Popular, Inc. (BPOP) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Popular Inc second quarter 26 Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message at advising your hand is raised. To withdraw your question, please press *11 again. Please be advised I would now like to hand the conference over to your first speaker today, the Investor Relations Officer at Popular. Paul J. Cardillo. Please go ahead.

Good morning, and thank you for joining us. With me on the call today is our President and CEO, Javier D. Ferrer-Fernández, our CFO, Jorge Jose García and our CRO, Lidio V. Soriano. Will review our results for the second quarter and then answer your questions. Other members of our management team will also be available during the Q&A session. We begin, I would like to remind you that during today's call, we may make forward-looking statements regarding Popular. Such as projections of revenue, earnings, credit quality, expenses, taxes, and capital, as well as statements regarding Popular's plans and objectives. These statements are based on management's current expectations and are subject to risks and uncertainty. Factors that could cause actual results to differ materially from these forward-looking statements are discussed in today's earnings release, and our SEC filings. May find today's press releases and our SEC filings on our webpage at popular.com. I will now turn the call over to Javier. Javier D. Ferrer-Fernández: Well, thank you, Paul, and good morning, everyone. Before going into our results, I would like to comment briefly on this morning's announcement about my retirement at the end of August. After close to 12 incredible years at Popular, with the organization in a very strong position. I have decided to focus on my health and spending meaningful time with my family and close friends. I do so with great pride about what we have accomplished as a team and with complete confidence that Popular is left in the best possible hands. Jorge has the experience the vision, and the heart. To lead this organization forward with strength and care. he is not only a great professional, but even a better human being. I will work closely with him in the coming weeks in what will surely be a successful transition. Jorge also has the support of an extraordinary management team which includes among other talented and dedicated leaders Lidio, as the new CFO, and Luis Sosa, as the new CRO. I extend my most sincere congratulations to the 3 of them. These appointments reflect a thoughtful succession process and demonstrate the depth, experience and strength of our leaders. it is not about 1 person. it is about the whole institution and the quality of its people. With that, please turn to slide 4. To discuss the highlights of a very strong quarter. We reported net income of $278 million and earnings per share of $4.35, an increase of $0.57 per share or 15% from Q1. The results reflected higher net interest income, solid fee generation, continued balance sheet growth, and strong capital generation. Compared to the second quarter of last year, earnings per share increased by 41%. Our ROTCE improved to 17% during the quarter. We are very pleased with these results and remain focused on delivering sustainable through the cycle shareholder returns. Loans held in portfolio increased by $460 million during the quarter. Driven by growth in commercial construction and mortgage lending, While deposits increased by $2.6 billion. Primarily reflecting higher balances of Puerto Rico public deposits. Credit performance remained stable, with lower consumer net charge offs. Nonperforming loans declined during the quarter. Reflecting the resolution of a telecom relationship. We continue to return capital to shareholders. Repurchasing $125 million of common stock fully utilizing our $500 million authorization. And paying our quarterly dividend of $0.75 per share. Earlier this morning, we announced a planned 20% increase in our quarterly dividend to $0.90 per share and a new $1 billion share repurchase authorization. Before turning it to Jorge, I will comment on the business environment in Puerto Rico briefly. Business activity in Puerto Rico remained stable during the second quarter, while some indicators have somewhat moderated from the strong levels experienced over the last several years, overall economic conditions continue to be supported by a healthy labor market strong tourism activity, ongoing infrastructure investment, and strong consumer spending. The labor market is healthy, with unemployment at 5.8% in June, Employment remained broadly stable and continued to benefit from strength in construction leisure and hospitality. Consumer spending remains strong. Popular's debit and credit card sales volume increased by more than 7% year over year. Demonstrating continued activity across our customer base. Mortgage balances at Banco Popular increased modestly during the quarter and demand continues to be supported by strong underlying fundamentals although affordability remains a constraint. Construction activity remains strong and is being supported by both public and private investment including the continued deployment of federal disaster recovery funds and a growing pipeline of private sector projects. We are encouraged by the onshoring and manufacturing investment activity Since 2025, the manufacturing sector has announced approximately $2.3 billion of investments and more than 5 thousand direct jobs across pharmaceutical, aerospace, logistics, technology, and advanced manufacturing sectors. Tourism continues to be a major source of strength for the Puerto Rico economy. Hotel demand approached 2 million room nights or 81% occupancy from January through May of this year. Increasing approximately 7% versus the same period in 2025. To boot, cruise passenger arrivals increased approximately 45% year over year through May. Air passenger traffic at Luis Munoz Marin International Airport moderated a bit from record levels, declining approximately 4% year over year during the quarter. However, Puerto Rico continues to benefit from airline expansion announcements including new routes and increased service from JetBlue Southwest Frontier and Avelo Airlines. Which should support future visitation and economic activity. Moving to our strategic framework, we continue advancing our 3 objectives. To be the #1 bank for our customers, to be simple and efficient, and to be a top performing bank. Our strategy is centered on delivering innovative, relevant solutions to our clients that deepen relationships. Improve their experience in every interaction with us, and support sustainable growth across the markets we serve. To achieve this, we are focused on providing our clients with the flexibility to interact with Popular through the channel that best meets their needs while maintaining our high service standards. Frankly, it comes down to delivering great experiences. To blend the speed and convenience of self-service with personalized support and the human touch, We have continued to invest in our physical and digital channels. Key examples are the ongoing modernization of our retail network to enhance branch appearance and improve technological capabilities. Our extensive branch network provides us with a competitive advantage in Puerto Rico and The Virgin Islands. We are pleased that more than half of Puerto Rico's Banco de Vallaro Puerto Rico's branches have been upgraded to our new look and feel. We also continue to leverage digital tools to strengthen engagement with our retail customers and help them make informed financial decisions. These initiatives are delivering measurable results. On the commercial side, our modernized cash management platform is improving the client's experience through mobile functionality and enhanced money movement capabilities. Also, our newly launched corporate credit card solutions continue to gain traction and already account for nearly half of our commercial purchase volume. We continue to expand our targeted segments strategy by tailoring our offerings to the unique needs of specific client groups throughout their personal professional journeys. In Puerto Rico, we are deepening relationships with health care professionals and pursuing opportunities in other attractive high value segments. In The US, we are working to enhance our community association banking business developing capabilities that simplify the customer experience and enable business growth. Together, these initiatives reinforce the strategic intent behind our new institutional campaign Aquí Crecemos. The campaign reflects our conviction that Popular is uniquely positioned to support the growth of our customers, businesses, and communities we serve. As they grow, we grow. I will now turn the call over to Jorge for more details on our financial results. Jorge? Jorge Jose García: Thank you, Javier. Good morning, and thank you all for joining the call today. Before covering the quarter's results, I want to thank Javier for his leadership, guidance, and collaborations over the last few years. I have worked with him for over a decade and learned a lot from him. I am grateful for his friendship above all else. I look forward to working closely with him through the transition and continuing to benefit from his advice, as he gets ready to enjoy a well deserved retirement. I am also excited to continue working alongside Lidio in his new role as CFO. I know firsthand that he will bring experience, analytical rigor, and an innovative perspective to the finance organization. On a personal level, am honored by the opportunity to lead this great organization. After more than 20 years working across our US and Puerto Rico operations, I have learned that what makes Popular special is our people. This is an organization with many leaders who help sustain its success. I am fortunate to take on this role at a time of great momentum and enthusiasm. I do not take this responsibility lightly, and I hope to inspire my colleagues to continue building on that momentum for years to come. As Javier said, this was a very strong quarter. We performed ahead of our expectations across nearly all categories. As our teams continue to be focused on executing their business plans, in support of our key strategic objectives. Results reflected higher net interest income, stronger fee income, expense discipline, and a lower provision expense. Profitability continues to improve. 17%, up from 15.5% in the first quarter and 13.3% a year ago. Given the strength of our results, and confidence in our ability to deliver sustainable returns, we are establishing a higher annual ROC objective of 14% to 17%. We will continue to use all available levers to position the company as a top performing bank relative to Mainland peers and to deliver attractive returns through the cycle. Please turn to slide 7. Net interest income increased by $23 million to $693 million, driven by the loan growth fixed asset repricing, and higher investment balances supported by deposit growth at BPPR. On a GAAP basis, NIM remained stable at 3.66%. On a taxable equivalent basis, NIM expanded 3 basis points to 4.17%. Primarily reflecting a higher contribution from tax exempt assets in the quarter. Ending loan balances increased by $460 million, including growth in commercial and construction lending across both banks. Continued mortgage growth at BPPR. Our loan growth guidance remains consistent from last quarter at the low end of the 3% to 4% range. In our investment portfolio, we have maintained our strategy of reinvesting proceeds from bond maturities into US treasury notes and bills. During the quarter, we purchased approximately $1.1 billion of treasury notes with a duration of 2.8 years at an average yield of around 3.9%. Deposit balances ended the quarter at $70.2 billion. Increasing by $2.6 billion compared to the first quarter. Puerto Rico public deposits increased by approximately $3 billion. Customer deposits, excluding public funds, declined by $400 million. The point to point decreases in balances is consistent with historical seasonality as our clients spent the windfall from tax refunds. This activity also drove the lift in interchange income during the quarter. On an average basis, total deposits increased by $1.9 billion, or by $800 million when excluding Puerto Rico public deposits. Despite some seasonal movement in customer balance, balances, overall deposit trends remain stable. Continue to reflect the strength of our franchise. Puerto Rico public deposits ended the quarter at $22.7 billion We expect public deposits to be in the range of $20-22 billion for the rest of the year. Total deposit cost increased by 1 basis point to 1.57%. Demonstrating continued stability of our funding base. BBBR, deposit cost increased by 1 basis point, driven by a 2-basis-point increase in nonpublic customer deposits as a result of targeted retention strategies while public deposit cost decreased by 5 basis points. At Popular Bank, deposit cost increased by 4 basis points. Reflecting competitive conditions in our markets and the online deposit space. Given the favorable funding trends in Puerto Rico and balance sheet growth, now expect net interest income to increase between 8% to 9% for the year. While higher balances of Puerto Rico public deposits contribute to NII growth, their higher cost is expected to temper some of the benefit to margin. Therefore, we expect NIM to remain generally stable for the rest of the year. Please turn to Slide 8. Noninterest income increased by $15 million to $181 million and was above our guidance range. Compared to the second quarter of 2025, non-interest income improved by 7%, driven by growth in debit and credit card fees of 13% to 17%, as well as a 7% increase in the asset management and insurance fees. Demonstrating our ability to benefit from our breadth of product offerings. We now expect quarterly non-interest income to be in the range of $165 million to $170 million for the year. Reflecting continued strength in interchange income from the debit and credit card activities and including growing contributions from our corporate credit card offerings. Please turn to slide 9. Operating expenses increased by approximately $17 million to $484 million. Increase was primarily related to higher personnel costs, including profit sharing expense, and performance based compensation linked to the corporation's financial results. Business promotion expenses also increased due to higher credit card loyalty program activity. We continue to invest in technology, digital capabilities, and transformation initiatives. Along with our annual salary increases that are expected to impact personal expenses during the second half of the year. Based on current trends, we expect full year expense growth to remain at approximately 2% to 3% for the year. Including profit sharing expenses. Our effective tax rate was 14% during the quarter, driven by higher tax exempt income. We now expect the effective tax rate for the year to be between 14% to 15%. Due to higher projected exempt income. Please turn to slide 10. Tangible book value per share increased by $2.96 to $87.94. While CET1 increased 16 basis points to 16.1%. Reflecting strong internal capital generation. During the quarter, we returned a total of $174 million to shareholders with $125 million coming from common stock repurchases. Year to date, we have repurchased $280 million in common stock. As at the end of the second quarter, have fully utilized the $500 million common stock repurchase authorization approved in 2025. Earlier today, we announced a 20% increase in our quarterly dividend to $0.90 per share. Beginning in the fourth quarter. Subject to board approval as well as a new share repurchase authorization of up to $1 billion. During the remainder of 2026, we expect to repurchase an additional $300 to $400 million in common stock. Our capital actions continue to reflect a balanced approach between supporting growth maintaining capital strength, and returning excess capital to shareholders. With that, I turn the call over to Lidio.

Thank you, Jorge. Good morning. Before turning to credit, I would like to briefly acknowledge the leadership transition we announced today. First, I want to express my sincere gratitude to Javier. For his leadership, guidance, dedication to Popular, and friendship to me. I am also excited and humbled to take on the CFO role. Succeeding Jorge. And I look forward to supporting him as he steps into the CEO role. Finally, I want to congratulate Luis Sosa, Who will succeed me as chief risk officer. Luis has been a trusted partner and I am confident he will do an outstanding job leading our risk organization. With that, credit quality remained stable during the second quarter supported by continued improvement in consumer credit performance, stable mortgage strength, and the resolution of a previously disclosed commercial loan. In the consumer portfolio, performance continued to improve. Consumers remained resilient despite elevated gas prices and inflation, supported by higher tax refunds and a solid labor market. Net charge offs benefited from lower losses the auto portfolio and the allowance for consumer loans declined reflecting improved credit quality in auto and credit cards. Mortgage performance continued to be strong. With historical low delinquency levels and net recoveries. While underlying consumer mortgage trends continue to improve, report that credit metrics this quarter were primarily influenced by 2 significant commercial developments. First, we resolved our largest nonperforming relationship. A 155 million commercial loan that had been classified as nonperforming since the third quarter of 2025. During the quarter, we recognized a $71 million charge-off and transferred the remaining $84 million balance to loans held for sale. The sale was completed on July 2 for $84 million. From a credit quality perspective, this resulted in and removed the corporation's largest nonperforming commercial exposure. Separately, 2 unrelated commercial and industrial relationship totaling approximately $129 million were placed on nonaccrual status. These were borrower specific situations and are not indicative of broader deterioration in the portfolio or in the industries in which those borrowers operate. Turning to slide number 11. Total nonperforming loans decreased by $45 million to $413 million and the NPL ratio improved to 1.04% compared with 1.17% in the prior quarter. BPPR NPLs decreased by $52 million, while NPLs in Popular Bank increased by $8 million, primarily driven by commercial NPLs. Excluding consumer loans, NPL inflows increased by $137 million, primarily reflecting the 2 C&I relationships I discussed. We continue to monitor commercial trends closely. However, the activity remains isolated to a small number of borrowers. Turning to slide number 12. Net charge offs were $104 million, or an annualized 1.05% compared to $60 million, or 61 basis points in the prior quarter. The increase was primarily driven by the $71 million charge-off associated with the resolved commercial relationship. Excluding this commercial charge off, the net charge off ratio was 33 basis points. Driven by continued improvement in consumer performance, including lower auto losses and net recoveries in our mortgage portfolio. Given our year to date commercial charge offs and NPL inflows this quarter, we now expect net charge off to be in the range of 65 to 80 basis points for the full year. The decline in allowance was largely driven by the resolution of the telecommunication relationship. And continued improvement in consumer portfolio performance. These benefits were partly offset by reserves established for the new commercial inflows and continued loan growth. Our allowance coverage remains strong. The ACL to loans ratio was 1.97% and the ACL to NPL ratio increased to 190% from 180% in the prior quarter. To summarize, while the quarter included a few discrete commercial credit events, the underlying trends in our portfolio remained stable. Supported by continuous trends in the consumer mortgage portfolio. We have proactively addressed our largest nonperforming exposure, maintain strong reserve coverage, and continue to monitor our loan book. With that, I would like to turn the call over to Javier for his concluding remarks. Javier D. Ferrer-Fernández: Thank you. Thank you, Lidio and Jorge. For your kind words and update. We are very happy with our second quarter results. During the quarter, we delivered strong earnings growth, stable margin performance, continued balance sheet growth, and announced meaningful increases in capital return to our shareholders. At the same time, we continue to advance our strategic priorities and invest in the long term growth of our franchise. A source of pride for me and our employees is supporting our communities, through investments and partnerships that create long term social environmental, and economic value. These efforts and the progress achieved in 2025 are detailed in our corporate sustainability report published in June. Some highlights include the deployment of more than $1.1 billion in loans to support small businesses and entrepreneurs across our regions and the launch of Mi Crédito, to help customers better understand and improve their credit profile. Together with our financial performance, and our 3 strategic objectives, These efforts reflect our commitment to creating long term value for our customers employees, communities, and shareholders. Behalf of my colleagues, I thank our clients and shareholders for their continued trust and support in Popular. On a personal note, I want to express my profound gratitude to everyone that has been a part of my extraordinary journey at Popular, a journey full of challenges overcome shared learnings, and above all, relationship with special people that I will always treasure. I am especially grateful to my colleagues at Popular for their support trust, and dedication throughout the years. Leading this organization has been truly a privilege. I leave with enormous satisfaction and grateful. As I see Popular solid United, and moving forward with a clear purpose and strategy. And with that, we are now ready to answer your questions. Thank you.

Press *11 on your telephone and wait for your name to be announced. And our first question comes from Jared David Shaw of Barclays. Your line is open.

Thank you. Good morning. Javier, congratulations on your retirement. And Jorge, Lidio, and Luis, looking forward to working with you in your new roles as well. Javier D. Ferrer-Fernández: Alright. Thank you. it is been a privilege. Been a privilege. Thank you.

Yeah. You know, I guess, you know, there is there is a lot of good things in this quarter, I guess, to talk about. But when you look at the target for ROTCE, and the buyback, that is announced, I mean, have you changed your underlying expectations for optimal capital levels? And should we think of that $1 billion as a 12-month goal for buybacks? Jorge Jose García: So good morning, Jared. it is Jorge. So first, the authorization does not have a time limit. So, I want to clarify that it is not a 12-month, you know, deadline or anything like that. We did say that we would be executing buybacks for the rest of the year in the $300 to $400 million range. If you add that to the dividends expected, you know, with the increase in the third and fourth quarter, along with the activity that we have had year to date, that will cover around 100% of the 2025 net income. So, we like kind of that page to understand the math, and, you know, let the balance sheet grow, and that certainly help reduce the CET1 as we go forward. We are still open to optimizing our capital stack. You know, that is we are still out there, you know, the additional tier 1 capital to strengthen that part and free that efficiency in our capital stack. But, frankly, the market rates are just not in our favor right now, and there is no reason for us to do that. Given the size of capital that we have, and that really is just an optimization strategy. Other than that, I mean, we continue committed. You know, we have tried to be more intentful in our discussions to reduce the CET 1, but you know, we continue in our philosophy that we wanna do this over time. We wanna have that flexibility. But, certainly, we understand. Okay. Alright. Thanks for that.

And then looking at loan growth, it sounds like clearly the underlying economy still is strong and you are in a really good position there. What would have to happen, I guess, either in your business to see loan growth expectations move higher or even up to the higher end of the range. Given what we have seen so far this year. Jorge Jose García: Yeah. We did have the strong growth in both markets this quarter. In The US, we have talked about our construction portfolio that has seen some continued increase we do still believe that there are headwinds there in the timing of payoffs as people term out. Those construction loans versus the pipeline and the speed at which, particularly in our New York, you know, multifamily development market is moving. that is a little bit of a headwind. In Puerto Rico, you know, over the last few years and including in the second quarter, we benefit from some large ticket loans. And if we look at the pipeline, while there is still a lot of activity and a lot of good opportunities, we do see fewer of those large ticket loans. So that is something that have in mind. As we look maybe further out, we do expect probably more spending in public works or infrastructure projects as, you know, certainly, we approach a political you know, a election year in 2028, There is a lot of activity like that in Puerto Rico. As you know, we given our size, you know, usually get the first look at all these projects where not always going to, you know, pursue them. We are not always gonna win. but we are going to have a good chance to be selective. And we continue to intend to do that. 1 thing I will note on our guidance, you know, certainly, you know, resolving the $155 million loan this quarter, that also, you know, reduces the net growth of the loan portfolio. So Yeah.

Okay. Thanks. And I guess just if I could ask 1 more just on the inflow, those 2 loans that you called out. Any thought around what loss content could be there? Or if you have a reserve, or is that just something that you can work out over time, but not necessarily a lot of lost content?

I mean, a lot of the driver for the provision this quarter was those 2 loans, actually. So, I mean, when you look at the overall performance of our credit book was actually positive. We said we there was improved delinquency performance, credit metrics, from our consumer portfolio, and continued strong performance from our mortgage book. A lot of the provision that we have was related to those loans. We did not specifically talk about the amounts. But we think I mean, the other quality reserve based on the information that we have as of today. Thanks.

Thank you.

And our next question comes from Brett Rabatin of Stonix Group. Your line is open.

Hey, good morning, everyone. And I will add my congratulations to everyone on their new endeavors and roles. Javier D. Ferrer-Fernández: Thank you, Brett. Welcome back. I wanted to first just talk about the competitive landscape, and it sounded to me like a little bit, like, you know, perhaps you were seeing some increased competition.

Can you just talk about both The US and Puerto Rico and what you guys are seeing if there is any increased competitive levels on the island in particular. Javier D. Ferrer-Fernández: Yeah. I will share I will share some thoughts, and then Jorge, obviously, will chime in. I mean, I think we have been saying in the last few quarters that we have seen you know, competition. there is always competition in Puerto Rico. I mean, I do not get this idea that this is a is a market where competition is not is not present. We compete every day for what we do. And not only local competition, but also competition from big banks and fintechs and other financial institutions that come in and compete in different sec segments and you know, products and services. But that said, I mean, the competition is still rational. So we also said that we will defend our turf and price rationally and reasonably both on the deposit and on the and on the credit products. So we do not wanna do anything that does not make any sense, and sometimes we will we will we will let some opportunities pass if they do not make sense to us. Right? Consider considering all things considered. So in The United States, I do not know if you wanna add anything. Jorge Jose García: Yeah. So in the US, we are seeing continued competition, particularly in Florida, New York, and Florida, we see a lot of competition from smaller community banks, you know, more localized players. And then in the New York market, it tends to be from bigger players. We are also seeing tough competition in the online channels where really the yield is your competitive advantage there. So in Puerto Rico, our deposit cost did go up on the nonpublic 2 basis points. This is something that we have kind of forecast or predicted to you guys, you know, in these conversations. And they are just reflective of our kind of targeted focus on retaining relationship. And we have been since, I guess, the end of 24, just revised kind of our focus, the structures, incentives, as well as exception pricing, matrixes that allows us it is been very successful for us to retain good clients. Yep.

Okay. that is really helpful. And then on the expense guide for the year, you know, you obviously tweaked it down. But even you know, even at the higher end of particular of the 2% to 3%, you know, it implies a pretty good pickup from here even with the higher incentive compensation related to stuff in 2Q. Are there any projects related in the back half of the year that would raise professional fees or you talk about the inflection in the back half versus 2Q in particular? Jorge Jose García: Sure. We do expect incentives to get to go higher in the second half. You The 1 big item, as I mentioned in my prepared remarks, is our annual salary increases. They are effective in July. So that is, you know, probably adds you know, $4 or $5 million a quarter just on that. And then we continue to work on our transformation efforts. And as we said in the past, you know, you have-- you know, kind of this you know, ebb and flow of projects that get done and move on. And certainly, that is all part of the guide. 1 part that is important, and I think the significant change is that the guide does include, you know, the range of profit sharing, including if we had to max out on the profit sharing, it still fits within the range that we are providing you. Okay.

that is great. Thanks for letting the color, guys. Javier D. Ferrer-Fernández: Thank you.

Thank you. And our next question comes from Arren Cyganovich of Truist Securities. Your line is open.

Thank you. Best wishes to Javier. I really enjoyed meeting you last year. I was when I was kind of revamping on the name and I think your passion and your intensity definitely stands out, and I am sure your family is going to look forward to that. Javier D. Ferrer-Fernández: You know, I cannot be in the house too much or my wife will not like it. I cannot be in the house too much, or my wife will not like it. But, yes, thank you for those very kind words. And congratulations to Jorge, Lidio, and Luis. Jorge Jose García: Definitely will look forward to continue working with you.

On the on the deposit side, you know, ex government, they were down. I know you just talked about some of the competition. It looked like demand deposits was the area that where there was a little bit of a decline? You know, any color in terms of that, any kind of, like, seasonality, etcetera? Jorge Jose García: Yeah. Thank you. Yes, there is seasonality. I mean, I think we go through and what we have said in the past is that we see in the first quarter that ending balances go up. Average balances are, you know, you know, flattish. They can move along The second quarter, we see higher average balances and ending balances start coming down. And it is just really the cycle of tax refunds and then people using those tax refunds. Third quarter, we would expect the ending balances to come down, and we would also expect average balances to come down. that is been our kind of trend over the last few years. And in the Q4, we see that you know, the ending balances come off and average balances are more stable. So second quarter really behaved as we would have expected based on those seasonal trends. Averages that were significantly up, and the balances did come down. I think excluding nonpublic in Puerto Rico is around $250 million. When we look at and double click on the activity from our clients, frankly, where we see the big increase in outflows is in POS, so interchange. And that is consistent with the fee income that you saw increasing in debit card and credit card fee that is, you know, I think 7%, 13% up year over year. So we truly see our clients really using this money and spending it. We did see some higher payments to government, so higher tax payments from some of our clients. And, again, that is consistent with the increase that we saw in public funds that a large part of that increase was driven by estimated tax payments, particularly from pharmaceuticals and manufacturing companies. Okay. I appreciate that.

And then maybe in terms of the consumer credit continuing to be very strong, Was that also impacted by the onetime tax benefit to individuals in the quarter in Puerto Rico? And any kind of sustainable benefit? Or is that more of just kind of a onetime for the quarter?

I think, in the same token, the there is seasonality in deposits. There is also seasonality in our consumer performance. What I think we are most encouraged is the level of delinquencies and charge-offs are below same period last year. So it is not only that we see the seasonality, which is driven by tax return, you see lower losses and lower delinquencies in the first half of the year, than the second half. But in this first half of the year, it is actually lower than what we had last year. So we are very, very encouraged by the trends our consumer portfolio. Thanks, Lidio.

Thank you.

And our next question comes from Timur Braziler of UBS. Your line is open.

Hi, good morning, everyone. Javier D. Ferrer-Fernández: Morning, Timur.

Maybe, again, looking at the back end of the year, I was going to ask on the deposit trends as well, if the second quarter end of period decline, is any kind of indication 1 way or another to the magnitude of third quarter seasonality And I guess, in a similar light, you had mentioned margin flat for the rest of the year with some moving dynamics around accessory pricing and maybe some higher costs on the public fund side. I guess, with the 3 month moving up, the 3-month Treasury yield moving up, during 2Q, is the expectation that margin is flat in each of the next 2 quarters, or could you see that tick down in 3Q and then recover in 4Q as some of those public funds are wound down? Jorge Jose García: Yeah. I mean, when we say stable, we do mean stable for the rest of the year based on what we are seeing now. The first driver is the mix. Right? We have increased our target for public funds by 10%. that is our highest or the most costly deposit that we have in Puerto Rico or, you know, at size. So that is not you know, not unreasonable to see that they would have an impact on NIM. Other thing is just exactly what you talked about is that the 3 month treasuries have been going up. That does not that is not necessarily being reflected in a move in federal funds, so we are not getting you know, there is a little bit of basis risk there that narrows the spread on that. We will continue our strategy of investing in treasury, t bills, and notes that will mitigate some of that. Clearly, as we look out both our NII guidance and our NIM guidance, are taking into consideration kinda what we are seeing in futures right now. Okay. that is helpful. I am assuming any changes by the Fed, by the way, in that scenario.

Okay. that is helpful. Thank you. And then 1 more on the updated ROTCE range. Obviously, seasonally strong quarter. Jorge Jose García: I think adjusted ROTCE this quarter was like 16.5% or so. I guess where are we now kind of in your mind from a core standpoint? And as you think about the strength that the bank and the island had been enjoying over the last couple of years, Are we nearing that kind of peak-ish level here right now? Or is the expectation if you kind of normalize the last couple of quarters, that ROTCE and the current environment can continue grinding higher. Javier D. Ferrer-Fernández: Well, I am just going to say I am going to react to the peak comments I mean, I do not think we are nowhere near our peak. And what we can achieve as a franchise. I just wanna say that then maybe Jorge may add some rational numbers to this. Right? I mean, we are not we are not stopping here, quite frankly. I think we you know, we have only begun. I mean, we are seeing the efforts of the, you know, a lot of work, you know, on in our transformation program the last 4 years. Teams are energized. So I mean, I think I think we cannot really put about the a peak. I mean, we are as I said, we are just beginning. I am not sure that I need to add anything to that. Jorge Jose García: that is great. Javier D. Ferrer-Fernández: Thank you.

And then just last for me on capital return. So you upsized the buyback here. I am just wondering in terms of Mainland M and A, if I am not mistaken, you have some NOLs that are beginning to expire in 2028. I am just wondering where that factors in to the potential for doing mainland M&A And then on the buyback, would you need to optimize that capital stack prior to really leaning into it, or is this kind of back end of the year run rate a good 1 to extrapolate for the time going forward? Jorge Jose García: Let me ask let me answer the question about the DPA first. And then I am sure Javier can talk about M&A. But I am not sure I quite understood your the last part of that question, so please let's set that aside, and we will go back to it if you do not mind. On the DTA, you right. You know, the NOLs to begin to expire in 2028. The best way to realize the benefit of those is increase our profitability. We are focused on doing that. We are not going to drive a acquisition strategy to realize the benefit of that DTA. As you know, the part of the DTA or the NOL that we are not gonna utilize is reserved. So it is not, you know, part of our tangible value at this stage. It is a it is certainly a benefit, you know, if you were to look at M&A acquisition, but it is not gonna be the driver for buying something. Javier D. Ferrer-Fernández: So I do not know, Javier. Yeah. No. I think, Jorge, I think you have heard us say that our primary focus continues to be on our transformation efforts. We are always looking for opportunities to add profitable niche businesses and teams and assets in The US. As we have stated, So, but whole bank m and a is not a priority. And, you know, we have also said that, you know, there is a high threshold for any transaction that we may consider. And we level the opportunities to grow inorganically as long as they meet a few criteria and, you know, compelling enough for us to be relocating resources away from transformation being 1. Core deposits, it needs to strengthen our deposit franchise with lower cost deposits. It needs to be commercially led. It needs to enhance our commercial led niche business strategy. It needs to be consistent geographically. Create greater market penetration in our existing footprint increasing opportunities for value creation through cross-sell synergies or extend our presence to adjacent markets or geographies if the scale is gonna be important, or would be important, should be right sized for our US business, And for me, most importantly, of course, is the cultural fit. It needs to be aligned to our culture of performance and employee well-being. So, you know, we are very mindful of it. So that is that is our that is our stand on M&A. And by the way, you can imagine we are very collaborative around here. Yeah. We put those together as a team. I do not think that the answer will be much different the next quarter.

So, you had a third part to your question related to preferred. Jorge Jose García: Can you repeat that so we can address that?

Yeah. I guess maybe and thank you for the color on M&A. I guess maybe another way of asking the buyback question is if you do issue preferreds, if you do capital or optimize the capital stack, would you be more inclined to use those proceeds to maybe front load or upsize the amount you are willing to buy back in any given quarter? Jorge Jose García: Absolutely. Absolutely. I mean, for us, optimizing capital would mean we are shifting CET1 to additional tier 1 and whatever proceeds would be used to promptly or quickly reduce the CET 1 by a similar amount.

Perfect. Thank you, guys. And Javier, again, congratulations on the well earned retirement. Looking forward to working with you, Jorge, in your new role and the new team. Thanks, guys. Javier D. Ferrer-Fernández: Thank you for those kind words. Thank you. Thank you. Thank you.

And our next question comes from Kelly Motta of KBW. Your line is open.

At the risk of beating a dead horse, congratulations again, Javier, on your retirement. Congratulations to Jorge and Lidio on your subsequent promotions. I hope, Javier, you have something really fun planned, and I am looking forward to working with Jorge and Lidio in your expanded roles. Javier D. Ferrer-Fernández: Thank you. Thank you, Kelly. Yeah, any ideas you can share with me, I am all ears. I always have some fun ideas. Maybe offline. Yeah.

Maybe starting off on expenses. You reiterated your guide on expenses, but clearly, the NII outlook is better, fee outlook is better. Presumably, you guys are getting higher profit sharing expenses with that. Wondering you know, understanding that aspect of it, I am wondering if there were potentially projects that were pushed out or additional savings realized. Just hoping even though the overall is not changed, if we could kind of work through the moving pieces of that. Jorge Jose García: Yeah. I mean, we definitely have efficiency efforts that are ongoing. In our kind of baseline number this year, we had about $50 million in savings across the organization. None of these are huge, you know, big splash projects. These are really asking people to take an extra step and focus on excellence, operational excellence. And is, you know, some things as simple as, you know, we know that teams will hoard computers, you know, because they are worried that they have a computer, you know, crashes, then they can, you know, have a spare. Well, if you have a lot of people keeping spare computers for an emergency, it adds up. So we have gone back out and you know, destroy them, sold them, whatever we need to do to dispose of them, and that has a lot of savings and on an ongoing basis. And this is an example of the kind of aspects We are not managing the transformation or the large technology project driven invest investments to manage our expenses. I mean, certainly, we create budgets, and we have an appetite of the level of work we are going to do. But we are not trying to slow down a project to try to, you know, meet an expense guidance. We believe in the efforts of the team and the priority that this has and the value to you to our shareholders. So, truly, it is, you know, some things that you slow down, your hiring process or a project gets delayed or you know, you get you get lucky on something you thought were going to cost to dispose, and it did not cost to dispose it. You know? All these little things make a difference in our range.

Got it. that is helpful. And then maybe 1 for Lidio. I am gonna throw out a credit question. I think pre COVID, you guys used to always talk about maybe an 80- to 120-basis-point normalized net charge off ratio. Clearly, even with it was nice seeing the cleanup you had of that, like, large NPL that this quarter that impacted net charge-offs. But clearly, the underlying net charge off ratio continues to track lower relative to historical norms. Any update on how you guys are thinking about what normalized net charge off looks like at Popular now that we are further out from the start of the pandemic?

I think we are providing guidance of our expectation for the year. That should help inform that decision. And I agree with you. I mean, we have seen strong performance from our book, particularly our mortgage book. Our mortgage back in the days when you are citing the 100- to 120-basis-points, that book had losses of around 1%. And for the last 3 or 4 years, there have been net recoveries rather than losses. And that performance, I think, is driving the good results that you are seeing from our book.

Brett. that is that is helpful. I will step back. Congrats again to all. Javier D. Ferrer-Fernández: Thank you. Thank you.

And our next question comes from Gerard Cassidy of RBC. Your line is open. And he seems to have changed his mind. So this concludes the question and answer session, and today's conference call. Thank you for participating and you may now disconnect.