Popular BPOP Q1 2026 Earnings Call Transcript

Popular reported Q1 net income of $246 million and EPS of $3.78, up 38% and 48% year over year, driven by NII growth to $670 million, NIM expansion to 3.66%, and lower expenses. The bank raised 2026 NII growth guidance to the upper end of 5%-7%, lowered expense growth guidance to 2%-3%, and returned capital via $155 million of buybacks plus a $0.75 dividend. Credit quality remained solid with NPLs down $40 million and the NPL ratio improving to 1.17%, though net charge-offs rose to $60 million due to a single commercial real estate exposure.

Analysis

This is a cleaner-than-it-looks bank print because the earnings beat is being driven by the least cyclical part of the P&L: deposit mix, securities reinvestment, and expense discipline. The key second-order effect is that the balance sheet is being re-optimized around a structurally stickier funding base in Puerto Rico while the U.S. book remains more of a fee-and-capital arbitrage engine; that should support NII even if loan growth stays muted. The market may underappreciate that buyback capacity can remain strong even with slower loan growth because the bank is generating capital faster than it is deploying it, which creates a persistent ROE support loop.

The bigger debate is credit quality versus oil. The current portfolio data look fine, but management is effectively telling you the risk is not a near-term credit wave, it is an energy-price duration problem: prolonged higher fuel costs would hit consumers and small businesses with a lag, likely showing up first in second-half delinquencies and reserve pressure rather than immediate charge-offs. That means the next two quarters matter more than the last quarter; if oil stays elevated and refinancing conditions tighten, the benign reserve release narrative can flip quickly.

Consensus seems too focused on the headline profitability upgrade and not enough on capital return optionality. If the board authorizes a meaningfully larger repurchase or dividend hike, the stock should rerate because the market will start valuing BPOP less like a slow-growth regional and more like a self-liquidating capital compounder with a durable franchise premium. The contrarian risk is that the U.S. book does not accelerate and public-deposit volatility constrains margin expansion, so the current multiple may already discount a lot of the good news if 2026 loan growth lands at the low end and credit normalizes later in the year.

Key Decisions for Investors

• Long BPOP vs. short a basket of slower-growing U.S. regionals (e.g., KRE proxy) for 3-6 months: thesis is superior funding mix, better expense leverage, and more aggressive capital return. Risk: if Puerto Rico deposit retention weakens faster than expected, the relative outperformance fades.
• Buy BPOP on a pullback into the next quarter before the capital-return update; target a 12-18% upside if the board authorizes a larger buyback/dividend step-up. Stop if loan growth deteriorates sharply or reserve builds become more broad-based.
• Pair trade: long BPOP / short a credit-sensitive Puerto Rico or consumer-exposed lender over 6 months. The spread should widen if the island economy stays firm but oil-driven credit stress remains absent.
• If you want a catalyst-driven expression, use BPOP call spreads expiring after the next earnings call to capture re-rating from the capital deployment announcement while capping downside in case guidance is merely reiterated.
• Do not chase after a strong quarter; wait for confirmation that second-quarter deposits remain sticky and net charge-offs stay contained. If those two hold, the stock likely still has room to rerate.