8-K: Popular, Inc. Announces Mixed Q4 2023 Results Amid FDIC Assessment Impact

Popular, Inc. reported a net income of $94.6 million for Q4 2023, which was impacted by a $45.3 million after-tax charge related to the FDIC special assessment.

Summary

• Popular, Inc. reported a net income of $94.6 million for the fourth quarter of 2023, a decrease from $136.6 million in the previous quarter.
• Adjusted net income, excluding the impact of the FDIC special assessment, was $139.9 million for Q4 2023.
• For the full year 2023, net income was $541.3 million, compared to $1.1 billion in 2022.
• Adjusted net income for 2023, excluding the FDIC assessment and other items, was $586.6 million, down from $807.8 million in 2022.
• Net interest income was $534.2 million, flat compared to the previous quarter.
• The net interest margin was 3.08%, slightly up from 3.07% in Q3 2023.
• Non-interest income increased to $168.7 million, a $9.2 million increase from the previous quarter.
• Operating expenses were $531.1 million, including a $71.4 million FDIC special assessment; excluding this, expenses decreased by $6.2 million.
• Non-performing loans decreased by $3.9 million from the previous quarter, with the NPL to loans ratio at 1.0%.
• Net charge-offs increased by $24.3 million from the previous quarter, with an annualized NCOs at 0.66% of average loans.
• Loans increased by $1.0 billion in ending balances and average quarterly balances from Q3 2023.
• Deposits increased by $280.6 million in ending balances and $285.9 million in average quarterly balances from Q3 2023.
• The Common Equity Tier 1 ratio was 16.30%, with a Common Equity per Share of $71.03 and a Tangible Book Value per Share of $59.74 at the end of December 2023.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the impact of the FDIC special assessment on net income, offset by positive trends in loan growth and stable net interest income. The company is facing headwinds but is managing them effectively.

Positives

• Adjusted net income for Q4 2023 was $139.9 million, showing underlying profitability despite the FDIC assessment.
• Net interest margin increased slightly to 3.08% in Q4 2023.
• Non-interest income saw a $9.2 million increase compared to the previous quarter.
• Excluding the FDIC special assessment, operating expenses decreased by $6.2 million.
• Non-performing loans decreased by $3.9 million from the previous quarter.
• Loans and deposits both saw increases from the previous quarter.
• The company's CET1 ratio remains strong at 16.30%.

Negatives

• Reported net income for Q4 2023 decreased to $94.6 million, significantly impacted by the FDIC special assessment.
• Full-year net income decreased from $1.1 billion in 2022 to $541.3 million in 2023.
• Net charge-offs increased by $24.3 million from the previous quarter.
• Operating expenses increased significantly due to the FDIC special assessment.

Risks

• The FDIC special assessment had a significant negative impact on the company's Q4 2023 earnings.
• Credit quality normalization is occurring, with consumer portfolios showing some deterioration.
• The company is monitoring the macroeconomic environment and borrower performance due to higher interest rates and inflationary pressures.
• The company's effective tax rate is expected to be within a range of 19% to 23% for 2024, which could impact future earnings.

Future Outlook

The company expects its effective tax rate for 2024 to be within a range of 19% to 23%. Management believes the outlook for the macroenvironment in Puerto Rico remains positive and they look forward to 2024 with optimism.

Management Comments

• Ignacio Alvarez, President and Chief Executive Officer, said: 'We delivered solid fourth quarter and year-end results and entered 2024 with strong momentum.'
• He also noted that the company was able to maintain stable net interest income while growing loans by approximately $1 billion during the quarter and $3 billion for the full year.
• He stated that credit quality remained strong despite some credit normalization in consumer portfolios.
• He also mentioned that the company managed operating expenses while continuing to invest in transformation efforts.
• He expressed gratitude to employees for their hard work and dedication during the year.

Industry Context

The results reflect the challenges faced by financial institutions due to the FDIC special assessment and the ongoing interest rate environment. The company's performance is also influenced by the economic conditions in Puerto Rico and the United States.

Comparison to Industry Standards

• Popular's CET1 ratio of 16.30% is strong compared to many regional banks in the US, which often target ratios between 10-12%.
• The net interest margin of 3.08% is within the range of many US banks, but the increase of 1 basis point is modest.
• The increase in net charge-offs to 0.66% is a sign of credit normalization, which is a trend seen across the industry as pandemic-era stimulus fades.
• The loan growth of $1 billion in the quarter is a positive sign, but the impact of the FDIC special assessment is a significant headwind.
• Compared to larger national banks, Popular's results are more sensitive to the local Puerto Rican economy, which is a key differentiator.

Stakeholder Impact

• Shareholders will see a decrease in net income and earnings per share due to the FDIC special assessment.
• Employees are acknowledged for their hard work and dedication.
• Customers are experiencing continued strong client activity and a growing customer base in Puerto Rico.
• Creditors are not directly impacted by the results, but the company's strong capital ratios provide stability.

Next Steps

• The company will continue to monitor the macroeconomic environment and borrower performance.
• The company will continue to invest in its transformation efforts.
• The company will hold a conference call to discuss its financial results.

Key Dates

Keywords

FDIC Special Assessment, Net Interest Income, Net Interest Margin, Non-Performing Loans, Net Charge-offs, Operating Expenses, Credit Quality, Loans, Deposits, CET1 Ratio