Popular (BPOP) Q1 2026 earnings review
Exceptional Profitability and Margin Expansion Outweigh Flat Loan Growth
Popular started 2026 with a strong beat, driven by robust Net Interest Income (NII) expansion and strict expense discipline. Net Income surged to $245.7M, marking a 38% YoY acceleration. The real standout is profitability: Return on Tangible Common Equity (ROTCE) hit 15.46%, comfortably exceeding management's long-term sustainable target of 14%. While loan growth essentially flatlined sequentially (down $37.8M) due to consumer softening and commercial payoffs, the bank successfully offset this through lower deposit costs—specifically a 31 bps drop in Puerto Rico public deposits. Credit quality is a mixed bag: Non-Performing Loans (NPLs) decreased nicely, but a single $11.1M commercial real estate charge-off spiked the Net Charge-Off (NCO) ratio to 0.61%. Management demonstrated conviction by trimming operating expense guidance and repurchasing $155M in stock.
🐂 Bull Case
NIM accelerated by 5 bps QoQ to 3.66% (and 11 bps to 4.14% on an FTE basis). Popular successfully repriced high-cost deposits while simultaneously reinvesting maturities into higher-yielding U.S. Treasuries.
Operating expenses fell by $5.9M sequentially (or $21.2M excluding Q4's FDIC assessment reversal), driving a guidance upgrade for FY26 expense growth down to 2-3%.
🐻 Bear Case
Loans held-in-portfolio reversed from growth to a slight decline (-$37.8M QoQ). Credit card and auto loan balances shrank sequentially, forcing management to point to the low end of their 3-4% FY26 loan growth target.
The NCO ratio jumped to 0.61% due to an $11.1M charge-off on a single commercial real estate facility. While isolated, this highlights vulnerability to large idiosyncratic commercial risks.
⚖️ Verdict: 🟢
Bullish. The margin trajectory and expense discipline easily overshadow the sequential pause in loan growth. Delivering a 15.5% ROTCE alongside aggressive buybacks provides a highly compelling value proposition, especially with P.R. macroeconomic tailwinds remaining intact.
Key Themes
Deposit Cost Optimization Accelerating
Total deposit costs dropped 12 bps to 1.56%. The primary driver was a 31 bps reduction in the cost of Puerto Rico public deposits ($19.7B balance), which respond to short-term rate cuts with a slight lag. Even excluding public funds, core customer deposit costs fell 5 bps to 1.09%, reflecting proactive repricing of high-cost online savings and time deposits at Popular Bank.
Puerto Rico Macro Resiliency
The underlying Puerto Rican economy remains a structural advantage. Despite the overall loan portfolio flattening, BPPR total deposits grew by $1.2B excluding public funds, reflecting deep retail liquidity. Management noted healthy business performance and consumer activity, corroborating late-2025 narratives regarding reshoring investments and low local unemployment.
Consumer Loan Contraction
While commercial balances were relatively flat, consumer loan segments showed notable deceleration. Credit cards dropped 3.38% (-$42.5M) and Auto loans fell 0.94% (-$35.9M) sequentially. This aligns with prior management warnings of 'softening' in consumer demand and places heavier reliance on commercial origination for future balance sheet growth.
Aggressive Capital Deployment
Popular is aggressively utilizing its excess capital. The company repurchased 1.15M shares for $155.2M at an average price of $134.31. With a CET1 ratio standing high at 15.92% (up 20 bps QoQ), the bank retains significant capacity to continue buybacks. $126M remains on the current authorization, and management is actively moving toward peer-level capital efficiency.
Commercial Credit Lumpiness
NCOs reversed their downward Q4 trend, increasing by $10.4M to $60.0M. This was driven entirely by a single $11.1M charge-off in the BPPR commercial real estate portfolio (a legacy Q3 2025 non-accrual). While overall NPLs actually decreased by $40.2M to 1.17% of loans, the persistent idiosyncratic shocks in the commercial portfolio keep credit costs elevated.
Other KPIs
Fell 1.2% sequentially. Adjusted for the $15.3M FDIC special assessment reversal in Q4, the core sequential decline was a substantial $21.2M. This was driven by the roll-off of Q4 profit-sharing accruals ($12.8M) and lower seasonal business promotion expenses.
Money market and investment securities grew $803.7M from Q4. Popular is actively deploying deposit inflows to lock in yields, purchasing U.S. Treasuries that benefit from Puerto Rico's tax-exempt status. FTE yield on investments improved from 3.51% to 3.54%.
Stable. Down trivially ($0.7M) vs Q4, maintaining the targeted run-rate. Lower credit/debit card and insurance fees were offset by favorable market adjustments on equity securities tied to deferred benefit plans.
Guidance
Stable. Management noted that NII is tracking at the high end of this guidance range. The Q1 annualized performance supports this, indicating sustained acceleration in core earnings power as deposit repricing outpaces asset yield pressures.
Decelerating. Management explicitly pointed to the low end of the guidance range. Given that Q1 loan growth was negative, achieving even 3% will require a notable acceleration in commercial and mortgage origination in the remaining three quarters.
Decelerating. Revised downward from the prior +3% target. This confirms that the efficiency initiatives are yielding structural savings, providing a direct tailwind to the bank's operational leverage and ROTCE targets.
Stable. Unchanged from prior communications. Q1 came in at 61 bps, comfortably inside the range, suggesting that despite the commercial charge-off lumpiness, the overall portfolio is performing precisely as modeled.
Key Questions
Consumer Softening
Credit card and auto balances shrank sequentially. How much of this is typical Q1 seasonality versus a structural shift in Puerto Rican consumer demand or tightening of your internal underwriting standards?
AT1 Capital Issuance
With CET1 climbing to nearly 16%, in previous quarters management discussed utilizing Additional Tier 1 (AT1) capital to optimize the stack. What is the timeline for such an issuance, and how aggressively will you shift the capital mix?
Onshoring Pipeline Conversion
We've heard about significant reshoring announcements in Puerto Rico (pharma, aerospace). Are these translating into tangible commercial loan pipeline growth for the second half of 2026, and can they offset the consumer deceleration?