管理層發言
Good day, and thank you for standing by. Welcome to the Popular Inc. Second Quarter 2026 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 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 are our President and CEO, Javier D. Ferrer-Fernández; our CFO, Jorge Jose García; and our Chief Risk Officer, Lidio V. Soriano. We'll 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. Before 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 uncertainties. 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. You may find today's press release and our SEC filings on our webpage at popular.com. I will now turn the call over to Javier.
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 spend 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 Chief Risk Officer. I extend my most sincere congratulations to the three of them. These appointments reflect a thoughtful succession process and demonstrate the depth, experience, and strength of our leaders. It is not about one 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 the first quarter. 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 I turn 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 moderated somewhat from the very 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 de Puerto Rico 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 onshoring and manufacturing investment activity; since 2025, the manufacturing sector has announced approximately $2.3 billion of investments and more than 5,000 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. Cruise passenger arrivals increased approximately 45% year over year through May. Air passenger traffic at Luis Muñoz Marín 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 three objectives: to be the number one 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 U.S. Virgin Islands. We are pleased that more than half of Banco Popular de 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 and professional journeys. In Puerto Rico, we are deepening relationships with healthcare professionals and pursuing opportunities in other attractive high-value segments. In the U.S., 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?
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 collaboration 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, I am honored by the opportunity to lead this great organization. After more than 20 years working across our U.S. 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: ROTCE was 17%, up from 15.5% in the first quarter and 13.3% a year ago. Given the strength of our results and our confidence in our ability to deliver sustainable returns, we are establishing a higher annual ROTCE 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 loan growth, fixed asset repricing, and higher investment balances supported by deposit growth at Banco Popular de Puerto Rico. 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 and continued mortgage growth at BPPR. Our loan growth guidance remains consistent with 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 U.S. 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 are 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 balances, overall deposit trends remain stable and 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 to $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. At BPPR, 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, we 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, noninterest income improved by 7%, driven by growth in debit and credit card fees of 13% to 17%, as well as a 7% increase in asset management and insurance fees, demonstrating our ability to benefit from our breadth of product offerings. We now expect quarterly noninterest income to be in the range of $165 million to $170 million for the year, reflecting continued strength in interchange income from 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. The 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 personnel expenses during the second half of the year. Based on current trends, we expect full-year expense growth to remain 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% and 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 of the end of the second quarter, we 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 in 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 historically low delinquency levels and net recoveries. While underlying consumer mortgage trends continue to improve, credit metrics this quarter were primarily influenced by two 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 removed the corporation's largest nonperforming commercial exposure. Separately, two unrelated commercial and industrial relationships 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 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 two 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 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-offs to be in the range of 65 to 80 basis points for the full year. The decline in the allowance was largely driven by the resolution of the telecommunications 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 continued strength in the consumer and mortgage portfolios. 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.
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 returned 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 three strategic objectives, these efforts reflect our commitment to creating long-term value for our customers, employees, communities, and shareholders. On 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, relationships 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 gratitude 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.
分析師問答
To ask a question during the session, please press *11 on your telephone and wait for your name to be announced. Our first question comes from Jared David Shaw of Barclays. Your line is open.
Thank you. Good morning. Javier, congratulations on your retirement. Jorge, Lidio, and Luis, looking forward to working with you in your new roles as well.
Alright. Thank you. It has been a privilege. Thank you.
There are a lot of good things in this quarter to talk about. But when you look at the target for ROTCE and the buyback that was announced, have you changed your underlying expectations for optimal capital levels? And should we think of that $1 billion authorization as a 12-month goal for buybacks?
Good morning, Jared. The authorization does not have a time limit, so I want to clarify that it is not a 12-month deadline. 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, 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 2025 net income. So we like that framework to understand the math and let the balance sheet grow; that certainly will help reduce CET1 as we go forward. We are still open to optimizing our capital stack; we are still considering additional tier 1 capital to strengthen that part and free efficiency in our capital structure. Frankly, market rates are not in our favor right now, and there is no reason for us to pursue that given the size of capital that we have—it's just an optimization strategy. Other than that, we continue committed to reducing CET1 over time in an intentional way, while maintaining flexibility. But certainly, we understand the desire to see more capital return over time.
And then looking at loan growth, it sounds like the underlying economy is still strong and you are in a good position. What would have to happen—either in your business or in the market—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?
We did have strong growth in both markets this quarter. In the U.S., we've talked about our construction portfolio that has continued to increase, but we do still believe there are headwinds related to timing of payoffs as borrowers term out those construction loans versus the pipeline and the speed at which, particularly in our New York multifamily development market, projects are progressing. That is a headwind. In Puerto Rico, over the last few years, including in the second quarter, we benefited from some large-ticket loans. Looking at the pipeline, while there is still a lot of activity and good opportunities, we do see fewer of those large-ticket loans. That is something we have in mind. Looking further out, we expect more spending in public works or infrastructure projects as we approach an election year in 2028; there is often activity like that in Puerto Rico. Given our size, we usually get the first look at many of these projects; we won't always pursue them and we won't always win, but we will be selective. One important point: resolving the $155 million loan this quarter reduced the net growth of the loan portfolio. So that also affects growth comparisons this period.
Okay. Thanks. And one more on the inflows—the two loans you called out placed on nonaccrual. Any thought around what loss content could be there? Do you have reserves already, or is that something you will work out over time, with not necessarily a lot of loss content?
A lot of the driver for the provision this quarter was those two loans, actually. When you look at the overall performance of our credit book, it was positive: we saw improved delinquency performance and strong mortgage performance. A significant portion of the provision this quarter was related to those specific commercial loans. We did not disclose specific amounts beyond what is in our filings, but the provision coverage is based on the information we have as of today.
Thank you.
Our next question comes from Brett Rabatin of Stonix Group. Your line is open.
Hey, good morning, everyone. I will add my congratulations to everyone on their new roles and endeavors.
Thank you, Brett. Welcome back.
I wanted to talk about the competitive landscape. It sounded like you might be seeing some increased competition. Can you talk about both the U.S. and Puerto Rico—what you are seeing and whether competition is increasing on the island in particular?
I'll share some thoughts and then Jorge will add color. We've said in recent quarters that competition has been present. Puerto Rico is always competitive—local banks, big banks, fintechs, and other financial institutions compete across different segments, products, and services. That said, competition has been rational. We will defend our turf and price reasonably on deposits and credit products. We will not pursue opportunities that do not make sense, and sometimes we'll let opportunities pass if they are not attractive considering all factors.
In the U.S., we are seeing continued competition, particularly in Florida and New York. In Florida, competition often comes from smaller community banks and localized players; in New York, it tends to be larger players. We're also seeing tough competition in online channels where yield is a competitive advantage. In Puerto Rico, our deposit cost did go up on the nonpublic side by 2 basis points, which we had expected; this reflects our targeted focus on retaining relationships. Since late 2024, we've revised our incentive structures and exception pricing matrices, which has been successful in retaining good clients.
That is helpful. On the expense guide for the year, even at the higher end of 2% to 3% that implies a pickup from here. Are there projects in the back half of the year that would raise professional fees, or are there savings you've realized that explain the inflection in the back half versus the second quarter in particular?
We do expect incentives to be higher in the second half, and one big item is our annual salary increases effective in July, which add roughly $4 to $5 million per quarter. We continue to work on our transformation efforts and there is an ebb and flow of project-related costs. Our guide includes profit-sharing ranges and, even if we maximized profit sharing, it still fits within the range we provided. We are managing expenses through efficiency efforts but not by slowing down strategic transformation or technology projects that are important to the business.
Great. Thanks for the color, guys.
Thank you.
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; your passion and intensity definitely stand out. I'm sure your family will look forward to having you around more.
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.
On the deposit side, excluding government deposits, balances were down. It looked like demand deposits were the area with a decline. Any color in terms of seasonality or other drivers?
Yes, there is seasonality. In the first quarter ending balances go up due to tax refunds; average balances are flat. In the second quarter, we see higher average balances and ending balances start to come down as clients spend those refunds. In the third quarter, we expect ending balances to come down further and average balances to decline somewhat, and in the fourth quarter ending balances come off while averages stabilize. Second quarter behaved as we would have expected based on those trends. Excluding public funds in Puerto Rico, ending balances dropped around $250 million. We saw increased POS spend, which is consistent with higher interchange income and the rise in debit and credit card fee income year over year. We also saw some higher payments to government, driven by estimated tax payments from pharmaceutical and manufacturing companies.
And on the consumer credit strength, was that also impacted by a one-time tax benefit to individuals in Puerto Rico this quarter, and is that benefit sustainable or more of a one-time effect?
There is seasonality in deposits and also seasonality in consumer performance, which is driven by tax returns. What is encouraging is that delinquencies and charge-offs are below the same period last year. So while we do see seasonality, the first half of the year this year actually showed better performance than the same period last year. We are very encouraged by the trends in our consumer portfolio.
Thank you.
Our next question comes from Timur Braziler of UBS. Your line is open.
Hi, good morning, everyone.
Morning, Timur.
Looking at the back half of the year: on deposit trends, does the second-quarter end-of-period decline indicate the magnitude of third-quarter seasonality? Also, you mentioned margin being flat for the rest of the year with moving dynamics around deposit pricing and public funds. With the 3-month Treasury yield moving up during the second quarter, is the expectation that margin is flat in each of the next two quarters, or could you see a tick down in the third quarter and then recovery in the fourth as some public funds are wound down?
When we say stable, we mean stable for the rest of the year based on what we are seeing now. The first driver is mix: we increased our exposure to public funds in Puerto Rico, which are higher cost at size and will impact NIM. The 3-month Treasuries rising is not necessarily reflected in a move in federal funds, so there is some basis risk that can compress spreads. We will continue investing in Treasuries, T-bills, and notes to mitigate some of that pressure. Our NII and NIM guidance reflect current futures and rates expectations, including potential Fed changes.
On the updated ROTCE range: adjusted ROTCE this quarter was around 16.5%. Are we near a peak level, or do you expect ROTCE to continue grinding higher as results normalize?
I would react to the 'peak' comment by saying we are not near a peak in what we can achieve as a franchise. We have only begun to see the results of our transformation program over the last four years. Teams are energized, and we are just getting started. I am not comfortable characterizing this as a peak.
That is great.
On capital return and mainland M&A: I recall some NOLs beginning to expire in 2028. How does that factor into potential mainland M&A? And on buybacks, would you need to optimize the capital stack before leaning into buybacks, or is the back-half-of-year run rate a good run rate to extrapolate going forward?
On the DTA and NOLs: yes, some NOLs begin to expire in 2028. The best way to realize the benefit of those is to increase profitability. We are focused on organic growth and improving performance; we are not going to drive an acquisition strategy solely to realize the benefit of the DTA. Part of the DTA that we are not able to utilize is reserved, so it is not part of our tangible value today. It is a benefit in acquisition considerations but not the driver for buying something.
Our primary focus continues to be on our transformation efforts. We are always looking for opportunities to add profitable niche businesses and teams in the U.S., but whole-bank M&A is not a priority. We have a high threshold for any transaction we would consider. Any opportunity would need to meet criteria such as strengthening core deposits with lower-cost funding, being commercially led, enhancing our niche commercial strategy, being geographically consistent or strategically adjacent, and importantly, fitting our culture of performance and employee well-being. We are mindful and selective; that will not change next quarter.
If you did issue preferreds or optimized the capital stack, would you be more inclined to use proceeds to front-load or upsize buybacks in any given quarter?
Absolutely. For us, optimizing capital could mean shifting CET1 to additional tier 1, and any proceeds from that would be used to promptly reduce CET1 by a similar amount, enabling more buybacks.
Perfect. Thank you, guys. Javier, congratulations again on your well-earned retirement, and I look forward to working with Jorge and the new team.
Thank you for those kind words. Thank you.
Our next question comes from Kelly Motta of KBW. Your line is open.
At the risk of repeating myself, congratulations again, Javier, on your retirement, and congratulations to Jorge and Lidio on your promotions. Javier, I hope you have something really fun planned. I'm looking forward to working with Jorge and Lidio. On expenses: you reiterated your guide, but with better NII and fee outlooks and likely higher profit sharing, are there projects that were pushed out or additional savings realized? Even though the overall guide didn't change, can you walk through the moving pieces?
We have ongoing efficiency efforts. In our baseline this year, we identified about $50 million in savings across the organization, which are not big splash projects but operational excellence items. For example, eliminating unused spare equipment or improving procurement practices can produce recurring savings. We are not managing transformation or major technology projects to hit expense guidance; we believe in investing in those efforts. Sometimes projects are delayed or hiring is slowed, or we realize favorable outcomes on dispositions, and those smaller actions add up to the range we provided. The guide also includes profit-sharing assumptions, and even with higher profit sharing, it fits within the 2% to 3% expense growth range.
One for Lidio: pre-COVID you guys often cited a normalized net charge-off ratio of 80 to 120 basis points. Given the continued lower underlying net charge-off trends, any update on how you think about a normalized net charge-off level for Popular now that we are further from the pandemic?
We provided guidance for the year to inform expectations. We have seen strong performance, particularly in the mortgage portfolio. In the past, that mortgage book had losses around 1%, but for the last three to four years there have been net recoveries rather than losses. That performance is contributing to the favorable results you are seeing in our overall net charge-off trends. Our current annual guidance reflects our view of normalized performance given today's portfolio mix.
That is helpful. I will step back. Congrats again to all.
Thank you. Thank you.
Our next question comes from Gerard Cassidy of RBC. Your line is open. He seems to have changed his mind. This concludes the question-and-answer session and today's conference call. Thank you for participating and you may now disconnect.