Popular, Inc. (BPOP) Earnings

Management highlights

- Leadership Transition * Outgoing CEO Javier Ferrer announced his retirement at the end of August 2026 after 12 years leading the firm, citing a focus on health and family. * CFO Jorge Garcia will succeed Ferrer as CEO; current Chief Risk Officer Lidio Soriano will move to CFO, and Luis Sosa will become the new CRO. Management stated the transition is planned, leverages internal depth, and will proceed smoothly over the coming weeks. * The new leadership team reaffirmed the firm’s existing three strategic pillars: become the number one bank for customers, operate as a simple and efficient institution, and deliver top-tier performance. - Macroeconomic & Market Conditions (Puerto Rico) * Overall business activity remained stable in Q2, after moderating from multi-year high levels, supported by a healthy labor market (5.8% unemployment in June), strong tourism, ongoing public and private infrastructure investment, and solid consumer spending. * Popular’s debit and credit card sales volume increased more than 7% YoY; construction activity remains strong, supported by federal disaster recovery funds and private sector projects. Unshoring and manufacturing investment has totaled ~$2.3 billion since 2025, adding over 5,000 direct jobs across pharmaceuticals, aerospace, logistics, tech, and advanced manufacturing. * Tourism hit 81% occupancy (approaching 2 million room nights) January-May 2026, up 7% YoY; cruise passenger arrivals increased 45% YoY through May. Air passenger traffic moderated 4% from record levels, but new route expansions from major airlines are expected to support future growth. - Strategic & Operational Progress * The firm continues to invest in blended digital and physical channel experiences, including ongoing retail branch network modernization to improve customer engagement. * On the commercial side, the modernized cash management platform launched with improved mobile and money movement functionality, and new corporate credit card solutions have gained rapid traction, now accounting for nearly half of total commercial purchase volume. * The firm is expanding targeted segment strategy: deepening relationships with healthcare professionals in Puerto Rico, and enhancing capabilities for community association banking in the U.S. mainland to drive growth.

Guidance

- Loan growth guidance is maintained at the low end of the 3% to 4% full-year range. - Full-year net interest income (NII) guidance was raised to 8% to 9% year-over-year growth, from prior levels; NIM is expected to remain generally stable for the remainder of 2026, despite higher costs on elevated Puerto Rico public deposit balances. - Full-year operating expense growth guidance is maintained at 2% to 3%, including profit sharing and performance compensation. - Full-year effective tax rate guidance was revised down to 14% to 15%, from prior estimates, due to higher projected tax-exempt income. - Full-year net charge-off ratio guidance is set at 65 to 80 basis points, revised after discrete Q2 commercial credit events. - The annual ROTC target was increased to a range of 14% to 17%. - Puerto Rico public deposits are expected to decline to a $20 billion to $22 billion range for the remainder of 2026, down from the Q2 end level of $22.7 billion. - The firm expects to repurchase $300 million to $400 million in common stock during the remainder of 2026 under the new $1 billion repurchase authorization.

Segment performance

The call does not break out financial performance for separate product segments in terms of absolute revenue or revenue contribution percentages. Aggregate corporate results for the quarter are: net income of $278 million, earnings per share (EPS) of $4.35 (up 15% QoQ and 41% YoY), return on tangible capital (ROTC) of 17%. Net interest income was $693 million, up $23 million quarter-over-quarter, with net interest margin (NIM) stable at 3.66% GAAP and 4.17% taxable equivalent (up 3bps QoQ). Non-interest income was $181 million, up $15 million quarter-over-quarter, driven by higher interchange income from new corporate credit card offerings. Operating expenses were $484 million, up $17 million quarter-over-quarter, primarily due to higher personnel and profit-sharing costs, plus increased credit card loyalty promotion expenses. Ending loan balances increased $460 million from the prior quarter to an unstated total, with growth across commercial, construction, and mortgage segments. Total deposit balances ended the quarter at $70.2 billion, up $2.6 billion QoQ, driven by a $3 billion increase in Puerto Rico public deposits, offset by a $400 million decline in non-public customer deposits. CET-1 ratio was 16.1%, up 16bps QoQ, and tangible book value per share was $87.94, up $2.96 QoQ.

Risks & headwinds

- Competitive pressure persists in both the U.S. mainland (particularly in Florida, New York, and online deposit channels) and Puerto Rico, from local banks, large national banks, and fintechs, pushing up deposit costs. - Two borrower-specific commercial and industrial loans totaling $129 million were placed on non-accrual status in Q2; management noted these are isolated cases not indicative of broader portfolio or industry deterioration, but represent near-term credit risk. - There is basis risk from rising 3-month Treasury yields that has narrowed asset-liability spreads, partially offset by the firm’s strategy of reinvesting in short-term Treasury securities. - The firm’s net operating losses (NOLs) begin expiring in 2028 if not utilized, though management has reserved for any unutilized portion and will not pursue acquisitions solely to capture this benefit.

Analyst Q&A

• Q: How does the new $1 billion share repurchase authorization align with the firm’s capital strategy, and what are your expectations for the pace of repurchases? /

  A: The new authorization has no fixed time limit. The firm plans to repurchase $300-$400 million of common stock for the remainder of 2026, which combined with the newly increased dividend will return ~100% of 2025 net income to shareholders. Management is still open to optimizing the capital stack by issuing additional Tier 1 capital, but current market rates are not favorable for this move, so there is no immediate plan to act. The firm will gradually reduce CET1 over time while retaining flexibility to support balance sheet growth.

• Q: What would push loan growth guidance up to the higher end of the 3-4% range, and what headwinds are currently holding growth at the low end? /

  A: Q2 saw strong growth in both U.S. and Puerto Rico markets, but there are two key headwinds: in the U.S. New York multifamily construction segment, loan payoffs are happening faster than new loans close, slowing net growth; in Puerto Rico, there is currently a lower pipeline of large-ticket commercial loans, even as overall activity remains strong. Resolving the $155 million non-performing commercial loan this quarter also reduced reported net loan growth. Management expects larger public infrastructure project lending to pick up as Puerto Rico approaches the 2028 election cycle, which could drive faster future growth.

• Q: Is competition intensifying in Puerto Rico and the U.S. mainland, and how is Popular responding? /

  A: Competition has long been present in Puerto Rico from local players, large national banks, and fintechs, but it remains rational. In the U.S., Popular faces competition from small community banks in Florida, larger incumbent players in New York, and aggressive pricing in the online deposit space. The firm uses targeted pricing incentives and relationship retention strategies, which have proven successful. It will forgo opportunities that do not meet rational pricing requirements rather than chasing unprofitable growth.

• Q: What is the firm’s stance on mainland U.S. M&A, especially given expiring NOLs starting in 2028? /

  A: NOL expiration will not drive an acquisition strategy; the firm already reserves for any unutilized NOLs, so this is not a core motivating factor. Whole bank M&A is not a current priority, and management remains focused on internal transformation efforts. If the firm does pursue smaller niche acquisitions, they must meet strict criteria: strengthen the low-cost core deposit franchise, align with the firm’s commercial-led niche strategy, fit geographically in the existing footprint, deliver synergies, have appropriate scale for the U.S. business, and match Popular’s corporate culture.