26 MARCH 2007

THE

PEOPLE’S BANKTechnology, acquisitions and service diversification have spurred the growth of Puerto Rican bank, Popular Inc.

TICKERPOPULAR INC.

By Jeff Zbar, Miami

YEAR FOUNDED: 1893 IPO: 1985 STOCK SYMBOL: BPOP WEBSITE: BANCOPOPULAR.COM HEADQUARTERS: SAN JUAN, PUERTO RICO CHAIRMAN OF THE BOARD AND CEO: RICHARD CARRION EMPLOYEES: 14,000

27MARCH 2007

Soon, every week, like clockwork, the bus rumbles into town to take deposits and dispense cash. The people trusted the bank. Its popularity grew. It became known as the “bank of the maids.”

And on the front of the bus were the words, “Banco Popular.”

Fast forward some 50 years, and Pa-checo’s grandson, Richard Carrión, chair-man of Popular Inc., has ambitions of taking electronic banking to the masses. It’s been more than a decade since he installed ATMs and point-of-sale termi-nals throughout Puerto Rico. The bank long ago opened branches in New York boroughs where Puerto Ricans settled and in the major U.S. markets Hispanics call home. And in 2005, he acquired a successful Internet loan provider and is poised to introduce online banking to the masses in Puerto Rico, the Caribbean and his customers in the United States.

“It’s a great metaphor for the trust and loyalty the Banco Popular brand earned in Puerto Rico and the U.S.,” says Roberto Herencia, president of Banco Popular N.A., with headquarters in Chicago.

Whether in Puerto Rico, U.S. Hispanic communities, or online, Banco Popular and parent, Popular Inc., is banking on com-munity ties as it stakes its claim in the U.S. financial services market. The bank, which started in 1893, today boasts some 200 branches in the U.S., the Caribbean and Puerto Rico, where its headquarters in San Juan’s Hato Rey business district overlook La Milla de Oro (“The Golden Mile”), so named for the banks that line the avenue.

One need only look at a snapshot of the U.S. Hispanic market to see why many investors and analysts seem bull-ish on Banco Popular. The United States is home to some 44.2 million Hispanics, with that number expected to top 51 mil-lion by 2011. That the U.S. Census Bureau puts Hispanic buying power around $700 billion is overshadowed by the history of Hispanic savings patterns.

Many of those Latinos are new to this country. Their view of banks is jaded, vexed by visions of the banks from their Latin American homelands, where government

I t’s 1951, and banking is a fairly foreign concept to the housekeepers and farm-ers in the mountainous back country and far reaches of Puerto Rico.

Rafael Carrión Pacheco has an idea. What if he outfits a bus to provide all the services of any traditional bank branch, and that bus visits the island’s remote towns where few if any banks existed? After all, usury—where money was lent at exorbitantly high interest rates—is com-mon and especially hard on lower-income workers, farmers and housekeepers.

controls, currency devaluations and worries about what tomorrow would bring could overnight send the financial markets and personal savings alike into a tailspin.

Yet, people continued to follow the bus, metaphorically speaking—and vice versa. As the population of Puerto Ricans grew in the United States, Banco Popular followed them in. Today, it has branches from New York to New Jersey, Florida, Texas, Illinois and California. It has 600,000 consumer and business accounts. Today, Popular Inc.’s $45 billion in assets makes it among the 30 largest financial institutions in the U.S.

FROM IN LINE TO ONLINEChris Larsen sees strik-ing similarities between a bus rolling through Puerto Rico’s moun-

tainous back-country two generations ago, and a website that facilitates consumer loans and savings today. Both are focused on community. Both are designed to help people otherwise unaccustomed to a new concept—whether it’s simply saving or banking online—embrace the trend.

And, most important, both represent the way Banco Popular historically has handled business.

“It’s obvious building community has been very important to them,” says Larsen, the one-time founder of eLoan.com who sold the online lender to Popular Inc., in 2005 for $300 million. “It’s a pillar of their business.”

Larsen could have sold eLoan to any-one. Certainly, there were other bidders, he says. What hooked Larsen, now CEO of San Francisco-based community net-working and lending site Prosper.com, was the “endearing and fundamental consumer values” held by Popular’s ex-ecutives. Chairman Richard Carrión pos-sessed a “global soul,” Larsen recalls. As a third-generation banker (his grandfa-ther, Rafael Carrión Pacheco, acquired a majority hold on the company in 1926, and his father, Rafael Carrión, Jr., was chairman and president for 45 years until his death in 1991), Carrión has seen the trends—and knows the role online bank-

YEAR FOUNDED: 1893 IPO: 1985 STOCK SYMBOL: BPOP WEBSITE: BANCOPOPULAR.COM HEADQUARTERS: SAN JUAN, PUERTO RICO CHAIRMAN OF THE BOARD AND CEO: RICHARD CARRION EMPLOYEES: 14,000

28 MARCH 2007

ing will play with the emerging Hispanic consumer, especially those historically reticent to place their money in financial institutions, much less one seemingly comprised of little more than keystrokes on a computer.

Privacy, security and trust, he surmised from his meetings with Carrión and his team, were vital.

“Even though we came from a nine-hour flight away, they saw the world the same way we did,” he says. “People won’t gravitate toward cold technology. You have to package technology around core values of trust, transparency and access.”

ADDRESSING THE DIGITAL AGEThat Richard Carrión would take Banco Pop-ular into the Digital Age comes as no surprise.

An economics graduate from the Univer-sity of Pennsylvania’s Wharton School of Finance, he earned a master’s degree in management information systems from Massachusetts Institute of Technology. He started with the bank as a programmer in 1976 before moving on to the commercial loan division. By 1985, he was president.

By 1989, he was CEO. In 1993, he was named chairman of Banco Popular Puerto Rico and parent Popular Inc.

Under Carrión’s leadership and pen-chant for technology, the bank led the way as Puerto Ricans—and many Caribbean island residents where the bank had a pres-ence—transitioned from cash to electronic transactions. The bank pushed to install ATMs in the 1980s, and was a leader in the installation of point-of-sale terminals.

At the same time, the bank moved into a wider array of financial services as regulations loosened. The company pro-vides mortgage and consumer lending; auto and lease financing; mortgage and consumer lending; and various investment services. The bank grew through acqui-sition, an example being that of Kislak National Bank in 2005. The Miami bank’s deposits of $679 million and total assets of $1 billion were rolled into Popular.

Yet it was Popular’s foray into the sub-prime lending market that posed a speed bump on its path—and resulted in caution from some in the investment community. Popular’s 2006 year-end statement report-ed net income for 2006 was $357.7 million, down 34 percent from 2005. Carrión ad-mitted it had “not been a good year,” and cited poor performance in the company’s “nonprime mortgage operations.”

As a result, the company announced in early January its Popular Financial Hold-ings U.S. consumer finance and mortgage business would pull out of the wholesale subprime mortgage origination business. Instead, it would focus on existing prof-itable businesses, and consolidate sup-port functions with its U.S. banking entity, Banco Popular North America (“BPNA”).

The result would be a single North Ameri-can financial services unit.

Though midway through 2006 Carrión was quoted as calling it a “tough year” (it would get worse by year end, actu-ally), it was just a hiccup, says Kelley Wright, managing editor of Investment Quality Trends and chief investment and portfolio officer with IQ Trends private client asset management in San Diego. Popular’s management recognized the problem, sought to correct it by exiting the subprime market, and is expected to continue delivering results that have earned it favorable ratings from a variety of investment analysts, including him-self, Wright says. To rate a company, IQ Trends seeks a combination of dividend increases, earnings improvements and solid management. Where Standard & Poor’s gives Popular an A+, Wright gave it a “G,” for Growth.

“Wall Street is pretty simple. Perform and you’re rewarded. Disappoint, and you’re taken to the woodshed,” Wright says. That’s “lemming-like,” he laments. Instead Popular’s responsiveness to is-sues and focus on its path earn Wright’s nod. This year will be a “turnaround” year, he notes.

POPULAR INC.’S $45 BILLION IN ASSETS RANKS IT AMONG THE 30 LARGEST FINANCIAL INSTITUTIONS IN THE U.S.

TICKERPOPULAR, INC.

NUMBER OF BRANCHES: 423 IN THE U.S. AND PUERTO RICO MARKET CAPITALIZATION: $5.28 BILLION STOCK PRICE (1/30/07): $18.12 52-WEEK (1/31/06-1/31/07) HIGH: $22 LOW: $16.86 2005 NET INCOME: $357.7 MILLION

+ Banco Popular North America President Roberto Herencia

+ Banco Popular Chairman Richard Carrión

29MARCH 2007

“Popular has established that they’re high quality with good management,” he says. “Those are two attributes we look for and like.”

CULTURALLY RELEVANT BANKINGWright also is taken by how Popular plays into changing U.S. demo-

graphics. Deep cultural and historical dis-trust between Latinos and their financial institutions means those arriving in the U.S. are reticent to use traditional banks, he says. It’s no surprise. Back home, banks fail and governments devalue currencies. Instead, Popular speaks the language of financial services—banking, consumer and business loans, credit—and they speak the tongue beneath a marquee Hispanics see as their own.

“Popular is bringing that community into the fold, and they’re introducing them to financial services,” Wright says. “This is the fastest growing demographic. These people are entering into the mainstream of the economy here. If you deliver financial services and don’t recognize that, you’re totally missing the boat.”

The major U.S. banks—the Wacho-vias, Wells Fargos and Bank of Ameri-cas—see Hispanics as an ethnic market to be parsed and served by multicul-tural marketing teams. They’d be wise to watch how Popular does it, Wright says. Notes Herencia, “We have one marketing group. Period.”

Larger banks may be watching even closer than that, Wright says, for the bank’s entrenchment in the sector might make Pop-ular an attractive takeover target itself.

“Demographics have gone our way in the last 10 years,” Herencia says, “and will continue to do so.”

Another attribute big banks would be wise to emulate is Popular’s award-winning focus on community. In 2004, it created the Banco Popular Foundation, which in 2006 granted more than $400,000 to nonprofit organizations, while also rising to the rank of fourth-leading small business lender as part of the U.S. Small Business Administra-tion. In 2005, Boston-based KLD Research & Analytics Inc. added the bank to its Do-mini 400 Social Index measuring “social screening” as part of financial performance. The next year, the bank received the Daily Points of Light Award, honoring organiza-tions that help communities. Popular has earned Fortune Magazine’s 100 best com-panies to work for, was named one of the "Top 100 Companies for Working Families" by the Orlando Sentinel, and was listed one of the 101 Best and Brightest Companies

to Work For by the National Association for Business Resources.

This community focus stands as Pop-ular’s “four pillars” founding principles: Customer, employees (whom Herencia calls “dream makers”), community and financial performance. Strong numbers lead to reinvestment in services, which improves the tidings of the communities Popular serves, he says.

This heritage for growth, technology and serving all—while expanding into new mar-kets—is likely to continue. Carrión’s oldest son, Richard, Jr., works closely with Herencia. He is, in essence, being groomed to become the fourth generation of Carrión bankers.

The common element throughout has been Banco Popular’s focus on its roots. To be sure, they serve the affluent and suc-cessful business enterprise. But Popular will always remember its beginnings as the “bank of the maids.”

“We have this very soft spot for help-ing the underserved,” Herencia says. “We tend to go out of our way to have products and services that take care of those who need the most help.” +

NUMBER OF BRANCHES: 423 IN THE U.S. AND PUERTO RICO MARKET CAPITALIZATION: $5.28 BILLION STOCK PRICE (1/30/07): $18.12 52-WEEK (1/31/06-1/31/07) HIGH: $22 LOW: $16.86 2005 NET INCOME: $357.7 MILLION

POPULAR’S 2006 YEAR-END STATEMENT REPORTED NET INCOME FOR THE YEAR-END 2006 WAS $357.7 MILLION, DOWN 34 PERCENT FROM 2005.

BPOP: A BUMPY RIDE