Banco Popular Espanol : Information about quarterly results 2T2016.

Quarterly Report

Index

1. Salient aspects

2. Business

3. Main business

4. Real estate and related business

5. Banco Popular Group

1.

Salient Aspects

Salient aspects of the second quarter

The salient determining aspects of the second quarter of 2016 were the following:

• The results of the referendum in the UK about its non-permanence in the European Union and a reduction of the political uncertainty in Spain as a result of the general election on 26 June.

• Successful completion of the Bank's EUR 2,505 million capital increase with high demand (135.75% of the amount offered) and strong support from the Board (participation >20% post-increase).

• The adoption of the first measures aimed at achievement of the Plan:

1. Specialised and segmented management by businesses: Separation in management by businesses between the Main (and its busi- nesses) and the real estate and related business.

   • In the Main business, Banco Popular leads the field in SMEs and revolving cards, and the focus continues to be on profitability in which currently the Bank again leads the field (ROTE of 16.2% in the Main business).

   • In the second segment, the focus is on accelerated and efficient divestment through specialized management of NPAs.

2. Operational and cost reduction optimization plan: Launch of a plan to optimize and transform the operating model to a more efficient one that will signify a cost saving of around EUR 175m per year starting in 2017.

Goals of Plan 2018(1)

The priority focus of the capital increase and of the set of measures being implemented is the rapid recovery of the Group's normal levels of profit- ability. The goals of Plan 2018 are summarized below:

% reduction of gross NPAs	º	≥ 45%
Coverage of NPAs (%)	º	≥ 50%
Efficiency ratio	º	≤ 45%
CET 1 FL	º	≥ 12%
ROTE(2) (with CET 1 FL 12%)	º	≥ 9%
Cash payout	º	≥ 40%

The Main business remains highly profitable

The Main business displayed a good commercial performance with performing credit up 1.9% and commercial liabilities up 1.1% year on year. As regards earnings and on a cumulative basis, noteworthy was the negative effect of the elimination of the floor clauses and the contribution to the Single Resolution Fund in June (with a joint impact of EUR 96m). Excluding these aspects and disregarding the income from financial asset and liability transactions, the gross margin would have experienced a slight fall of 3% year on year in the first half, and is already showing signs of sta- bilization. The costs also performed well and the efficiency ratio stood at 40.1%, leading to net operating income of EUR 922m in the first half. The credit and real estate related impairments increased slightly, the cost of risk stood at 56 basis points.

With the net profit of EUR 577m, the ROTE of the Main business (adjusted for the AT1 coupons) stood at 16.2% at the end of the first half of 2016. This Main business is undoubtedly profitable, even in a challenging environment.

1. Source: Company information.

2. Net profit attributed to the Group after payment of AT1 coupons as a percentage of Average Tangible Equity. These figures are goals, not estimates. There is no guarantee that these goals can or will be met and they should not be interpreted as an indication of the results expected by the Bank.

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