Banponce Corp., Puerto Rico's biggest banking organization, is looking north.
Since 1990, the parent of Banco Popular has accumulated the lion's share of the Puerto Rican market. Now it is stalking markets it deems compatible on the mainland.
"We're looking to expand in cities with large Hispanic populations," Richard L. Carrion, Banponce's 43-year-old chairman and chief executive, said in a recent interview.
The Hispanic market "may be a niche," he said, "but it also happens to be a very large niche."
Added Jorge A. Junquera, senior executive vice president and finance director: "We continue to expand, but that expansion will come faster outside Puerto Rico."
The $15 billion-asset Banponce is growing not only in locations where it already has offices, like New York, New Jersey, Los Angeles, and Chicago, but in new markets like Texas and Florida.
The Puerto Rican bank's push into the contiguous 48 states comes amid growing evidence that lending to the Hispanic community is increasing faster than to other groups, and that, if done well, it can be a highly profitable business.
"Hispanics form a growing percentage of the population and I doubt very much whether anyone can fill this market niche better than us," said Mr. Carrion, who represents the third generation of his family in charge at Banponce. "We're beginning to get critical mass and our name is well known."
That alone gives his company "a leg up on the competition," he added.
"Targeting Hispanic markets makes sense for Banponce for reasons that go beyond cultural and linguistic affinity," observed Charles N. Cranmer, head of equity research at M.A. Schapiro & Co. "This is also a highly attractive growth niche."
"The Hispanic population is one of the fastest-growing ethnic groups in the U.S.," Chapman Co. analyst Joseph Gladue wrote in a recent report. "While not limited to serving the Hispanic market, Banponce has a natural affinity with this group and is well-poised to take advantage of these trends."
Between 1975 and 1992, he pointed out, the number of U.S. Hispanic families with incomes over $25,000 rose from 1.2 million to 2.6 million, an increase of 117%.
"This is nearly four times the aggregate U.S. rate of growth for this income group," Mr. Cranmer said.
Separately, as part of what Mr. Carrion described as a two-pronged" expansion strategy, Banponce is spreading out around the Caribbean.
The bank has eight branches across the Virgin Islands - both U.S. and British - and is installing automated teller machines in the Dominican Republic. Much of the focus in the Caribbean is on money transfers, including remittances from the mainland.
In a related move, Banponce is exploring strategic alliances with banks in Central America.
"We believe there are financial institutions in Central America we can work with to develop financial services and payment systems," said Mr. Junquera.
Further down the line, analysts speculate Banponce could well move into Cuba - assuming a change in government there. "With 11 million citizens, Cuba is three times the (population) size of Puerto Rico even though it covers 13 times the area," Mr. Cranmer said. "We think Banponce would have a distinct advantage in Cuba over other competitors since the two islands have close historical, cultural, and of course linguistic, ties."
Unlike in Puerto Rico, where Banponce engages in a broad range of financial activities including wholesale lending to large corporations, the bank focuses on community and small-business banking in the United States.
"We're all things to all people in Puerto Rico, but we can't afford the same luxury in the U.S.," said Mr. Carrion.
Analysts note that Banponce's expansion across the United States is logical, given the risk of depending too much on the Puerto Rican economy.
"Most of these risks can be traced to the company's considerable concentration in Puerto Rico," Mr. Gladue said. "Banponce is vulnerable to any deterioration in the economy of the island."
Still, even as it expands on the mainland, Banponce is stepping up in Puerto Rico, looking to underserved segments of the market as well as leasing, securities transactions, and fee income from mortgage servicing, credit cards, sales of investment products, and electronic funds transfers. The bank expects these services to be prime sources of future revenues. It also is working to double the more than 7,000 point of sale terminals it has installed on the island.
"Importantly, Banponce owns the switches for ATM and POS transactions in Puerto Rico," Mr. Cranmer noted. "So the bank benefits from any incremental electronic transaction volume where they originate."
Another Banponce pet project is developing an island-wide network for automating payments, which would include transactions between government agencies and consumers, and between consumers and public utility companies.
"Fifty-four percent of the adult population in Puerto Rico is unbanked," Mr. Carrion noted. "Granted these may not be your high net worth types, but the fact remains there is a very large degree of potential in providing financing services to more people here."
"We've been awful at cross-selling," admitted Mr. Junquera. "A lot of the growth in Puerto Rico over the next few years is going to come from within the bank."
Founded in 1893 as a savings and loan for Puerto Rico's credit-short working classes, the institution that became Banco Popular managed to survive the Spanish-American War, several severe economic crises, and an invasion of big U.S. and Canadian banks.
Real expansion kicked off after 1989 when Mr. Carrion and members of the Banco Popular board took the unusual step of delivering letters in person to members of the board of competing Banco de Ponce, suggesting the two banks merge.
After some initial resistance, Banco de Ponce's board agreed. The two banks together had $9 billion of assets, which have since grown by two- thirds.
The bold, in-market merger proved to be a harbinger of the consolidation wave still sweeping the U.S. banking system.
"Don't forget that at the time, Chase Manhattan, Chemical Bank, and Manufacturers Hanover Trust were still independent banks," Mr. Carrion recalled.
"Puerto Rico has always been a competitive marketplace, and we needed to buttress our position," Mr. Carrion explained. "It was clear that either we built a strong base or we would both risk getting taken over."
The merger has more than lived up to expectations, tripling Banponce's market capitalization to $1.3 billion by the end of last year and attracting major institutional shareholders such as State Farm Mutual Auto Insurance, Tweedy Browne Co., and Fidelity Management.
"One of the true early in-market acquisitions, this combination not only has allowed Banponce to rationalize costs," said Mr. Cranmer. "It also has bestowed commanding market share in Puerto Rico.".
With 166 branches across the island, Banponce far outdeploys its closest competitor, Banco Santander of Spain, which has 60 branches.
The merger also helped Banponce to expand its presence in the U.S. Northeast into a network of 30 branches in New York under the name Banco Popular, with some $1.5 billion of assets, and six branches in New Jersey under a thrift charter, Banco Popular Savings.
The company also has a branch in Los Angeles, and in 1994 it acquired Pioneer Bancorp, a $400 million-asset community bank with three offices on the northwest side of Chicago.
Banponce this year requested authorization to open a branch in Long Island City, N.Y. And its consumer finance subsidiary, Equity One Inc., has 91 offices in 26 states.
Analysts give the bank high marks for its performance record.
"We view them as a very solid institution," said Patrick Schumann of Duff & Phelps. "They're getting good growth in fee income, they're well- positioned to expand on the mainland, and their earnings record has been incredibly consistent."
Mr. Carrion said he does not rule out further acquisitions. "This is a competitive market, and it will continue to consolidate over the next few years," he said. "There isn't a day that goes by we don't analyze new opportunities."