Popular, Inc. (BPOP) Income Statement

NII has compounded from $568.3M in 2024Q2 to $698.9M, an increase of roughly $130M, with sequential adds running in a fairly tight $5M–$25M band — a pattern more consistent with steady loan growth in the Puerto Rico core than with further asset yield gains. The moderation in the year-over-year growth rate from 12.9% to 8.1% mathematically reflects a harder prior-year comparison, but it also appears to confirm that the repricing benefit of the earlier rate cycle is largely captured. Investors should monitor whether the incremental funding needed to sustain this volume growth arrives at the same low cost as the legacy retail deposit base, since the runoff of federal disaster-relief deposits could force substitution with pricier wholesale money.

A flat NIM alongside rising NII is an important diagnostic: it means the earnings engine is not benefiting from further spread widening, so the reported margin resilience should be read as evidence of a low-beta, non-interest-bearing deposit mix rather than pricing power alone. Given the >40% deposit share franchise cited in BPOP's competitive profile, the 0.9% level is plausibly defended by structural funding advantage, but the absence of upward drift in a still-elevated rate environment may indicate that loan yields are resetting faster than deposit costs can lag. Any migration of public and disaster-recovery balances into time deposits would test this directly, and the flat line at 0.9% leaves little cushion for that scenario.

The roughly six-point efficiency improvement implies that the dominant Puerto Rico branch and ATM network — long a cost drag — is now spreading its fixed base over a materially larger revenue pool, which is where a utility-like deposit franchise converts share into earnings. The 65.0% print in 2026Q1 stands out as an outlier against a 55%–58% recent band and likely reflects seasonal or non-recurring expense timing rather than a reversal of the trend, but it does underscore that quarterly cost discipline is not perfectly smooth. The durability question is whether management converts the next leg of revenue growth into further expense leverage through digital channel migration, or allows the physical footprint costs to re-inflate.

Stripping out the $0 quarter, provisions have averaged close to $60M per quarter against roughly $1.2B of quarterly revenue, meaning credit cost absorbs a meaningful share of pre-provision earnings and remains the single largest swing factor in operating income. The lumpy pattern — $48.9M, $75.1M, $0, $65.9M, $58.6M — is consistent with CECL reserves calibrated to Puerto Rican macroeconomic variables that do not move in a smooth line with US mainland forecasts, and it makes single-quarter operating income comparisons unreliable. Because BPOP's loan book is concentrated in a market with recurring hurricane exposure, the reserve trajectory should be treated as regime-dependent rather than mean-reverting, and any quarter showing a sharp drop warrants scrutiny of the underlying macro inputs rather than celebration.

The fee mix shift is strategically significant because transaction-based income is less rate-sensitive than NII, providing a partial hedge should the flat 0.9% NIM compress in a cutting cycle; the progression from ~$115M in 2025Q1 to the $180M area by late 2026 suggests the island's consumer transaction volume and federal reconstruction spending are flowing through the payments franchise. However, the modest sequential decline from $183.8M in 2026Q2 to $179.4M in 2026Q3 is a reminder that these revenues are not purely annuity-like, and a portion likely remains tied to discretionary consumer activity and merchant card volumes that soften in a stressed Puerto Rican economy. Investors should also recognize the concentration embedded in this line: the same geographic market that generates the fee income also determines its downside.