With 2011 finally in the books, it's time to reflect on what has transpired this past year and which companies could be facing business-altering decisions in 2012. On today's plate we have Puerto Rican residential and commercial lending bank Popular (Nasdaq: BPOP).

But before we dig too deeply into what 2012 may have to offer, let's get a quick snapshot of how 2011 treated shareholders:

Year-to-Date Stock Return (55.7%)
Price-to-Earnings (TTM) NM
Price-to-Book 0.36
Projected 5-Year Growth Rate 7%
Forward P/E 4.8

Source: Yahoo! Finance. TTM = trailing 12 months. NM = not meaningful.

In 2011, Popular did its best to give Bank of America a run for its money as the worst-performing bank. Still suffering from the residual effects of the housing meltdown in 2007 and having still not repaid its TARP loan of $935 million, Popular has struggled to maintain profitability, raise capital, and boost the creditworthiness of its loan portfolio. But that's all in the past. Let's look ahead and see what could be driving Popular's stock in 2012.

What to expect
The stability of the Puerto Rican economy is the biggest gray cloud currently hanging over Popular. With housing prices finally beginning to stabilize, Popular has been able to turn three consecutive quarterly profits -- loan loss reserves, though, continue to be a concern. In its most recent quarter, unsecured loan loss reserves jumped a disturbing $151 million -- down from the year-ago period but up considerably from the prior quarter. The company continues to blame its struggles on economic uncertainty in Puerto Rico and in its credit markets. Needless to say, this will remain a hot issue for shareholders in 2012.

As should be no surprise following the rise in unsecured loan losses, Popular's ability to raise capital and maintain adequate liquidity will be paramount to its success. Recently, Popular has had no trouble raising cash and has actually increased its tier-1 common equity ratio to a healthy 15.8%. Considering that Popular operates out of the U.S. and Puerto Rico, it can be eye-opening to realize that its Tier 1 common ratio is higher than that of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. If it can prove to shareholders that it can deal with potential economic shocks, shareholders may respond by driving short-sellers out of the stock in droves.

Foolish roundup
Popular is an interesting case. On the one hand, we have a bank trading well below book value and priced at less than five times forward earnings that appears to be well-capitalized. On the other side of the coin, Popular still hasn't paid back its TARP loans, is sitting on a large amount of non-performing loans, and has an uncertain near-term outlook thanks to Puerto Rico's shaky economy. While this is not exactly a case of weighing a witch versus a duck, as in Monty Python and the Holy Grail, I think the rewards outweigh the risks. Popular just might be a bank stock worth taking a flier on in 2012, and I plan on starting an outperform rating for the company on CAPS.

What are your thoughts on Popular heading into 2012? Share them in the comments section below and consider adding Popular to your free and personalized watchlist to keep track of the latest news with the company.

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