Popular (BPOP) Q1 2025 Earnings Call April 23, 2025 11:00 AM ET Company Participants Paul Cardillo - Senior VP & Investor Relations OfficerIgnacio Alvarez - CEOJavier D. Ferrer - President & COOJorge Garcia - Executive VP & CFOLidio Soriano - Executive VP & Chief Risk Officer of Corporate Risk Management GroupFrank Schiraldi - Managing DirectorBen Gerlinger - Vice President of Equity ResearchGerard Cassidy - Managing DirectorTimur Braziler - Director - Mid-Cap Bank Equity ResearchJared Shaw - Managing Direc ...

Core Viewpoint - Popular (BPOP) reported quarterly earnings of $2.56 per share, exceeding the Zacks Consensus Estimate of $2.26 per share, and showing an increase from $1.87 per share a year ago [1] Financial Performance - The earnings surprise for the quarter was 13.27%, with the company previously expected to earn $2.04 per share but actually earning $2.51, resulting in a surprise of 23.04% [2] - Popular's revenues for the quarter ended March 2025 were $757.66 million, surpassing the Zacks Consensus Estimate by 0.21%, and up from $714.56 million year-over-year [3] Stock Performance - Popular shares have declined approximately 4.9% since the beginning of the year, while the S&P 500 has decreased by 10.1% [4] - The current Zacks Rank for Popular is 3 (Hold), indicating expected performance in line with the market in the near future [7] Future Outlook - The consensus EPS estimate for the upcoming quarter is $2.52 on revenues of $769.18 million, and for the current fiscal year, it is $10.04 on revenues of $3.11 billion [8] - The Zacks Industry Rank for Banks - Southeast is in the top 29% of over 250 Zacks industries, suggesting a favorable outlook for the sector [9]

Financial Performance - Net income for Q1 2025 was $177.5 million, slightly down from $177.8 million in Q4 2024[2] - EPS rose to $2.56 in Q1 2025, compared to $2.51 in Q4 2024[4] - Net income for Q1 2025 was $177.502 million, a slight decrease from $177.817 million in Q4 2024, but a significant increase from $103.283 million in Q1 2024, reflecting a year-over-year growth of 71.8%[63] - The effective tax rate for the first quarter of 2025 was 20.2%, compared to 19.8% for the previous quarter[29] - Return on average common equity improved to 10.07% in Q1 2025, compared to 9.94% in Q4 2024 and 6.07% in Q1 2024[60] - The return on average tangible common equity for the first quarter of 2025 is reported at 11.36%, an increase from 11.22% in the previous quarter[101] Income and Revenue - Net interest income increased to $605.6 million in Q1 2025, up $14.8 million from Q4 2024[4] - Total interest income for Q1 2025 was $916.998 million, a slight decrease of 0.3% from $919.767 million in Q4 2024, but an increase of 2.6% from $894.141 million in Q1 2024[62] - Net interest income after provision for credit losses rose to $541.516 million in Q1 2025, up 3.2% from $524.657 million in Q4 2024 and 13.3% from $478.146 million in Q1 2024[62] - Total non-interest income decreased to $152.1 million in Q1 2025, down from $164.7 million in Q4 2024[4] - Total non-interest income decreased to $152.061 million in Q1 2025, down 7.7% from $164.703 million in Q4 2024, but relatively stable compared to $163.818 million in Q1 2024[62] Assets and Liabilities - Total assets amounted to $74.0 billion at March 31, 2025, an increase of $993.2 million from the previous quarter[45] - Total liabilities increased to $68,238,911 thousand, up by $806,594 thousand from the prior quarter[64] - Total stockholders' equity increased to $5,799,695 thousand from the previous quarter, primarily due to net income of $177.5 million[45] - The total assets of the company reached $74,038,606,000 as of March 31, 2025, up from $73,045,383,000 at the end of 2024[101] Loans and Credit Quality - Loans held in portfolio rose to $37.3 billion, an increase of $146.4 million from Q4 2024[4] - Non-performing loans decreased by $36.7 million, with the NPLs to loans ratio at 0.84%[4] - The provision for loan losses for the first quarter of 2025 was $65.2 million, a decrease from $69.1 million in the previous quarter[39] - Net charge-offs for the quarter were $49.1 million, down $18.3 million from the fourth quarter of 2024, with an annualized NCO ratio of 0.53%[31][42] - Total non-performing assets decreased to $366.2 million as of March 31, 2025, from $408.0 million in the previous quarter[42] - The total current loans amount to $36.113 billion, reflecting a stable loan portfolio[85] - The total loans held-in-portfolio increased to $37.254 billion from $37.107 billion, indicating growth in the loan portfolio[85] Capital and Ratios - Common Equity Tier 1 ratio stood at 16.11% as of March 31, 2025[4] - Tier 1 capital ratio remained strong at 16.16% in Q1 2025, slightly up from 16.08% in Q4 2024[60] - The allowance for credit losses (ACL) as of March 31, 2025, was $762.1 million, an increase of $16.1 million from the previous quarter, resulting in an ACL to loans ratio of 2.05%[36][38] - The allowance for credit losses to loans held-in-portfolio increased to 2.05% from 2.01%[85] Shareholder Actions - Capital actions included the repurchase of 1,270,569 shares for $122.3 million during Q1 2025[4] - The Corporation repurchased 1.3 million shares of common stock at an average price of $96.24 during the first quarter of 2025[47] Market Performance - The market capitalization of Popular, Inc. was $6.372 billion as of March 31, 2025, down from $6.597 billion at the end of Q4 2024[60]

Company Overview - Popular (BPOP) shares increased by 6.5% to $86.91 in the last trading session, following a period of 6.6% loss over the past four weeks, indicating a significant recovery in stock performance [1][2] - The company operates Banco Popular and other banks in Puerto Rico and the U.S., with expected quarterly earnings of $2.26 per share, reflecting a year-over-year growth of 20.9% [3] Earnings and Revenue Expectations - Revenues for the upcoming report are projected to be $756.11 million, which is a 5.8% increase compared to the same quarter last year [3] - The consensus EPS estimate for Popular has been revised 0.8% higher in the last 30 days, suggesting a positive trend that may lead to further price appreciation [5] Market Sentiment and Industry Context - The stock price increase was driven by optimism following President Trump's announcement of a 90-day pause on import tariffs, which alleviated trade tension concerns and boosted investor confidence in the banking sector [2] - Popular is part of the Zacks Banks - Southeast industry, where another stock, Home BancShares (HOMB), also saw a 6.6% increase in its last trading session, although it has returned -9.5% over the past month [5]

Group 1 - Samuel Smith has extensive experience in dividend stock research and investment, having served as lead analyst and Vice President at notable firms [1] - He is a Professional Engineer and Project Management Professional with degrees in Civil Engineering & Mathematics and a Master's in Engineering focused on applied mathematics and machine learning [1] - Samuel leads the High Yield Investor investing group, collaborating with Jussi Askola and Paul R. Drake to balance safety, growth, yield, and value in investment strategies [2] Group 2 - High Yield Investor provides real-money core, retirement, and international portfolios, along with regular trade alerts and educational content [2] - The service includes an active chat room for investors to share insights and strategies [2]

Core Viewpoint - Beyond Oil Ltd. has expanded its distribution network in Israel by partnering with Raz-Natan Sales & Distribution Ltd. to enhance its presence in Eilat, a major tourism hub, thereby promoting healthier fried food options to millions of visitors [1][2][4]. Company Overview - Beyond Oil Ltd. is a food-tech innovation company focused on reducing health risks associated with fried food, improving sustainability, and lowering operational costs. The company has over 15 years of experience and offers patented technology that significantly reduces harmful compounds in frying oil [5]. - The company's product addresses the widespread practice of reusing frying oil, which poses health risks linked to cancer and cardiovascular diseases. Beyond Oil's solution aims to mitigate these risks while improving food quality and operational efficiency [5]. Partnership Details - The agreement with Raz-Natan, effective March 19, 2025, designates Raz-Natan as the exclusive franchisee for Beyond Oil's products in Eilat and the Arava region, which is home to numerous hotels, restaurants, and resorts catering to both international and domestic tourists [2][4]. - Fandango Collection & Recycling Ltd., Beyond Oil's exclusive Israeli distributor, will leverage its existing relationships with hotel chains in Eilat to facilitate the adoption of Beyond Oil's products [3][4]. Market Potential - Eilat attracts millions of visitors annually, providing a significant market opportunity for Beyond Oil's healthier frying solutions. The region's high concentration of food service businesses presents a strategic advantage for expanding the company's footprint [2][4].

Group 1: Palantir Technologies - Palantir develops data analytics software for commercial and government customers, with a successful AI platform called AIP that enhances decision-making workflows [2][4] - The company reported strong fourth-quarter results, with revenue rising 36% to $828 million and a 43% increase in customer count, while non-GAAP earnings soared 75% to $0.14 per diluted share [4] - Despite a promising market opportunity with AI platform sales expected to grow at 41% annually to reach $153 billion by 2028, the current valuation at 220 times adjusted earnings is considered very expensive [4] Group 2: Tesla - Tesla reported a 2% increase in revenue to $26 billion for the fourth quarter, but experienced a contraction in operating margin and only a 3% rise in non-GAAP earnings to $0.73 per diluted share [6] - The company has a potential catalyst with the upcoming launch of autonomous ride-sharing (robotaxis) in Austin, Texas, in June [6] - Political risks associated with CEO Elon Musk have raised concerns, as evidenced by a 50% drop in sales in Europe in January and a 47% drop in February, despite overall growth in the electric car market [8][9]

Group 1: Alibaba (BABA) - Alibaba shares have shown significant strength since late January, driven by the announcement of a new AI model that claims to surpass DeepSeek [2] - The company's EPS outlook remains bullish, indicating positive near-term share movement [2] - AI-related product revenue has maintained triple-digit year-over-year growth for six consecutive quarters, with overall sales growth showing modest acceleration [4] - The stock has increased nearly 70% in 2025 alone, marking a welcome change for shareholders after years of negative price action [5] Group 2: Palantir (PLTR) - Palantir reported strong results, with sales of $828 million reflecting a 36% year-over-year increase and a 14% sequential rise [7] - The company experienced a 43% increase in customer count, indicating growing demand [7] - Analysts have a bullish outlook on Palantir, with EPS forecasted to soar 36% on 32% higher sales in the current fiscal year [8] - Palantir closed a record-setting $803 million in U.S. commercial total contract value (TCV), up 130% year-over-year and 170% sequentially [9] - U.S. commercial and government revenue grew by 64% and 45%, respectively [9] Group 3: Vertiv (VRT) - Vertiv has demonstrated solid growth, with EPS soaring 77% and sales increasing by 26% in the latest period [10] - The company raised its full-year 2025 sales guidance, reflecting approximately 16% year-over-year growth [12] - Positive revisions in the company's current fiscal year sales estimate have been noted throughout the past year [12] Group 4: Overall Market Trends - Stocks like Alibaba, Palantir, and Vertiv have gained significant attention due to their exposure to AI, contributing to their popularity among investors [6] - Alibaba's performance is also seen as a stronger play on the overall recovery in China [15]

Loan Portfolio - Approximately 55% of the loan portfolio as of December 31, 2024, consisted of real estate-related loans, including residential mortgage loans, construction loans, and commercial loans secured by commercial real estate[29]. - The total loan portfolio amounted to $37.108 billion, with commercial and industrial loans making up 21% and mortgage loans accounting for 22%[30]. - The loan portfolio is diversified by category, with commercial and industrial loans making up 21% of the total portfolio[30]. - Approximately 26% of the loan portfolio is comprised of mortgage loans, indicating a strong focus on residential lending[30]. Company Operations - The company operates primarily in Puerto Rico, where it has the largest retail banking franchise, and also has a presence in the mainland United States, specifically in New York, New Jersey, and Florida[24]. - The Corporation's banking operations in Puerto Rico are primarily conducted through Banco Popular de Puerto Rico, which has the largest retail banking franchise in the region[7]. - The company’s lending activities are concentrated in commercial, mortgage, consumer, construction, and lease financings, with commercial loans being a significant portion of the portfolio[24][25][26][27]. - The company’s operations are significantly influenced by the economic trends in Puerto Rico, particularly in the residential and commercial real estate markets[28]. Competition and Market Environment - The competitive landscape includes local commercial banks, credit unions, and specialized financial institutions, with significant pressure on pricing and service delivery[44][45][46]. - The company faces substantial competition in both Puerto Rico and the mainland United States, requiring effective strategies to maintain market share[47]. Credit Policies and Risk Management - The company’s credit policies are designed to mitigate credit risk, with comprehensive procedures for monitoring and evaluating loan portfolio quality[34]. - The company has specialized workout officers to manage commercial loans that are past due 90 days and over, focusing on minimizing potential losses[40]. Financial Performance and Capital Management - The Corporation expects to achieve at least a 12% return on tangible common equity (ROTCE) by the end of 2025, down from an earlier target of 14% due to higher-cost deposits and lower loan growth[50]. - As of December 31, 2024, Popular had total consolidated assets of $73.0 billion, placing it under the most stringent regulatory standards[65]. - Both BPPR and PB met the quantitative requirements for 'well capitalized' status, indicating a total risk-based capital ratio of 10.0% or greater[92]. - Popular is required to maintain a capital conservation buffer of 2.5% of CET1, resulting in minimum ratios of at least 7% CET1 to risk-weighted assets[79]. - Popular has opted to phase in the regulatory capital effects of the Current Expected Credit Loss (CECL) model over three years, impacting future capital ratios[86]. Employee Engagement and Development - The Corporation invested more than $13 million in enhancing employee compensation in 2024, with 98% of employees participating in the 401(k) savings plan[54]. - The employee turnover rate was maintained at 8.6% as of the end of 2024, with an employee loyalty score of 81%, above the 50th percentile of the Qualtrics global benchmark[59]. - The Corporation's internal mobility rate in 2024 was 44%, indicating strong opportunities for employee advancement[56]. - More than 4,100 employees participated in various training programs, highlighting the Corporation's focus on talent development[55]. - The health and wellness center at the corporate offices received over 15,561 visits from employees during 2024, emphasizing the Corporation's commitment to employee well-being[52]. Regulatory Compliance and Legal Obligations - The FDIC's increased deposit insurance assessment rates began in 2023, aimed at restoring the DIF reserve ratio to meet statutory minimums by 2028[72]. - The SEC has adopted new rules requiring registrants to report material cybersecurity incidents on Form 8-K and disclose cybersecurity policies in the Annual Report on Form 10-K[118][119]. - The Federal Reserve Board may limit Popular's ability to conduct activities and make acquisitions as a financial holding company, requiring prior approval for acquisitions of nonbank companies with $10 billion or more in total assets[102]. - The Volcker Rule restricts Popular and its subsidiaries from engaging in certain proprietary trading and sponsoring covered funds, but it does not materially affect operations[103]. - The Community Reinvestment Act requires banks to serve the credit needs of their communities, with new regulations effective April 1, 2024, and certain data reporting requirements starting January 1, 2027[108]. Dividends and Shareholder Returns - BPPR declared cash dividends of $600 million during the year ended December 31, 2024, with a portion used for Popular's common stock dividends[93]. - At December 31, 2024, BPPR needed prior approval from the Federal Reserve Board before declaring a dividend in excess of $318 million due to its retained income and declared dividend activity[93].

Group 1: Palantir Technologies - Palantir develops data analytics software that integrates information, trains machine learning models, and applies AI to complex data, claiming to operationalize AI more effectively than competitors [3] - Jefferies forecasts a 62% downside for Palantir, with a target price of $40 per share, implying significant risk despite recent strong financial performance [5][10] - In the fourth quarter, Palantir reported a 36% revenue increase to $828 million, with a 43% increase in customers and a 20% increase in average spending per existing customer [5] - Analysts have mixed opinions on Palantir, with Forrester ranking it as a leader in AI and machine learning platforms, while Gartner scored it lower for data integration tools [4] Group 2: Super Micro Computer - Super Micro manufactures servers and storage systems, claiming a leadership position in the AI server market due to its quick market entry and engineering expertise [7] - Susquehanna forecasts a 74% downside for Super Micro, with a target price of $15 per share, citing a lack of proprietary advantage against larger competitors [8][10] - The company has faced scrutiny over accounting issues and has not published its Form 10-K for fiscal 2024 or Forms 10-Q for the first two quarters of fiscal 2025, raising concerns about transparency [11][12] - Super Micro recently cut its revenue outlook by 13% for fiscal 2025, although it provided positive guidance for fiscal 2026 [12]