Popular, Inc. (BPOP) March 10, 2026 Conference Transcript

With our next fireside chat, Popular, Inc., a company that has about $75 billion in total assets. Market cap is around $8.5 billion, and we're very pleased and privileged to have Javier Ferrer, the president and CEO of Popular. He was president of Popular from, I guess, May of 24 and chief operating officer from January 22 to June 25. He's been a director at Popular Puerto Rico since 2015. So, Javier, thank you so much for coming. And most importantly, bring in the warm weather, especially after this winter.

Well, thank you for having us. It's a privilege and an honor.

Great. Though it's early in the year, maybe you could share with us how the Puerto Rican economy is shaping up for you. How popular is positioned, you know, to benefit from this economic growth? And then also tie in, if you don't mind, how important is the health of the U.S. economy to the Puerto Rican economy?

Well, I think we're doing fine in Puerto Rico, quite frankly. there's momentum in the economy which I believe has not slowed down of course given what's happened in the Middle East people are watching and the economy follows human psychology so if there's worry and there's uncertainty people begin to worry a little bit but we haven't seen it in the numbers yet frankly. So it's like we're going through a good period, low unemployment, high people, high number of people employed, even though we have less folks on island. The percentage of people working has the participation rate is higher now. It's still in the low 40 percent, 40 percent, 44, 45 percent, which is still low, but you know 5 percent more than it was a few years back. It's a broad-based recovery I want to say construction very strong hospitality very strong manufacturing very strong and there's there's it used to be a it the Puerto Rico economy used to move alongside the US economy frankly until 2006 when we lost 936 a big sort of tax benefit for US companies and foreign companies here operating in Puerto Rico so we decoupled and we went south the United States continue going north or right now I think it's sort of like recoupled let's say so whatever happens in the United States obviously impacts Puerto Rico particularly in the East Coast where we find a lot of folks visiting and again in a hospitality industry that continues to grow and contribute to our to you know jobs and and to a bottom line in the economy but so far you know there's momentum we're happy about it and given our size and footprint, you know, on market and the fact that we've only been there for 132 years, 133 this year in October, you know, we are the main player. We're very honored to be so. We've earned that place. We work hard. We're almost everywhere. Our stores, our branches are almost everywhere in Puerto Rico. So we'll benefit from Puerto Rico's growth. We're a very active participant. We We collaborate in policy decisions. We have good relationships with the government and the Fiscal Oversight Board, who has been in Puerto Rico for 10 years now. So you know, all good. All good.

Maybe you could share with us, there's been a move since the pandemic for onshoring in America and there's obviously some benefits potentially for Puerto Rico. Can you share with us just some color on what you guys might be seeing down there?

Yeah, I mean, so that started with a promise of it actually happening to us seeing results. Absolutely, we, as we like to say, we're on the right side of the fence, right? So last year, the new governor came in about a year ago. The economic development team is young, but experienced with, you know, Their years are very active. And last year we got big announcements of companies either expanding investment and operations in Puerto Rico and also their employment base and people coming in, new people coming in. So last year was over $2.6 billion in new investment announced, close to 5,000 direct jobs. in the past that has generated a multiplier effect. So the early innings of the unshoring to Puerto Rico are proving also to be productive. And so we have a good relationship between our current governor and the White House, which is also something that we didn't have in the first Trump administration, quite frankly. So that's also benefited on the island so far. Yep.

Maybe another interesting aspect of what's going on in Puerto Rico is that because of the tax issues that you referenced in 06 when the advantages went away and Puerto Rico struggled with the economy, the out-migration of the population because the jobs weren't there, but that has, from the numbers we've seen, it's kind of leveling off. What do you hear from either family, friends, business, it just, it seems like, could we actually maybe see immigration at some point back there?

That's another good question. Absolutely. It's leveled off, to your point. Anecdotically, we don't have the best sort of data gathering for precisely what's happening You know, it's really, we need some time to go before we have, you know, six months or year before we actually have good data, or a quarter. It depends on exactly the data we're seeking, but it is. It's leveled off. Anecdotally, this is, you know, there's a bunch of talented, young folks, and for me young is anybody from 15 to 60, frankly, 50-something, wanting to come back. And we see it in high-paying jobs. We see it in high-tech jobs, you know, data, technology, analytics cyber fraud all the areas that we need to AI all the areas that the banks need to grow right to compete so we're seeing a lot of young people wanting to come back to Puerto Rico and some have come back we've been successful in in getting good talent in and other people also are getting good talent from the outside into Puerto Rico what's the issue the same as some parts in the States affordability. Housing is an issue in Puerto Rico, affordable housing. It's something that is going to take a little while to sort of get sorted out because you need to, obviously, a couple years to build certain projects that are now either on the works permitted and starting, you know. So that's an issue. That's an issue. It's expensive to get new homes in Puerto Rico. So, but it's a good trend. There's also, the government is also trying to help with specific tax abstention decrees for young professionals, substantially lowering their tax obligation, which is something that's very good. I don't qualify. I don't qualify, unfortunately, but I'm glad to see, again, young talent come back to Puerto Rico.

Yep, that's very, very good. Shifting to a different area, we hear a lot about the Basel III endgame, And there's talk about we'll hopefully get a proposal coming up in the next two to three weeks. And that's obviously the very large banks, very focused on it. But share with us just the regulatory environment from your perspective when you look at your size bank and how it's evolved over the last eight or five to ten years.

Yeah, well, we, well, we're the Basel III is still is not applicable to us yet. I mean, we are very conscious of what's happening out there on the regulatory side of things. I think our mindset, I'm going to try to be precise and not mislead anybody here with I think we take the regulatory aspects of our industry very seriously. What I mean by that is we understand the benefits of a flexi-mode regulatory mindset, but that doesn't mean that that's going to drive our strategy or how we operate or contraire I'd say I mean we will I mean we we have we have had situations where you know we'd have to fix certain things you know across our years so we understand we understand the weight of doing things right it's in our DNA to ready to operate correctly and within regulatory constraints it's a pendulum problem of sorts. We feel that it may come back, right, if there's a change in Washington. You do have state regulation, which is relevant. Our U.S. bank is chartered by New York DFS. So, you know, again, it doesn't inform how we strategize, but it's, you know, the risk aspect of it is important to us our risk group is very strong so you know we try to we try to keep abreast of developments we we are going to be intelligent in how we maximize any business decision to tailor changes that may be productive on the regulatory side but we're going to be cognizant of the fact that that may change we get we need to do the right thing by customers right Right. Right. So, you know, rational regulation is good for the industry.

Oh, yes. And it's good for us. Yep. Now you want to keep that 132 year streak alive. Absolutely. Absolutely. Yes. Maybe we could talk about capital. You're one of the best capitalized banks in your class. I think the CET1 ratio is just around 15.7% and certainly banks your size on the mainland are comfortable around 10 when their CET requirements are 7 and we know there's a mainland buffer that needs to be included in there. Can you share with us what's your comfort range on the CET1 ratio and how if If it is lower than where it is today, how do you get there?

Yeah, well, you know when you're on a road trip with kids, you know, and the question that you hear the most and continue hearing it is, are we there yet? Are we there yet? So that's the kind of psychology we get around this question, which is, by the way, a very rational and good question, and it's a question that our investors ask us, you know, on almost every meeting. So we recognize that we, some people say we're, you know, 500 to 600 basic points above where we need to be. I think it has to do with the fact that we are a conservative bank. And this is not because we woke up one day and decided to be like this. I mean, it's a compendium of experiences. You know, it's what facing a lot of, you know, big-ticket items such as, you know, hurricanes and earthquakes and issues with the economy, a bankruptcy of the state, all those things get to a certain mindset, right? So we are conservative. We think that we understand that we need to, if we can use the capital constructively to generate more shareholder value, we need to give it back. And we've put out a good repurchase program, which we've told the street and our investors is the last quarter, the fourth quarter, we said it's going to be around $150 million a quarter. I mean, we still think that the price, you know, that the shares are priced. you know, there's value in the stock price, so we'll continue with the program. The dividend for us is also important, that we continue to increase the dividend as we continue to provide sustainable profitability in the business, you know, and we can demonstrate earnings growth. So, I mean, I'm saying, yes, you're right, we ought to lower the amount of capital. We can actually rationalize our capital stack. We're thinking about doing that. I mean, I think there's tier one, there's space to do, you know, some more additional tier one, move common to some other sorts of, you know, capital. We're thinking about that, how to optimize the capital stack. That's a top of mind as well. So we will, So this is a good question, again, that we grapple with and with our board at all times. And we will continue to handle it as time progresses.

So we'll have to get a bunch of investors in a station wagon to say, are we there? Yes. Yes.

It's a fair point. It's a fair point, and we're very, it's top of mind for us, but we can't do it. I mean, so for us, it's, you know, organic growth, right, and transformation, investing in those two. And then, you know, other people may say, well, you should deploy it in an M&A. Well, we can talk about that, I'm sure.

The stock has done very well the last five and 10-year time periods. And maybe you can share with us, what do you guys focus on to create, you know, shareholder value? And how do you guys kind of measure it, aside from the stock price doing well?

Well, I think that we, the most important thing for us is making sure that we're good stewards of capital, right? And that we're growing, that we have positive leverage in our inner businesses, that we continue to grow rationally, that we are, you know, with transformation, we sort of heighten the importance of profitability in all business lines. Because when you're so successful, people forget what got you there. So it's important for our teams to understand, you know, the meaning of profitability by product, by segment, by service. What does that mean? That all adds up. The importance of service, the importance of excellent omni-channel experience. Really mean it and really deliver that. Ultimately, ROTC is the measure that we put out there, right? There are others, as you know, you know, ROA, ROA, it's also stuff we look at, but ROTC is the public measure that we're sort of putting out there. And in many ways, educating everybody from the person that comes in for the first day to whoever's sitting in the share. That's what I call the CEO position, the share. I just happen to be sitting on it now. But, you know, it's, what does that mean? And how the importance of sustainable profitability, the fact that if we do that well, it'll benefit not only our shareholders, but also our employees, the community which we serve through our foundations, we provide a lot of assistance to that sector through our Banco Popular Foundation, and here at the United States, the same thing. But we need to be profitable. And it needs to be sustainable. It can't be up and down, up and down. So that's a challenge that we put out to the teams. And last year we had a great year. Hopefully this year, I mean, we feel good about this year. Now we're standing on the noise. That's in the world. It's a tough world, particularly in some areas more than others, obviously. So that's it. I mean, it's bottom-down profitability, sustainable profitability, making good decisions, defending our turf, pricing appropriately, good yields, defending good customers.

Circling back to you mentioned M&A, over the years, you've done different types of acquisitions and a nice loan portfolio acquisition from Wells Fargo. on the auto. During the financial crisis, you were able to pick up some great assets from the FDIC. What's your view as you look forward for, and it doesn't have to be just depositories, but what's out there or could you find, whether it's a loan portfolio or some other type of asset?

Well, you just gave two examples of something that we'd be looking at in the proper context, right? And if I see a assisted transaction, that's rightly priced, clearly. I mean, we've done that before. In Puerto Rico, we do it in the States, if it makes sense. It's going to be difficult in Puerto Rico. I'm not saying impossible, but it's going to be difficult in Puerto Rico, given our size. But in an assisted transaction, you never know. And you also mentioned the auto business that we sort of consolidated out of Fargo. That took a while. That was a fantastic transaction. It took a while to sort of gel. So assets, you know, portfolio of assets outside of whole long banks. We're always looking at niche businesses in the States, teams. The same thing that others are looking at. I think that differentiating factor is actually delivering on that promise. We'll continue to look at that. Whole bank deals, difficult for us, frankly, right now, because we're so invested in transformation in making the bank better because we frankly compete with a bunch of people of all sizes coming to Puerto Rico. Some people think there's not a whole lot of competition in Puerto Rico. Well, I have news for you. There is a bunch of competition in Puerto Rico, and we have to earn it every day. So, I mean, I'd say that in the States, a whole long bank deal would be difficult at this point. It needs to be an incredible opportunity that we, you know, we'll have to look at it, right? Right, right. Obviously, if it creates, if it's accretive, if it's transcended our deposit franchise, if it's, you know, close to our, where we operate nowadays, the culture for us is critical. We've seen a lot of the, I mean, you're the dean of this space, so, you know, the culture for me is critical. I mean, you can't fix, you can't change people just through a merger, right? So you need to share some values that make sense. I've been in some conferences where I look, a couple of CEOs talking, you know, they just announced a merger. I mean, I wish them the best, but it ain't looking like it's going to work. But, you know, so culture is important, and we'll see. Never say never, but right now that's not our focus.

Yep, yep. One of the uniquenesses of your balance sheet, of course, is the deposits from the government. Maybe can you share with us just the deposit outlook and just how that, because it's a large amount from the government and the benefits that you receive from that, but also the challenges of that block of deposits.

Well, it's a bit of one. That block of deposits, obviously, it's a great relationship. We look at it more holistically, right? The deposits are but a part of it. It's an important part, right? But you're talking about like 2,000 different accounts, so people know when the Puerto Rico government went under and filed for, I'd say bankruptcy, although that's not the way it happened, but effectively that's what happened. There used to be an entity called the Puerto Rico Government Development Bank, which was a central bank for the island. And then we essentially took the risk and this, and we could write a book about this, but I'm not going to bore people with details, but actually it's a very fascinating story how we became essentially the bank for the government of Puerto Rico. So what I mean by that is, and this for us is an honor, and it's something that we take very seriously. It's not only the deposit side, it's also the credit side and the services side. It's a relationship that we've had for a long, long time. The pricing has to do with an agreement that we signed a long time ago. You know, it comes and goes in terms of benefiting. We still make money on it. I mean, it's a great relationship. So when will it, I mean, we have been very bad at projecting when it will come down in terms of the amount. I mean, it's 18 billion right now, 20 billion right now, 20 billion, 18 to 20 billion. They constantly bring new pieces to market, and we bid for them. We also put together a tech system to be able to service those amounts, and it's a complex relationship. I mean, so it's not one client, it's, again, over 2,000 accounts, and we've done very well. and I think the government also is getting a fair return on their cash, frankly.

Yep. Is there a, can you estimate what a normalized level would be, or is this the new normal that it's going to be in the high teens, 20 billion?

As I said, we've been terrible at projecting that, as you know. I don't know. I think it'll depend on stuff like what happens with the with the PREPA bankruptcy, you know, with the power authority bankruptcy. There are some who say that in the past, the central government and the Fiscal Oversight Board would have never thought of using, you know, funds from the central government to pay, contributing to, you know, the resolution of your bankruptcy. What we hear is that that view has changed. I I don't think that that's going to necessarily materially alter the amount of money that's going to be leaving the bank. So it'll depend on how quickly some of the money is used for reconstruction. There's like 17 billion, 16, 17 billion, which is not all with us for the reconstruction of the power grid. Some of that is with us. So I think it's going to take some time, quite frankly, for the money to leave. But, you know, when to what level, we've been almost, you know, it's impossible to predict, quite frankly.

You mentioned the bankruptcy of PrEP. Any updates? I mean, I know that's another. This is the year. That's the update. This is the year.

You know, I mean, every year we, you know, we get off the holidays in Puerto Rico, which, as you know, are fantastic. I'm, you know, with the promise that this is the year where PREPA gets resolved. Now, this year, the drums are beating, you know, louder on that promise. We don't know if it's gonna happen, but we get the sense that it may happen this year. I mean, I think the different parties are making some noises to that effect. I think it's a highly complex situation. Obviously, bondholders want to get paid, that's okay. Puerto Rico needs to determine what it can pay, and the board is in the middle trying to ascertain what that is. So it needs to be an amount that makes sense for Puerto Rico, Puerto Ricans, and the economy. Because you don't want to kill the economy to then be a bondholder that has, whether it be whoever cuts the deal and holds the bonds on day one or buys the debt, they don't want to be in the same position again anytime soon. So it needs to make sense. You need to have something that's sustainable. That's going to be the big challenge. And that's why we haven't had a deal. But again, the noise is, you know, in the halls of the Puerto Rico government and elsewhere, that this is the year. So we'll see.

Oh, good. Put that last chapter behind.

Absolutely. And psychologically, to your point, it'd be fantastic, even if it's imperfect. You know, it attacks the problem, and you can build on it, right? And continue iterating to make it better. but i think it's it'd be a great thing because you can then say we're out of bankruptcy fully yes so if anybody has any issues coming in our investors whatever and it also uh it also would provide a you know a framework of what it will mean you know to operate in puerto rico uh um you know going forward and also for our businesses and our people yep absolutely um you touched on you know 2026 um any thoughts about how the quarter is progressing for the first quarter or 26 any color you'd like to add to that well it'd be i mean i'd love to answer that question but uh as you know i'm a corporate securities lawyer so you know i you know i wouldn't want the first one to sort of issue any just whispering that's all right well i'd say i'd say i'd say that i'd say that i mean we're we're we're happy with with um where puerto rico is at today we can always do better we need to do better and in the bank the same thing we expect a good year this year yeah we expect a good year not only on not only on long growth even though we've tempered you know the projections as you know of a little bit less than than the prior three to four years but we still think there's gonna be growth in Puerto Rico the credit you know feels okay frankly, we think it's going to be fine, bearing again, you know, factors such as the ongoing conflict in the Middle East and others. I think Venezuela has been, you know, a good thing for Puerto Rico given, you know, the military investment, the US military investment in Puerto Rico. It may be tactical, may not be for a long time. God knows what happens to Cuba. If something happens to Cuba will be in the mix, maybe not at the beginning, but it's more rational to have Puerto Rico partnering on a Cuba project than in Venezuela, quite frankly. So that's something that we're looking at very intently, see what's going to happen there. So, no, I think, I mean, again, we expect a good year, and we expect to build on our recent success to continue delivering, you know, shareholder value and good profitability, as you've told us and taught us. So, So absolutely. I mean, we're good students. We're going to try to be good students.

That's great. And coming back to credit, obviously, it's benign about everywhere, yours as well. Is there any particular areas that you always keep an extra eye on just because a slip-up in the economy could lead to some deterioration, whether it's construction lending or some other type of lending?

Well, right now, we feel very comfortable with the construction of our portfolio, frankly. Not only the commercial, but also the individual. I think that initially, you know, we're looking at this energy, the energy prices. It may impact small businesses, and that may spill over onto retail. It's too early to tell. Frankly, we haven't seen anything yet. But, you know, nothing in particular. In the past, there's been a lot of banks burnt on construction, to your point. We feel there's no specific area where we feel that we're overexposed or that we have high FICO originations in our retail bulk. So you always need to be vigilant to credit and the impact to your assets, but right now we feel we're in a good place and again we'll remain vigilant. Got it.

We're running out of time so maybe the last question. What's the one core message you'd like about Poplar's future you want investors to take away from this conversation?

Well I think I think that investors ought to realize that that we that we're walking our talk, you know, that we are very strong in Puerto Rico, that, you know, our presence is, we've been there for a long, long time. We know Puerto Rico, and we have, you know, we have a good operation in the United States, investments outside in the Virgin Islands and, you know, passive investment in the Dominican Republic. But ultimately, you know, our fortress is Puerto Rico right and and and that's not gonna change hopefully you know we have to defend it every day as I said before right and our people know that we have great people doing it every day so so that's it I mean you can count on us top of mind for us through transformation initiative is profitability is to be sustainable when we get to 14% we're not gonna stop at 14% and and we're changing the way where everybody is looking at their jobs top to bottom in the institution it's all about delivering value it's all other delivering value so I would want people to take a look at us we haven't you know I think we're doing fine we can do better we have to do better you know competition is not gonna get any any smoother it's gonna be tougher and we have an obligation in a deep obligation to the people of Puerto Rico and we've been there thinking through thick and thin we believe in the future of Puerto Rico and and also servicing other communities that we where we have operations outside Puerto Rico but you know we're here for the long term we're not gonna do anything dumb but hopefully anytime soon and you know so So that's it, and again, I really appreciate the invite, being here with you, it's an honor. So far we've had great meetings with our investors, and we have more in the afternoon, and it's an interesting operation, Poplar is.

Sure, absolutely. Amir, thank you so much. Really appreciate you joining me in a round of applause.

Thank you. Thank you.