Popular Sells California Business, Strategic Moves on Track - Analyst Blog

In line with the ‘strategic reorganization' of its U.S. operations, Popular, Inc. (BPOP) offloaded yet another of its regional operations. The Puerto Rico based bank's U.S. banking unit – Popular Community Bank (‘PCB') – completed the sale of its California regional business to Banc of California, Inc. (BANC).

As per the deal, PCB shed 20 of its branches in the regions of Los Angeles and Orange County. The deal included loans and deposits of around $1.1 billion and $1.1 billion, respectively. The deal is expected to result in a net premium of around $4 million, before considering customary transaction related costs.

The latest divestiture followed the sale of PCB's regional business in Central Florida in September and Illinois regional business in August. Apart from shedding its business in these three regions, the strategic initiatives also include centralization of certain back office operations in Puerto Rico and New York. The company will now work in this centralization process.

Through the restructuring initiatives, PCB aims to boost its presence in Mainland U.S by focusing on the New York, New Jersey, and South Florida markets.

RBC Capital Markets, LLC served as financial advisor to Popular while it legal counsels were Sullivan & Cromwell LLP and Frandzel Robins Bloom & Csato, L.C.

We believe Popular is set to benefit from its strategic moves to strengthen its U.S. business as it may drive operational efficiency while it focuses on select markets. Further, we remain encouraged by the overall fundamentals of Popular that was once hit by the financial crisis and was rescued by Troubled Asset Relief Program (:TARP).

With the economy gradually rebounding, Popular have come a long way and improved its overall business performance. Notably in Jul 2014, the company fully repaid TARP funds, providing significant relief to the company in terms of its prolonged debt burden.

Notably, during the nine months ended Sep 2014, operating expenses declined nearly 6% year over year. We believe the decline perhaps resulted from the company's restructuring initiatives.

Upon completion of the strategic initiatives in the first half of 2015, annual operating expenses are expected to decline by around $40 million. Further, the reduced expenses are expected to offset the decrease in revenues on account of sale of the regional operations.

Currently, Popular carries a Zacks Rank #3 (Hold). Some better-ranked south-east banks include Fidelity Southern Corporation (LION) and First Bancshares Inc. (FBMS). Both these stocks sport a Zacks Rank #1 (Strong Buy).