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10 Bank Stocks Turning the Credit Corner

4. Popular, Inc.

Shares of Popular, Inc. (BPOP) of Hato Rey, Puerto Rico, closed at $1.46 Wednesday, down 54% year-to-date.

The company had $39 billion in total assets as of June 30, with a nonperforming assets ratio of 6.50%, declining from 6.52% the previous quarter and 6.62% in June 2010, according to SNL Financial.

Popular was included among TheStreet's 10 Banks on Solid Financial Footing, because the company's Tier 1 common equity ratio was a strong 11.53% as of June 30, according to SNL.

The company owes $935 million in TARP money.

Second-quarter net income applicable to common stock was $109.8 million, or 11 cents a share, compared to $9.2 million, or a penny a share, in the first quarter, and a net loss of $236.2 million, or 28 cents a share, for the second quarter of 2010. The Second-quarter return on average assets was 1.14%, according to SNL, for, by far, the strongest earnings performance among this group of 10 banks and thrifts. .

The results for the second quarter of 2010 reflected a capital raise that was initially a preferred issue, later converted to common shares after shareholder approval to increase the common share count. Upon conversion, the company recorded one-time $192 million dividend on preferred shares during the second quarter.

Second-quarter 2011 results were boosted by "a tax benefit of $59.6 million related to the timing of loan charge-offs for tax purposes." Popular had agreed with Puerto Rico's Department of the Treasury to defer tax deductions related to loan charge-offs that occurred in 2009 and 2010 to 2013 through 2016. The company said that "as a result of the agreement, the Corporation made a payment of $89.4 million to the P.R. Treasury and recorded a tax benefit on its financial statements of $143 million, or $53.6 net of the payment made" to the Puerto Rico Treasury."

Popular's second-quarter net interest income totaled $374.5 million, increasing by $31.2 million from the previous quarter, reflecting improved yields on loans acquired when the company purchased the failed Westernbank Puerto Rico from the FDIC.

Popular's quarterly financial reports tend to contain many adjustments, as the company continues to work through April 2010 acquisition of the failed Westernbank, and handles Federal Deposit Insurance Corp. loss-share accounting and tax issues.

The shares trade for less than five times the consensus 2012 earnings estimate of 33 cents a share, among analysts polled by FactSet. The stock trades for less than half the company's June 30 tangible book value of $3.14, according to SNL.

Following "another messy quarter due to a tax benefit and loss share accounting noise," Derek Hewitt of KBW in July reiterated his "Outperform" rating for Popular, with a $4.50 price target, saying that the company's "higher accretable yield, lower funding costs and some opportunistic portfolio purchases drove higher spread revenue," and that its capital continued to grow.

The shares trade for four times the consensus 2012 EPS estimate of 33 cents, among analysts polled by FactSet, and less than half their June 30 tangible book value of $3.14, according to SNL.

Four out of five analysts covering Popular rate the shares a buy, while the remaining analyst has a neutral rating.

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