After announcing earnings this morning, Popular's (BPOP +0.19%) stock shot up nearly 6%. Investors looking for the reason behind that move don't have to look any further than the bank's significant progress in improving its credit quality.
As I outlined yesterday, Popular ended the last quarter with around 6.6% of the loans held in its portfolio considered nonperforming. During the fourth quarter, nonperforming loans declined by $125 million, down to 6.1% of total loans, and are now at the lowest level since the second quarter of 2009. One reason for this is that there were fewer new nonperforming loans during the quarter as compared to the third quarter.
New nonperforming loans during the fourth quarter were $57.2 million, a full 55% less than the $128.2 million of the third quarter. By reducing the amount of loans that are newly sour each quarter, the bank can turn its attention to clearing off some of the older, bad loans each quarter, something it has been slowly doing since nonperforming loans were at their peak in the third quarter of 2010.
Popular has seen a gradual decline in nonperforming loans over the past year, and there is no reason the trend cannot continue. The bank is focused on "aggressive collection and mitigation efforts," and it seems to be willing to work with borrowers to help return loans to a performing status. As these efforts continue, and more loans return to accrual status, net income is sure to grow, and along with it, the bank's future performance.
