Popular, Inc. (Form: 8-K)

Popular, Inc. Reports Earnings for the Quarter and Nine Months ended September 30, 2006

San Juan, Puerto Rico, October 13, 2006 - Popular, Inc. (“the Corporation” or “Popular”) (NASDAQ: BPOP, BPOPO) reported net income for the quarter ended September 30, 2006 of $82.2 million, or $0.28 basic and diluted earnings per common share (EPS), compared to $115.2 million, or $0.42 basic and diluted EPS in the same quarter of the previous year. Net income for the third quarter of 2006 represented a return on assets (ROA) of 0.67% and a return on common equity (ROE) of 8.75%, compared with 0.99% and 14.21%, respectively, for the same period in 2005.

For the nine months ended September 30, 2006, the Corporation’s net income totaled $298.0 million, compared to $410.5 million for the same period in 2005. Basic and diluted EPS for the nine months ended September 30, 2006 were $1.04. Basic and diluted EPS for the nine months ended September 30, 2005, after cumulative effect of accounting change, were $1.50. ROA and ROE for the first nine months of 2006 were 0.82% and 11.00%, respectively, compared with 1.20% and 17.61%, respectively, for the same period in 2005. This press release should be read in conjunction with the accompanying tables (Exhibit A) which are an integral part of this analysis.

“It continues to be a lousy year and we are underperforming. Our main area of focus for improvement is our mainland operations, specifically Popular Financial Holdings, our mortgage unit. However, we are encouraged by the performance of our Puerto Rico operations. In spite of a difficult market, we have executed well and gained market share. We are also encouraged by the early results of our deposit-gathering initiative at E-LOAN” said Richard L. Carrión, Chairman and Chief Executive Officer of Popular, Inc.

Net interest income for the quarter ended September 30, 2006 reflected a reduction of $6.1 million, compared with the quarter ended September 30, 2005. The following table summarizes the principal changes in average earning assets and funding sources and their corresponding yields and costs for the quarter ended September 30, 2006, compared with the same quarter in 2005:


(Dollars in billions)	Average balances										Average Yields / Costs
	3^rd QTR		3^rd QTR		Dollar			%			3^rd QTR			3^rd QTR
Average balances:	2006		2005		Variance			Variance			2006			2005			Variance
Money market, trading and investment securities	$	12.7	$	13.6		($0.9	)		(7	%)		4.54	%		4.07	%		0.47	%


Loans:
Commercial and construction		13.8		12.0		1.8			15			7.67			6.79			0.88
Mortgage		12.0		11.6		0.4			3			6.94			6.42			0.52
Consumer		5.1		4.4		0.7			16			10.71			10.06			0.65
Lease financing		1.3		1.3		—			—			7.15			7.54			(0.39	)

Total loans		32.2		29.3		2.9			10			7.86			7.17			0.69

Total earning assets	$	44.9	$	42.9	$	2.0			5	%		6.93	%		6.18	%		0.75	%

Interest bearing deposits	$	19.2	$	18.6	$	0.6			3	%		3.11	%		2.42	%		0.69	%
Short-term borrowings		10.6		10.0		0.6			6			5.30			3.53			1.77
Long-term borrowings		10.0		9.5		0.5			5			5.83			4.84			0.99

Total interest bearing liabilities		39.8		38.1		1.7			4			4.38			3.31			1.07

Non-interest bearing sources of funds		5.1		4.8		0.3			6

Total funds	$	44.9	$	42.9	$	2.0			5	%		3.88	%		2.94	%		0.94	%

Net interest spread												2.55	%		2.87	%		(0.32	%)

Net interest yield												3.05	%		3.24	%		(0.19	%)

The decline in net interest yield was mainly due to an increase in the average cost of interest bearing liabilities, principally due to the higher cost of short-term borrowings reflecting tighter Federal Reserve monetary policy, as well as higher rates on time deposits driven by a very competitive environment. An increase in the average cost of long-term debt also pressured the net interest margin during the third quarter of 2006. For the quarter ended September 30, 2006, the unfavorable market value of certain interest rate derivatives used to economically hedge the fair value of some debt instruments totaled approximately $13 million pretax, which was recognized as interest expense. Furthermore, the yield in the lease financing portfolio declined mainly due to the reversal during the third quarter of 2006 of interest on a specific commercial lease financing relationship which reached non-accrual status in the quarter, as further described in a subsequent paragraph of this release. These unfavorable changes mentioned above were partially offset by rising yields in the Corporation’s commercial, consumer and mortgage loan portfolios, due to the rising rate environment of the second fiscal quarter. The yield of the investment portfolio also rose, partly due to the repricing of collateralized mortgage obligations with floating rates and to the maturity of U.S. Agency securities with lower rates. The impact in net interest income resulting from the reduction in net interest yield was partially offset by growth in the commercial and consumer loan portfolios, offset in part by a decrease in the Corporation’s investment securities.

On a year-to-date basis, net interest income for the nine months ended September 30, 2006 increased $4.8 million, compared with the same period in the previous year. The net interest yield for the nine months ended September 30, 2006 was 3.14%, compared with 3.32% in the same period of the previous year.

The provision for loan losses totaled $63.4 million or 106% of net charge-offs for the third quarter of 2006, compared with $50.0 million or 105% of net charge-offs, respectively, in the same period of 2005. The provision for loan losses totaled $179.5 million for the nine months ended September 30, 2006, or 115% of net charge-offs, compared with $144.2 million or 113%, respectively, for the same period in 2005. The increase in the provision was primarily associated with growth in the loan portfolio, higher non-performing loans and higher net charge-offs. The increase of $12.4 million in net charge-offs for the quarter ended September 30, 2006, compared with the same quarter in the previous year, was composed of higher net charge-offs in consumer loans by $11.6 million, mortgage loans by $3.4 million and lease financing by $0.4 million. These increases were partially offset by lower commercial and construction loans net charge-offs by $3.0 million.

The following table presents annualized net charge-offs to average loans by loan category for the quarters and nine months ended September 30, 2005 and 2006.

The increase in the consumer loans net charge-offs to average loans ratio from September 30, 2005 to September 30, 2006 was associated to higher delinquencies and growth in unsecured consumer loans, primarily personal loans and credit cards. The increase in that ratio for the lease financing portfolio was the result of higher delinquencies in Puerto Rico and increased charge-offs in the U.S. leasing subsidiary related to a particular customer lending relationship. Mortgage loans net charge-offs as a percentage of average mortgage loans held-in-portfolio increased in part due to higher delinquency levels experienced in the U.S. mainland.

Exhibit A provides credit quality data, including certain key credit quality metrics. The allowance for loan losses represented 1.56% of loans held-in-portfolio at September 30, 2006, compared with 1.49% at December 31, 2005 and 1.55% at September 30, 2005. Non-performing assets rose by $111 million since December 31, 2005 primarily in mortgage loans by $67 million, due to higher delinquencies in the U.S. mainland portfolio, mainly in the non-prime market, and also in Puerto Rico resulting from deteriorating economic conditions. Also, non-performing commercial and construction loans increased by $22 million from December 31, 2005, led in part by the growth in the commercial loan portfolio. Non-performing leases increased by $12 million mainly due to one particular commercial lease financing relationship in the U.S. leasing subsidiary, which reached non-performing status in the third quarter of 2006. Management expects to collect the full amount of principal and interest on this particular lease financing relationship. The increase in non-performing assets from September 30, 2005 was principally the result of higher non-performing mortgage loans by $66 million, commercial and construction loans by $16 million, lease financing by $11 million and consumer loans by $9 million. Non-performing mortgage loans represented 4.05% of mortgage loans held-in-portfolio at September 30, 2006, compared with 3.02% at December 31, 2005, and 3.21% at September 30, 2005. The higher ratio experienced as of September 30, 2006 was in part influenced by a reduction in the loan portfolio of BPPR, as a result of certain loan sales in the first nine months of 2006 amounting to approximately $1.2 billion, which are described in a subsequent paragraph of this release.

Non-interest income for the quarter ended September 30, 2006 compared with the same period in 2005 increased by $16.3 million, or 9%. This favorable variance resulted from higher gains on the sale of loans and trading profits mostly related to mortgage-backed securities by $7.8 million, higher gains on the sale of real estate property by $4.5 million and lower unfavorable adjustments on interest-only securities by $9.9 million, partially offset by a reduction in other service fees by $5.4 million. The latter was due in part to lower check cashing fees due to the sale of Popular Cash Express (“PCE”) in the fourth quarter of 2005 and lower mortgage servicing fees, net of amortization. These negative variances were partially offset principally by higher credit and debit card fees.

Non-interest income totaled $604.2 million for the nine-month period ended September 30, 2006, an increase of 6% compared with the same period in 2005. The increase included higher gains on the sale of loans mainly from E-LOAN’s production as this subsidiary was acquired by the Corporation in the fourth quarter of 2005, income derived from securitization related invested funds, other revenues from E-LOAN related in part to the mortgage loan closing services business and loan referrals, and dividend income derived from the Corporation’s investment in Telecomunicaciones de Puerto Rico, Inc. The results for the nine months ended September 30, 2005 included $50.9 million in gains on sale of investment securities, mainly marketable equity securities, net of unfavorable valuation adjustments of investment securities available-for-sale, principally interest-only securities, compared with $5.0 million in the same period of 2006.

Operating expenses for the quarter ended September 30, 2006 totaled $359.9 million, an increase of $30.5 million, or 9%, compared with the same quarter in 2005. E-LOAN’s operating expenses, mostly in the nature of business promotion and personnel costs, totaled $40 million in the third quarter of 2006, and were the major factor for the incremental costs for Popular since this subsidiary was acquired subsequent to the third quarter of 2005. Partially offsetting the increase were lower costs as a result of the no longer existent operations of PCE. This subsidiary recorded approximately $7.4 million in operating expenses during the third quarter of 2005. Also, there were lower accruals for incentive compensation tied to financial performance. Isolating the aforementioned impact in operating expenses from E-LOAN and PCE, the Corporation’s operating expenses for the quarter ended September 30, 2006 declined $2 million or 1%, compared with the same quarter in the previous year. Operating expenses for the quarter ended September 30, 2006 reflected a reduction of $23.3 million, or 6%, compared with the first quarter of 2006, and $3.1 million, or 1%, compared with the second quarter of 2006.

Operating expenses totaled $1.1 billion for the nine-month period ended September 30, 2006, an increase of $135.7 million, or 14%, compared with the same period in 2005. E-LOAN’s contribution to the increase in operating expenses for the nine months ended September 30, 2006 approximated $117 million. The sale of PCE contributed with a reduction of $23 million, which represents the subsidiary’s costs for the same period in 2005. The increase in operating costs for the nine months ended September 30, 2006 also included higher personnel costs, professional fees, net occupancy and equipment expenses to support business processes.

Income tax expense amounted to $27.9 million for the quarter ended September 30, 2006, compared with $28.6 million in the same quarter of 2005. The effective tax rate for the third quarter of 2006 was 25.3%, compared with 19.9% in the same period of 2005. Income tax was impacted by lower taxable income, offset by factors such as lower exempt interest income, net of disallowance of expenses related to exempt income. Also, the results of the third quarter of 2006 were impacted by an increase in the statutory income tax rate for Banco Popular de Puerto Rico from 41.5% to 43.5%.

The accompanying Exhibit A provides information on the Corporation’s total assets and earning assets at September 30, 2006, June 30, 2006 and September 30, 2005.

A breakdown of the Corporation’s loan portfolio at period-end, which represents the principal category of earning assets, follows:

The increase in total loans since September 30, 2005 was principally in commercial loans, primarily as a result of new credit facilities granted to corporate and small business sector clients and a higher volume of funds drawn under existing credit lines. Also, construction loans increased due to new loans granted and significant progress in construction phases at various large projects. The increase in consumer loans since September 30, 2005 includes higher volume of auto loans originated by E-LOAN and growth in personal loans and credit cards. The decline in mortgage loans since September 30, 2005 resulted mostly from the pooling of approximately $0.6 billion in mortgage loans at BPPR into Fannie Mae mortgage-backed securities during the nine months ended September 30, 2006 that were sold to investors, a bulk sale of individual loans to a U.S. financial institution involving approximately $0.6 billion in mortgage loans and to off-balance sheet securitization transactions performed by PFH, partially offset by new loan originations. Similar factors impacted the variances in loan categories since December 31, 2005.

Popular has accomplished deposit growth despite intense competitive pressures. The increase in time deposits from September 30, 2005 and December 31, 2005 was mostly in retail certificates of deposits due to attractive interest rate campaigns. Also, close to quarter end, Banco Popular North America commenced to offer deposit products through the convenient online webpage of its affiliate E-LOAN. As of September 30, 2006, BPNA had captured approximately $27 million in savings accounts and certificates of deposit through E-LOAN’s webpage. As of October 11, 2006 these deposits approximated $284 million. Brokered certificates of deposit, included in the category of time deposits, totaled $1.0 billion at September 30, 2006, compared with $1.3 billion at September 30, 2005 and $1.2 billion at December 31, 2005. The decline in savings deposits from September 30, 2005 and December 31, 2005 was in part due to a shift to time deposits, resulting from higher interest rates offered in time deposits from competitive campaigns.

The accompanying Exhibit A also provides information on outstanding borrowings and stockholders’ equity at September 30, 2006, June 30, 2006 and September 30, 2005. The increase in stockholders’ equity from September 30, 2005 to the same date in 2006 was due to earnings retention and from approximately $216 million in capital derived from the issuance of new shares of common stock under the subscription rights offering that took effect in the fourth quarter of 2005. These favorable variances were partially offset by a higher unrealized loss position in the valuation of the available-for-sale securities portfolio by approximately $61 million.

The information included in this press release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and involve certain risks and uncertainties that may cause actual results to differ materially from those expressed in forward-looking statements. Factors such as changes in interest rate environment as well as general changes in business and economic conditions may cause actual results to differ from those contemplated by such forward-looking statements. For a discussion of such risks and uncertainties, see the Corporation’s Annual Report on Form 10-K for the most recently ended fiscal year as well as its filings with the U.S. Securities and Exchange Commission. The Corporation assumes no obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Popular, Inc. is a full service 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, BPPR, 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-owned financial services franchise, providing complete financial solutions to all the 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, operates over 170 retail lending locations offering mortgage and personal loans, and also maintains a substantial wholesale broker network, a warehouse lending division, and a loan servicing unit. Popular Financial Holdings, through its recently 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 its financial transaction processing company, EVERTEC. The Corporation is exporting its 113 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.

An electronic version of this release can be found at the Corporation’s website, www.popular.com.


Financial Summary	For the quarter ended						Third			For the quarter
	September 30,						Quarter			ended June 30
							2006-2005
	2006			2005			Percent Variance			2006
Summary of Operations (In thousands, except share information)

Interest income	$	781,331		$	666,088			17.3	%	$	762,037

Interest expense		439,293			317,978			38.2			396,258

Net Interest income		342,038			348,110			(1.7	)		365,779

Provision for loan losses		63,445			49,960			27.0			67,096

Net interest income after provision for loan losses		278,593			298,150			(6.6	)		298,683

Net gain (loss) on sale and valuation adjustment of investment securities		7,123			(920	)					(14,424	)

Trading account profit		10,019			4,707			112.9			1,830

Gain on sale of loans		20,113			17,585			14.4			29,054

Other non-interest income		154,094			153,676			0.3			167,526

Total non-interest income		191,349			175,048			9.3			183,986

Personnel costs		164,696			154,682			6.5			166,483

Amortization of intangibles		3,608			2,387			51.2			2,831

Other operating expenses		191,619			172,344			11.2			193,666

Total operating expenses		359,923			329,413			9.3			362,980

Net income before income tax		110,019			143,785			(23.5	)		119,689

Income tax		27,859			28,569			(2.5	)		22,308

Net income	$	82,160		$	115,216			(28.7	)	$	97,381

Net income applicable to common stock	$	79,181		$	112,237			(29.5	)	$	94,403

Basic EPS before cumulative effect of accounting charge	$	0.28		$	0.42					$	0.34

Diluted EPS before cumulative effect of accounting change	$	0.28		$	0.42					$	0.34

Basic EPS after cumulative effect of accounting charge	$	0.28		$	0.42					$	0.34

Diluted EPS after cumulative effect of accounting change	$	0.28		$	0.42					$	0.34

Dividends declared per common share	$	0.16		$	0.16					$	0.16

Average common shares outstanding		278,602,482			267,244,997						278,354,043

Average common shares outstanding – assuming dilution		278,812,947			267,835,364						278,636,219

Common shares outstanding at end of period		278,553,152			267,152,969						278,293,561

Market value per common share	$	19.44		$	24.22					$	19.20

Book value per common share	$	12.38		$	11.36					$	11.77

Market capitalization – (In millions)	$	5,415		$	6,470					$	5,343

Selected Average Balances – (In millions)

Total assets	$	48,376		$	46,048			5.1		$	48,565

Total loans *		32,273			29,297			10.2			31,941

Earning assets		44,948			42,925			4.7			45,196

Deposits		23,217			22,567			2.9			22,976

Interest-bearing liabilities		39,841			38,110			4.5			40,094

Stockholders’ equity		3,776			3,321			13.7			3,721

Selected Financial Data at Period-End – (In millions)

Total assets	$	46,935		$	47,120			(0.4	)	$	48,400

Total loans *		31,757			30,550			4.0			32,217

Earning assets		43,567			43,914			(0.8	)		44,835

Deposits		23,137			22,579			2.5			23,450

Interest-bearing liabilities		38,752			39,461			(1.8	)		39,861

Stockholders’ equity		3,636			3,221			12.9			3,463

Performance Ratios

Net interest yield **		3.05	%		3.24	%					3.23	%

Return on assets		0.67			0.99						0.80

Return on common equity		8.75			14.21						10.72

Credit Quality Data – (Dollars in millions)

Net loans charged-off	$	59.90		$	47.50			26.1	%	$	51.60

Allowance for loan losses	$	487		$	459			6.1		$	484

Non-performing assets	$	738		$	630			17.1		$	682

Allowance for losses to loans held-in-portfolio		1.56	%		1.55	%					1.53	%

Non-performing assets to total assets		1.57			1.34						1.41

Non-performing assets to loans held-in-portfolio		2.36			2.12						2.16

Non-performing loans to loans held-in-portfolio		2.09			1.86						1.89

Allowance to non-performing loans		74.50			83.24						80.86

*Includes loans held-for-sale
**Not on a taxable equivalent basis
Note: Certain reclassifications have been made to prior periods to conform with this quarter.


Financial Summary	For the nine months ended
	September 30,
	2006			2005			Percent Variance
Summary of Operations (In thousands, except share information)

Interest income	$	2,285,578		$	1,946,464			17.4	%

Interest expense		1,217,997			883,638			37.8

Net Interest income		1,067,581			1,062,826			0.4

Provision for loan losses		179,488			144,232			24.4

Net interest income after provision for loan losses		888,093			918,594			(3.3	)

Net gain on sale and valuation adjustment of investment securities		5,039			50,891			(90.1	)

Trading account profit		23,324			28,138			(17.1	)

Gain on sale of loans		96,428			42,675			126.0

Other non-interest income		479,377			449,391			6.7

Total non-interest income		604,168			571,095			5.8

Personnel costs		509,231			464,850			9.5

Amortization of intangibles		9,160			6,770			35.3

Impact of change in fiscal period at certain subsidiaries		9,741			—			—

Other operating expenses		578,025			498,826			15.9

Total operating expenses		1,106,157			970,446			14.0

Net income before income tax and cumulative effect of accounting change		386,104			519,243			(25.6	)

Income tax		88,060			112,395			(21.7	)

Income before cumulative effect of accounting change		298,044			406,848			(26.7	)

Cumulative effect of accounting change, net of tax		—			3,607

Net income	$	298,044		$	410,455			(27.4	)

Net income applicable to common stock	$	289,109		$	401,520			(28.0	)

Basic EPS before cumulative effect of accounting change	$	1.04		$	1.49

Diluted EPS before cumulative effect of accounting change	$	1.04		$	1.49

Basic EPS after cumulative effect of accounting change	$	1.04		$	1.50

Diluted EPS before cumulative effect of accounting change	$	1.04		$	1.50

Dividends declared per common share	$	0.48		$	0.48

Average common shares outstanding		278,349,354			267,043,298

Average common shares outstanding – assuming dilution		278,605,105			267,583,122

Common shares outstanding at end of period		278,553,152			267,152,969

Market value per common share	$	19.44		$	24.22

Book value per common share	$	12.38		$	11.36

Market Capitalization – (In millions)	$	5,415		$	6,470

Selected Average Balance– (In millions)

Total assets	$	48,630		$	45,699			6.4	%

Total loans *		32,048			29,214			9.7

Earning assets		45,247			42,687			6.0

Deposits		22,947			22,170			3.5

Interest-bearing liabilities		40,213			37,589			7.0

Stockholders’ equity		3,719			3,229			15.2

Performance Ratios

Net interest yield **		3.14	%		3.32	%

Return on assets		0.82			1.20

Return on common equity		11.00			17.61

Credit Quality Data – (Dollars in millions)

Net loans charged-off	$	156.4		$	127.2			23.0	%

Allowance for loan losses	$	487		$	459			6.1

Non-performing assets	$	738		$	630			17.1

Allowance for losses to loans held-in-portfolio		1.56	%		1.55	%

Non-performing assets to total assets		1.57			1.34

Non-performing assets to loans held-in-portfolio		2.36			2.12

Non-performing loans to loans held-in-portfolio		2.09			1.86

Allowance to non-performing loans		74.50			83.24

*Includes loans held-for-sale
**Not on a taxable equivalent basis
Note: Certain reclassifications have been made to prior periods to conform with this period.


Puerto Rico	0-13818	66-0667416
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

209 MUNOZ RIVERA AVE, POPULAR CENTER BUILDING, HATO REY , Puerto Rico		00918
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	Popular, Inc.

October 13, 2006	By:	Ileana Gonzalez

		Name: Ileana Gonzalez
		Title: Senior Vice President and Comptroller


Exhibit No.		Description

99.1		News release dated October 13, 2006


POPULAR, INC. Contact:				Exhibit 99.1

Investor Relations:

Jorge A. Junquera Chief Financial Officer Senior Executive Vice President 787-754-1685

Media Relations:

Teruca Rullán Senior Vice President Corporate Communications 787-281-5170 or 917-679-3596/mobile


Annualized Net
Charge-offs to Average
Loans Held-in-Portfolio
	QTR September 30,						YTD September 30,
	2006			2005			2006			2005
Commercial and construction		0.25	%		0.39	%		0.25	%		0.37	%
Lease financing		1.07			0.91			0.96			0.76
Mortgage		0.55			0.43			0.46			0.40
Consumer		2.58			1.91			2.20			1.69

Total portfolio		0.77	%		0.66	%		0.67	%		0.60	%


Date of Report (Date of Earliest Event Reported):		October 13, 2006


Registrant’s telephone number, including area code:		787-765-9800


(In billions)	September 30, 2006		December 31, 2005		Variance			September 30, 2005		Variance
Commercial and construction *	$	14.1	$	12.7	$	1.4		$	12.3	$	1.8
Mortgage *		11.2		12.9		(1.7	)		12.5		(1.3	)
Consumer *		5.2		4.8		0.4			4.5		0.7
Lease financing		1.3		1.3		—			1.3		—

Total loans	$	31.8	$	31.7	$	0.1		$	30.6	$	1.2

* Includes loans held-for sale