BPOP - Popular Inc. Announces First Quarter 2024 Financial Results

• Net income of $103.3 million in Q1 2024, compared to net income of $94.6 million in Q4 2023.
• Q1 2024 results include an after-tax impact of $9.1 million related to the FDIC Special Assessment compared to $45.3 million in Q4 2023, as well as a $22.9 million expense related to taxes due from prior period distributions from the Corporation’s U.S. based subsidiary, as explained further below.
• Excluding the after-tax impact of the FDIC Special Assessment and the tax expense related to prior period intercompany distributions, adjusted net income was $135.2 million and $139.9 million for Q1 2024 and Q4 2023, respectively.
• Net interest income amounted to $550.7 million, an increase of $16.6 million compared to Q4 2023.
• Net interest margin of 3.16% in Q1 2024, compared to 3.08% in Q4 2023; net interest margin on a taxable equivalent basis of 3.38% in Q1 2024, compared to 3.26% in Q4 2023.
• Non-interest income of $163.8 million, compared to $168.7 million in Q4 2023.
• Operating expenses amounted to $483.1 million, a decrease of $48.0 million compared to Q4 2023. Excluding the impact of the FDIC Special Assessment in Q1 2024 and Q4 2023, and expenses associated with the prior period intercompany distributions , operating expenses increased by $2.7 million.

• Credit Quality:
  • Non-performing loans held-in-portfolio (“NPLs”) decreased by $3.5 million from Q4 2023; NPLs to loans ratio flat at 1.0%;
  • Net charge-offs (“NCOs”) increased by $5.3 million from Q4 2023; annualized NCOs at 0.71% of average loans held-in-portfolio vs. 0.66% in Q4 2023;
  • Allowance for credit losses (“ACL”) to loans held-in-portfolio at 2.11% vs. 2.08% in Q4 2023; and
  • ACL to NPLs at 208.8% vs. 204.0% in Q4 2023.
• Loans ending balances, excluding loans held-for-sale, increased by $53.8 million and by $615.5 million in average quarterly balances, from Q4 2023.
• Ending deposit balances increased by $190.5 million while average quarterly balances increased by $767.2 million, from Q4 2023.
• Common Equity Tier 1 ratio of 16.36%, Common Equity per Share of $71.32 and Tangible Book Value per Share of $60.06 at March 31, 2024.

Popular, Inc. (the “Corporation,” “Popular,” “we,” “us,” “our”) (NASDAQ:BPOP) reported net income of $103.3 million for the quarter ended March 31, 2024, compared to net income of $94.6 million for the quarter ended December 31, 2023. Excluding the after-tax impact during the first quarter of 2024 and the fourth quarter of 2023 of the FDIC Special Assessment and the $22.9 million tax expense due to prior period intercompany distributions during the first quarter of 2024, adjusted net income was $135.2 million and $139.9 million for Q1 2024 and Q4 2023, respectively.

Ignacio Alvarez, President and Chief Executive Officer, said: “We are pleased to report solid earnings for the first quarter after considering the impact of an additional accrual for the FDIC special assessment and a tax related expense associated with prior period intercompany distributions. We continued to benefit from a stable deposit base, increased our net interest income by 3% and expanded our net interest margin by eight basis points. Credit remained stable, with trends similar to recent periods. The strength of our liquidity and capital ratios positions us well to continue pursuing sustainable business growth and delivering positive results. I want to thank our colleagues for their continued dedication and commitment to serve our customers and contribute to Popular's success.”

Significant Events

FDIC Special Assessment Increase in Estimate

On November 16, 2023, the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule that imposes a special assessment (the “FDIC Special Assessment”) to recover the losses to the deposit insurance fund resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of several failed banks. The special assessments would be collected over eight quarters in 2024 and 2025 with the first assessment period beginning in January 1, 2024. In connection with this assessment, the Corporation recorded an expense of $71.4 million, $45.3 million net of tax, in the fourth quarter of 2023, representing the full amount of the estimated assessment at that time.

The special assessment amount and collection period may change as the estimated loss is periodically adjusted or if the total amount collected varies. The most recent loss estimate from the FDIC has increased from the $16.3 billion issued when the FDIC Special Assessment was approved. As a result, the Corporation recorded an additional expense of $14.3 million, $9.1 million net of tax, in the first quarter of 2024, based on the updated loss estimates.

Tax impact on Intercompany Distributions

The net income for the quarter ended March 31, 2024, included $22.9 million of expenses, of which $16.5 million is reflected in income tax expense, related to an out of period adjustment associated with the Corporation’s U.S. subsidiary’s failure to pay U.S. federal withholding taxes on certain distributions to the Bank Holding Company (BHC) in Puerto Rico, a foreign corporation for U.S. tax purposes, that occurred in certain years from 2014 to 2023. In addition to the $16.5 million of income tax expense, the Corporation also recognized $6.4 million, reflected in other operating expense, for interest due up to March 31, 2024 on the related late payment of the withholding tax.

Additionally, the Corporation recognized $6.5 million in income tax expense during the quarter ended March 31, 2024 to reflect the U.S. federal tax withholding liability and estimated related Puerto Rico income tax arising from a $50 million dividend paid during the quarter.

Dividends from the U.S. subsidiaries to the BHC are subject to a Federal 10% withholding tax and ordinary income tax in Puerto Rico, subject to foreign tax credits, use of available net operating losses and certain other limitations. The Corporation does not anticipate the tax treatment of U.S. sourced dividends to the BHC to impact BHC liquidity or future capital actions.

Non-GAAP Financial Measures

This press release contains financial information prepared under accounting principles generally accepted in the United States (“U.S. GAAP”) and Non-GAAP financial measures. Management uses Non-GAAP financial measures when it has determined that these measures provide more meaningful information about the underlying performance of the Corporation’s ongoing operations. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

Adjusted net income

In addition to analyzing the Corporation’s results on a reported basis, management monitors the “Adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Management believes that the “Adjusted net income” provides meaningful information about the underlying performance of the Corporation’s ongoing operations. The “Adjusted net income” is a non-GAAP financial measure. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

Net interest income on a taxable equivalent basis

Net interest income, on a taxable equivalent basis, is presented with its different components in Tables D and E for the quarter ended March 31, 2024. Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources.

Net interest income and net interest income on a taxable equivalent basis – Non-GAAP financial measure

Net interest income for the quarter ended March 31, 2024, was $550.7 million, an increase of $16.5 million when compared to $534.2 million in the last quarter of 2023. Net interest income on a taxable equivalent basis for the first quarter of 2024 was $589.5 million, compared to $564.8 million in the previous quarter, an increase of $24.7 million.

Net interest margin for the first quarter of 2024 was 3.16% compared with 3.08% the prior quarter or an increase of eight basis points. On a taxable equivalent basis, net interest margin for the first quarter of 2024 was 3.38%, compared to 3.26% in the last quarter of 2023, or a 12 basis points increase. Quarter over quarter, the main variances in net interest income on a taxable equivalent basis were:

• Higher interest income from investment securities, trading, and money market investments by $23.7 million driven mainly due to reinvestment of maturities in higher yielding U.S. Treasury bills, and higher volume from the increase in deposits; and
• higher interest income from loans by $11.1 million due to higher average volume by $612 million and higher yield by seven basis points. The increase in average loans was led by commercial loans but was reflected in all loan categories. The increase in loan yield results from new loan origination activity and the continued repricing of adjustable-rate loans in a higher interest rate environment;

partially offset by:

• higher interest expense on deposits by $10.3 million, mainly due to higher cost of interest-bearing deposits by nine basis points, mainly at Popular Bank. In Puerto Rico, the cost of government deposits decreased one basis point quarter over quarter, while average balances increased by $498 million.

Net interest income for the Banco Popular de Puerto Rico (“BPPR”) segment amounted to $472.8 million for the first quarter of 2024, an increase of $17.9 million when compared to $454.9 million in net interest income during the last quarter of 2023. Net interest margin for the BPPR segment increased 14 basis points to 3.33% compared to 3.19% in the fourth quarter of 2023. The increase in net interest margin reflects a higher volume of loans by $423.6 million largely driven by commercial loans by $227.9 million coupled with higher volume across most loan categories. Earning assets yield improved 15 basis points from 4.88% in Q4 2023 to 5.03% in Q1 2024 mostly due to the repricing of investment securities. The cost of interest-bearing deposits increased by three basis points to 2.44% from 2.41% in the fourth quarter of 2023. Notwithstanding that, the cost of P.R. public funds decreased one basis point during Q1 2024, the increase in the cost of interest-bearing deposits in the first quarter of 2024 is driven by a higher proportion of P.R. public deposits for the quarter, which carry a higher rate. Total deposit cost in the first quarter of 2024 was 1.81%, compared to 1.79% in the fourth quarter of 2023, an increase of two basis points.

Net interest income for Popular Bank (“PB”) was $84.9 million for the quarter ended March 31, 2024, a decrease of $0.7 million when compared to $85.6 million in the fourth quarter of 2023. Net interest margin decreased by 13 basis points in the quarter to 2.59%, compared to 2.72% in the fourth quarter of 2023. The decrease in net interest margin was mostly driven by a higher cost and volume of deposits, partially offset by a higher volume of money market investments and investment securities. The cost of interest-bearing deposits was 3.86%, compared to 3.66% for the fourth quarter, or an increase of 20 basis points, while total deposit cost was 3.40% compared to 3.17% in the previous quarter.

Non-interest income

Non-interest income amounted to $163.8 million for the first quarter of 2024, a decrease of $4.9 million when compared to $168.7 million for the quarter ended December 31, 2023. The variance in non-interest income was driven primarily by:

• an unfavorable variance in the adjustment for indemnity reserve on loans previously sold of $2.6 million;
• lower other service fees by $2.4 million due mainly to contingent payments on insurance commissions that are typically received during the fourth quarter; and
• lower income from mortgage banking activities by $2.0 million mainly due to fair value adjustments of mortgage servicing rights (“MSRs”);

partially offset by:

• an increase of $3.9 million in other operating income mainly due to a higher income recognized for investments accounted under the “equity investment method” of $1.7 million and a gain on mortgage servicing claims of $1.3 million.

Refer to Table B for further details.

Operating expenses

Operating expenses for the first quarter of 2024 totaled $483.1 million, a decrease of $48.0 million when compared to the fourth quarter of 2023. Excluding the prior period adjustment of $6.4 million for interest accrued on tax withholdings adjustment and the effect of the FDIC Special Assessment discussed in the significant events section of this earnings release, total expenses for the first quarter of 2024 were $462.4 million, compared to $459.7 million in the previous quarter. The other factors that contributed to the variance in operating expenses were:

• higher personnel cost by $20.7 million mainly due to higher annual incentive awards of performance shares and restricted stock expenses by $9.7 million; higher incentive compensation by $1.7 million; higher payroll taxes by $4.4 million and higher other compensation expenses by $3.5 million that traditionally are higher during the first quarter of the year;
• higher credit card processing expenses by $5.5 million mainly due to lower credits in the first quarter of the year for volume incentives from our issuing partners; and
• higher technology and software expenses by $2.7 million mainly from network management services.

partially offset by:

• lower professional fees by $10.1 million mainly due to lower regulatory related consulting fees and lower advisory expenses related to corporate initiatives;
• lower business promotion expense by $6.9 million mainly due to lower seasonal donations, advertising, strategic communications, and sponsorship expenses, which are typically higher in the fourth quarter;
• lower operational losses by $3.4 million mainly related to legal settlements reserves and mortgage servicing operational losses; and
• lower net occupancy expenses by $2.2 million mainly due to a decrease in buildings’ repair and maintenance costs;

Full-time equivalent employees were 9,132 as of March 31, 2024, compared to 9,088 as of December 31, 2023.

For a breakdown of operating expenses by category refer to Table B.

Income taxes

For the quarter ended March 31, 2024, the Corporation recorded an income tax expense of $55.6 million, compared to an income tax benefit of $1.5 million for the previous quarter. As mentioned in the significant events section of this earnings release, the income tax expense for the current quarter includes a net impact of $22.9 million related to withholding tax liabilities for distributions from the U.S. subsidiaries to the Corporation in Puerto Rico, out of which $16.5 million were related to distributions between the years 2014-2023 and $6.4 million were related to an intercompany distribution completed in the first quarter of 2024. The tax benefit for the fourth quarter of 2023 reflects the impact of lower income before tax, primarily due to the FDIC Special Assessment accrual of $71.4 million, and other adjustments recorded in that quarter.

The effective tax rate (“ETR”) for the first quarter of 2024 was 35.0%, compared to (1.6%) for the previous quarter. Excluding the impact of the withholding tax liabilities and the additional expense related to the FDIC Special Assessment during this quarter, the ETR would have been 24.7%. Excluding the FDIC Special Assessment, the ETR for the fourth quarter of 2023 would have been 15.0%.

The ETR of the Corporation is impacted by the composition and source of its taxable income. The Corporation expects its ETR for the year 2024 to be within a range from 21% to 23%.

Credit Quality

During the first quarter of 2024, the Corporation reflected stable credit quality when compared to the previous quarter. Non-performing loans (“NPLs”) and net charge offs (“NCOs”) remained below historical averages and delinquencies improved in most loan categories from the prior quarter. We continue to closely monitor changes in the macroeconomic environment and on borrower performance given higher interest rates and inflationary pressures. However, management believes that the improvements over recent years in risk management practices and the risk profile of the Corporation’s loan portfolios position Popular to continue to operate successfully under the current challenging environment.

The following presents credit quality results for the first quarter of 2024:

• At March 31, 2024, total NPLs held-in-portfolio decreased by $3.5 million from December 31, 2023. BPPR’s NPLs decreased by $30.1 million, broadly reflected across most loan categories. The commercial NPLs decrease includes a $5.1 million charge-off related to a previously reserved $17.9 million relationship. PB’s NPLs increased by $26.6 million, related to higher mortgage NPLs by $16.9 million, impacted by a single $17.2 million loan, and higher commercial NPLs by $10.2 million. At March 31, 2024, the ratio of NPLs to total loans held-in-portfolio was 1.0%, flat when compared to the fourth quarter of 2023.
• Inflows of NPLs held-in-portfolio, excluding consumer loans, increased by $7.9 million quarter-over-quarter. In BPPR, total inflows decreased by $18.9 million driven by the abovementioned $17.9 million inflow in the fourth quarter of 2023. PB inflows increased by $26.8 million, driven by a $16.1 million mortgage inflow and higher commercial inflows by $10.7 million, as explained above,
• NCOs amounted to $62.2 million, increasing by $5.3 million when compared to the fourth quarter of 2023. The increase in NCOs was driven by the abovementioned $5.1 million charge-off related to a previously reserved loan. Excluding this, NCOs were flat quarter-over-quarter. BPPR’s NCOs increased by $4.6 million quarter-over-quarter, mainly driven by higher commercial and consumer NCOs by $3.2 million each. Consumer NCOs increase was mostly related to higher credit cards and personal loans charge-offs by $3.1 million and $1.5 million, respectively, offset in part by lower auto NCOs by $1.7 million. PB’s NCOs remained flat quarter-over-quarter. The Corporation’s ratio of annualized NCOs to average loans held-in-portfolio was 0.71%, compared to 0.66% in the fourth quarter of 2023. Refer to Table N for further information on NCOs and related ratios.
• At March 31, 2024, the allowance for credit losses (“ACL”) increased by $10.2 million from the fourth quarter of 2023 to $739.5 million. In BPPR, the ACL increased by $4.5 million, primarily driven by higher reserves for the consumer portfolios attributable to changes in credit quality. In PB, the ACL increased by $5.7 million from the previous quarter, mainly driven by higher reserves for the commercial portfolio due to changes in credit risk ratings.
• The ACL incorporated updated macroeconomic scenarios for Puerto Rico and the United States. Given that any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios to estimate its ACL. The baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario, and then the optimistic scenario. The weight assigned to the pessimistic scenario decreased this quarter in response to the positive momentum in the economy as expectations for the Federal Reserve achieving a soft landing have improved.
• The 2024 annualized GDP growth in the baseline scenario improved to 2.0% and 2.3% for Puerto Rico and the United States, respectively, compared to 1.2% and 1.7% in the previous quarter. The 2024 forecasted average unemployment rate for Puerto Rico and the United States remained stable at 6.5% and 3.9%, respectively, compared to 6.8% and 4.0% in previous forecast.
• The Corporation’s ratio of the ACL to loans held-in-portfolio was 2.11% in the first quarter of 2024, compared to 2.08% in the previous quarter. The ratio of the ACL to NPLs held-in-portfolio stood at 208.8%, compared to 204.0% in the previous quarter.
• The provision for credit losses for the loan portfolios for the first quarter of 2024 was $72.4 million, compared to $75.2 million in the previous quarter, reflecting the previously mentioned changes in the allowance for credit losses. The provision for the BPPR segment was $61.0 million, compared to $67.2 million in the previous quarter, while the provision for PB was $11.4 million, compared to $8.0 million in the previous quarter.
• The provision for credit losses on our loan and lease portfolios, as well as the provision (release) for credit losses related to unfunded loan commitments of $(0.2) million and our investment portfolio of $0.4 million for the first quarter of 2024 are aggregated and presented in the provision for credit losses caption in our Consolidated Statement of Operations. For the first quarter, these combined concepts resulted in a provision expense of $72.6 million, compared to $78.7 million in the previous quarter.

Total assets amounted to $70.9 billion at March 31, 2024, an increase of $178.8 million from the fourth quarter of 2023, driven by:

• an increase in securities available-for-sale (“AFS”) of $1.3 billion, mainly due to purchases of U.S. Treasury Securities, partially offset by repayments and maturities and higher unrealized losses on mortgage-backed securities;
• an increase in other assets of $106.3 million mainly due to unsettled trade receivable from the maturity of U.S. Treasury Notes during the first quarter for which the proceeds were received during the second quarter; and
• an increase in loans held-in-portfolio of $53.8 million driven by an increase of $123.8 million at BPPR, mainly in the mortgage portfolio as well as in auto loans, partially offset by a decrease of $70.1 million at PB mainly from commercial loans;

partially offset by:

• a net decrease in cash and money market investments of $1.2 billion due to the investments in the debt securities portfolio and loan originations; and
• a decrease in securities held-to-maturity (“HTM”) of $111.1 million driven by maturities of U.S. Treasury securities, partially offset by the amortization of $44.0 million of the discount related to U.S. Treasury securities previously reclassified from the AFS to HTM.

Total liabilities increased by $148.4 million from the fourth quarter of 2023, driven by:

• an increase of $190.5 million in deposits, mainly in retail deposits, time deposits and deposits in trust, partially offset by a decrease in P.R. public sector accounts at BPPR;

partially offset by:

• a decrease of $25.3 million in assets sold under agreements to repurchase mainly due to maturities at PB; and
• a decrease of $20.6 million in notes payable due to $20.0 million in repayment of Federal Home Loan Bank Advances mainly in PB.

Stockholders' equity increased by $30.4 million from the fourth quarter of 2023, mainly due to net income for the quarter of $103.3 million and the amortization of unrealized losses from securities previously reclassified to HTM of $35.2 million, net of taxes, partially offset by the after-tax impact of the increase in net unrealized losses in the portfolio of AFS securities of $71.1 million and common and preferred dividends declared during the quarter.

Common Equity Tier 1 ratio (“CET1”), common equity per share and tangible book value per share were 16.36%, $71.32 and $60.06, respectively, at March 31, 2024, compared to 16.30%, $71.03 and $59.74, respectively, at December 31, 2023. Refer to Table A for capital ratios.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including without limitation those regarding Popular’s business, financial condition, results of operations, plans, objectives and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include, without limitation, the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes (including on our cost of deposits), our ability to attract deposits and grow our loan portfolio, capital market conditions, capital adequacy and liquidity, the effect of legal and regulatory proceedings, new regulatory requirements or accounting standards on the Corporation’s financial condition and results of operations, the occurrence of unforeseen or catastrophic events, including extreme weather events, pandemics, man-made disasters or acts of violence or war, as well as actions taken by governmental authorities in response thereto, and the direct and indirect impact of such events on Popular, our customers, service providers and third parties. Other potential factors include Popular’s ability to successfully execute its transformation initiative, including, but not limited to, achieving projected earnings, efficiencies and return on tangible common equity and accurately anticipating costs and expenses associated therewith, imposition of additional or special FDIC assessments, changes to regulatory capital, liquidity and resolution-related requirements applicable to financial institutions in response to recent developments affecting the banking sector and the impact of bank failures or adverse developments at other banks and related negative media coverage of the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks. All statements contained herein that are not clearly historical in nature, are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions, and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, are generally intended to identify forward-looking statements.

More information on the risks and important factors that could affect the Corporation’s future results and financial condition is included in our Form 10-K for the year ended December 31, 2023 and in our Form 10-Q for the quarter ended March 31, 2024 to be filed with the Securities and Exchange Commission. Our filings are available on the Corporation’s website ( www.popular.com ) and on the Securities and Exchange Commission website ( www.sec.gov ). The Corporation assumes no obligation to update or revise any forward-looking statements or information which speak as of their respective dates.

About Popular, Inc.

Popular, Inc. (NASDAQ: BPOP) is the leading financial institution in Puerto Rico, by both assets and deposits, and ranks among the top 50 U.S. bank holding companies by assets. Founded in 1893, Banco Popular de Puerto Rico, Popular’s principal subsidiary, provides retail, mortgage and commercial banking services in Puerto Rico and the U.S. Virgin Islands. Popular also offers in Puerto Rico auto and equipment leasing and financing, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the mainland United States, Popular provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank, which has branches located in New York, New Jersey and Florida.

Conference Call

Popular will hold a conference call to discuss its financial results today, Tuesday, April 23, 2024 at 11:00 a.m. Eastern Time. The call will be broadcast live over the Internet and can be accessed through the Investor Relations section of the Corporation’s website: www.popular.com .

Listeners are recommended to go to the website at least 15 minutes prior to the call to download and install any necessary audio software. The call may also be accessed through a dial-in telephone number 1-833-470-1428 (Toll Free) or 1-404-975-4839 (Local). The dial-in access code is 734300.

A replay of the webcast will be archived in Popular’s website. A telephone replay will be available one hour after the end of the conference call through Thursday, May 23, 2024. The replay dial in is: 1-866-813-9403 or 1-929-458-6194. The replay passcode is 769181.

An electronic version of this press release can be found at the Corporation’s website: www.popular.com .