Q4 2024 Popular Inc Earnings Call
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Maybe. But.
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Elliot: 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 1 on your telephone keypad.
Speaker Change: and I'd like to hand over to Paul Cardillo, Investor Relations Officer. Please go ahead.
Paul Cardillo: 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 Garcia, and our CRO Lidio Soriano.
Paul Cardillo: 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.
Paul Cardillo: 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.
Paul Cardillo: These statements are based on management's current expectations and are subject to risks and uncertainties.
Paul Cardillo: 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: 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.
Good morning and thank you for joining the call.
Paul Cardillo: In 2024, we delivered results that reflect the strength of our franchise and the continued stability of the Puerto Rico economy.
Paul Cardillo: Our annual net income of $614 million compared to $541 million in 2023.
Paul Cardillo: On an adjusted basis, we achieved net income of $646 million.
10% higher than in 2023.
Paul Cardillo: 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.
Paul Cardillo: Our strong fourth quarter loan growth helped bring our total loan growth for the year to $2 billion, an increase of 5.8%.
DPPR generated loan growth across most business segments.
Paul Cardillo: led by Commercial Loans, reflecting the continued strength of the local economy and our diversified product offerings.
Popular Banks Achieve Growth in Commercial and Construction Loans
Paul Cardillo: Credit quality remains stable throughout 2024. Non-performing loans decreased slightly, while net charge-offs remain below our historic normalized levels.
Paul Cardillo: Our capital levels are strong, ending the year with a common equity tier 1 ratio of 16%.
Paul Cardillo: Our tangible value per share of $68.16 increased by 14% year-over-year, primary drip driven
Paul Cardillo: by lower unrealized losses on investment securities and net income for the year, offset in part by dividends and our share repurchase activity.
Paul Cardillo: Our robust capital and liquidity position allowed us to continue to returning capital to our shareholders.
Paul Cardillo: During the quarter, we announced the resumption of buybacks. With a $500 million stock, we purchased authorization.
Paul Cardillo: In total, during 2024, we repurchased $2.3 million of our shares for approximately $220 million.
Paul Cardillo: We continue to believe that our shares are attractive at current prices.
Paul Cardillo: Additionally, in the fourth quarter we increased our quarterly common stock dividend by 8 cents to 70 cents per share.
Please turn to slide four.
Paul Cardillo: We close the last quarter of 2024 on a strong note, achieving net income of $178 million and increase of $23 million from the third quarter.
Paul Cardillo: These results were primarily driven by higher net interest income and a lower provision for credit losses.
Credit quality trends remain stable in the period.
Paul Cardillo: 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.
Paul Cardillo: As I mentioned before, loan growth was very strong in the quarter with balances increasing by 913 million or 2.5%.
Paul Cardillo: We were happy to see that both banks contribute equally to this growth.
Paul Cardillo: During the quarter we purchased approximately 160 million shares at an average price of roughly $96.
Tangible value per share decreased by 88 cents to $68.16.
Paul Cardillo: 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 5.
Paul Cardillo: Business activity in Puerto Rico remains solid as reflected in the favorable trends in total employment, consumer spending, and other economic data.
Paul Cardillo: The current unemployment rate of 5.4% is not something that I would have expected to see in my lifetime.
Paul Cardillo: Consumer spending remained healthy. Combined credit and debit card sales for BPR customers increased by approximately 5% compared to the fourth quarter of 2023.
Paul Cardillo: Mortgage loan balances at BPBR increased by $114 million in the fourth quarter.
Paul Cardillo: driven primarily by home purchase activity and our current strategy of retaining FHA loans in portfolio.
Paul Cardillo: Our auto loan and lease balances increased by 43 million compared to the third quarter as demand for new cars continue to be strong in Puerto Rico.
Paul Cardillo: The tourism and hospitality sector continues to be a source of strength for the local economy.
Paul Cardillo: Recently, several prominent luxury hotel brands have announced development plans for Puerto Rico.
Paul Cardillo: Passenger traffic at the San Juan International Airport increased by 10% in the fourth quarter compared to the fourth quarter of 2023 and Hotel Octopisi continues to be healthy.
Paul Cardillo: For the year, a record 13.2 million travelers visited Puerto Rico.
Paul Cardillo: We expect the ongoing disbursement of federal funds will continue to support activity for several years.
Paul Cardillo: We remain optimistic about the future of our primary market and are well positioned to support our clients during the coming years.
Paul Cardillo: On that note, I now turn the call over to Jorge for more details on our financial results.
Jorge: Thank you, Ignacio. Good morning and thank you all for joining the call today. Please turn to slide 6.
Jorge: 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.
Jorge: Net interest income increased by $18 million, driven primarily by lower deposit costs in both of our banks.
Jorge: We finish the year with a 7% year-over-year increase in NII.
Jorge: Loan growth was strong, increasing by $913 million in the quarter, with each of our banks contributing similar amounts towards that growth.
Jorge: At BBPR, consistent with the activities 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: Ending customer deposit balances at BPPR, excluding Puerto Rico public deposits, increased by approximately $600 million, while average balances decreased by approximately $100 million.
Jorge: At PV, ending balance has decreased by approximately $190 million, and average balance has decreased by approximately $30 million.
Jorge: 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 lowered by $125 million.
Jorge: Going forward, we expect public deposits to continue to be in the range of $18 to $20 billion.
Jorge: Our net interest margin expanded by 11 basis points on a gap basis and 15 basis points on a tax-equivalent basis.
You're in by lower deposit costs and higher loan balances.
Non-interest income with $165 million, flat versus Q3.
Jorge: In December, we completed the sale of the daily car rental business from our popular auto subsidiary. This business was not a material contributor to net income, as the fee income it generated was mostly offset by depreciation expenses.
Jorge: This sale was completed at roughly book value and going forward there is little to no impact to the bottom line.
Jorge: This transaction helps to further simplify our business and will increase borrowing capacity at the Fed discount window.
Jorge: Therefore, in 2025, we expect quarterly non-interest income to be in a range of $155 to $160 million, including the impact of the sale, offset in part by initiatives geared towards increasing fee income.
Jorge: Credit metrics remain stable during the fourth quarter. The provision for credit loss has decreased by $5 million to $66 million.
Jorge: Total operating expenses were $468 million, flat with last quarter. The largest expense variance in the quarters were related to higher professional fees, seasonal promotional expenses, and personal costs driven by incentives.
Jorge: 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.
Jorge: In 2025, we expect total full-year expenses to increase by approximately 4% compared to 2024.
Jorge: 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%.
Jorge: In 2025, we expect the effective tax rate for the year to be in a range of 19 to 21%.
Please turn to slide 7.
Jorge: During the quarter, we continued to reinvest bond maturities into 2-3 year U.S. Treasury notes, buying approximately $600 million and an average yield of around 4%.
Jorge: We expect to continue this strategy as a way to lessen our sensitivity to lower rates.
Jorge: In BVPR, 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.
Jorge: 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.
Jorge: Economic activity and demand for credit in Puerto Rico remains strong. In our U.S. markets, 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: In 2025, we expect consolidated loan growth of 3-5%, with the rate of growth improving as the year progresses.
Jorge: We anticipate 2025 NII will increase by 7 to 9 percent, driven by continued reinvestment of lower yielding securities and loan originations in the current rate environment, as well as lower cost of Puerto Rico public deposits and online deposits at Popular Bank.
We expect NAME expansion to continue in 2025.
Jorge: 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 NIMH.
Please turn to slide 8.
Jorge: Regulatory capital levels remain strong. Our CT1 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: 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 increase on realized losses in our MBS portfolio, our stock repurchase activity, and dividends in the quarter.
Jorge: During the fourth quarter, we repurchased approximately $160 million in shares at an average price of roughly $96.
Jorge: At the end of December, we had repurchased approximately $220 million of our existing $500 million authorization.
Jorge: 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.
Jorge: We continue to anticipate we will achieve at least 12% ROTC in the fourth quarter of 2025. 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.
Thank you, Jorge, and good morning.
Jorge: Credit quality metrics remain stable during the fourth quarter, with the mortgage and commercial portfolios continue to reflect credit metrics.
significantly below pre-pandemic levels.
Consumer Portfolios, Reflected, Increased Delinquency, and HRHR.
Jorge: driven by auto, personal loans, and credit card portfolios. However, we are encouraged about the outlook given the performance of the most recent Vintages.
Jorge: 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.
Jorge: Non-performing assets and non-performing loans decreased during the quarter, driven by popular banks. NPLs in the U.S. decreased by $14 million, driven by the sale, at book value, of a $17 million commercial NPL loan.
MPLs in BBPR
Jorge: increased by $3 million during my $6 million increase in auto loans and leases.
Jorge: Oreos decreased by $6 million due to sales of residential real estate properties in Puerto Rico.
Influence of NPL increased slightly by 2 million.
Jorge: In BEPR, total inflows increased by $11 million driven by the mortgage portfolio.
Jorge: In Popular Bank, inflows decreased by $9 million, and the prior quarter included the impact of a single $17 million mortgage loan.
turning to slide number 10.
Jorge: Net charge-offs amounted to 77 million or annualized 74 basis points.
Jorge: compared to 59 million for 65 basis points in the prior quarter.
Net charge-off in BBPR increased by $8 million.
driven by higher consumer losses by six million.
In popular dance, nature jokes remain flat quarter over quarter.
Jorge: For the full year, NetCharge offers 68 basis points at the low end of our 65 to 85 basis points guidance for the year.
As we have discussed in the past
Jorge: Prior to the COVID pandemic, Popular's net charge-off was generally between 75 to 125 basis points.
Jorge: For 2025, we expect net charges for the full year to be between 70 to 90 basis points given current trends and the macroeconomic environment.
Please turn to slide number 11.
Thank you.
The allowance for credit losses increased by $2 million.
to San Juan 46th meeting.
In the APR, the ACL increased by 4 million.
Jorge: in part offset by a $6 million decrease in research for commercial loans.
Jorge: given by improvements in risk ratings of U.S. commercial loans offset in part by portfolio growth.
Jorge: The corporation ratio of ACL to Launch Health and Portfolio was 2.01% compared to 2.06% in the prior quarter.
Well, the ratio of the ACL to MPLs was 213%.
compared to 206% in the previous quarter.
Jorge: The provision for credit losses was $69 million, compared to $73 million in the prior quarter. In BBPR, 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.
Jorge: To summarize, credit quality metrics remained stable during the fourth quarter.
Speaker Change: We are attempted to evolve the environment, but remain encouraged by the performance of our lawn book.
Jorge: With that, I would like to turn the call over to Ignacio for his concluding remarks. Gracias.
Speaker Change: 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.
Speaker Change: Our results were driven by higher revenues, solid loan growth across each of our regions, stable credit quality, and continued customer growth.
Speaker Change: In addition, we are pleased to resume our share repurchase activity and increase our quarterly dividends.
Speaker Change: We've made great progress in our transformation efforts, and some of the initiatives are already producing encouraging results.
Speaker Change: We will continue to transform our organization to ensure success for many years to come.
Speaker Change: 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.
Speaker Change: I am thankful for the hard work and dedication of our employees throughout the year.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: When preparing to ask your question, please ensure your device is unmuted locally.
Speaker Change: First question comes from Brett Rabotan with Hovde Group. Your line is open, please go ahead.
and Lidio Soriano.
Hey guys, good morning.
The End
Good morning.
Thank you.
Speaker Change: Why don't you start with the funding costs and you know last quarter you had the phenomenon of
Speaker Change: some high net worth in 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?
Speaker Change: Core Bank, High Net Worth, and Retail related to changes in the funding costs and balances.
Speaker Change: Sure, Brad, good morning, it's Jorge. You know, first, we were very happy with the increase in deposits in the fourth quarter and the general
Speaker Change: If we look at Puerto Rico on a stand-alone, the non-public deposits were higher by about $600 million in the quarter, and on an average basis, $100 million down.
Speaker Change: 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.
Speaker Change: 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.
Thank you.
Speaker Change: The increase in the fourth quarter did benefit from some seasonal activity for commercial clients.
Speaker Change: We also saw a lot of good traction and efforts from our branches.
Speaker Change: 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.
Speaker Change: that six to 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 the activity in the fourth quarter.
Lidio Soriano, Ignacio Alvarez, Jorge Garca
Okay.
That's helpful, and then just
Speaker Change: Yeah, if you gave it, I didn't hear it, but the 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,
Speaker Change: 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 or 10 basis points increase throughout the year?
Speaker Change: 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, our market link.
Speaker Change: short-term rates did come down around a hundred basis points in the fourth quarter and we haven't seen that full benefit in the 56 basis points that the the putts came down.
Speaker Change: And certainly, as we continue to reinvest maturities of the investment portfolio that's still running about a billion dollars a month at higher rates than what they're coming off our books, that should help with the expansion of the NIM and contribute to NII growth.
Speaker Change: Okay, it just seems like that NI guy could be double-digit. And if I could sneak in one last one around the credit card portfolio on slide 28, you know, it looks like it continues to increase in terms of charge-offs. Any color that you're seeing, you know, with
Speaker Change: retail you know in Puerto Rico or consumers in terms of any weakening relative to what you're noticing with or what's trending with the card portfolio over the past few quarters in particular.
Lidio Soriano, Ignacio Alvarez, Jorge Garca
I mean generally I would say that
Speaker Change: 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 in charge of.
I think we are, my view is...
Speaker Change: 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.
Speaker Change: are recent vintages and we think the outlook for consumers as a whole is favorable given the microeconomic environment and recent trends.
Okay, fair enough. Congrats on a strong finish to 24.
Thank you.
Thank you.
Speaker Change: Our next question comes from Kelly Motta with KBW. Your line is open, please go ahead.
Hi, good morning.
Speaker Change: Maybe circling back to the margin, I appreciate the commentary that the biggest risk to achieving that is
Speaker Change: the potential deposit pressures, the 600 to 800 million level that you identified. Wondering, underlying that guidance, are you able to provide how much you're still expecting of that 600 to 800 million to roll off?
Speaker Change: Just wondering how much of that risk is already kind of baked into the outlook that you provided here.
Speaker Change: I mean certainly the outlook considers our best estimates of when and how that that corresponds but I can tell you that we're working very hard so that doesn't happen so we hope to you know under promise on over deliver on retention of those
Speaker Change: Okay, so if I'm hearing you correctly, and please correct me if I'm wrong, the guidance includes some output of the $600 to $800 million, but not potentially all of it because of the efforts that you're doing.
Speaker Change: Correct, Kelly. I mean, it does include our best estimate of where of that guidance.
Speaker Change: We 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.
Speaker Change: and, you know, last year we saw that continue into the second quarter. So what we're looking to see is where does that baseline, you know, where does it settle and when does that happen? You know, our retail customers still are experiencing over 30% higher balances at pre-pandemic levels.
Speaker Change: So we're, you know, 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.
The End.
Speaker Change: Got it. Thank you for the clarification. That's helpful. And then with your fee guidance, I appreciate there's about $5 million.
Speaker Change: that business you sold that implies some some growth in in some of the core businesses I believe can you just take a minute to explain where you're seeing you know good traction I know you've through your efficiency efforts been working towards some of these initiatives here.
Speaker Change: on the on the fee income we've had some success with what we call price or value with some of our commercial clients we're still rolling out some of those efforts also you know a big contributor to our fee income as credit card activity both from retail and commercial clients and you know we see continued
Speaker Change: Demand and you know from purchasing activity from our clients that benefit our non-interest income.
Lidio Soriano, Ignacio Alvarez, Jorge Garca
Speaker Change: Got it. Last question from me and then I'll step back. The net charge off guidance...
Speaker Change: if there is some on on how to expect that to flow through.
Speaker Change: Generally, I would say, Kelly, that everything being equal, I respect.
Just to see improvements over time.
Speaker Change: And as I mentioned in the previous 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.
Speaker Change: for all services, and thanks for joining us. This concludes the meeting of the Intergovernmental Panel on Globally Capable Communities.
Speaker Change: 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.
Okay, thank you. I will step back.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now.
Speaker Change: We now turn to Frank Schiraldi with Piper Sandler. Your line is open, please go ahead.
Lidio Soriano, Ignacio Alvarez, Jorge Garca
Speaker Change: Good morning. Just one more on deposits on the Jorge, the $600 to $800 million.
Speaker Change: Just thinking through it, I mean, you know, the work you've done there, I assume that reflects.
Soriano, Ignacio Alvarez, Jorge Garca
Speaker Change: 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 a hundred million in the quarter in Puerto Rico, non-public. In terms of sources, what we've...
Speaker Change: We know some of the client activity moving to asset management for higher yield.
Speaker Change: particularly when it comes from commercial clients. We have a lot of access to the CFO threshers of our large clients. So we have a good perspective. We don't see necessarily that being a significant.
Speaker Change: small business, retail clients that are benefiting from higher balances and they're just spending more and maybe making different decisions on working capital, lending, borrowing activity, things like that.
Speaker Change: I'd be exaggerating that I can tell you, you know, individual behaviors that we can tie to how that corresponds to the increase in balances that we saw, you know, in the fourth quarter at the end of the fourth quarter.
Speaker Change: Okay so I guess that you're saying the six to eight hundred million is then still potentially on the on the come I think that's what you said you're still that's still the number at risk as of the end of the quarter
and Bob Schroeder.
Speaker Change: Maybe the high pound is lower by the hundred that already went out, right? I mean, I think the important message here...
Speaker Change: You know, 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 put in place.
Speaker Change: evaluated to make sure that we are encouraging the proper activities by our teams. I think all those things make it make give us some comfort that that we're on the right track.
I think 1.7 million shares this quarter.
Speaker Change: Last quarter, it was about $600,000, although I think that was only two months' worth.
Speaker Change: So, I guess, would you say you're a little more optimistic here with the stock price down?
Speaker Change: I think that's a fair expectation. I mean, we I think over time, maybe you'll get a sense of kind of a normalized level buyback. But our goal with with what we're doing is to have the level of flexibility that all of our peers have. And certainly, you know, we saw some softening on the stock price after our third quarter results, and we were opportunistic in buying into the lower price, but
Speaker Change: 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.
Speaker Change: Okay, just lastly, just tied to that, when we think about, you know, normalized capital levels
Thank you.
You know, obviously, as a
Speaker Change: I would assume some excess capital is required there over peers, but, you know, I don't think it's whatever, 400, 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, you know, trends over time.
Speaker Change: While we do believe we need to operate with a higher margin given our concentration in Puerto Rico, it does not require, you know, four or five hundred basis points.
All right, I appreciate it. Thank you.
and the other one.
Speaker Change: We now turn to Gerard Cassidy with RBC Capital Markets. Your line is open, please go ahead.
Hi, Jorge. Hi, Ignacio.
Hey, good morning, George. Can you guys...
Speaker Change: Good morning. Ignacio, I was caught by your comment about the unemployment rate, you know, being so low and you really didn't think it.
Speaker Change: Could be reaching your lifetime if I heard you correctly and my question is this I recall I Recall, you know about ten years ago, you know when Puerto Rico was, you know Really in a tough spot the out migration from the island to the mainland was very steady
Speaker Change: And people weren't leaving the island because they didn't like it, it's because the economic environment was...
Speaker Change: 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?
Speaker Change: Well, 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. So yes, the trend has reversed, and albeit it's small, it is positive.
So that has changed, so you're anticipating the trends.
Gerard Cassidy: That's really good to hear. Congratulations. The second bigger picture question...
Gerard Cassidy: Because of the unfortunate natural disasters that the island has experienced over the years and
Gerard Cassidy: and 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.
Speaker Change: 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?
Speaker Change: Yeah, I think the, if you look at the majority, if we're talking about the recovery funds, basically related to Maria, right, it's about, you could, you could, there's about
between 45 and 47 billion dollars
Speaker Change: 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.
Speaker Change: Got it. And what are some of, if you could give us some insights, what are some of the major projects that are remaining with some where that money might go to in terms of rebuilding the electrical grid or other types of major, you know, municipal type projects?
Speaker Change: 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.
Flight Control is another one, there's a lot.
Speaker Change: and there's some for highway. So mostly I'd say between it's infrastructure. So it's mostly the electric grid. There's a lot on the water.
Speaker Change: A lot on flood control. For example, dams are being revitalized. They're dredging the dams, making them stronger.
Speaker Change: 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.
Speaker Change: and so there's a number of programs to build housing for the persons who were impacted by Hurricane Maria. So those are the big, the two big, the two big areas.
Speaker Change: And is it safe to assume that it's a three to five year type period that this all would be rebuilt or will it take longer?
Speaker Change: I think it'll take longer. Different things will take longer. I think some of the some of the basic building and bridges and roads will be sooner, but the electric grid is a, you know, an 8 to 10 year project. I would say 7 to 10 year project.
Speaker Change: Of course. Got it. I 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.
Got it. Thank you. Appreciate the color. Thank you
Thank you
Moderator: Our next question comes from Jared Shaw with Barclays. Your line is open, please go ahead.
Thank you.
Hi, this is John Rowe. I'm for Jared.
and FACC.
Good morning. I guess maybe just sticking on this.
Moderator: Due to the investments in the speed of getting back up to power or just the overall response to an outage like that relative to in the past
Thank you.
Speaker Change: Yeah I mean there there's a long way to go still on the electrical grid so you know I I don't know the response of time. Luma would say they probably responded faster than in the past.
Speaker Change: and perhaps they did, you know, we eventually made it back out, so it came back a little bit sooner. But I think, you know, what people understand is that a lot of the work that has been done was simply, you know, the basics of putting the system back up.
Speaker Change: 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
Speaker Change: 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. I think, you know, they're doing very basic stuff like.
Speaker Change: and the others, including the trees, because Puerto Rico is a tropical island, so believe it or not, they claim that 40% of blackouts are caused by the trees.
The trees are getting in the way.
Speaker Change: 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.
Speaker Change: and they put it back up and you know we expect blackouts to be less over time and you know the real improvement is going to require new investments in the distribution system and a new generation.
and the other one.
Okay, that's a good color.
Speaker Change: And then I guess just on the on the loan growth trajectory, kind of ramping into the, seems like the upper end of that three to 5% range by the end of the year, is that like 5% plus annualized growth rate in the second half of the year and maybe in the 2026, a good jumping off point for a kind of a steady run rate for you guys?
Speaker Change: The three to five percent is the year-over-year growth. It would be what you know measuring you know we stand at the end of December of 2025 and compare back to 2024.
Speaker Change: Okay, was there any pull forward from into the fourth quarter in terms of loan growth just with the higher levels?
Speaker Change: from both banks and a lot of big loans came in. So obviously that will probably impact the beginning of the first quarter a little bit because a lot of those loans close at the end of the fourth quarter. But you know we're happy to start with those balances on our post-K-1 so it's going to be very positive for us.
The End.
Speaker Change: Yeah, okay, that's a good point. 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, 12 months?
Yeah, under two percent, like one and a half.
and the
Thank you. Thank you.
are logger dated you know bonds.
and Diego. Thank you.
Okay, great. Thanks. Bye-bye. Thank you.
Thank you.
Thank you.
Speaker Change: We have a follow-up from Kelly Mota with KBW. Your line is open, please go ahead.
Kelly Mota: 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.
Kelly Mota: 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?
Kelly Mota: 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
Lidio Soriano, Ignacio Alvarez, Jorge Garca
Speaker Change: I mean, in the first quarter, we see some of the
tax refunds to our retail clients. I think that was...
Speaker Change: 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 we, if you remember, even in the...
Speaker Change: We benefited on the higher average balances, you know, 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
Speaker Change: Third quarter, there's really nothing that we've identified as a driver that would help, you know, that would be an inflow. And in the fourth quarter, you know, the activity that we saw today, or this quarter, I'm sorry, if
Speaker Change: There's some historical evidence to show it, 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.
Speaker Change: 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, you know, we are, we have active efforts to try to mitigate that activity.
Thank you. Bye.
Speaker Change: 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
Speaker Change: GAAP reported expenses for the year, or you had a FDIC special assessment, I believe another kind of $6 million.
Speaker Change: adjustments in 1-2 that was higher. I was hoping you could just clarify the correct starting base on which... We give the guidance in a gap basis for all the metrics.
Speaker Change: 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 anyone knows, but I I was wondering if you could just
Thank you.
Speaker Change: Give an update on how you're you're thinking of it and and the potential risk or noise that could come from His ability to gum up the works here
Speaker Change: Yeah, well, you know, like you said, it's very early, and the language in some of these economic disorders are very broad, are very broad, but...
Speaker Change: I personally don't believe that they are directed at the recovery funds by their own statement to the administration.
Speaker Change: They've stated that their target is more the green energy initiative, the DEI initiatives.
Speaker Change: An issue related to electric vehicles, promoting electric vehicles. So I, you know, we'll see the last executive order, say they have to clarify it in two weeks. I don't believe it was directed toward
Speaker Change: for the Recovery Funds, but you know, we'll see. It's broad language, but I'm very confident that
Speaker Change: that most of the funds coming to Puerto Rico in terms of infrastructure recovery should not be impacted by their own words. You know, so, but you know, we're not being singled out. Puerto Rico is being treated like any other state or territory, so.
Speaker Change: Obviously, we'll be watching carefully, but again, at least I'm relatively optimistic that we are not the target of many of these initiatives.
and the other two of us.
Thank you.
Got it. Thank you so much for underpinning the question.
Speaker Change: As a final reminder, if you'd like to ask a question, please press star one on your telephone keypad now.
Speaker Change: We have a follow-up from Gerard Cassidy with RBC Capital Markets. Your line is open, please go ahead.
Gerard Cassidy: Thank you. As a follow-up question, and I apologize if you guys addressed this in the prepared remarks,
Speaker Change: You mentioned about changing, I think, the underwriting standards for the credit cards a little later than maybe some of the mainline banks.
Gerard Cassidy: 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 or 24 months ago?
Gerard Cassidy: Thank you Gerard. This is Lidio. Let me clarify that I mentioned was when you look at the performance of our credit card book or consumer book compared to the U.S.
Gerard Cassidy: We entered delinquency levels and net charge-off, or you saw the gradual increase in delinquency and net charge-off later than it occurred in the maintenance. So that's the difference. But in terms of changes that we have made to underwriting criteria, I mean, we have...
Gerard Cassidy: We are fighting our underwriting criteria, the five costs that we lend to are much higher than they were when we made the changes.
Very good. Thank you.
Thank you.
and the other.
Gerard Cassidy: This concludes our Q&A and I'll hand back to Ignacio Alvarez, CEO, for any final remarks.
Speaker Change: 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.
Speaker Change: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
[music]
Speaker Change: Jorge Garca, Lidio Soriano, Ignacio Alvarez, Jorge Garca, Ignacio Alvarez, Ignacio Alvarez