Popular (NASDAQ: BPOP ) is on deck to announce fourth-quarter earnings on Thursday morning and investors need to pay special attention to three areas of that release.
1. Improved asset quality
At the end of its previous quarter, Popular reported that 6.6% of the loans held in its portfolio were considered nonperforming. However, this was actually a decline from the second quarter, so at least it was trending in the right direction. Compared to a lot of other banks, this number is exceedingly high, though the economy of Puerto Rico does have a lot to do with the company's loan performance. In December, Puerto Rico's unemployment rate was 14%, down from 15.2% the year prior, but still well above the overall rate for the U.S.
While I don't expect this number to decline dramatically, investors should hope to see a continuing decline in the ratio as the bank improves its loan quality.
2. Net interest margin
During the previous quarter , the bank saw a slight increase of four basis points to its net income margin. Because of this, net interest income improved slightly as well, reaching $343.2 million. Though it is hard to predict what net interest margin will do during the fourth quarter, investors should still note how it moved during the quarter. This important metric has been driving the post-earnings release results of many financial companies over the past two weeks, and Popular will be no exception.
3. Income expectations
At the end of the quarter, the bank reiterated that it expected earnings for the year to be between $210 million and $225 million. Through the first three quarters of 2012, the bank had earned $158.5 million in net income, putting the lower-end of its own expectation within sight. However, the bank would need to report an above average quarter for earnings to meet this modest goal, and it will only be able to do so if the items mentioned above come out favorably.
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