Popular Inc Earnings Call: Profits Up, Outlook Tempered

Popular Inc ((BPOP)) has held its Q4 earnings call. Read on for the main highlights of the call.

Popular Inc’s Latest Earnings Call Signals Strong 2025 Finish, Cautious Optimism for 2026

Popular Inc’s latest earnings call painted a largely upbeat picture: record profitability, expanding margins, healthy loan growth, and improving credit quality underscored a very strong 2025. Management balanced this strength with a more measured tone for 2026, acknowledging funding pressures, slightly higher expected credit losses, and an uptick in expenses tied to ongoing technology and transformation projects. Still, a robust capital position, active share repurchases, and confidence in Puerto Rico’s economic momentum suggest a constructive outlook, albeit with more moderation than in recent boom years.

Record Improvement in Annual Profitability

Popular closed 2025 with record earnings, posting net income of $833 million, a 36% increase year-over-year, driven by both higher revenues and disciplined expense management. Fourth-quarter net income reached $234 million, up $23 million from the prior quarter, with EPS climbing by $0.38 to $3.53. Return on tangible common equity exceeded 14% in the fourth quarter and averaged 13% for the full year, marking clear progress toward management’s long‑stated 14% ROTCE target and reinforcing the bank’s ability to generate attractive shareholder returns in a higher‑rate, growth‑moderating environment.

Loan Growth and Net Interest Income Expansion

Lending remained a core earnings engine in 2025, with total loans rising by $2.2 billion, or roughly 6% year-over-year, supported by broad-based growth across BPPR and Popular Bank. In the fourth quarter alone, loans expanded by $641 million, with BPPR contributing $497 million and Popular Bank $144 million. Net interest income advanced to $658 million in Q4, up $11 million sequentially, while full-year NII grew 11% (or $259 million). GAAP net interest margin widened 10 basis points in the fourth quarter to 3.61%, and the fully taxable equivalent margin improved 13 basis points to 4.03%. Looking ahead, management sees 2026 NII rising another 5% to 7%, supported by loan growth and reinvestment of securities, even as funding costs continue to normalize.

Improved Credit Metrics and Strong Reserve Coverage

Credit quality improved over the year despite a more mature credit cycle. Net charge‑offs declined to 52 basis points in 2025, down 16 basis points from the prior year, and fourth‑quarter annualized net charge‑offs slipped to 51 basis points from 60 basis points in Q3. Excluding recoveries, the Q4 net charge‑off ratio was 57 basis points, still comfortably manageable. Non‑performing loans ticked down 3 basis points to 1.27%, reflecting stable asset quality. At the same time, Popular added to reserves, increasing the allowance for credit losses by $22 million to $808 million. The ACL now stands at 2.05% of loans, with coverage of non‑performing loans at 162% (up from 157%), giving the bank a solid cushion against potential future losses.

Capital Strength and Shareholder Returns in Focus

Popular’s capital position remains a key strategic asset, enabling sizable shareholder distributions while preserving flexibility. The common equity Tier 1 ratio ended 2025 at a robust 15.7%, well above regulatory minimums and consistent with management’s conservative stance given the bank’s Puerto Rico concentration. Tangible book value per share climbed 21% year-over-year to $82.65, reflecting both retained earnings and share repurchases. The company bought back about $500 million of stock in 2025, including roughly $148 million in the fourth quarter, and has repurchased around $720 million since relaunching buybacks in 2024. The quarterly dividend was raised by $0.05 to $0.75 per share, with management signaling room for another increase later in the year as earnings and capital generation remain strong.

Operational Efficiency and Technology Transformation

Cost discipline remained a positive theme, with GAAP operating expenses rising about 2.5% for 2025, below the prior guidance of 4%, as efficiency initiatives took hold. Yet the bank is not cutting its way to growth; instead, it is investing heavily in digital and infrastructure transformation. Over 800 employees are now dedicated to transformation projects. Popular launched a new commercial cash management platform and a fully digital consumer credit origination platform, which has already generated approximately $36 million in originations. The company also migrated its ERP system to a modern cloud platform, laying the groundwork for improved scalability and process automation. For 2026, GAAP expenses are expected to rise around 3%, reflecting both ongoing investment and some temporary “double‑run” costs as old and new systems overlap.

Puerto Rico’s Economic Tailwinds and Onshoring Pipeline

The macro backdrop in Puerto Rico continues to support Popular’s franchise. The island saw solid business and consumer activity in 2025, with unemployment stable at 5.7% and combined debit and credit card sales up about 5% year-over-year. Tourism indicators were particularly strong: airport passenger traffic reached a record 13.6 million, up 3% year-over-year, while fourth‑quarter hotel demand increased 11% and total hotel revenue rose 4%. Importantly for longer-term growth, Puerto Rico’s onshoring story is gaining traction. Management cited an announced investment pipeline of roughly $2.2 billion, including major projects such as a $1.2 billion investment from Eli Lilly and $650 million from Amgen, expected to create thousands of jobs and high‑value activity. Executives also hinted that more onshoring announcements are likely in 2026, further strengthening the local economic base.

Deposit Outflows and Funding Mix Pressure

Despite strong fundamentals, Popular is not immune to funding pressures affecting the broader banking sector. Total ending deposits fell by $323 million in the fourth quarter, while average deposits declined $880 million, primarily due to anticipated outflows of Puerto Rico public funds. Public deposits dropped $662 million in the quarter to $19.4 billion. Management expects these balances to fluctuate but generally stay within an $18–$20 billion range. Higher deposit costs and a shifting funding mix remain key constraints on margin expansion and are reflected in the bank’s more measured NIM and NII guidance for 2026, even as asset yields remain attractive.

Moderation in Loan Growth Outlook

After delivering around 6% loan growth in recent years, Popular is signaling a more tempered pace. For 2026, consolidated loan growth is guided to 3%–4%. Management pointed to signs of consumer softness—particularly in auto lending—as well as a deliberate choice to prioritize profitable, relationship‑driven growth in U.S. markets rather than chasing volume. This shift suggests investors should expect a more balanced growth profile: slower headline loan expansion, but with an emphasis on risk‑adjusted returns and capital efficiency.

Higher Expected Net Charge-Offs in 2026

While current credit metrics are strong, Popular is preparing for a modest normalization in credit costs. For 2026, management guided net charge‑offs to the 55–70 basis point range, above the 52 basis points recorded in 2025. The outlook reflects an expectation of slightly higher losses across the portfolio, including potential charge‑offs tied to larger commercial relationships. This more conservative stance aligns with the bank’s increased reserve coverage and acknowledges that the benign credit conditions of the past few years may not fully persist as the cycle matures.

Isolated Commercial Credit Events and NPL Volatility

The call also addressed the impact of a few discrete commercial credit issues that have recently influenced non‑performing loan inflows and provisioning. In earlier quarters, Popular had two unrelated commercial inflows totaling $188 million and a $40 million charge‑off that contributed to NPL volatility and higher provisions. In the latest quarter, BPPR’s NPLs increased by $5 million, driven by an $8 million rise in commercial non‑performers, while provision activity remained elevated for the commercial book. Management stressed that these are isolated cases rather than systemic deterioration, but they underscore the need for ongoing vigilance and conservative reserve positioning.

Expense Timing, One-Offs and Ongoing Investment Needs

Fourth‑quarter expenses benefited from some one‑time elements, including a partial reversal of the FDIC special assessment, which helped push reported operating expenses lower quarter‑over‑quarter. Adjusting for this reversal, Q4 operating expenses were $489 million. Management also noted that certain 2025 expenditures were deliberately delayed into 2026, contributing to the projected ~3% GAAP expense growth next year. These costs will fund investments in personnel and technology, along with temporary duplication around key system go‑lives. For investors, this means near‑term expense pressure but the potential for improved scalability, customer experience, and efficiency over the medium term.

Macro and Structural Risks: PREPA, Affordability and Concentration

Despite the constructive economic picture, Popular’s management was clear-eyed about structural and macro risks. The ongoing bankruptcy and energy infrastructure challenges tied to Puerto Rico’s electricity utility remain an overhang that could weigh on long‑term growth and business confidence. Housing affordability pressures may constrain certain consumer segments, potentially affecting future loan demand and credit performance. Furthermore, the bank’s significant geographic concentration in Puerto Rico plays a major role in its capital planning, driving the need to maintain a CET1 buffer and optimize capital deployment. These factors help explain Popular’s conservative stance on capital and risk, even amid strong headline results.

Guidance: Modest 2026 Improvement With Disciplined Capital Return

Looking to 2026, Popular is guiding to a year of modest improvement rather than break‑out growth. Consolidated loans are expected to grow 3%–4%, while net interest income is forecast to rise 5%–7%, supported by continued (but slower) margin expansion from a GAAP NIM of 3.61% and FTE NIM of 4.03%. Quarterly noninterest income is projected at $160–$165 million, and full‑year GAAP expenses are anticipated to increase around 3%. The effective tax rate should land between 15% and 17%. Net charge‑offs are expected to normalize to 55–70 basis points, and public deposits are projected to remain in the $18–$20 billion range. On the balance sheet, management plans to keep the investment portfolio duration at 2–3 years—highlighted by roughly $900 million of Treasuries purchased in Q4 at a 3.56% yield and 2.1‑year duration. Popular intends to continue repurchases under its remaining ~$281 million authorization while maintaining a strong CET1 ratio of 15.7% and building on tangible book value of $82.65. The bank remains focused on achieving and sustaining a 14% ROTCE, with the fourth quarter already above that level and a further dividend increase described as likely.

Popular’s earnings call showcased a franchise in strong shape: record profitability, expanding margins, solid loan growth, and improving credit metrics backed by a thick capital cushion and meaningful capital returns. At the same time, management’s guidance signals a pivot toward moderation—slower loan growth, slightly higher credit costs, and rising expenses as investments in technology and people continue. For investors, the story is one of a well‑capitalized bank leaning into structural advantages in Puerto Rico and onshoring tailwinds, while prudently preparing for funding pressures and macro uncertainties. The balance of evidence points to continued value creation, just at a more measured pace than the standout year just completed.