APO Amer Community Properties Tr

Shares of Popular, Inc. (BPOP) rallied nearly 2% since it reported fourth-quarter 2013 results on Jan 23. Earnings per share came in at 72 cents, beating the Zacks Consensus Estimate of 67 cents. However, this came in below the prior-year quarter figure of 81 cents.

For full-year 2013, Popular’s earnings per share of $5.78 significantly outpaced the Zacks Consensus Estimate of $2.69. Further, it came in way above of the prior-year figure of $2.35.

Popular’s results primarily benefited from top-line growth, partially offset by higher expenses. Also, capital ratios and profitability ratios improved in the quarter. Further, offloading the majority stake in EVERTEC aided the favorable results.

The company’s adjusted net income stood at $74.6 million in the reported quarter. Considering an after-tax gain of $99.4 million on the sale of EVERTEC shares, net income was $163.0 million reflecting a massive rise of 94.2% from the year-ago quarter.

Also, for 2013, it came in at $599.3 million, surging ahead of the prior-year figure of $245.3 million.

Performance in Detail

The company’s total revenue came in at $640.3 million, up 8.7% from the prior-year quarter figure. Further, revenues surpassed the Zacks Consensus Estimate of $472.0 million.

For 2013, total revenue stood at $2.6 billion, up 11.9% year over year. Further it beat the Zacks Consensus Estimate by 37.2%

Net interest income came in at $376.3 million, up 7.1% year over year. The rise was primarily attributable to higher interest income on loans and lower interest expenses. Net interest margin (NIM) was up 32 basis points (bps) year over year to 4.74%

Non-interest income climbed 27.1% year over year to $191.2 million. The rise was mainly driven by higher operating income, partially offset by lower mortgage banking revenues and deposit service charge revenues.

Total operating expenses rose 2.4 % year over year to $322.7 million. This was primarily attributable to higher personnel costs, FDIC deposit insurance costs and equipment expenses.

As of Dec 31, 2013, total deposits dipped 1.1% year over year to $26.7 billion, while net loans remained almost flat at $24.0 billion

Credit Quality

Popular reported a partial improvement in its credit quality. Provision for credit losses declined 22.1% year over to $56.6 million, while annualized net charge-offs to average loans held-in-portfolio declined 87 bps to 0.97%

However, allowance for loan losses to non-performing loans, excluding loans held-for-sale significantly increased to 103.8% from the prior-year figure of 48.7%.

Capital Position

Popular’s capital and profitability ratios improved in the reported quarter.  Tier I risk-based capital and total risk-based capital stood at 19.41% and 20.69%, respectively, compared with 17.35% and 18.63% at the end of the prior-year quarter.

Return on average assets increased to 1.79% from the prior-year figure of 0.92%. Return on average common equity significantly rose to 14.59% from the prior-year figure of 8.50%.

Stake Sale

On Dec 13, 2013, Popular completed the sale of 5.8 million shares of EVERTEC to Apollo Global Management, LLC (APO) and some officers of EVERTEC. The company received around $117.9 million in cash proceeds while retaining 14.9% controlling interest in EVERTEC.

Our Take

Though Popular encountered tough times in 2013, we expect the company to benefit in the long run owing to its strong balance sheet, organic growth strategies and efficient capital deployment activities.

However, despite top-line growth in the reported quarter, we remain cautious owing to the prevalent stringent regulatory landscape, low interest rate environment and a weak mortgage market.

Popular currently holds a Zacks Rank #5 (Strong Sell).

Among other banks, F.N.B. Corp.’s (FNB) fourth-quarter operating earnings came in at 21 cents per share, which was in line with the Zacks Consensus Estimate, while BancorpSouth, Inc.’s (BXS) fourth-quarter 2013 earnings per share of 29 cents outpaced the Zacks Consensus Estimate of 18 cents.

 
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