Popular Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of the parent of Puerto Rico's Banco Popular, Popular (Nasdaq: BPOP  ) , were getting slammed today, falling as much as 17% after a disappointing earnings report.

So what: For the September-ended quarter, Popular's earnings of $0.03 per share were short of the $0.06 average estimate of Wall Street analysts. That's bad news in itself, but it's important to look beyond the headline numbers to figure out why the bank missed.

The primary area in which the bank appears to have surprised the market is its provisions for loan losses. Popular set aside $151 million during the quarter to buffer against potential losses from non-covered loans -- that is, loans that aren't covered by loss-sharing agreements with the Federal Deposit Insurance Corp. That provision level is down from last year, but up $55 million from a quarter ago.

Now what: The jump on the provisions line should be particularly concerning to investors since Popular's management chalked it up to "weak economic conditions in Puerto Rico [that] continue to adversely impact [commercial and residential mortgage] portfolios."

Based on price-to-book value -- my favored metric for valuing banks -- Popular is a cheap bank stock. But it's also far from being a healthy bank. Risk-taking investors could take a flier on the bank in hopes that economic conditions in Puerto Rico improve before Popular's portfolio deteriorates too far, but there are higher-quality banks available for more conservative investors.

Want to keep up to date on Popular? Add it to your watchlist.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (2) | Recommend This Article (4)

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  • Report this Comment On October 19, 2011, at 9:53 PM, TruffelPig wrote:

    I live in PR and I can tell you that economy here is trailing the US. This obviously means that the worse is still to come here. Very high unemployment of 17% adds to the problem. Industries are leaving the island because electricity is too expensive (they still believe in using oil in power plants here) among other problems. The real estate market has collapsed - half of Condado is for sale it seems. Many are leaving the island (we lost like 200,000 people in 2 years of 4 million). I do not see the economy turning around here any time soon.

  • Report this Comment On October 24, 2011, at 10:36 AM, bluesway wrote:

    amplify what TruffelPig just said with the fact that there is ZERO leadership in the PR government and you have a VERY shaky future for PR. (I live here, too... i will no longer in the next 3 years. )

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10/21/2016 4:00 PM
BPOP $38.47 Down -0.10 -0.26%
Popular CAPS Rating: ****