Popular, Inc. BPOP

Key data

The business

Popular, Inc. runs Banco Popular, the bank most Puerto Ricans already bank with. Founded in 1893, it is the largest institution on the island by both assets and deposits, with a mainland arm (Popular Bank) and branches in the U.S. and British Virgin Islands, plus auto and equipment leasing at home. The machine is simple and old: gather $70 billion of deposits from an island where it is the default choice, pay very little for them, and lend to local households, homebuyers and businesses at much more. The moat is that deposit base. When you are the bank everyone's paycheck lands in and everyone's debit card carries, money is cheap and it stays. In the second quarter that funding cost about 1.5% and was still falling even as balances grew, which is exactly what a franchise deposit book is supposed to do when rates ease.

The numbers

The direction is up and to the right, and accelerating.

Five straight quarters of rising net interest income, from $632 million to $693 million, and net income up nearly a third across the same stretch. Net interest margin widened 17 basis points to 3.66% in the second quarter, because loan yields held while deposit costs fell.

The five-year record carries one scar: 2023, when a large reserve build cut earnings almost in half. Since then earnings per share climbed from $7.52 to $12.30 and a trailing $14.80, helped by a share count down more than a fifth in five years. Tangible book value per share reached $87.94 in June, up $5.29 in six months, a roughly 13% annual pace of compounding. Return on tangible equity runs about 17%, and CET1 capital sits at 16.1%, well above requirement. The variant is narrow: the market prices a steady mid-teens compounder, and on earnings the business is delivering exactly that, but the tangible-book multiple already assumes it continues.

Credit is the tell for any bank, and Popular's just moved. Consumer credit stayed benign, but noncurrent loans bottomed at 1.36% in June 2025 and have since climbed back to 1.75%, all commercial: the 10-Q shows a $155 million nonperforming loan moved to held-for-sale with a $71 million charge-off, plus two commercial and industrial relationships totaling $129 million newly classified in the second quarter. Reserves held near 2.1% of loans, so coverage kept pace. The credit question flagged a week ago has turned into fact, and it is idiosyncratic commercial, not a broad consumer break, at least so far.

Management

Management's record is written in the buyback and the capital ratio, not the bios. Over five years they retired more than a fifth of the shares, funded a rising dividend, and still pushed CET1 to 16.1%, all while tangible book compounded double digits. That is disciplined capital return from a bank that nearly halved its own earnings on a reserve build in 2023 and did not flinch. The one blemish is insider selling: ten sales worth $14.0 million over the past year and no open-market buys, led by a $6.1 million sale by Javier Ferrer in August. Ferrer is moving into a consulting role under a retirement agreement filed the same quarter, so read that sale as a planned exit, not a signal. Plan status is otherwise not disclosed.

How it fails or surprises you

Commercial credit spreads. The jump to 1.75% noncurrent came from a handful of big commercial names, not a trend. If the next two quarters add more, provision climbs from $66 million and earnings stall. Watch the third-quarter noncurrent ratio and charge-offs: another 20-basis-point rise turns an event into a pattern.

Deposit costs keep falling (right tail). Cost of deposits dropped to about 1.5% while balances grew $2.6 billion in one quarter, and the market pays for today's margin, not a wider one. If island liquidity stays flush as rates ease, margin pushes past 3.7% and earnings beat again. Watch third-quarter margin and deposit cost together.

Puerto Rico stalls. At just under twice tangible book, near a twelve-year high, the stock assumes the island's recovery holds. Puerto Rico's economy has shrunk for two decades and leans on federal transfers and a still-fragile fiscal plan. If deposit growth rolls over or the activity index turns down, both loan growth and the premium multiple deflate. Watch quarterly deposit balances.

Closing thoughts

A good bank at a full price. On earnings, about 11 times, it is unremarkable and arguably cheap for a 17% return on tangible equity that compounds book double digits. On tangible book, just under 2 times and near the top of its range since 2014, the re-rating has already happened and the cushion is thin. The distribution is a steady compounder with a capped multiple: the central read pays you the book compounding and the buyback, roughly low-to-mid teens, not another re-rate. The fatter tail is the downside, and it is specific, Puerto Rico's macro and the commercial credit that just turned. If that breaks, earnings and the premium go at once, which is how bank losses compound. The upside, a wider margin and continued buybacks, is real but smaller than what a 1.9x multiple has already banked.

The bet is still that Puerto Rico keeps recovering and that Banco Popular keeps paying almost nothing for its deposits. What breaks it is the two numbers to watch together: the noncurrent loan ratio and the cost of deposits. If noncurrent loans push through 2% while deposit costs stop falling, the spread that drives the whole machine narrows, and the premium to tangible book has nothing left to stand on.