Popular Inc
Annual Report 2005

Plain-text annual report

2 0 0 5 A N N U A L R E P O R T Connect 1 We Connect Popular, Inc., a financial holding company with $48.6 billion in assets, is a 2 Letter to Shareholders 8 Banco Popular de Puerto Rico 12 Banco Popular North America 16 Popular Financial Holdings 20 EVERTEC 24 Our Community complete financial services provider with operations in Puerto Rico, the United States, the Caribbean and Latin America. As the leading financial institution in Puerto Rico with over 280 branches and offices, the Corporation offers retail and commercial banking services through its banking subsidiary, Banco Popular de Puerto Rico, as well as investment banking, auto and equipment leasing and financing, mortgage loans, consumer lending, insurance and information processing through specialized subsidiaries. In the United States, the Corporation has established the largest Hispanic- 29 Institutional Values owned financial services franchise, providing complete financial solutions to all the 30 Corporate Leadership Circle 31 Board of Directors, Popular, Inc. 32 Financial Summary 36 Corporate Information communities it serves. Banco Popular North America operates over 135 branches in California, Texas, Illinois, New York, New Jersey and Florida. The Corporation’s finance subsidiary in the United States, Popular Financial Holdings (PFH), operates nearly 200 retail lending locations offering mortgage and personal loans, and also maintains a substantial wholesale broker network, a warehouse lending division, loan servicing, and an assets acquisition unit. PFH, through its newly acquired subsidiary E-LOAN, provides online consumer direct lending to obtain mortgage, auto and home equity loans. The Corporation continues to use its expertise in technology and electronic banking as a competitive advantage in its Caribbean and Latin America expansion, through the financial transaction processing company, EVERTEC. The Corporation is exporting 112 years of experience through the region while continuing its commitment to meet the needs of retail and business clients through innovation, and to fostering growth in the communities it serves. Popular, Inc. We connect. Popular, Inc. began investing in today’s information age years ago, at a time when such investments appeared to carry more risk than reward. Such foresight enabled us to offer a greater range of financial products and services, using both new and traditional channels, to a growing circle of customers and partners. As that circle grows, the need to keep pace with changing technology and the information needs that arise becomes more and more challenging. It’s not just the resources required, but the need for people on both sides of the transaction to adapt, stay current and find opportunity in the unfamiliar. At Popular, we work hard to anticipate what lies ahead by staying connected with our customers, business partners and the industry as a whole. As this report explains, we are only as strong as each of these individual connections. From these connections come new choices, greater efficiency and more satisfied customers. The details change from sector to sector, but, as you will discover, we are learning and growing together, across the full breadth of Popular. 1 Letter to Shareholders CONNECT Great organizations are those that can keep their focus in spite of difficult times. The challenges that we faced during 2005, rather than discourage us, strengthened our resolve and made us concentrate on executing the plans we had charted for ourselves. I believe that, despite all the head- winds, we were able to deliver results and took important steps in all of our businesses that place the organization as a whole in an even stronger position. The financial services industry experienced rising short-term interest rates and a flattening yield curve, which resulted in us facing a sharp compression of Richard L. Carrión, Chairman, President, Chief Executive Officer our net interest margin. It was also a particularly difficult year for the sector in Puerto Rico. Accounting issues At Popular, we have carefully reviewed our accounting related to mortgage loan transactions led four institutions of this type of transaction and we are confident that to announce the restatement of their financial results. our previously filed financial statements are fairly stated This instability had a substantial impact in the market and that no restatement is necessary. However, the value of local financial institutions. uncertainty created by this situation probably affected our stock price. Popular’s stock closed at $21.15 on December 30, 2005, a decline of 27% when compared to the closing price of 2004. W E C O N N E C T ROA and ROE Assets and Net Income Growth 1.5% 1.2% 0.9% 0.6% 0.3% ● ROA ● ROE 25% 20% 15% 10% 5% $60 $50 $40 $30 $20 $10 $600 $500 $400 $300 $200 $100 01 02 03 04 05 01 02 03 04 05 ● ASSETS (dollars in billions) ● NET INCOME (dollars in millions) During 2005, we took important steps to expand our franchise into new markets and new businesses. Despite the difficult year, our shareholders demonstrated During 2005, we took important steps to expand our their long-term outlook and the trust they have in Popular franchise into new markets and new businesses. when they fully subscribed approximately $220 million In November of 2005, we acquired E-LOAN, an online in newly issued common shares in a subscription rights consumer direct lender that originated approximately offering that closed on December 19, 2005. Even though $5.4 billion in mortgage, auto and home equity loans in subscription rights offerings have fallen out of style, 2005. E-LOAN connects us to additional customers, giving our vision remains to allow shareholders who own the us a new online distribution and origination channel. company to have a preference whenever we need to When we first looked at E-LOAN, we were impressed increase capital. We are proud of our shareholders’ response with their innovative approach, their technology capabilities, and, at the same time, conscious of the responsibility that the strength of their brand and their focus on excellent their trust entails. customer service. We knew immediately it would be a Net income for 2005 reached $540.7 million, an great fit with Popular. Through this merger, Popular will increase of 10.4% over 2004. The results for the year further expand its penetration into the U.S. market, include $67.4 million in gains on the sale of investment complement its existing non-prime businesses and sig- securities, compared with $15.3 million in 2004. Net nificantly enhance its technology platform to support its income represented a return on assets (ROA) of 1.17% growth strategy. E-LOAN’s senior management is part of and a return on equity (ROE) of 17.12%. Earnings per our Popular Financial Holdings team and we are excited common share (EPS), for 2005 were $1.98 basic and about the opportunities that this partnership presents. $1.97 diluted, compared to $1.79 for both in 2004. We also committed to invest approximately $125 million to acquire 19.99% of UBCI, holding company P O P U L A R 2 0 0 5 2/3 With the same level of discipline and focus on execution, we will continue to thrive in the years ahead. for Grupo Cuscatlán, the second largest financial group Secrecy Act (BSA) compliance, coupled with our decision in Central America. This investment will give us the to remain outside the payday lending business, impacted opportunity to participate more actively in commercial PCE’s profitability. Nevertheless, we will remain an active banking activities in Central America, a growing banking participant in the industry as a lender and servicer to market, and better positions us to further expand our other retail check cashing institutions and we will continue processing services in the region. to collaborate with regulators and lawmakers to accelerate We believe that initiatives such as these, which take the integration of unbanked individuals into mainstream us into new markets, products and delivery channels, financial services. coupled with the strength of our existing businesses will allow us to continue strengthening our franchise and delivering strong financial results for our shareholders. Each of our four business circles successfully executed the key initiatives we had identified for 2005. We also made some difficult decisions in 2005. After Banco Popular de Puerto Rico: carefully weighing the benefits and risks associated with WE CONNECT WITH OPTIONS the business, we sold substantially all of the assets of Banco Popular de Puerto Rico focused on leveraging its Popular Cash Express (PCE), our wholly-owned check position as the institution that meets all the financial needs cashing operation in the U.S. We found ourselves of its customers and enhancing customer service. The constrained in our ability to compete against non-bank integration of all financial services in Puerto Rico under owned check cashers, which are less regulated than one umbrella has facilitated collaboration among units. banking institutions. The requirements related to Bank These efforts, combined with a renewed emphasis on sales productivity, resulted in an increase in market share in almost every segment. Despite our remarkable success in W E C O N N E C T Return to Shareholders 15 years Total Return Including Dividend and Dividend Reinvestment 1,500% 1,200% 900% 600% 300% 4 . 0 2 0 . 9 1 8 . 7 1 2 . 7 1 4 . 2 1 25% 20% 15% 10% 5% 89 93 97 01 05 25 20 10 5 15 YEARS ● S&P Bank Index ● S&P 500 ● Popular, Inc. this market, there is always room for growth. We will to take steps to improve going forward. Despite these continue to execute our strategies with the intention of challenges, PFH had a record-breaking year in terms of becoming the leader in each and every financial service production, with originations reaching $9.9 billion, added business in Puerto Rico. 38 stores to its retail franchise and successfully entered the Banco Popular North America: WE CONNECT TO DREAMS third party servicing business, achieving the highest servicer rating from Standard & Poor’s. Banco Popular North America successfully integrated EVERTEC: and converted two acquisitions announced in 2004 – WE CONNECT WITH TECHNOLOGY Quaker City Bancorp and Kislak National Bank – and EVERTEC, Popular’s processing and technology out- continued with its two-pronged strategy of becoming sourcing company, completed its first full year of the premier community bank in the markets it serves, operations in 2005, delivering excellent results. The as well as developing niche businesses where it can add acquisition of ScanData Puerto Rico, a financial services value. Its customer acquisition program continued to bring processing company, provides EVERTEC with the in new customers and significant checking account growth, opportunity to expand its item processing services to and specialized lending initiatives such as SBA, middle other financial institutions and to market image technology market and construction lending produced solid results in in the Americas. EVERTEC also reinforced its business 2005. Financial results were in line with our expectations, in Central America, giving the local operation more with net income growing 82% over 2004. autonomy to better respond to client needs and enhancing Popular Financial Holdings: WE CONNECT WITH OPPORTUNITY Popular Financial Holdings (PFH), our consumer finance, mortgage and servicing business in the United States, had a difficult year due to the impact that competition and the flattening of the yield curve had on its net interest margin and, consequently, on its financial results. We continue our technology infrastructure by consolidating our Central American processing facilities in Costa Rica. Excellent performance across business units resulted in a net income increase of 74% when compared to the previous year. P O P U L A R 2 0 0 5 4/5 Our Community: WE CONNECT TO PEOPLE The accomplishments that I have shared are a direct result of the hard work and dedication of more than Connecting with our communities is a critical part of what 13,000 employees that every day strive to create and we do as an organization. That vision was very much maintain meaningful connections with every person and present when we were founded more than 112 years ago, group touched by Popular. We are also fortunate to have and it has remained paramount throughout our history. We the guidance of a Board of Directors deeply committed do it through our business activities, and we do it through to our organization and its future. This year, Mr. Félix J. philanthropic initiatives in all of the markets we serve. Our Serrallés Nevares will retire from the Banco Popular de employees contribute financial resources as well as their Puerto Rico Board of Directors upon reaching the manda- time and expertise through volunteer activities. USA Today tory retirement age. As a Director of BanPonce Corporation recognized Popular by giving us a national Make a since 1966, and later joining the Banco Popular and Difference Day Award for our participation in 2004. In Popular, Inc. Boards, Mr. Serrallés has been advising this 2005, once again, more than 4,000 employees mobilized organization for 40 years. We are very grateful for his and touched people in need in communities from Puerto support and important contributions throughout the years. Rico all the way to California. Fundación Banco Popular The outlook for 2006 points to another challenging in Puerto Rico and the Banco Popular Foundation in the year, but we are optimistic and expect that, with the United States granted $927,585 and more than $200,000, same level of discipline and focus on execution, we will respectively, to over 60 non-profit organizations engaged continue to thrive in the years ahead. in educational and community development projects. During the first quarter of 2005, we entered into a five- year agreement to be the official bank of the New York Mets, the largest sports marketing partnership in Popular’s 112 year history. This agreement includes substantial advertising and community outreach opportunities for RICHARD L. CARRIÓN Banco Popular, including the operation of all ATMs at Chairman Shea Stadium. We firmly believe that this sort of initiative President strengthens our brand and allows us to better connect Chief Executive Officer with the communities we serve. W E C O N N E C T Connect: In thousands of locations and in hundreds of ways, the people of Popular connect each day with customers, the community and each other. Those connections bind us, make us strong, and allow us to continue building relationships that will chart Popular’s course for years to come. 6/7 W E C O N N E C T Banco Popular de Puerto Rico We connect with options. Being the market leader and Puerto Rico’s largest financial institution makes us no less aggressive when it comes to identifying, competing for and retaining new business. Customers expect and deserve the highest possible levels of choice and service. Banco Popular de Puerto Rico delivers a complete array of individual and commercial banking services to people across the island, day and night, whether they are banking at home or at one of our hundreds of locations. Our value as a company rests with our front-line staff, well trained and eager to go the extra mile. We attract customers with very compet- itive rates on a range of savings, checking, and loan products. We keep and build upon that client base with a responsive, customer-first approach. P O P U L A R 2 0 0 5 8/9 BPPR Monthly Sales BPPR Transactions in millions BPPR 2005 Transactions in millions Internet 5.9 TelePago 6.7 250 200 150 100 50 $350 $300 $250 $200 $150 $100 $50 Banco Popular de Puerto Rico ● Employee Average Sales ● Branch Average Sales ● POS ● ATM ● Teller ● TelePago ● Internet ● POS ● ATM ● Teller ● TelePago ● Internet 03 04 05 01 02 03 04 05 POS 149 ATM 88 Teller 61.6 Banco Popular de Puerto Rico, the leading financial institution in Puerto Rico, connects customers to countless options to cover their financial needs. Through our comprehensive network of delivery channels, our customers can reach us at any time. In 2005, we held fast to our resolve to remain the leading financial institution on the island and delivered superior results amidst the challenging environment surrounding Puerto Rico’s banking industry. Throughout the year, we significantly grew our deposit and loan portfolios, despite a difficult interest rate scenario and aggressive competition. Deposit market share grew David H. Chafey Jr., Senior Executive Vice President, Popular, Inc. President, Banco Popular de Puerto Rico to 32.6% and loan market share resulted in 23% for 2005. Through Sonrisa, we trained our entire sales staff in con- We also enhanced our credit policies to reflect a renewed sultative sales and customer service, better preparing them strategy, increasing our portfolio profitability without to keep fulfilling our customers’ demanding standards. sacrificing credit-worthiness. Sales per month per employee increased 20% in 2005. Our branch network continues to offer convenience We also launched the Branch Service Index to measure to our customers. We remodeled over 10% of branches service standards at every branch. and added three new ones. This brings our total number Meanwhile, more customers than ever expressed satis- of branches to 194, by far the largest network in Puerto faction with Banco Popular de Puerto Rico; 73% intend Rico. We also improved our online banking website, Mi to acquire more of our products and services, 93% will Banco (My Bank), and launched a mobile banking platform. continue banking with us, and nine out of 10 customers To further enhance customer satisfaction, we focused would recommend us to a friend, a reflection of the trust intently on our retail service initiative Sonrisa (Smile). our customers continue to place on us. Through our commercial banking centers and branches, we consulted small and middle market business owners, W E C O N N E C T BPPR Loans, includes LHFS in millions BPPR Deposits in millions BPPR 2005 Highlights $15,000 $12,000 $9,000 $6,000 $3,000 $15,000 $12,000 $9,000 $6,000 $3,000 • $26.5 billion in assets; largest Popular, Inc. subsidiary • 305 financial offices in Puerto Rico and the Virgin Islands • 1.3 million Popular clients • 93%* of customers are satisfied or extremely satisfied with Popular • 6,493 Employees (full time equivalent) 04 05 04 05 ● Commercial ● Leases ● Consumer ● Mortgage ● Demand ● Savings ● Time *According to internal surveys Being Puerto Rico’s largest financial institution has not made us any less aggressive when it comes to identifying and competing for new business. leading to a loan portfolio growth of 12% over 2004. lending and installment loans experienced the highest Because this is an important segment for the bank, we increase in volume. Total mortgage loan originations continued to streamline our underwriting process to climbed to $1.8 billion in 2005 or 24% over 2004. improve ease of doing business with us, while lowering Popular Finance positioned itself for future growth our expenses. We also reached out to real estate developers by reinforcing internal capabilities, expanding its branch on the island, notably increasing our construction loan network by seven branches during the second half of the portfolio by $193 million over 2004. year, and rolling out a platform for the indirect lending Our commercial customers now enjoy an improved program, which will boost competitiveness in this impor- online banking experience by accessing real-time deposit tant segment. account balances, transaction information, and applying The Financial Services and Investments unit had a for letters of credit. They also enjoy greater fraud preven- good year, completing the acquisition of a financial tion security when using electronic services thanks to advisory and investment management firm, Financial the implementation of the positive pay modules. Internet- Planning Group Corp. Popular Asset Management initiated wire transfers now require password-generating increased assets under management by $295 million. tokens, which are considered one of the safest authen- Popular Insurance continued to penetrate the insurance tication systems in the industry. The Merchant Acquisition market by increasing premiums written to $144 million group also had a strong year, increasing revenues 13% versus $138 million in 2004, representing a 4% increase. and adding over 260 customers per month. All these efforts Encouraged by our strong performance in 2005, allowed Popular to grow non-interest bearing commercial we will continue to provide strong financial results and deposits 7.4% in 2005. will seek to connect clients to our extensive distribution Meanwhile, our Consumer Lending group spearheaded network and variety of first-class financial services. significant accomplishments. Total loan portfolio growth for the group totaled $432 million. Our credit card, auto P O P U L A R 2 0 0 5 10/11 W E C O N N E C T Banco Popular North America We connect to dreams. Popular continues to expand our franchise in the United States by offering the most complete financial services in the communities we serve, while leveraging our unique advantages in the Hispanic market. In March 2005, Banco Popular North America entered into a five-year agreement to become the official bank of the New York Mets. The agreement includes the operation of all ATMs at Shea Stadium, along with multiple branding and sponsorship opportunities. BPNA enticed new customers with a Mets ticket offer to all who opened a new account at a New York area branch. BPNA will also play a significant role in the Mets’ community outreach efforts, co-sponsoring the Mets’ summer reading program with the New York Public Library, and spearheading a ticket distribution program to community organizations. P O P U L A R 2 0 0 5 12/13 BPNA Performance dollars in millions BPNA Net Income per FTE Increased Productivity $500 $400 $300 $200 $100 100% 2,500 80% 60% 40% 20% 2,000 1,500 1,000 500 $90,000 $72,000 $54,000 $36,000 $18,000 01 02 03 04 05 01 02 03 04 05 ● Revenues ● Efficiency Ratio ● Expenses ● Full Time Equivalent Employee ● Net Income/FTE Roberto R. Herencia, Executive Vice President, Popular, Inc. President, Banco Popular North America Banco Popular North America Throughout 2005, Banco Popular North America (BPNA) connected with communities; guided by our New Day strategic roadmap and focusing on our goal to make dreams happen for our neighbors in the communities we serve, we effectively laid down the foundation to continue building a strong franchise in the United States. BPNA delivered significant growth in 2005, with net income reaching $99.2 million from $54.5 million in 2004 – an increase of 82%. Loans jumped 15%, deposits increased 19% and fee income grew 20% during 2005. Organic growth (excluding acquisitions) was supple- mented by the successful integration and systems conversion of two recent acquisitions (Quaker City Bank Market lending also proved very profitable with loans and Kislak National Bank). Organic loan and customer increasing from $280 million in 2004 to $390 million deposit growth rates were 13% and 8%, respectively. Loans in 2005 – an increase of 39%. Another success story for and deposits from the two acquisitions grew by 10% and BPNA is our “non-conventional” mortgage program, 3%, respectively – a solid showing for the first year. which expanded to 11 states and achieved $241 million Key niche lending initiatives experienced double-digit in originations, or a 57% increase over 2004. growth. Our Small Business Administration (SBA) lending In 2005, we launched our Got Passion? customer group was restructured and new leadership re-energized campaign, raising awareness about our commitment to lending efforts that continued to move the needle on BPNA’s customers and creating multiple channels for their feedback goal of becoming a top three SBA lender in the markets we to better address their needs. Our customers responded serve. SBA loan originations went from $165 million in well to the further refining of our Value Proposition: deliv- 2004 to $254 million in 2005 – an increase of 54%. Middle ering an extraordinary customer experience. As a reflection of our effort, retail checking account openings increased by 71% over 2004 and business accounts grew by 29%. W E C O N N E C T BPNA Financial Performance dollars in billions BPNA 2005 Highlights • $12 billion in assets • 136 branches in six states • 2,146 full time equivalent employees • 73% overall employee engagement $14 $12 $10 $8 $6 $4 01 02 03 04 05 ● Assets ● Deposits ● Loans With the 2005–2008 strategic plan, Seize the Future, we begin our next stage of development. During the first quarter of 2005, we entered into a The period from 2001 through 2005 was marked five-year agreement to be the official bank of the New York by the launch, execution and successful completion of Mets. This agreement includes substantial advertising and our New Day initiative, a time when BPNA faced great community outreach opportunities for Banco Popular, challenges and opportunities. As an organization, we including the operation of all ATMs at Shea Stadium. dreamt big and took our achievements to a new level, We also provided Our People, better known as boldly responding with results that tell the story. DreamMakers, with best-in-class Human Resources The Shared Agreement process that began in 2001 practices that were acknowledged by receiving regional effectively aligned employee actions and goals with our Best Company recognitions in Chicago and Orlando for company’s vision and business goals. As a result, assets BPNA, and in St. Louis for Popular Leasing, U.S.A. Our more than doubled from $5.7 billion in 2001 to $12 billion efforts in this area successfully produced a more engaged in 2005; non-performing assets to total loans dropped to and effective workforce. 0.72%; net income almost doubled to reach $99.2 million, In 2005 we also had to make some difficult decisions. and market share grew within our footprint. All the while Having analyzed the benefits and risks associated with employee headcount remained unvarying – even after the business, the Corporation sold most of the assets of two acquisitions. Popular Cash Express (PCE), a wholly-owned check With the 2005–2008 strategic plan, Seize the Future, cashing operation in the United States. It became hard to we begin our next stage of development, with the goal to compete against non-bank owned check cashers, which substantially grow our customer base, revenues and earnings. are less regulated than us. The requirements related to BPNA will continue to improve financial performance by Bank Secrecy Act (BSA) compliance, along with our creating daring goals for our next round of dreams. decision to remain outside the payday lending business, impacted PCE’s profitability. We will, however, remain an active participant in the industry as a lender and servicer to other retail check cashing institutions. P O P U L A R 2 0 0 5 14/15 W E C O N N E C T Popular Financial Holdings We connect with opportunity. Successful communities rely on inclusive and widespread home ownership, vibrant commercial districts and sustainable job generators. Popular Financial Holdings enables neighborhood growth and renewal by serving retail customers directly through its Equity One subsidiary, producer of prime and non-prime mortgage loans, unsecured loans and sales finance. Popular Financial Services, LLC and Popular Warehouse Lending, LLC work with mortgage bankers at the wholesale level. A newly acquired subsidiary, E-LOAN, provides online consumer direct lending to obtain mortgage, auto and home equity loans. All four primary businesses share centralized support and a strategy calling for increased cross selling, geographic expansion and an increasingly diversified loan portfolio. P O P U L A R 2 0 0 5 16/17 PFH Offices and States 2001 – 2005 40 32 24 16 8 01 02 03 04 05 250 200 150 100 50 ● States ● Offices Popular Financial Holdings In 2005, Popular Financial Holdings (PFH), Popular’s consumer finance, mortgage, and servicing group in the United States, connected to opportunities for future growth in support of its mission to be the lender of choice for customers. PFH moved forward and achieved important origination goals, even when faced with the difficulties in the mortgage lending industry and the adverse effects of a flattening yield curve. These factors resulted in earnings for 2005 being well below our earnings in 2004 and our expectations for the year. Bill Williams, Executive Vice President, Popular, Inc. President, Popular Financial Holdings With the restructuring of PFH last year, the Corporation The acquisition of Infinity Mortgage, which we opened the door to stimulate its growth. Throughout 2005, completed in November, complements our existing we seized every opportunity to do so, successfully achieving direct mail efforts by adding a national call center. The our expansion goals. We began by opening 38 new branch partnerships with E-LOAN and Infinity Mortgage also offices in six states, along with acquisitions, which also provide an opportunity to expand our loan servicing fueled growth during 2005. business. Following the acquisitions, PFH’s network of Popular, Inc. acquired online consumer direct lender operations now stands at 213 offices in 34 states; we E-LOAN in November, aligning both companies to reap are also licensed to do business in all 50 states. great benefits from the partnership. Thanks to the PFH also entered two new businesses: manufactured acquisition, PFH will expand its national footprint and housing and third party servicing. Through Popular significantly improve its technology platform and Internet Housing Services, we offer manufactured housing loans presence, while E-LOAN will gain access to Popular, Inc.’s in 14 states. Third party servicing, which won its first financial and capital markets and PFH’s non-prime products. bid this year, allows us to generate income without the collateral risk of owning a loan portfolio. W E C O N N E C T PFH Servicing Portfolio dollars in billions PFH Origination Volume dollars in billions PFH 2005 Highlights $12 $10 $8 $6 $4 $2 $10 $8 $6 $4 $2 01 02 03 04 05 01 02 03 04 05 • $9.7 billion in assets • 213 offices in 34 states • Mortgage servicer rating upgrade by Moody’s to “Above Average” and Standard & Poor’s to “Strong” • Four call centers covering continental U.S. • 2005 E-LOAN originations were over $5.4 billion We garnered an upgrade of our servicer ratings from Moody’s to “Above Average” and from Standard & Poor’s to “Strong.” In 2005, PFH reorganized into four business groups loan amount closed per account manager increased by 21% in order to incorporate growth and best execute its mission. in 2005. The profitability of the Asset Acquisitions group, The groups Retail Operations, Wholesale Operations, however, was significantly below our expectations, due to E-LOAN and Commercial Operations – each with its own the continued flattening of the yield curve in 2005. leader – will give each business the autonomy to react to Popular Warehouse Lending, which targets small and market demands by operating in a more entrepreneurial mid-sized mortgage bankers by providing revolving lines style while remaining in a corporate environment, of credit to finance mortgage loans, originated $2.6 billion combining the best of both worlds. in 2005. The combined production of all our units resulted PFH also connected to opportunities to grow its core in $9.9 billion in originations in 2005, a record year for us. business of mortgage loan originations. Retail Operations, PFH’s managed portfolio surpassed the $10 billion which represent 20% of the PFH mortgage loan portfolio, mark, heading the company toward its ambitious goal originated more than $1.7 billion of mortgage loans in of $25 billion by 2010. We also garnered an upgrade of 2005, a 23% increase over 2004. Retail Operations also our servicer ratings from Moody’s to “Above Average” and increased the number of loan officers by 25% over 2004, from Standard & Poor’s to “Strong,” an outstanding vote and the average loan amount closed per officer increased of confidence in our ability to best serve the market. by 18% over 2004. As a key element of this group, the We will continue to connect to and seek opportunities Consumer Services lending operation originated $762 that fully support our mission of being the preeminent million in mortgage secured and unsecured personal loans. employer, lender and investment of choice. We will con- Wholesale Operations, which represent 80% of our tinue to execute on our goal of providing an exceptional mortgage loan portfolio, had total originations of $4.3 customer experience and doing things the right way, billion. Wholesale volume, through our broker network, every day. experienced an increase of 50% over 2004. The average P O P U L A R 2 0 0 5 18/19 W E C O N N E C T EVERTEC We connect with technology. Ongoing investment in electronic transaction infrastructure continues to quicken the pace of change for both financial institutions and their customers. EVERTEC, the financial transaction processing arm of Popular, offers its experience in technology and electronic banking throughout Latin America and the Caribbean. EVERTEC provides the software, hardware and services businesses need to be successful and profitable. By always identifying and pursuing the leading edge of technology, we help clients do more in less time. As the cost of communication and information technology decline, new scaleable and flexible solutions for acquiring, processing, and storing information are found. This allows financial markets to expand and deepen, and new opportunities to emerge. P O P U L A R 2 0 0 5 20/21 ATMs and POS Terminals in ATH Network ATH Network Transactions in millions 5,000 4,000 3,000 2,000 1,000 90,000 72,000 54,000 36,000 18,000 500 400 300 200 100 01 02 03 04 05 01 02 03 04 05 ● POS Terminals ● ATMs ● ATH BPNA ● ATH El Salvador ● ATH Costa Rica ● CONTADO, S.A. ● ATH Puerto Rico Félix M. Villamil, Executive Vice President, Popular, Inc. President, EVERTEC, Inc. EVERTEC EVERTEC keeps its customers connected to the world by providing dynamic information technology solutions that eradicate barriers, shorten distances, and open doors to new markets. In 2005, EVERTEC completed its first full year of operation, focusing on growing core revenues and increasing operational efficiency. We also grew through acquisitions, strategic alliances and the expansion into new service areas. In May, we acquired 100% of all issued outstanding shares of ScanData Puerto Rico, an item processing provider. With the acquisition, EVERTEC processes close to 60% of all checks in Puerto Rico. We also gained the rights to provide ScanData’s proprietary imaging technology in On August 18, 2005, EVERTEC acquired all of Valiant the Americas. ScanData’s Atril technology facilitates the Inc.’s contracts in Puerto Rico. Valiant, Inc. is a software digital processing of checks as permitted under the Check development company specializing in workforce time 21 Act and can also be used for processing, storing, sending management solutions. The addition of Valiant’s software and revising documents. This acquisition further solidifies to EVERTEC’s service offering portfolio allows us to further our geographical expansion and effectively gives EVERTEC expand our customer base and provides EVERTEC with the potential to expand our document processing offering an additional source of fee based income. beyond check imaging. At year end, our flagship ATH network, which spans Popular also signed an agreement for the acquisition of a Puerto Rico, Costa Rica and the Dominican Republic, had 19.99% equity participation in UBCI, the holding company processed more than 460,158,944 transactions through of Grupo Cuscatlán and the second largest financial institu- 4,374 ATMs and 85,292 POS terminals. We also increased tion in Central America. This agreement advances Popular, by 7% the number of affiliated financial institutions in 2005. Inc.’s objectives to offer high-quality technological services In Puerto Rico, we celebrated a landmark in the history and participate in the economic growth of the Central of the ATH network, its 21st anniversary. Two decades after American region. W E C O N N E C T its inception, the ATH network has grown to include 1,439 ATMs and 49,466 POS terminals across the island. EVERTEC Total Revenue dollars in millions EVERTEC 2005 Highlights IT Consulting 48.1 Cash Processing 9.5 Business Process Outsourcing 73.3 Transaction Processing 72.8 Application Processing 17.0 • Leading provider of processing and outsourcing services including application processing, business process outsourcing, IT consulting, and cash processing to third parties and Popular companies • Serves clients in Puerto Rico, United States, Dominican Republic, Costa Rica, Venezuela, Haiti, El Salvador, Honduras, Bermuda, Belice and Nicaragua • Over 866.4 million transactions processed • 4,374 ATMs • 85,292 POS terminals In Puerto Rico, we celebrated a landmark in the history of the ATH® network, its 21st anniversary. In Costa Rica, we experienced significant growth, program to test the integration of several banking delivery servicing 23 institutions and operating 728 ATMs and 5,785 channels to our centralized customer data integrator, the POS terminals. In El Salvador, we integrated the Serfin, S.A. Transaction Vault (TV), the design of which was completed switch into Costa Rica’s platform, after having acquired the previous year. Full implementation of the TV and its 31% of the operation the previous year. In that market, we connection to delivery channels for all Banco Popular de serviced five institutions and operated 710 ATMs and 4,700 Puerto Rico customers is planned for 2006. The TV will POS terminals. In the Dominican Republic, Consorcio de provide a consistent and single customer view that will Tarjetas Dominicanas (CONTADO) closed the year with enable the Bank to identify and address service and sales 1,316 ATMs and 25,341 POS terminals, processing opportunities at the point of contact with its customers, 64,663,980 transactions. regardless of the delivery channel they select. We also This year, EVERTEC expanded its healthcare transaction streamlined the areas of cash and item processing and processing business with the launch of EVERGate, a printing, changes that required a small capital investment universal clearinghouse for health insurance transactions. but will result in greater cost efficiency. The system, which is compatible with all medical insurance As we continue to expand our processing business, we programs, sends and receives electronic transactions in a will not falter in our commitment to the highest standards single connection. With EVERGate, we have raised the bar of quality and service. We remain focused on connecting for electronic healthcare transaction processing in Puerto our customers to the latest, most advanced and cost efficient Rico, providing our customers with a system that offers the technology available to enable the transformation of their utmost convenience and simplicity. business processes and enhance, simplify and improve The redesign of our banking technology infrastructure, their lives. one of Popular’s most important long-term investments, continues on track. During 2005, we launched a pilot P O P U L A R 2 0 0 5 22/23 W E C O N N E C T Our Community We connect to people. At Popular we believe we are much more than a financial institution. We are a proud member and a reflection of every community we serve. Popular and its employees connect with the community in a variety of ways. At the corporate level, we direct donations and sponsor programs that focus on our three primary philanthropic goals: education, financial literacy and economic development. We also work to enrich the lives of our customers and all community members through the arts, cultural awareness and sports as a means to foster the spirit of achievement among our youth. The spirit of giving and a shared commitment to community is one of the core leadership qualities we seek in each of our employees. Our desire to be engaged with the community, both inside and outside the doors of our offices, is a critical component of what we stand for. P O P U L A R 2 0 0 5 24/25 Our Community Throughout its 112-year history, Popular has held the institutional value of social commitment paramount. We believe that our best investment is the one we make to support the education and development of the communities we serve. As such, we are committed to proactively contribute to the social and economic well-being of our communities through our philanthropic endeavors and the collective efforts of our employees. In 2005, Our People showed this commitment in the aftermath of the worst tragedy to hit the United States in a long time. Moved by the devastation in the Gulf Coast following hurricane Katrina, our employees and customers rallied to contribute to the relief effort. We raised more than $366,000 across the Corporation, which was donated to the American Red Cross and launched a company-wide drive to collect emergency items for the displaced families. The solidarity campaign with the victims of hurricane Katrina resulted in the donation of over 25,000 pounds of emergency items to Katrina refugees in Texas. Regulators recognized our commitment to community development by granting BPPR and BPNA an “Outstanding” Community Reinvestment Act (CRA) rating in 2005. Puerto Rico Fundación Banco Popular, Popular’s philanthropic arm in Puerto Rico, invested $927,585 to support 46 not- for-profit organizations that champion education and community development. Our contribution sponsors W E C O N N E C T such initiatives as after school programs, mentorship, high school dropout prevention, and education through the arts. Our investment also supported community self help efforts, leadership development and organizational training for community leaders. Popular employees in Puerto Rico showed their dedication to community development, donating time and funds to various organizations. Through our Volunteers in Action program, more than 4,000 employees and their family and friends participated in various volunteer service activities for more than 15,000 hours served. For the third consecutive year, Popular joined the nationwide Make a Difference Day, when more than 3,500 employees donated 11,250 hours of volunteer service to 140 projects. On this day, Popular employees made a difference in the lives of more than 7,000 members of the community and the Corporation invested approximately $100,000 towards their projects. Our contribution to the Jóvenes de Puerto Rico en Riesgo (Puerto Rico Youth at Risk) organization is a shining example of our strong pledge to the progress of our com- munities. Of the 30 mentors involved in the organization, 12 are Popular employees. Fundación Banco Popular We are committed to proactively contribute to the social and economic well-being of our communities. donated $85,000 this year to the organization, which helps lower the incidence of high school dropouts, teenage pregnancies, and drug use through mentorship in high-risk communities. The voluntary payroll deduction program reached 61% participation this year and raised $483,277. Also, 61% of the organizations that received funding this year have employee liaisons that serve as volunteers or board members and represent the organization before the Fundación Banco Popular Board of Trustees. Fundación Banco Popular strengthened its commitment to education by adding the Rafael Carrión Jr. Academic Excellence Award to our existing scholarships program. In conjunction with the College Board, we granted 85 students $1,000 awards for having achieved the highest scores in the local college entrance examination. In addition, Fundación Banco Popular granted $50,000 toward an endowment for scholarships to the Berklee College of Music in Boston, Massachusetts. The Rafael Carrión Jr. Scholarship Fund entered its 14th year of providing scholarships to the children of Popular employees and retirees. In 2005, 122 scholarships were granted for a total of $173,600. Since 1994, Popular has also provided scholarships for 14 Puerto Rican students to attend the Wharton School of the University of Pennsylvania, an investment of $370,500. In October, Fundación Banco Popular forged an alliance with the Leader to Leader Institute, Sagrado Corazón University, and Fundación Compromiso de Argentina to present the self-evaluation model developed by renowned author and managerial theorist Peter Drucker to not-for- profit organizations in Puerto Rico. One hundred and forty people representing 40 organizations participated in the first event, where we offered the self-evaluation model called Excellence in Performance: The Drucker Self-Assessment Tool for Nonprofit Organizations. In addition, five organiza- tions remain engaged in the self-assessment process until May, 2006. P O P U L A R 2 0 0 5 26/27 Fundación Banco Popular also continues to run the Rafael Carrión Pacheco Exhibition Hall, where Algo de valor: una exhibición sobre el dinero para niños y adultos (Something of Value: an exhibit about money for children and adults) is currently on display. This year, we hosted photography workshops that asked young people to exalt what they most value of their surroundings, their communities. This sustained educational program has achieved the attendance of more than 28,000 visitors to the current exhibition. United States In the United States, we celebrated the first year of the Banco Popular Foundation, which was established to carry on Popular’s philanthropic tradition in the communities served by Banco Popular North America (BPNA). Our Foundation made dreams happen for 16 not-for- profit organizations across the United States, investing more than $200,000 in the areas of education and youth ($105,000), health and supported living ($78,000) and community development ($22,000). These grants were made possible by the generosity of Our People, with 12% of BPNA employees participating in our matching gift program. We also made contributions to other organiza- tions which foster education and community development, including Junior Achievement ($118,000 raised at our Bowl-A-Thons) and the Puerto Rican Day Parade Scholarship Fund in New York ($20,000). In addition, hundreds of our employees took advantage of their 16 hours of community service paid time off to give back to their communities. Through the It’s in Our Hands Volunteer Program, Our People invested 32,400 hours in local projects and initiatives and nearly 70% of our officers are actively engaged in community service. W E C O N N E C T BPNA participated in the 2005 Make a Difference Day, sponsored by USA Weekly Magazine and the Points of Light Foundation, with more than 500 employees volunteering at 40 different locations for a total of 2,344 service hours. Our subsidiaries also contributed significantly to our community involvement goals. Popular Leasing, U.S.A. (PLUSA), for example, was named a winner in the 2005 Greater St. Louis Top 50 Businesses Shaping Our Future thanks to their commitment to the community. A total of 84% of PLUSA’s employees volunteered more than 3,000 hours in the St. Louis community in 2005. The work of Fundación Banco Popular and Banco Popular Foundation, along with the support of Popular employees continues to make a difference towards the improvement of the communities we serve. It is our goal to establish long-lasting, productive connections to improve the lives of the people who make up those communities. O U R C R E E D I N S T I T U T I O N A L VA LU E S S T R AT E G I C O B J E C T I V E S Puerto Rico Strengthen our competitive position in our main market by offering the best and most complete financial services in an efficient and convenient manner. Our services will respond to the needs of all segments of the market in order to earn their trust, satisfaction and loyalty. United States Expand our franchise in the United States by offering the most complete financial services to the communities we serve while capitalizing on our strengths in the Hispanic market. Processing Provide added value by offering integrated technological solutions and financial transaction processing. Banco Popular is a local institution dedicating its efforts exclusively to the enhancement of the social and economic conditions in Puerto Rico and inspired by the most sound principles and fundamental practices of good banking. Banco Popular pledges its efforts and resources to the development of a banking service for Puerto Rico within strict commercial practices and so efficient that it could meet the requirement of the most progressive community of the world. These words, written in 1928 by Don Rafael Carrión Pacheco, Executive Vice President and President (1927–1956), embody the philosophy of Popular, Inc. O U R P E O P L E The men and women who work for our institution, from the highest executive to the employees who handle the most routine tasks, feel a special pride in serving our customers with care and dedication. All of them feel the personal satisfaction of belonging to the “Banco Popular Family,” which fosters affection and understanding among its members, and which at the same time firmly complies with the highest ethical and moral standards of behavior. Social Commitment We are committed to work actively in promoting the social and economic well-being of the communities we serve. Customer We achieve satisfaction for our customers and earn their loyalty by adding value to each interaction. Our relationship with the customer takes precedence over any particular transaction. Integrity We are guided by the highest standards of ethics, integrity and morality. Our customers’ trust is of utmost importance to our institution. Excellence We believe there is only one way to do things: the right way. Innovation We foster a constant search for new solutions as a strategy to enhance our competitive advantage. Our People We strive to attract, develop, compensate and retain the most qualified people in a work environment characterized by discipline and affection. These words by Don Rafael Carrión Jr., President and Chairman of the Board (1956 –1991), were written in 1988 to commemorate the 95th anniversary of Banco Popular de Puerto Rico, and reflect our commitment to human resources. Shareholder Value Our goal is to produce high and consistent financial returns for our share- holders, based on a long-term view. P O P U L A R 2 0 0 5 28/29 Corporate Leadership Circle ROBERTO R. HERENCIA Executive Vice President, Popular, Inc. President, Banco Popular North America DAVID H. CHAFEY JR. Senior Executive Vice President, Popular, Inc. President, Banco Popular de Puerto Rico RICHARD L. C ARRIÓN Chairman President Chief Executive Officer Popular, Inc. BRUNILDA SANTOS DE ÁLVAREZ, ESQ. Executive Vice President, Chief Legal Counsel Popular, Inc. JORGE A. JUNQUERA Senior Executive Vice President Chief Financial Officer Popular, Inc. BILL WILLIAMS Executive Vice President, Popular, Inc. President, Popular Financial Holdings TERE LOUBRIEL Executive Vice President People, Communications and Planning Popular, Inc. AMÍLC AR JORDÁN, ESQ. Executive Vice President Risk Management Popular, Inc. FÉLIX M. VILL AMIL Executive Vice President, Popular, Inc. President, EVERTEC, Inc. W E C O N N E C T Board of Directors, Popular, Inc. WILLIAM J. TEUBER JR. Chief Financial Officer, EMC Corporation MARÍA LUISA FERRÉ Executive Vice President, Grupo Ferré Rangel SAMUEL T. CÉSPEDES, ESQ. Secretary of the Board of Directors Popular, Inc. RICHARD L. C ARRIÓN Chairman President Chief Executive Officer Popular, Inc. JOSÉ R. VIZC ARRONDO President and Chief Executive Officer Desarrollos Metropolitanos, S.E. FREDERIC V. SALERNO Investor MANUEL MORALES JR. President, Parkview Realty, Inc. JOSÉ B. C ARRIÓN JR. President, Collosa Corporation FRANCISCO M. REXACH JR. President, Capital Assets, Inc. JUAN J. BERMÚDEZ Partner, Bermúdez & Longo, S.E. P O P U L A R 2 0 0 5 30/31 Condensed Consolidated Statements of Condition (In thousands) Assets Cash and due from banks Money market investments Trading securities, at market value Investment securities available-for-sale, at market value Investment securities held-to-maturity, at amortized cost Other investment securities, at lower of cost or realizable value Loans held-for-sale, at lower of cost or market Loans held-in-portfolio Less – Unearned income Allowance for loan losses Premises and equipment Other real estate Accrued income receivable Other assets Goodwill Other intangible assets Liabilities and Stockholders’ equity Liabilities: Deposits: Non-interest bearing Interest bearing Federal funds purchased and assets sold under agreements to repurchase Other short-term borrowings Notes payable Subordinated notes Other liabilities Minority interest in consolidated subsidiaries Stockholders’ equity: Preferred stock Common stock Surplus Retained earnings Treasury stock – at cost Accumulated other comprehensive (loss) income, net of tax At December 31, 2005 2004 $ 906,397 749,423 519,338 11,716,586 153,104 319,103 699,181 31,308,639 297,613 461,707 30,549,319 596,571 79,008 245,646 1,325,800 653,984 110,208 $ 716,459 879,640 385,139 11,162,145 340,850 302,440 750,728 28,253,923 262,390 437,081 27,554,452 545,681 59,717 207,542 1,046,374 411,308 39,101 $ 48,623,668 $ 44,401,576 $ 3,958,392 18,679,613 $ 4,173,268 16,419,892 22,638,005 8,702,461 2,700,261 9,893,577 — 1,240,002 45,174,306 115 186,875 1,736,443 452,398 1,456,612 (207,081) (176,000) 3,449,247 $ 48,623,668 20,593,160 6,436,853 3,139,639 10,180,710 125,000 821,491 41,296,853 102 186,875 1,680,096 278,840 1,129,793 (206,437) 35,454 3,104,621 $ 44,401,576 W E C O N N E C T Condensed Consolidated Statements of Income (In thousands, except per share information) 2005 2004 2003 Year ended December 31, Interest income Loans Money market investments Investment securities Trading securities Interest expense Deposits Short-term borrowings Long-term debt Net interest income Provision for loan losses Net interest income after provision for loan losses Service charges on deposit accounts Other service fees Net gain on sale and valuation adjustment of investment securities Trading account profit (loss) Gain on sale of loans Other operating income Operating expenses Personnel costs Net occupancy expenses Equipment expenses Other taxes Professional fees Communications Business promotion Printing and supplies Other operating expenses Amortization of intangibles $2,116,299 30,736 488,814 30,010 2,665,859 430,813 349,203 461,636 1,241,652 1,424,207 195,272 1,228,935 181,749 331,501 52,113 30,051 83,297 106,564 2,014,210 622,689 108,386 124,276 39,197 119,281 63,395 100,434 18,378 122,585 9,579 $1,751,150 25,660 413,492 25,963 2,216,265 330,351 165,425 344,978 840,754 1,375,511 178,657 1,196,854 165,241 295,551 15,254 (159) 44,168 88,716 1,805,625 571,018 89,821 108,823 40,260 95,084 60,965 75,708 17,938 103,551 7,844 $1,550,036 25,881 422,295 36,026 2,034,238 342,891 147,456 259,203 749,550 1,284,688 195,939 1,088,749 161,839 284,392 71,094 (10,214) 53,572 65,327 1,714,759 526,444 83,630 104,821 37,904 82,325 58,038 73,277 19,111 119,689 7,844 1,328,200 1,171,012 1,113,083 Income before income tax, minority interest and cumulative effect of accounting change Income tax Net gain of minority interest Income before cumulative effect of accounting change Cumulative effect of accounting change, net of tax Net income Net income applicable to common stock Net income per common share – basic, after cumulative effect of accounting change Net income per common share – diluted, after cumulative effect of accounting change Dividends declared per common share 686,010 148,915 — 537,095 3,607 $ 540,702 $ 528,789 $ $ $ 1.98 1.97 0.64 634,613 144,705 — 489,908 — 601,676 130,326 (435) 470,915 — $ 489,908 $ 477,995 $ 470,915 $ 460,996 $ $ $ 1.79 1.79 0.62 $ $ $ 1.74 1.74 0.51 For a complete set of audited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, refer to Popular, Inc.’s 2005 Financial Review and Supplementary Information to Stockholders incorporated by reference in Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005. P O P U L A R 2 0 0 5 32/33 Historical Financial Summary – 25 Years (Dollars in millions, except per share data) 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Selected Financial Information Net Interest Income Non-Interest Income Operating Expenses Net Income Assets Net Loans Deposits Stockholders’ Equity Market Capitalization Return on Assets (ROA) Return on Equity (ROE) Per Common Share 1 Net Income – Basic Net Income – Diluted Dividends (Declared) Book Value Market Price $ 135.9 15.8 109.4 24.3 2,677.9 1,007.6 2,111.7 142.3 66.4 0.90% 18.36% $ $ $ $ 0.17 0.17 0.03 0.97 0.46 $ 151.7 15.9 121.2 27.3 2,727.0 976.8 2,208.2 163.5 99.0 0.96% 17.99% $ $ 144.9 19.6 127.3 26.8 2,974.1 1,075.7 2,347.5 182.2 $ 119.3 $ 156.8 19.0 137.2 29.8 3,526.7 1,373.9 2,870.7 203.5 $ 159.8 $ 174.9 26.8 156.0 32.9 4,141.7 1,715.7 3,365.3 226.4 $ 216.0 $ 184.2 41.4 168.4 38.3 4,531.8 2,271.0 3,820.2 283.1 $ 304.0 $ 207.7 41.0 185.7 38.3 5,389.6 2,768.5 4,491.6 308.2 $ 260.0 $ 232.5 54.9 195.6 47.4 5,706.5 3,096.3 4,715.8 341.9 $ 355.0 $ 260.9 63.3 212.4 56.3 5,972.7 3,320.6 4,926.3 383.0 $ 430.1 $ 284.2 70.9 229.6 63.4 8,983.6 5,373.3 7,422.7 588.9 $ 479.1 $ 407.8 131.8 345.7 64.6 8,780.3 5,195.6 7,207.1 631.8 $ 579.0 0.95% 15.86% 0.94% 15.83% 0.89% 15.59% 0.88% 15.12% 0.76% 13.09% 0.85% 14.87% 0.99% 15.87% 1.09% 15.55% 0.72% 10.57% $ $ $ 0.19 0.19 0.04 1.11 0.69 $ $ $ 0.19 0.19 0.06 1.24 0.83 $ $ $ 0.21 0.21 0.06 1.38 1.11 $ $ $ 0.23 0.23 0.07 1.54 1.50 $ $ $ 0.25 0.25 0.08 1.73 2.00 $ $ $ 0.24 0.24 0.09 1.89 1.67 $ $ $ 0.30 0.30 0.09 2.10 2.22 $ $ $ 0.35 0.35 0.10 2.35 2.69 $ $ $ 0.40 0.40 0.10 2.46 2.00 $ $ $ 0.27 0.27 0.10 2.63 2.41 Assets by Geographical Area Puerto Rico United States Caribbean and Latin America 95% 5% 95% 5% Total 100% 100% Traditional Delivery System 94% 5% 1% 100% 112 3 6 121 91% 8% 1% 100% 113 3 9 125 92% 7% 1% 100% 115 3 9 127 92% 7% 1% 100% 124 3 9 136 110 1 7 118 110 2 7 119 Banking Branches Puerto Rico Virgin Islands United States Subtotal Non-Banking Offices Popular Financial Holdings Popular Cash Express Popular Finance Popular Auto Popular Leasing, U.S.A. Popular Mortgage Popular Securities Popular Insurance Popular Insurance Agency U.S.A. Popular Insurance, V.I. EVERTEC Subtotal Total Electronic Delivery System ATMs2 Owned and Driven Puerto Rico Caribbean United States Subtotal Driven Puerto Rico Caribbean Subtotal Total Transactions (in millions) Electronic Transactions3 Items Processed Employees (full-time equivalent) 118 119 121 125 127 136 30 30 30 78 78 6 6 84 94 94 36 36 130 113 113 51 51 164 94% 5% 1% 100% 126 3 9 138 93% 6% 1% 100% 126 3 10 139 14 17 14 152 136 3 139 55 55 194 17 156 153 3 156 68 68 224 92% 6% 2% 100% 89% 9% 2% 100% 87% 11% 2% 100% 128 3 10 141 18 4 22 163 151 3 154 65 65 219 173 3 24 200 26 9 35 235 211 3 214 54 54 268 161 3 24 188 27 26 9 62 250 206 3 209 73 73 282 96.9 3,891 98.5 3,816 0.6 102.1 3,832 4.4 110.3 4,110 7.0 123.8 4,314 8.3 134.0 4,400 12.7 139.1 4,699 14.9 159.8 5,131 16.1 161.9 5,213 18.0 164.0 7,023 23.9 166.1 7,006 1 Per common share data adjusted for stock splits. 2 Does not include host-to-host ATMs (1,649 in 2005) which are neither owned nor driven, but are part of the ATH Network. 3 From 1981–2003, electronic transactions include ACH, Direct Payment, TelePago, Internet Banking and ATH Network transactions in Puerto Rico. Since 2004, these numbers were adjusted to include ATH Network transactions in the Dominican Republic, Costa Rica, El Salvador and United States, health care transactions, wire transfers, and other electronic payment transactions in addition to those previously stated. W E C O N N E C T 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 $ 440.2 124.5 366.9 85.1 10,002.3 5,252.1 8,038.7 752.1 $ 987.8 $ 492.1 125.2 412.3 109.4 11,513.4 6,346.9 8,522.7 834.2 $ 1,014.7 0.89% 12.72% 1.02% 13.80% $ 535.5 141.3 447.8 124.7 12,778.4 7,781.3 9,012.4 1,002.4 923.7 1.02% 13.80% $ $ 584.2 173.3 486.8 146.4 15,675.5 8,677.5 9,876.7 1,141.7 $ 1,276.8 $ 681.3 205.5 541.9 185.2 16,764.1 9,779.0 10,763.3 1,262.5 $ 2,230.5 $ 784.0 247.6 636.9 209.6 19,300.5 11,376.6 11,749.6 1,503.1 $ 3,350.3 $ 873.0 291.2 720.4 232.3 23,160.4 13,078.8 13,672.2 1,709.1 $ 4,611.7 $ 953.7 372.9 837.5 257.6 25,460.5 14,907.8 14,173.7 1,661.0 $ 3,790.2 $ 982.8 464.1 876.4 276.1 28,057.1 16,057.1 14,804.9 1,993.6 $ 3,578.1 $ 1,056.8 491.8 926.2 304.5 30,744.7 18,168.6 16,370.0 2,272.8 $ 3,965.4 $ 1,160.2 543.8 1,029.0 351.9 33,660.4 19,582.1 17,614.7 2,410.9 $ 4,476.4 $ 1,284.7 626.0 1,113.1 470.9 36,434.7 22,602.2 18,097.8 2,754.4 $ 5,960.2 $ 1,375.5 608.8 1,171.0 489.9 44,401.6 28,742.3 20,593.2 3,104.6 $ 7,685.6 $ 1,424.2 785.3 1,328.2 540.7 48,623.7 31,710.2 22,638.0 3,449.2 $ 5,836.5 1.04% 14.22% 1.14% 16.17% 1.14% 15.83% 1.14% 15.41% 1.08% 15.45% 1.04% 15.00% 1.09% 14.84% 1.11% 16.29% 1.36% 19.30% 1.23% 17.60% 1.17% 17.12% $ 0.35 $ 0.35 0.10 2.88 $ 3.78 $ $ $ 0.42 0.42 0.12 3.19 3.88 $ $ $ 0.46 0.46 0.13 3.44 3.52 $ $ $ 0.53 0.53 0.15 3.96 4.85 $ $ $ 0.67 0.67 0.18 4.40 8.44 $ $ $ 0.75 0.75 0.20 5.19 12.38 $ $ $ 0.83 0.83 0.25 5.93 17.00 $ $ $ 0.92 0.92 0.30 5.76 13.97 $ $ $ 0.99 0.99 0.32 6.96 13.16 $ $ $ 1.09 1.09 0.38 7.97 14.54 $ $ 1.31 1.31 0.40 9.10 $ 16.90 $ $ $ 1.74 1.74 0.51 9.66 22.43 $ $ $ 1.79 1.79 0.62 10.95 28.83 $ $ $ 1.98 1.97 0.64 11.82 21.15 87% 10% 3% 100% 79% 16% 5% 100% 76% 20% 4% 100% 75% 21% 4% 100% 74% 22% 4% 100% 74% 23% 3% 100% 71% 25% 4% 100% 71% 25% 4% 100% 72% 26% 2% 100% 68% 30% 2% 100% 66% 32% 2% 100% 62% 36% 2% 100% 55% 43% 2% 100% 53% 45% 2% 100% 162 3 30 195 41 26 9 76 271 211 3 6 220 81 81 301 165 8 32 205 58 26 8 92 297 234 8 11 253 86 86 339 166 8 34 208 73 28 10 111 319 262 8 26 296 88 88 384 166 8 40 214 91 31 9 3 134 348 281 8 38 327 120 120 447 178 8 44 230 102 39 8 3 1 153 383 327 9 53 389 162 97 259 648 201 8 63 272 117 44 10 7 3 2 183 455 391 17 71 479 170 192 362 841 28.6 170.4 7,024 33.2 171.8 7,533 43.0 174.5 7,606 56.6 175.0 7,815 78.0 173.7 7,996 111.2 171.9 8,854 198 8 89 295 128 51 48 10 8 11 2 258 553 421 59 94 574 187 265 199 8 91 298 137 102 47 12 10 13 2 4 327 625 442 68 99 609 102 851 199 8 95 302 136 132 61 12 11 21 3 2 4 382 684 478 37 109 624 118 920 196 8 96 300 149 154 55 20 13 25 4 2 1 4 427 727 524 39 118 681 155 823 195 8 96 299 153 195 36 18 13 29 7 2 1 1 5 460 759 539 53 131 723 174 926 452 1,026 130.5 170.9 953 1,562 159.4 171.0 1,038 1,662 199.5 160.2 978 1,659 206.0 149.9 1,100 1,823 236.6 145.3 193 8 97 298 181 129 43 18 11 32 8 2 1 1 5 431 729 557 57 129 743 176 1,110 1,286 2,029 255.7 138.5 192 8 128 328 183 114 43 18 15 30 9 2 1 1 7 423 751 568 59 163 790 167 1,216 1,383 2,173 618.2 133.9 194 8 136 338 213 4 49 17 14 33 12 2 1 1 8 354 692 583 61 181 825 212 1,726 1,938 2,763 666.1 128.2 10,549 11,501 10,651 11,334 11,037 11,474 12,139 13,210 P O P U L A R 2 0 0 5 34/35 S U B S I D I A R I E S S T O C K H O L D E R S ’ I N F O R M AT I O N Banco Popular de Puerto Rico Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Additional Information The Annual Report to the Securities and Exchange Commission on Form 10-K and any other financial information may also be viewed by visiting our web site www.popular.com. Popular Mortgage, Inc. Popular Auto, Inc. Popular Finance, Inc. Popular Securities, Inc. Popular Insurance, Inc. Popular Life Re Popular Insurance V.I., Inc. Banco Popular North America Popular Cash Express Popular Leasing, U.S.A. Banco Popular, National Association Popular North America, Inc. Popular Insurance Agency U.S.A., Inc. Popular FS, LLC Popular International Bank, Inc. Popular Financial Holdings, Inc. Equity One, Inc. E-LOAN EVERTEC, Inc. ATH Costa Rica, S.A./CreST, S.A. EVERTEC de Venezuela, C.A. EVERTEC República Dominicana, S.A. EVERTEC, U.S.A., Inc. ScanData Puerto Rico, Inc. Design: BD&E Inc., Pittsburgh, Pennsylvania Photography: Ernesto Robles, Félix Rivera Printing: Hoechstetter Printing, an RR Donnelley Company 

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