Popular Bank Tightens Profit Targets, Eyes Steady Growth in Puerto Rico and U.S.

Popular, Inc. (BPOP), the parent company of Popular Bank with significant operations in Puerto Rico and the U.S. mainland, laid out a focused strategy of steady growth and tighter financial targets at the Barclays 24th Annual Global Financial Services Conference on Tuesday. New CEO Jorge J. García told investors the bank is entering its next phase with strong momentum, a high bar for acquisitions, and a continued focus on efficiency and credit quality.

García, who stepped into the top role after serving as chief financial officer, emphasized that the company's progress is driven by its broader organization, not any single leader. He reaffirmed the bank's long-term priorities: become the number one bank for clients, stay simple and efficient, and deliver top-tier returns.

What are Popular's new financial targets?

Popular set a new long-term return on common equity (ROCE) target of 14% to 17%, narrowing its earlier broad goal of double-digit returns. Management said the bank is currently operating near the upper end of that range.

García said the tighter target is meant to sharpen accountability across the organization.

“We haven't hit the profitability. Let's go. Let's keep going,”

he said, describing the mindset he wants in a large bank.

How strong is Popular's capital position?

The bank said its capital levels remain among the strongest in its peer group. The common equity Tier 1 (CET1) ratio stands at about 16%. Popular raised its quarterly dividend to $0.90 per share and has a $1 billion buyback authorization, expecting to deploy $300 million to $400 million in repurchases during the rest of the year.

Combined capital returns through dividends and buybacks are approaching 100% of prior year net income. García noted that additional Tier 1 capital is lower than some peers, which could create room for preferred issuance, though current rates make that unattractive.

The bank's balance sheet is positioned neutrally on interest rates, giving it flexibility if the Federal Reserve moves toward cuts or hikes. Investment portfolio repricing is still providing margin support.

What is the outlook for Puerto Rico's economy?

García described Puerto Rico's economy as stable and more resilient than many outside observers may think. Unemployment is at historic lows, and workforce participation has increased even after a 10% population decline over the past decade. More people are employed now than 10 years ago, despite the smaller population.

The island's economy is supported by several investment streams, including construction tied to federal hurricane recovery funds, private projects, leisure and tourism, and warehouse and logistics activity. About $3 billion in announced pharmaceutical and biotech investments from companies including Eli Lilly and Amgen are adding to the diversity.

Manufacturing still accounts for 40% to 50% of Puerto Rico's economy, with pharma and biotech at the center. García said tariffs may create opportunities for production to move to Puerto Rico, although many current announcements are focused on construction and facility expansion rather than immediate hiring.

Auto lending in Puerto Rico is under pressure because tariff-related cost increases have pushed average vehicle prices to about $48,000 to $49,000.

How is Popular's deposit franchise performing?

García said Popular's deposit franchise is its most important competitive advantage. The bank is emphasizing relationship banking rather than competing only on price. Public funds are an important source of deposits, though they are more expensive. Non-public funds are described as low-cost, transactional deposits and the core of the franchise.

Management expects deposit growth in Puerto Rico to remain modest, likely around 1% to 2%, unless a new catalyst emerges. Client behavior changed after hurricanes and the pandemic, with more customers keeping relationships with multiple banks, which creates market-share opportunities.

The bank is renewing its focus on deposits after a period when loan growth may have drawn attention away from that part of the franchise. Compensation structures are being adjusted to reward deposit gathering and low-cost funding.

What is the bank's credit quality and risk outlook?

Management described the second quarter as a strong one for credit, with no major warning signs across the portfolio. Consumer loan performance remained healthy, with low net charge-offs. The mortgage book continues to show strong quality.

Small business lending is an area to watch because of high living costs and elevated fuel prices. Collections teams have been strengthened and are prepared for possible deterioration. García said there are no broad signs of trouble, but the bank is monitoring daily cost-of-living pressure in Puerto Rico, especially as oil prices remain high.

How is Popular investing in technology and AI?

Popular has made significant investments in digital tools, branch modernization, and customer-facing technology. Commercial treasury and cash management products are being rolled out across the Puerto Rico client base. A corporate credit card product launched at the end of the first quarter saw strong uptake in the second quarter, helping non-interest income.

García said artificial intelligence is still in an early stage at Popular, but the bank has built a governance framework. The work is organized around five areas: software development, bank secrecy act and cybersecurity, claims management, fraud detection, and broader bottom-up initiatives.

He noted that AI will likely still require a “human in the middle,” which may limit some efficiency gains even as productivity improves over time.

What is Popular's M&A strategy?

On acquisitions, García said Popular is open to deals in principle, but the bar is high. A target would need to improve Popular's U.S. deposit franchise with low-cost deposits, have a commercial-led business model and niche focus, and be in adjacent geographies such as South Florida, Central Florida, or the New York metro area.

The target would also need to fit Popular's culture and values and be the right size, roughly $14 billion to $15 billion institutions rather than a full-scale transaction.

“We're not naive. We're not going to say, we're never going to do M&A, or we're not open to M&A,”

he said.

“The reality is that our M&A for us needs to attend to a handful of things, and that creates a really high bar.”

Few banks currently meet those standards, so Popular expects to prioritize organic loan growth and shareholder returns through dividends and buybacks in the near term.

What about the deferred tax asset?

In the question-and-answer session, García said the bank reviews the deferred tax asset each quarter. The review weighs both positive and negative evidence tied to future net operating loss generation and use. The last adjustment was made in 2023 or 2024, based on confidence in the sustainability of earnings. Any future release would depend on high confidence that profits will exceed currently reserved amounts.

Bottom line for investors

Popular presented itself as a well-capitalized bank with strong credit quality, a stable deposit base, and room to keep returning cash to shareholders. At the same time, management signaled that growth will likely be steady rather than fast, and that any deal-making will remain selective.

Popular's stock has risen 35% year-to-date and climbed 37% over the past twelve months, with a market cap of $10.6 billion. The bank's beta of 0.62 suggests lower volatility compared to the broader market, while revenue growth of 9.4% over the last twelve months reflects solid operational momentum.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.