Popular (BPOP) Q3 2026 Earnings Call Transcript

Popular reported third-quarter net income of $266 million, up 26% year over year, and diluted EPS of $4.21, up 34%; net interest income rose to $699 million, while GAAP net interest margin slipped 3 bps sequentially to 3.63%. Management lowered 2026 loan-growth guidance to approximately 2% from 3%-4%, citing weaker auto and lease activity, but expects full-year net interest income growth of about 8.5%; nonperforming loans rose $52 million to $466 million and full-year net charge-off guidance is 80-90 bps. The company repurchased $179 million of stock and raised its quarterly dividend 20% to $0.90 per share, while describing Puerto Rico economic conditions and underlying credit trends as stable.

Analysis

The earnings engine is increasingly asset repricing rather than loan expansion: that supports near-term NII, but makes the durability of growth dependent on reinvestment yields and deposit pricing, not just local credit demand. Public-sector balances create a useful but underappreciated tension: they can add NII while diluting margin and increase funding volatility if municipal spending accelerates. Federal recovery activity is therefore not an unambiguous deposit tailwind; funds may pass through the banking system rather than remain as stable balances.

The key debate is whether recent C&I problems are genuinely isolated borrower events or an early signal that underwriting risk is rising as the bank pursues larger, complex relationships. One exposure alone does not establish a portfolio trend, but a higher full-year loss outlook alongside rising NPLs warrants monitoring. Lower initial 2027 loss expectations are not yet evidence of resolution; watch subsequent inflows, criticized loans, and reserve coverage.

Near term, continued buybacks and portfolio repricing may cushion a softer loan-growth outlook. Over 1–3 months, deposit retention, Q4 credit outcomes, and any change in repurchase pace matter more than the headline earnings beat. Over 6–18 months, the return case depends on translating Puerto Rico investment activity into quality loan demand without weakening credit discipline. Contrarian angle: the market may over-credit the NII tailwind as structural while underweighting its dependence on balance-sheet mix and public-fund flows. Conversely, treating two borrower-specific events as broad deterioration would be premature.

Key Decisions for Investors

• Maintain a modest, tactical long BPOP rather than chase strength; the reinvestment tailwind and capital returns support earnings, but slower loan growth and credit uncertainty limit conviction. No options position is justified without clearer catalyst pricing.
• Consider a relative-value long BPOP / short broad regional-bank exposure only if BPOP’s relative performance weakens despite stable credit metrics; this isolates the company-specific repricing and franchise thesis, but carries Puerto Rico concentration and basis risk.
• Use the next quarter as a credit and funding checkpoint: upgrade conviction if commercial NPL inflows stabilize, charge-offs track toward management’s lower 2027 outlook, and customer deposits excluding public balances hold; reduce or exit on renewed material C&I inflows or a meaningful upward loss-guidance revision.
• Track public-deposit balances and costs alongside NII, not NIM alone. A sharp outflow or rising private-sector deposit costs that erode the repricing benefit would falsify the near-term earnings-support thesis.