We've got good news, bad news, and more good news today for shareholders of Puerto Rican banking giant Popular (NASDAQ:BPOP). The first batch of good news is that the island commonwealth's largest financial institution beat consensus analyst estimates for the second quarter running. On Friday, Popular reported Q2 2005 earnings per share of $0.48, which was $0.04 above expectations and slightly better than $0.47 a year ago. What's more, net income increased by 4% compared with Q2 2004.

And the bad news? Well, when you compare Popular's return on assets for Q2 2005 against its numbers from a year ago, you find that ROA declined from 1.3% to 1.2%. Return on equity fell in tandem, from 18.8% to 17.1%. Since our targeted numbers for high-quality banks such as Popular are 2% or better in ROA and 20% or better in ROE, the company's numbers moved in the wrong direction this quarter.

But there's more good news, right? Indeed there is. Taking a longer-term view, and comparing the year-to-date results for the first half of fiscal 2005 with those of 1H 2004, things look considerably better for Popular. ROA remained stable from year to year, at 1.3%, and ROE actually increased from 18.4% to 19.4%.

In fact, standing out most strikingly in Popular's incredibly detailed and investor-friendly report was the large number of entries showing double-digit year-on-year gains:

  • Total assets up 20.5% (to $46 billion).
  • Total loans up 24.4%.
  • Earning assets up 19.4%.
  • Deposits up 17.8%.

In happy contrast, the "bad" entries generally showed just single-digit gains:

  • Non-performing assets up just 1.6%.
  • Net loan charge-offs up only 5.4%.
  • Allowance for loan losses up 7.3%.

While an investor would rather see declines among the bad entries, the next best thing is growth in the good numbers outpacing growth in the bad ones. And that, Popular had in spades. Growing as fast as it is, and absorbing two non-Puerto Rican U.S. banks -- Quaker City Bank and Kislak Financial -- in the past year, Popular should have been expected to increase its absolute numbers of bad loans and write-offs of the same. But as long as it can keep bringing in more good business than bad, Popular should be able to live up to its name among investors.

Fool contributor Rich Smith does not own shares of Popular.