Popular, Inc. Q1 Earnings Show Resilience Amid Uncertainty

Popular, Inc. (PBR) reported first-quarter 2025 results that revealed a mixed but largely stable financial picture, with net income holding steady at $177.5 million despite headwinds in non-interest income and rising expenses. While the bank’s core lending business and credit quality improved, challenges such as macroeconomic uncertainty and leadership changes loom large. Here’s what investors need to know.

Net Interest Income Rises, But Margins Face Pressure

Popular’s net interest income jumped by $14.8 million to $605.6 million, driven by higher reinvestment of U.S. Treasury securities at elevated rates and lower deposit costs. The net interest margin expanded by five basis points to 3.40%, while the taxable equivalent net interest margin rose 11 basis points to 3.73%. This growth underscores the benefit of rising rates for Popular’s portfolio, though it was partially offset by two fewer days in the quarter, which trimmed net interest income by $9.3 million.

The improvement in net interest income is a positive sign, as banks typically thrive in higher-rate environments. However, Popular noted downward pressure on certain loan yields, particularly in construction and commercial loans at Popular Bank (PB), which could limit future margin gains.

Non-Interest Income Declines, Highlighting Headwinds

Non-interest income fell by $12.6 million to $152.1 million, with the sale of Popular Auto LLC’s daily car rental business in late 2024 contributing an $8 million drop. Reduced mortgage banking activity ($2.6 million) and lower insurance commissions ($1.5 million) also weighed on results. These declines were partially offset by a $2 million reduction in losses from equity securities.

The decline in non-interest income is a key concern. While the car rental sale was a one-time factor, the drop in mortgage banking points to a broader slowdown in housing activity, which could persist if interest rates remain elevated.

Credit Quality Improves, But Reserves Rise

Popular’s credit metrics showed notable strength. Total non-performing loans (NPLs) fell to 0.84% of total loans, down from 1.01% in Q4 2024, with improvements across auto, mortgage, and commercial loans at Banco Popular de Puerto Rico (BPPR). Net charge-offs (NCOs) dropped to $49.1 million, or 0.53% annualized, from 0.74% a quarter earlier.

However, the allowance for credit losses (ACL) rose by $16.1 million to $762.1 million, as Popular increased reserves to account for economic uncertainty. This adjustment added $18.2 million to reserves, reflecting a more cautious outlook.

The ACL build-up suggests management is preparing for potential credit issues in a weakening economy. While this is prudent, it could crimp profitability in the near term.

Deposit Growth and Capital Strength Offer Ballast

Popular’s deposit base grew by $934.9 million to $65.8 billion, with average quarterly deposits rising by $1.6 billion. Growth in interest-bearing accounts like NOW and money market deposits highlights customer preference for liquidity amid uncertainty. Meanwhile, loans held in portfolio increased by $146.4 million to $37.3 billion, supported by commercial and mortgage lending.

Capital metrics remained robust, with the CET1 ratio edging up to 16.11%, well above regulatory requirements. Popular also repurchased $122.3 million in shares, leaving $339.6 million remaining under its $500 million buyback authorization.

Leadership Transition and Risks Ahead

CEO Ignacio Alvarez announced his departure on June 30, 2025, after 14 years at the helm. While the bank expressed confidence in its succession plan, leadership transitions can create uncertainty for investors.

Popular also highlighted macroeconomic risks, including competitive deposit pricing, regulatory changes, and the potential impact of an economic slowdown on credit quality. These factors are shared across the banking sector but are especially critical for regional banks like Popular, which rely heavily on Puerto Rico and U.S. mainland markets.

Conclusion: A Hold with Caution

Popular’s Q1 results reflect a bank navigating a challenging environment with mixed success. The improvements in net interest income and credit quality are positives, while deposit growth and strong capital metrics provide a cushion. However, the drop in non-interest income, rising expenses, and leadership uncertainty create offsets.

Investors should weigh Popular’s resilience against broader risks. With its CET1 ratio at 16.11% and NPLs at just 0.84%, the bank appears well-positioned to weather economic turbulence. Yet the stock’s valuation—trading at roughly 1.3x tangible book value—may already reflect this stability.

For now, Popular remains a hold. While its fundamentals are solid, the lack of significant upside in net interest income and lingering macro risks suggest caution. Investors should monitor credit quality trends, deposit growth, and the impact of the CEO transition in the coming quarters.