Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Popular Inc (BPOP, Financial) achieved a net income of $155 million in the third quarter, despite a decrease from the previous quarter.
- Net interest income increased by $4 million compared to the second quarter, driven by higher average loan balances and loan repricing.
- The company experienced strong loan growth, with balances increasing by $603 million, particularly in the commercial segment.
- Operating expenses decreased by $2 million to $467 million, indicating effective cost management.
- Tangible book value per share increased by 10% to $69.04, driven by lower unrealized losses in the investment portfolio.
Negative Points
- Net income decreased by $23 million from the second quarter, primarily due to a higher provision for credit losses.
- Deposit levels at BPPR reduced by $1.8 billion, impacting the balance and mix of earning assets.
- Non-interest income decreased by $2 million from Q2, driven by lower income from mortgage banking activities.
- The provision for credit losses increased by $25 million compared to the second quarter, reflecting higher balances and losses.
- The company revised its ROTCE target to at least 12% by the fourth quarter of 2025, down from the previous target of 14%.
Q & A Highlights
Q: Can you elaborate on the deposit trends, particularly on the retail side, and what factors influenced these movements?
A: Jorge Garcia, CFO, explained that over the past several quarters, there has been a consistent trend of high net worth and corporate clients seeking yield enhancement, moving funds into higher-yielding assets. This quarter saw an acceleration of this trend, coupled with increased spending across the retail network. Despite these outflows, average retail deposit balances remain about 30% higher than pre-pandemic levels. Garcia noted that while it's challenging to predict future movements, there might still be a risk of $600 million to $800 million in deposit outflows.
Q: Could you provide more details on the expected expense growth in the fourth quarter and any insights into 2025?
A: Jorge Garcia stated that the anticipated increase in expenses for the fourth quarter is related to transformation efforts, professional fees, and seasonal expenses. The full-year expense guidance is approximately $1.91 billion on a GAAP basis. While specific guidance for 2025 will be provided in January, Garcia noted that the fourth quarter typically sees an uptick in expenses due to seasonal factors.
Q: How do you view the ability to reprice deposits given recent rate cuts, and what are your expectations for deposit betas?
A: Jorge Garcia mentioned that public deposits in Puerto Rico are linked to short-term indexes and are already benefiting from rate movements. Retail and commercial deposits in Puerto Rico have had low betas on the way up and are expected to have low betas on the way down. In the U.S., deposit costs have begun to decrease, but competitive dynamics could impact further reductions.
Q: What are your thoughts on achieving the 14% ROTCE target, and how does the recent NII reduction affect this goal?
A: Jorge Garcia acknowledged that achieving the 14% ROTCE target will take longer due to the recent NII reduction. However, the management team remains focused on this goal, emphasizing that the underlying dynamics of Popular Inc. have not changed. The company aims to achieve at least a 12% ROTCE by the fourth quarter of 2025.
Q: Can you discuss the credit quality trends and expectations for charge-offs?
A: Lidio Soriano, CRO, noted that credit quality metrics remained stable, with strong performance in mortgage and commercial portfolios. While consumer portfolios showed increased delinquencies, particularly in auto loans, these remain below pre-pandemic levels. Soriano expects net charge-offs for the full year to be at the low end of the initial guidance range of 65 to 85 basis points.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
