8-K: Popular, Inc. Reports Mixed Q3 2025 Results Amid Credit Concerns

Popular, Inc. announced a slight increase in net income and EPS for Q3 2025, driven by higher revenues and net interest margin, but faced significant increases in non-performing loans and net charge-offs.

Summary

• Net income for Q3 2025 was $211.3 million, a slight increase from $210.4 million in Q2 2025.
• Earnings per share (EPS) rose to $3.15 in Q3 2025 from $3.09 in Q2 2025.
• Net interest income increased by $15.0 million to $646.5 million in Q3 2025.
• Net interest margin expanded by 2 basis points to 3.51% in Q3 2025, and by 5 basis points on a taxable equivalent basis to 3.90%.
• Non-interest income grew by $2.7 million to $171.2 million, supported by diverse fee-generating segments and a $5.3 million retroactive charge to a tenant.
• Operating expenses increased by $2.5 million to $495.3 million, including a $13.0 million non-cash goodwill impairment in a U.S. equipment leasing subsidiary.
• Provision for credit losses significantly increased by $26.2 million to $75.1 million in Q3 2025.
• Non-performing loans (NPLs) surged by $190.6 million to $502.2 million, primarily due to two large commercial loans ($158.3 million telecommunications, $30.1 million Florida hotel).
• The NPLs to loans ratio increased to 1.30% from 0.82% in Q2 2025.
• Net charge-offs (NCOs) increased by $15.6 million to $57.8 million, with an annualized NCOs to average loans ratio of 0.60% (up from 0.45%).
• Allowance for credit losses (ACL) to NPLs decreased significantly to 156.6% from 246.9% in Q2 2025.
• Loans held-in-portfolio increased by $502.0 million to $38.7 billion, driven by commercial, construction, and mortgage loan growth.
• Deposits decreased by $704.1 million to $66.5 billion, mainly due to an $841.9 million decrease in P.R. public deposits, partially offset by increases in retail and high-cost deposits.
• Common Equity Tier 1 ratio decreased by 12 basis points to 15.79%.
• Tangible Book Value per share increased by $3.71 to $79.12.
• Repurchased 1,000,862 shares of common stock for $119.4 million and declared a common stock dividend of $0.75 per share, an increase from $0.70.
• As of September 30, 2025, $429.0 million remained available for stock repurchases.

Sentiment

Score: 6

Explanation: The sentiment is mixed. While there are strong positives in revenue growth, net interest margin expansion, and shareholder returns (dividends, buybacks), the significant deterioration in credit quality metrics (NPLs, NCOs, ACL/NPL ratio) and the goodwill impairment are notable concerns. The management's positive tone is balanced by these underlying credit challenges.

Positives

• Net income slightly increased to $211.3 million, demonstrating continued profitability.
• Earnings per share (EPS) grew to $3.15, indicating improved shareholder value.
• Net interest income increased by $15.0 million, reflecting favorable asset repricing and deposit retention efforts.
• Net interest margin expanded by 2 basis points to 3.51%, driven by an improved earning asset mix and higher-yielding U.S. Treasury securities.
• Non-interest income increased by $2.7 million, supported by diverse fee-generating segments and robust customer transaction activity.
• Loans held-in-portfolio grew by $502.0 million to $38.7 billion, indicating strong loan origination activity across commercial, construction, and mortgage segments.
• Tangible Book Value per share increased by $3.71 to $79.12, enhancing shareholder equity.
• Repurchased 1,000,862 shares of common stock for $119.4 million, signaling confidence in the company's valuation and returning capital to shareholders.
• Declared an increased common stock dividend of $0.75 per share (up from $0.70), providing higher returns to investors.
• Excluding the two large commercial exposures, credit quality metrics were stable, suggesting underlying portfolio health.
• Invested approximately $2.5 billion in U.S. Treasury notes with an average duration of 1.4 years and a yield of approximately 3.65%, supporting a reduction in portfolio sensitivity to future rate decreases.

Negatives

• Non-performing loans (NPLs) increased significantly by $190.6 million to $502.2 million, primarily due to two large, unrelated commercial loans.
• The NPLs to loans ratio rose sharply to 1.30% from 0.82% in the prior quarter, indicating a deterioration in asset quality.
• Net charge-offs (NCOs) increased by $15.6 million to $57.8 million, mainly due to a $13.5 million commercial loan charge-off.
• The annualized NCOs to average loans held-in-portfolio ratio increased to 0.60% from 0.45%.
• The Allowance for credit losses (ACL) to NPLs ratio decreased substantially to 156.6% from 246.9%, indicating reduced coverage for non-performing assets.
• Deposits decreased by $704.1 million, primarily driven by an $841.9 million decrease in P.R. public deposits.
• Operating expenses included a $13.0 million non-cash goodwill impairment charge in the U.S. based equipment leasing subsidiary due to lower projected earnings.
• Common Equity Tier 1 ratio decreased by 12 basis points to 15.79%, partly due to common stock repurchases and loan growth.

Risks

• The effect of competitive and economic factors, and our reaction to those factors.
• The adequacy of the allowance for loan losses, delinquency trends, market risk, and the impact of interest rate changes (including on our cost of deposits).
• Our ability to attract deposits and grow our loan portfolio.
• Capital market conditions, capital adequacy, and liquidity.
• The effect of legal and regulatory proceedings, new regulatory requirements or accounting standards on the Corporation's financial condition and results of operations.
• The occurrence of unforeseen or catastrophic events, such as extreme weather events, pandemics, man-made disasters or acts of violence or war, as well as actions taken by governmental authorities in response thereto, and the direct and indirect impact of such events on Popular, our customers, service providers and third parties.
• Popular's ability to successfully execute its transformation initiative, including, but not limited to, achieving projected earnings, efficiencies and return on tangible common equity and accurately anticipating costs and expenses associated therewith.
• Imposition of additional or special FDIC assessments, or increases thereto.
• Changes to regulatory capital, liquidity and resolution-related requirements applicable to financial institutions in response to recent developments affecting the banking sector.
• The impact of bank failures or adverse developments at other banks and related negative media coverage of the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks.
• The impact of the current or any future U.S. government shutdown and changes in and uncertainty regarding federal funding, tax and trade policies, and rulemaking, supervision, examination and enforcement priorities of the federal administration.

Future Outlook

Management reaffirms its Q2 guidance for Net Interest Income, expecting 10%-11% YoY growth driven by fixed asset repricing, loan growth, and deposit balances. Non-Interest Income is now expected to be at the higher end of guidance, with $160 million-$165 million in Q4 and $650 million-$655 million for the full year. Annualized Net Charge-Offs are now expected to be 50bps-65bps due to YTD credit performance and Q3 NPL inflows. Operating expenses are reaffirmed at 4%-5% for the year. The Effective Tax Rate is updated to 14%-16% for Q4 and 16%-18% for the full year, influenced by higher exempt income and changes to the Puerto Rico tax code. Loan growth is now expected to be 4%-5% based on YTD growth and anticipated repayments in Popular U.S.

Management Comments

• "We are very pleased with our strong results in the third quarter, which were driven by higher revenues, continued expansion of our net interest margin, and discipline in expense management."
• "We are also encouraged by strong loan growth in both markets, stable customer deposit balances, and solid performance across most fee-generating segments, including robust transaction activity supported by continued customer growth."
• "We are focused on executing on our new strategic framework, which has three objectives: be the #1 bank for our customers, be simple and efficient, and be a top-performing bank with first-rate talent and which delivers sustainable returns to our shareholders."
• "This framework guides our Transformation, which continues to show steady and notable progress. Our team is clear about our priorities and energized about the opportunities that lie ahead."
• "I want to thank all our colleagues for their dedication and outstanding work—their commitment continues to drive our success."

Industry Context

Popular, Inc.'s Q3 2025 results reflect a mixed environment for the banking sector. While the company successfully expanded its net interest margin and achieved loan growth, indicating effective asset management and demand for credit, the significant increase in non-performing loans and net charge-offs highlights ongoing credit quality challenges, particularly in commercial lending. The banking industry continues to navigate a dynamic interest rate landscape, with institutions focusing on deposit retention and optimizing investment portfolios, as evidenced by Popular's investments in U.S. Treasury securities. The goodwill impairment in the equipment leasing subsidiary suggests specific pressures within certain specialized lending segments, a trend that can be observed across various financial institutions adjusting to market conditions and economic slowdown forecasts.

Corporate Governance

Stakeholder Impact

• Shareholders: Positively impacted by increased EPS, higher tangible book value per share, an increased common stock dividend, and ongoing share repurchase program. However, the increase in NPLs and NCOs, and the goodwill impairment, could be a concern.
• Customers: The company's strategic framework aims to be the '#1 bank for our customers,' suggesting a focus on improved services and deepening relationships, which should positively impact customers.
• Employees: Experienced annual salary and merit increases, but also faced employee termination benefits due to strategic decisions to exit the U.S. Residential Mortgage origination business and close underperforming branches.
• Creditors: The significant increase in non-performing loans and net charge-offs, along with a reduced ACL to NPLs ratio, could be a concern for creditors, although capital ratios remain strong.

Next Steps

• Finalize the annual goodwill impairment test prior to the filing of the Form 10-Q for the quarter ended September 30, 2025.
• Continue executing on the new strategic framework focused on being the #1 bank for customers, being simple and efficient, and being a top-performing bank.
• Monitor economic landscape and borrower performance due to ongoing economic uncertainty.

Key Dates

Recommendation

Popular, Inc. delivered a mixed Q3 2025 performance. While the company demonstrated strong revenue growth, net interest margin expansion, and shareholder-friendly capital actions (increased dividend, share repurchases), the significant deterioration in credit quality metrics, particularly the sharp rise in non-performing loans and net charge-offs, is a notable concern. Although management attributes these to specific commercial exposures, the substantial decrease in the ACL to NPLs ratio warrants caution. The goodwill impairment also adds a layer of uncertainty. Given the balance of positive operational performance against these credit quality headwinds, a 'hold' recommendation is appropriate, suggesting investors monitor future credit trends closely before making further investment decisions.

Keywords

Banking, Financial Services, Puerto Rico, Commercial Loans, Mortgage Loans, Deposits, Net Interest Margin, Non-Performing Loans, Net Charge-Offs, Goodwill Impairment, Share Repurchase, Dividend Increase, SEC Filing, Q3 2025 Results