Popular Inc (BPOP) 2005 Q2 法說會逐字稿

I would like to welcome parties to the second quarter of 2005 earnings conference call. All participants will be able to listen only until the question-and-answer portion of the call. This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Chris Larsen, Chairman and Founder. Sir, you may begin.

Thank you for joining us today. With me on the call are Mark Lefanowicz, our President and Chief Off -- Executive Officer and Darren Nelson, Chief Financial Officer. I'm very pleased with the results of the second quarter, so without further delay, let me turn the call over to Mark, for a detailed discussion of our operating results, followed by Darren who will discuss our financial performance. After Mark and Darren, we'll open the call to any of your questions. Mark?

Thanks, Chris. I'm also very pleased with our second quarter results. We enjoyed substantial revenue and diversified revenue growth compared to Q2, '04, while investing heavily in our brand. We have now enjoyed six consecutive quarters of increasing revenue growth. Revenue grew 19% from the same period last year, and 12% compared to Q1, '05.

Exclusive of first quarter non-recurring auto revenue of 2.65 million. Diversified revenue of 73.2% exceeded Q1, '05, and Q2, '04, diversified revenue of approximately 70%. We are especially pleased with Q2 results since expenses related to the condition May launch of our new advertising campaign negatively impacted earnings by approximately $2 million.

Now, let me dive into a discussion of our recent capital marketing efforts. In home equity, revenue per loan improved by 48% and 16% respectively in Q2, '05, over Q2, '04, and Q1, '05, as we continue to improve our secondary marketing relationships. We expect full-year 2005 revenue per loan to exceed 2004 revenue per loan by 25%. In first mortgage, we were successful in continuing to reduce our warehouse line borrowing costs. Additionally, revenue per loan improved over Q2, '04 by approximately 10%. Again, due to improved secondary market relationships, the edition of new investors, and the edition of our new pay option ARM first mortgage. We expect first mortgage revenue per loan to remain strong during the remainder of the year as we add additional investors and products and improve our pricing models.

Now, on to marketing. Second quarter highlights in marketing relate to our continued edition of new internet partnerships. The most significant being a recent agreement with renovation experts, or Renex. Renex is a leading internet destination site for consumers interested in locating home improvement contractors. Effective in early July, we became the exclusive lending partner for Renex partners interested in reusing their home equity to remodel their homes. We also began expanding our online advertising efforts which will help lower our marketing acquisition costs. Finally, the initial response to our new advertising branding campaign has been very favorable. We continue in our confident at this campaign when answer image as a leading consumer advocate lender in the business, further differentiating us from the competition and strengthening our brand.

Now, turning to our operating platform highlights. I'll start with First Mortgage. During Q2 '05, we were able to improve volume by 9% over Q1'05. Revenue also grew by 9% versus Q1 '05, and 9% versus Q2'04. Actual conversion rates dropped to just under 14%, although Q3 '05 rates are currently trending toward 16%. Q2 '05 costs per loan increased versus Q1 '05 costs per loan, as we continued to increase our investment in our realtor business development efforts. Recent call center initiatives and anticipated improved volume should result in Q3 '05 cost per loan decreasing 15% versus Q2'05.

Now, turning to our home equity platform. Flattening of the you'll curve negatively impacted Q2 '05 volume, although we were able to improve volume by approximately 3% versus Q1 '05. The previously-mentioned capital market initiatives substantially improved Q2 open -- '05 revenues, versus Q1'05. Consistent with the first quarter, costs per loan decreased 6% --% due to new technology initiatives come in our India outsourcing initiatives, although conversions were stable, this is impressive as we continue to spend more time focusing on lower converting, lower FICO borrowers. Now, moving on to auto.

Although auto revenue and volume were down 55% and 13% respectively, versus the first quarter of '05, 88% of the revenue decrease resulted from the 2.6 million of income related to the first quarter 2005 sale of loans out of our qualified special purpose entity. Although overall volume was down, our purchase volume improved 21% versus Q1 '05. This compares as a 5.1% increase in new and used car sales, per Bloomberg, over the comparable period. We are optimistic about autos Q3 '05 prospects as we reinitiated our return of the direct mail refinance loan efforts in August of 2005.

Finally, escrow closing services enjoyed a profitable quarter with a direct margin of 323,000. A good portion of the increase related to the start of our in-house appraisal business and first mortgage loans. The remainder related to increased home equity loan closings. Just this week, ECS begins offering title and closing services to our first mortgage customers. Now, I will turn it over to Darren Nelson for a more detailed financial review.

Thanks, Mark. Before I begin the financial review, I'd like to remind you that during this call, we may make forward-looking statements based on current expectations that involve risks and uncertainties. E-Loan's actual results may differ from the results described in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, general conditions in the lending industry, interest rate fluctuations and the impact of competitive products. These and other risk factors are detailed in E-Loan's filings with the Securities and Exchange Commission.

Now, I'd like to review a summary of our financial results for Q2, 2005. Our earnings press release includes a detailed presentation for your review. Revenues totaled 40 million, an increase of 19% compared to the 33.4 million in the same quarter of 2004. Our diversified revenue, comprised of total revenues excluding prime finance mortgage, grew 24% and totalled 29 million or 73% of total revenues. Now, I will walk you through the and our three product lines. Mortgage, home equity and auto.

Starting with mortgage. There are two primary buckets to our mortgage business. Refinanced mortgage and diversified mortgage. Diversified mortgage is comprised of purchase and non-prime mortgage revenue and is a more stable revenue source under various interest rate environments. Of the total Q2 mortgage revenue, 50%, or 10.7 million, was refinanced mortgage and 50%, or 10.5 million, were diversified mortgage. They were each up 9% compared to the same quarter of co-- 2004.

Next is home equity. We posted 14 million in home equity revenue during the second quarter, an increase of 45% compared to the same quarter of 2004. Home equity sold loan volumes increased 5% and revenue per loan increased 48% compared to Q2, 2004. And now turning to auto. Our auto revenue totaled 2.5 million in the second quarter, a decrease of 14% from Q2, 2004. This decrease is primarily driven by sold low volumes down 30% from Q2, 2004 levels, offset by an increase of 9% in revenue per loan. Net income of 409,000 or $0.01 per share on 68 million diluted shares. Direct margin which, is defined as revenue minus variable and fixed operations expense, totalled 20.6 million, an increase of 20% compared to the same quarter of 2004.

Sales and marketing expense totaled 14.6 million, an increase of 16% compared to Q2, 2004. As for our balance sheet, total assets at the end of the quarter were 137.9 million, which includes cash and cash equivalent of 62.5 million, and loan held for sale of 33.2 million. Total liabilities at the end of the quarter were 47.7 million, and included 25.1 million in borrowings related to mortgage, home equity and auto loans held for sell. Total stockholders equity at the end of the quarter was 90.2 million, or $1.38 per share on 65 million basic shares outstanding. Now, I would like to open the call to any questions.

Thank you. [OPERATOR INSTRUCTIONS] Thank you, our first question comes from Rich Repetto from Sandler O'Neill. You may ask your question.

Yeah, hi, guys. I first want to congratulate you on the transaction you announced. Great job there.

Thank you very much.

I guess, you know, there isn't too many -- you've gone through it pretty well. The only question in the quarterly numbers and then I do have actually, Chris, in with regards a question of the transaction, but in regards to the quarterly numbers, just color behind G&A expense, it looks like it upticked and the -- the comp expense line.

This is Mark. So, I guess, Rich, in terms of G&A expenses, as I mentioned earlier on the call, we did incurred an incremental 2 million of marketing expenses this quarter that were solely related to our new branding campaign. So effectively, we reached the same amount of eyeballs we reached in the first quarter with an incremental $2 million associated with new ad costs, as well as, shooting and running 30-second ads versus 15-second ads. Other G&A expenses re -- relate solely to Sarbanes-Oxley.

Okay. And I guess -- and the, I guess the operations expense, I guess, 18.9 -- excuse me. Whatever the number, let me see what the number is. The 19.2 in operations. Now, that upticked, it looks like from, you know, the 17.6 in March. You can -- can you guys hear me? Can they hear me?

Yes. I can give -- definitely hear you, Rich. Basically, part of it is, I think I addressed it on the call, home equity costs per loan actually went down a little bit due to, you know, continuing to use India for outsourcing some of our back office stuff. Auto, I think, was relatively stable or not substantially different in terms of, you know, absolute dollars. First Mortgage was up a little, and that's primarily due to the fact that we continued to, you know, increase, you know, hot people as it relates to, you know, gearing up for summer, you know, your third quarter is your biggest quarter as it relates to purchase mortgages, and we're really trying to set up for a really good third quarter and also October as it relates to purchase mortgages and our realtor initiatives.

Okay, and I guess just Chris on, just with the transaction, now, how do you see them, they will continue to operate the platform as sort of, you know, independent, and I guess, similar to Scwabb's Mutual Fund Onesource, is that the plan? I guess that's one question, and then secondly, was there any other, you know, interest or was this one transaction you were working on?

First of all, Rich, I think from popular perspective, I think with -- what is so pleasing to us is that when they look at it, our company that they're really intending to operate the Company as it is today. Which includes maintaining the brand, maintaining actually our headquarters right here in Pleasanton, maintaining our employees and what they're really after, of course, to help their expansion to North America, is the technology platform, the operations that we have built, and again, the trusted brand that we built over the years. So that's, we think, you know, that's very good for our company, again, helps us gain strength.

It really gives us a long-term view, and, again, maintains the company that I think we're proud, that we have built over the years. You know, again, just -- as to your second question, I just say that, you know, Mark and I, we think it was really just the, it's just the right partner. You know, again, both from a strength, from an experience, from the long over 100-year history; we were just really taken by -- their vision, for the way they have built their business and continue to build their business and for the way they plan to build our business. We think just a tremendous win-win here for our shareholders, for our employees and for our customers.

Okay. Thanks, guys.

Thanks a lot, Rich. Appreciate it.

Thank you.

Thank you, our next question comes from George Sutton from Craig-Hallum. You may ask your question.

Hi, guys, my congratulations as well.

Hi, George. Thank you very much.

Thanks, George.

You, I assume, put together a fairly formal process here and I'm just curious in terms of timing, what, what was it that made it seem like the right time? Was it -- you've obviously had some management changes, obviously, there's a lot of questions about the forward look of the market. I'm just -- I wanted to get a sense of what caused you to sort of put together a formal process now?

Well, George, I'll start with that one. I think we're basically, we were comfortable with the fit and we're comfortable with everything else associated with the transaction. And things just came together when we view it's the right time associated with where this company stands in its history.

Okay, I did want to get an update, if I could, on eBay. Obviously something you announced awhile back, but I believe there were some sort of proof points that you were trying to put forward. You were starting to take on some, some of their opportunities, can you give us an update on how that relationship has gone?

I think the easiest think this I can say on that, George is we -- our business with eBay continues to grew grow, and we're optimistic we'll be able to continue to grow it in the future.

Okay, and lastly on the realtor business development, I believe you've now hired people in most of the key markets. Is there any kind of early sense on how that attachment has gone?

So far, we're very optimistic as we continued to get and build, you know, specific relationships. You know, we have the general relationships with the various realtor, independent realtor companies in, you know, four geographic markets. The people we've hired are now developing specific and more detailed relationships with the individual realtors that work for those independent realty companies.

Okay. Thanks, guys.

Thanks, George.

Thanks a lot, George. Appreciate it.

That concludes the question-and-answer portion of today's conference call.

Okay. We just want to thank everybody for joining us today. Thank you very much.

Thank you.

Thank you. That concludes today's conference call. Thank you for your participation. You may disconnect at this time.