Despite increases in loans and net interest income during the second quarter, the parent company of Puerto Rico-based Banco Popular lowered its full-year guidance for both metrics, blaming slower loan origination trends on the U.S. mainland.
Popular said Wednesday that it expects its net interest income to climb by 8% to 10% this year, rather than the 9% to 13% range it had projected back in January. It also anticipates that its loan growth in 2024 will be at the lower end of its previously announced 3% to 6% range.
The weaker revenue guidance stems from a divergence between the $72.8 billion-asset company's outlook for its business in Puerto Rico and its stateside forecast, executives said. Popular, which operates mainland branches in South Florida and the New York metro region, focuses its non-island operations on small and medium-sized business clients.
"We feel good about Puerto Rico," Popular CEO Ignacio Alvarez said during the company's quarterly earnings call, explaining that the tourism and hospitality sector continues to be a source of economic strength on the island. "But we feel that the U.S. has been a bit slower than we actually had expected."
One reason for the diminished expectations involves Popular's mainland commercial real estate loan book. The CRE sector has been drawing scrutiny from U.S. regulators amid concerns about the impact of high interest rates on borrowers' ability to make their payments, as well as the effect of remote work trends on occupancy rates.
Alvarez said Wednesday that Popular is looking at the CRE sector prudently, and he expressed confidence in the strength of the bank's portfolio. But he added that regulators are applying a lot of pressure to make sure that banks manage their CRE growth carefully.
"We'll be cautious with the commercial real estate, just like everyone else," he said.
At the end of the second quarter, Popular had $8.15 billion of commercial real estate loans, including both owner-occupied and non-owner-occupied loans. That number was up 4.7% from the second quarter of 2023, but basically flat compared with the first quarter of this year.
Overall in the second quarter, Popular reported loans held in its portfolio of $35.6 billion, up 1.3% from the previous quarter and up 7.8% from the same period last year.
The company's net interest margin inched up from the first quarter by six basis points to 3.22% three months later. And its net interest income rose by 3.1% from the previous three-month period to $568.3 million.
Popular's quarterly profits were buoyed by improvements in credit quality, with net income rising to $177.8 million in the second quarter from $103.3 million three months earlier.
The bank boosted its full-year guidance on credit quality, saying that it now expects net charge-offs to fall at the lower end of its previously announced 65-85 basis point range.
"Given higher interest rates and inflationary pressures, we remain encouraged by the performance of our loan book," said Lidio Soriano, the company's chief risk officer.
Popular also announced Wednesday that it plans to repurchase $500 million shares of its common stock and to raise its dividend from 62 to 70 cents per share.
Alvarez said that the decisions about how much capital to return to shareholders stemmed from an analysis of Popular's credit book. "So obviously, that shows our confidence in the future," he said.
