Popular (BPOP) Q3 2026 earnings review
Popular's bond income rises, but its corporate loan losses mount
Popular, Puerto Rico's largest bank, grew interest income by reinvesting maturing bonds while corporate loan defaults rose again. Net interest income climbed 8% from a year ago and share buybacks lifted profit per share by 34%. Chief executive Jorge J. García called underlying credit stable, but a $74 million corporate loan went bad and a $34 million write-off hit an earlier problem loan.
| Net interest income | $698.9M +8.1% from a year ago |
|---|---|
| Diluted profit per share | $4.21 +34.1% from a year ago |
| Full-year loan growth outlook | Cut to 2% prior: low end of 3%–4% |
| Full-year loan loss outlook | Raised to 80–90 bps prior: 65–80 bps of average loans |
⚖️ Verdict: 🔴 Bearish
The story got worse because lending slowed and corporate loan losses forced a second straight increase to the full-year credit loss outlook. Popular cut its full-year loan growth plan to 2% on weaker auto and lease demand, which by our math leaves about $71 million of net loan additions for the fourth quarter. On the positive side, bond repricing kept the 8.5% net interest income growth plan intact and management trimmed its cost growth plan to 2%.
The question now is whether four straight quarters of large corporate loan troubles mark a wider downturn in Puerto Rico business credit or just a run of separate bad loans. If island businesses are weakening under high energy costs, loan growth will stay near 2% and credit losses will remain high; if the defaults are truly separate, lower losses and bond repricing will lift profit next year. Fourth-quarter commercial defaults and the 2027 loan loss outlook will settle it.
🐂 Bull Case
Treasury Reinvestment Kept Net Interest Income Growing
Popular earns net interest income (NII), the difference between what it makes on loans and bonds and what it pays on deposits. That income reached $699 million in the third quarter, up 8.1% from a year ago and $5.5 million above the second quarter. Reinvesting maturing bonds into higher-yielding United States Treasury securities drove the gain, alongside an extra calendar day that added $6 million.
The yield on money market and investment securities, adjusted to make tax-exempt income comparable to taxable income, rose 13 basis points from last quarter to 3.82%. That repricing allowed the Puerto Rico lender to keep its full-year NII growth outlook at about 8.5% even after cutting its loan growth plan. By our math, the full-year outlook implies fourth-quarter NII of $695 million, or 5.7% growth from a year ago.
What to watch: the yield on investment securities in the fourth quarter. Further gains there must do more work because slower loan growth will add less interest income next year.
Buybacks Accelerated and the Dividend Rose 20%
Popular has been returning more cash to shareholders while targeting a 14% to 17% return on average tangible common equity (ROTCE), a measure of profit on shareholders' physical capital excluding bond market swings. In the third quarter, ROTCE reached 15.8%, up from 13.1% a year ago. The bank bought back $179 million of its own stock, up from $125 million in the second quarter, and raised its quarterly dividend by 20% to $0.90 per share.
Those share repurchases reduced the average diluted share count by 5.9% from a year ago to 63.1 million. Because fewer shares split the profit, diluted earnings per share rose 34.1% from a year ago to $4.21 even though net income grew at a slower 26.0% pace.
What to watch: fourth-quarter share repurchases. Buying back between $121 million and $221 million would complete the $300 million to $400 million second-half plan management set in July.
Full-Year Cost Growth Trimmed Despite Higher Pay
Operating expenses rose 4.4% from last quarter to $505.6 million. Personnel costs — employee salaries, bonuses and benefits — drove the increase, rising $16.0 million from the second quarter to take 28.0% of net revenue, up 1.8 percentage points. Annual merit raises added $7 million and employee profit sharing and incentives added $8 million. Against a year ago, reported expenses rose 2.1%, or 4.8% by our math when excluding a $13 million goodwill write-down from the prior year.
Even with those pay increases, Popular trimmed its full-year expense growth outlook to 2% from a prior range of 2% to 3%. The bank noted that "Guidance includes max profit sharing contribution". By our math, third-quarter expenses came in 1.8% below the quarterly run-rate implied by the prior outlook, leaving room for $513.9 million of expenses in the fourth quarter.
What to watch: fourth-quarter personnel costs. Holding total expenses near $514 million while paying maximum profit sharing will show whether underlying overhead is staying under control.
Card Fees Kept Non-Interest Income Above the Plan
Non-interest income — fee revenue from cards, account charges, insurance and wealth management — reached $175.7 million in the third quarter, beating the company's $165 million to $170 million outlook. Credit and debit card fees rose 8.0% and 9.8% from a year ago to $35.3 million and $30.8 million, while a commercial loan refinancing added a $5 million one-off benefit.
Those gains offset a $1.9 million drop in deposit service charges after Popular launched a checking account in August that "offers $0 service fees to clients that meet certain criteria". The bank now plans for about $170 million of non-interest income in the fourth quarter, at the top of its prior range.
What to watch: deposit service charges in the fourth quarter, the first full period with the zero-fee account. A steeper drop would test whether card fees can keep total fee income at $170 million.
🐻 Bear Case
Another Large Commercial Loan Went Bad
Chief executive Jorge J. García said third-quarter results reflected "stable underlying credit trends", and the release stated that commercial credit issues "are considered borrower-specific and are not indicative of broader deterioration in the commercial portfolio". For the fourth quarter in a row, however, a large corporate borrower ran into trouble at Banco Popular de Puerto Rico (BPPR), the main island banking unit.
- New commercial problem loan: a $74 million commercial and industrial loan entered non-performing status, meaning it stopped paying as agreed
- Quarterly loan write-offs: a $34 million partial charge-off on a commercial loan that went bad in the second quarter pushed total net charge-offs to $72.9 million, or 0.73% of average loans
- Non-performing loans held in portfolio: rose $52.3 million from June to $465.8 million, lifting the non-performing ratio 12 basis points to 1.16%
- Full-year net charge-off outlook: raised to 80–90 basis points of average loans, up from 65–80 basis points in July and 55–70 basis points at the start of the year
Consumer and mortgage defaults remain low, so the problem is concentrated in big corporate loans rather than household borrowing. Still, raising the full-year loss outlook for a second straight quarter shows these corporate defaults are recurring often enough to lift annual credit costs. By our math, the 85 basis point middle of the new outlook implies fourth-quarter net charge-offs of about 1.01% of average loans.
What to watch: commercial non-performing loan inflows and net charge-offs in the fourth quarter. A reading above 1.01% or another large corporate default would show that big-ticket credit risk is still not contained.
Popular Cut Its Loan Growth Plan to 2%
Loans held in portfolio — loans the bank keeps on its balance sheet to earn interest — rose $292.8 million during the third quarter to $40.04 billion. That was up 3.5% from a year ago, slowing from 4.1% growth in June and 6.0% at the end of 2025. A year ago, third-quarter net new loans were $502.0 million by our math.
Popular cut its full-year loan growth outlook to 2% from the low end of 3% to 4%, stating the cut was "Driven by a decline in auto and lease financing activity". Auto loans slipped $10.2 million from June to $3.76 billion, and leasing balances fell $15.9 million to $1.95 billion. By our math, a 2% full-year increase leaves only $71.4 million of net loan growth for the fourth quarter.
What to watch: fourth-quarter auto, leasing and commercial loan balances. If net additions fall short of $71 million, Popular will enter 2027 relying almost entirely on bond repricing to grow interest income.
Public Deposits Lifted Funding Costs and Squeezed the Margin
Net interest margin (NIM) — net interest income as a percentage of average interest-earning assets — dipped 3 basis points from the second quarter to 3.63%. Total deposit costs rose 7 basis points to 1.64% because average Puerto Rico government deposit balances grew by $1.1 billion and the rate Popular paid on them climbed 11 basis points to 2.72%.
At the same time, average deposits excluding Puerto Rico government accounts fell by $619 million, including a $362 million drop in non-interest-bearing checking accounts and $280 million less in retail savings. Losing zero-cost and low-cost customer money while holding more market-linked government funds makes the bank's funding more expensive.
What to watch: average non-interest-bearing deposits and the net interest margin in the fourth quarter. Now that period-end government deposits have dropped by $1.2 billion to $21.5 billion, the margin should steady unless retail deposits keep leaving.
Energy and Inflation Risks Weigh on Puerto Rico
Popular holds 71% of its loan book in Puerto Rico, exposing it to island economic swings. Chief executive Jorge J. García said "Credit metrics continue to be stable while we remain attentive to economic conditions, given the potential impact of prolonged inflation and higher cost of fuel and energy". Several other standing concerns also remained open in the release.
- Puerto Rico inflation and energy costs: higher fuel and power bills pressure island businesses and households, and auto and lease lending already slowed this quarter
- Executive transition: García took over as chief executive on September 1 alongside a new finance chief and a new risk chief, and the first quarter under the new team included a loan growth cut and a higher credit loss outlook
- Holding-company cash and credit ratings: the release did not update parent-company liquidity or sub-investment-grade credit ratings; the quarterly 10-Q filing will show how much cash the bank subsidiary can send to the parent for buybacks
What to watch: parent-company cash balances and dividend capacity in the third-quarter 10-Q filing. A tight cash buffer at the holding company would require regulatory approval to keep share buybacks running at the current $179 million quarterly pace.
💲 Other KPIs
Tangible book value per share — the physical net worth behind each share — fell $1.64 from June but rose 9.1% from a year ago. The quarterly drop came from $255 million of paper losses on available-for-sale bonds and $236 million of buybacks and dividends, which outweighed $266 million of net income.
Popular's main regulatory capital buffer — Common Equity Tier 1 capital as a share of risk-weighted assets — edged down 2 basis points from June and stood 27 basis points higher than a year ago. Quarterly net income nearly matched the capital used for $179 million of share buybacks, $57 million of dividends, and loan growth.
Net interest income at the mainland United States banking unit rose 3.2% from last quarter and 10.9% from a year ago, outpacing the 7.5% growth at the Puerto Rico unit. New commercial loans at higher interest rates lifted the mainland net interest margin by 3 basis points from June to 3.20%.
🔮 Guidance
Unchanged. Popular kept its full-year net interest income growth plan at the 8.5% middle of its prior 8% to 9% range, up from 5% to 7% at the start of the year. By our math, that leaves $694.7 million for the fourth quarter, or 5.7% growth from a year ago, down from 8.1% in the third quarter.
Raised. Management set the fourth-quarter fee plan at the top end of its prior $165 million to $170 million quarterly range. That implies a 3.2% dip from the third quarter's $175.7 million, which included a $5 million loan refinancing benefit, and a 2.2% rise from a year ago by our math.
Raised. The bank lifted its full-year loan loss rate forecast for a second straight quarter "Due to YTD charge-offs and NPL inflows in the commercial portfolio". The middle of the range has moved from 62.5 basis points to 72.5 and now 85.0. By our math, the new middle implies a 1.01% annualized loss rate in the fourth quarter.
Cut. Full-year cost growth is now planned at the bottom of the prior 2% to 3% range, and still includes the maximum employee profit-sharing payout. By our math, that leaves $513.9 million of expenses for the fourth quarter, up 8.6% from a year ago when an insurance assessment credit lowered costs.
Cut. Popular moved its full-year tax rate plan to the bottom of its prior 14% to 15% range, down from 15% to 17% at the start of the year, as tax-exempt bond interest makes up a larger share of income. The third-quarter tax rate was 14.2%.
Cut. Management lowered its full-year loan growth plan by a full percentage point "Driven by a decline in auto and lease financing activity". It is the second cut this year: from 3.5% at the middle of the initial range to 3.0% and now 2.0%. By our math, that leaves $71.4 million of net new loans for the fourth quarter.
Unchanged. Popular expects Puerto Rico government deposits to stay between $20 billion and $22 billion through year-end. Balances finished September at $21.5 billion, down $1.2 billion from June after scheduled government disbursements.
❓ Key Questions
How much is reserved against the $74M problem loan?
A $74 million commercial loan entered non-performing status in the third quarter while a prior quarter's problem loan took a $34 million write-off. Investors need to know the specific reserve on the new default and whether both came from the same industry.
Why is auto and lease lending shrinking in Puerto Rico?
Popular cut its full-year loan growth plan to 2% because of falling auto and lease balances, yet called island business activity healthy. Did the bank tighten its lending standards, or are higher energy and living costs hurting borrower demand?
Why did retail and non-interest-bearing deposits fall?
Average deposits excluding Puerto Rico government accounts dropped $619 million in the third quarter, including $362 million in non-interest-bearing checking and $280 million in retail savings. Management did not say whether customers moved cash to rival banks or spent it.
How much will the zero-fee checking account cost in fees?
A checking product launched in August with zero service fees cut third-quarter deposit service charges by $1.9 million in just two months. What is the full-quarter fee loss, and how many new deposits has the account brought in?