imve how we work by becoming simpler, more ductive, and more efficient

Furthermore, We will continue to leverage our position to seize additional opportunities for growth in Puerto Rico

I am convinced there are many

Furthermore, To drive increased fitability and continue enhancing our performance in the coming years

This analysis suggests that 's only been a couple of weeks since I officially began in this role, but I'm excited to show everyone what we can achieve together with even greater strategic focus and agility (noteworthy indeed)

I will now turn the call over to Jorge for more detail on our financial results, in today's financial world

Jorge Garcia: Thank you, Javier (quite telling)

Good morning, and thank you all for joining the call today, amid market uncertainty

As Javier mentioned, our quarterly net income increased by $32 million to $210 million, and our EPS imved by 21% to $3

These results were driven by better NII and noninterest income, and a lower vision for credit losses, offset somewhat by higher operating expenses

Additionally, There are numerous positives to highlight this quarter, but most significant for us is that the imvement in net income coupled with our repurchase activity resulted in a 13 (something worth watching). 3% ROCE for the period, an increase of 190 basis points from last quarter

As we have mentioned before, our objective is to der sustainable financial results

Our prior guidance of achieving at least a 12% ROCE in Q4 of this year still stands

Moreover, Additionally, given this quarter's results and credit outlook, we are increasingly confident we should exceed a 12% ROCE for the full year, and not Q4 (which is quite significant)

Longer term, we remain focused on achieving a sustainable 14% return on tangible common equity

Please turn to slide six

Our net interest income of $632 million increased by $26 million and was driven by balance sheet growth, asset repricing in our investment portfolio, and lower deposit costs in both of our banks

Our net interest margin expanded by nine basis points on a GAAP basis and 12 basis points on a tax-equivalent basis, driven by lower deposit costs and a larger balance of loans and tax-exempt investment securities

After a slow Q1, loan growth of $931 million in the quarter was very strong, with both banks contributing to the increase

On the other hand, At BPPR, we saw loan growth of $681 million reflected across all portfolios, but driven primarily by commercial and construction lending

This includes the $265 million that we retained from the toll roads financing that Javier described earlier

At PVE, we saw loan growth of $251 million, driven by commercial and construction lending

Last quarter, we guided to the lower end of the 3% to 5% loan growth range due to expected payoffs in our construction portfolio and the uncertainty in the economic environment (which is quite significant), in today's financial world

However, given the loan growth realized in Q2 and continued demand in Puerto Rico and in our niche lending es in the US, we reiterate our original 3% to 5% guidance

In our investment portfolio, we continue to reinvest ceeds from maturities into treasuries, targeting a yield of at least 4% while trying to manage the duration of the portfolio

During the quarter, we purchased apximately $2

Meanwhile, 4 billion of treasuries at an average yield around 4%

On the other hand, The duration.