Good afternoon, everyone. Thank you for joining us today. My name is Chito Reyes. I am with Investor Relations and Corporate Planning for BDO, and we'd like to share with you the results of our third quarter and nine months. First, again, our nine months, PHP 60.6 billion, translating to a return on equity of 15%. It is 12% higher compared to last year. For the third quarter alone, the net income was PHP 21.2 billion, it is a new record high for us, and that translates to a return on equity of 15.2%. Our earnings still driven by core lending and fee businesses. We have not yet booked extraordinary trading gains. In fact, our trading income from the second to the third quarter was lower. Our customer loans increased by 13%, this has been more or less the pace of increase since the beginning of the year.
During the course of the year, we've seen a shift in the various segments, the contribution from the various segments. As we will show later, we started very strongly with the large corporate segment, but as the year progressed, we've seen middle market and consumer catching up in terms of their contribution. While on the side of large corporate, given the strong first quarter performance, the performance in succeeding quarters has been more tempered. Asset quality has improved from 206 in second quarter, we're down to 182. Our coverage has gone up to 178% from about 160% something, 170% in the second quarter. Again, we've not yet released provisions in a major way. Lastly, our capital has strengthened further. Book value per share up 13%, now PHP 106.50. In terms of our financials, first, we'd like to explain some changes in our reporting format.
If you recall, last time out, we showed potential changes in the way we reported certain things. Again, this is more based on regional practices and also based on recommendation of our external auditor. The first thing that we did is in terms of auto dealer incentives, these are related to auto loans. We've netted them out against interest income from our auto loan portfolio. Secondly, in terms of documentary stamp tax, which is a tax specific to the issuance of time deposits, again, we've included this as part of interest expense. Okay. Secondly, the other major change really is the recognition, the insurance income coming from both life and non-life. Before, they used to be consolidated line by line. The basic change that we've done is we're now reporting the results of our insurance business as a single line under non-interest income.
A simpler way of looking at it. The results, it's a lower cost income ratio from what, 60+ historically, I think we're down to about mid- 50s today. There's no impact on net income and return on equity. Lower cost income ratio, lower NIMs also in the process because we have deducted from interest income certain direct expenses related to certain transactions. That's the major impact of the changes in this reporting. Okay. Again, looking at the nine-month results, NII is up 9%, non-interest income up 16%, what's still supporting it is fee income, which has grown by 12%. When you look at treasury income, it's just up 4% for the year, for the nine months. Again, on a quarterly basis, we'll show later, there's actually been a decline.
In terms of the non-interest income, one other change is the consolidation of the SM Capital transaction. If you recall, this was only implemented in December. As of last year, it was not yet consolidated. The consolidation of SM Capital has contributed to us recognizing rental income and also an increase in the expense side. Okay. In terms of OpEx, 13% growth year-on-year. What we'd like to highlight here is that this is a more modest growth compared to the OpEx growth that we've seen in the last two quarters. We were doing about 15% OpEx growth for the first and second quarters. It's now down to about 13%. Again, the major contributors are still IT spend and volume related expenses for us. PPOP growth steady at 7%.
Provisions, as mentioned earlier, even if there was a slight decline compared to last year, our coverage still increased to about 178%. PHP 60.6, again, coming from sustained growth across our businesses. No major contribution from the treasury side, no major contribution from a pullback in provisions. Okay. Looking at it on a quarterly trend, as you can see, we've been consistently producing mid-teens return on equity for the last how many quarters. To highlight, in particular, the treasury income from the second to the third quarter. There was a decline, in fact, of about PHP 700 million. Despite that, we were still able to register an increase in our quarterly income, and our return on equity has stayed above the 15% level. On the balance sheet side, customer loans up 13%, as mentioned earlier, and we will show the breakdown later.
On the securities portfolio, it's now over PHP 1 trillion, and it's about 22% of our balance sheet. On the funding side, 10% growth in deposits, CASA up by 5%. Our CASA ratio steady at a 69% level. Lastly, again, our book value up 13% to PHP 106.50. In terms of loan growth, for the nine months, 12.8% as against an 11% growth for the industry. One good sign is that the industry growth has been steadily increasing since last year from under 8%. We've seen a sequential improvement in loan growth for the industry to 11%. This is how our segment growth looks like. I mentioned earlier that we have seen a faster growth in middle market. From 7.7% in 2023, our middle market is now at 12.2%, showing a growth of 12.2%.
I mentioned also that if you look at the first quarter numbers, large corporates had a strong growth coming from year-end at 16%. This is what I was talking about. This is a 6% growth in the large corporate portfolio in just one quarter. That was, again, an accumulation of opportunities that just materialized in one period. That explains the big jump in the quarter from year-end, and also the high growth rate compared to year-ago levels as of 1Q. We're seeing a more normal pace of growth for our large corporate portfolio, and that is what is explaining more or less the deceleration in that growth rate. The good news is that middle market has been picking up, and in the case of consumer, they've also maintained that close to 16% year-on-year growth in the portfolio. On the CASA side, mentioned earlier, 5%.
Our cost of deposit close to 2% under the new format. In terms of branch expansion, we've opened as of nine months, a total of 26 new branches, 22 from network, four from BDO. Again, the focus is on the BDO network side, where we are aiming for more branch deployment in the underserved, underbanked areas. On the non-interest income side, again, this is now the new reporting format. Previously, fees accounted for about just a little over half. With this change, it's now closer to 70% of non-interest income. The next big contributor would be insurance at 12%. In the case of fees, you would see that the nine-month numbers, 12% coming from a low, from a 5% result in the first quarter. We're seeing stronger growth in fees on a quarter-over-quarter basis, and that's what's pulling up the year-to-date numbers to where it is.
In terms of our insurance operations, same thing. The nine-month numbers exhibiting strong growth at 15%. This reflects first the focus of our life insurance business on traditional protection under the bancassurance distribution channel. That remains the main source of premium generation for us. Traditional protection accounts for about 80% of our total premium generation. The other part of the premium generation comes from our property and casualty business. As our lending business grows, whether it be on the consumer side or on the corporate side, the opportunities for providing non-life insurance to our clients are there in the form of mortgage redemption insurance for auto loans, insurance for corporate assets. Those are the main components. So far, the pre-tax income contribution of our combined insurance operations is up by 15%. On the security side, again, not much change in terms of the mix.
Again, it's now 22% of our balance sheet. The big change really is that compared to pre-pandemic, we were just about 15% of total assets. It's 22% of total assets. OpEx, again, under the new reporting format, 55% cost-income ratio, 13% growth. Again, a deceleration compared to the growth rates that we were showing the first two quarters of the year. In terms of the major components, it's pretty much the same volume-related expenses, investments in IT, and additional branches. For NPLs. A decline quarter-over-quarter. If you look at NPLs in absolute amounts as shown by the dark blue bar from 63 down to about 59.7. That's a result of write-offs and also some NPL accounts being able to update and moving back to current status.
In terms of profitability, again, as shown by the quarterly results, we are able to maintain our mid-teens ROEs. Our operating results have been very steady. We have not capitalized on extraordinary gains or substantial pullback from provisions as a way of recognizing income at the moment. We feel from the treasury side, the portfolio, I think is still going to be better off contributing to accrual rather than to trading income at the moment. We think that this is something that we can continue with this result of mid-teens return on equity. We have yet to see also the benefits of lower reserve requirements, by the way, which only took effect last Friday. That, in a way, I think, will offset the potential impact of policy cuts by the BSP going into 2025. In terms of our capital ratios, our CET1 13.7.
This is a good improvement from our previous report. We were about 13.2 the previous quarter. The 13.7 is a result of one continued good operating results. Secondly, also an improvement in the market values of our FVOCI securities. As the yield curve has come down, the mark-to-market has improved for our FVOCI, and that has contributed to stronger capital ratios also for us. In terms of our cash dividends, we're still paying out PHP 1 per quarter currently. We started this in the second quarter of the year, and that is something that we intend to continue with. For the macro and business outlook. On the macro side, we're still optimistic in terms of the outlook. For one, inflation is well-anchored. Foreign exchange has remained relatively stable.
While we saw a recent weakness in the local currency, it's a function of the dollar strength generally, but also, something specific to the Philippines, we understand that there were substantial non-deliverable forwards that matured and therefore created pressure on the currency. Other than that, GDP growth is expected to gradually trend back to the pre-pandemic levels of 6%-7%. What we just need to watch out for are commodity prices, for one, because they're rice and fuel costs being the big imports of the Philippines will have a tendency to impact GDP growth should we see big swings there. Fiscal consolidation, the government is still trying to spend what they can on infrastructure. Again, this is at lower levels compared to what was done in the past.
Again, from the private CapEx side, we hope that, again, this relative stability that we're seeing will translate into more investments in capacity expansion, given that, again, the interest rates are coming down, inflation is well-anchored. We hope that creates a more robust investment cycle. For us, we think loan growth will be sustained based on the trends that we're seeing today. The upside, again, will potentially come from CapEx loans and from more PPP-type projects getting approved by the government. NIMs, while we saw a compression in the third quarter, we think it's going to be temporary because it's driven primarily more by a shift in the treasury investments to shorter-term tenors. Overall, we think that with the potential for stronger loan growth, that we will hopefully see NII growth being sustained. On the non-interest income side, fee income continues to show good growth.
We hope that the strategic initiatives that we have been investing in, which is BDO Network, the wealth management, and the life insurance together will contribute more to better profitability metrics for us. Lastly, on the asset quality side, our NPLs are stable, as can be seen with a substantial drop from the second quarter number down to 182. We think it's likely to stay that way given the expectations for more robust economic activity. Provisions, again, we believe that we're more on the conservative side, and we have set up anywhere from 1.5%-2% of our loans as provisions for unexpected losses. That is where more or less we would like to see our coverage at. In summary, again, our steady performance reflects the strength of the franchise and our implementation of our strategies.
The multiple drivers are in place to support profits and return on equity. We have a strong balance sheet. We have good market position in most of the businesses that we're in. We have diversified businesses contributing to our bottom line. Of course, we continue to invest in our market coverage and our distribution network. Lastly, our investments in technology, resiliency, improved processes, and business enablers will continue. At this point, we can open the floor to questions.
Hi, this is Richard Tan. I'll be moderating the Q&A session. For those attending physically, kindly wait to be acknowledged, and please introduce yourself and the firm that you represent.
Okay. We'd like to acknowledge the presence of our Lead Independent Director, Mr. Roy Ramos. Of course, our CEO, Mr. Nestor Tan. We have representatives from three businesses joining us today. We have Charles Rodriguez, who's the Head of our Institutional Banking or our corporate lending. We have Cora Mallillin. She's the Head of our branches. We have Rolly Tanchanco, who heads our consumer business. We also have Romeo R. Co , he's the Head of our Financial Institutions Group. Also, you're hiding there, right? Our Chief of Staff, Jerome Guevara.
Let me relay the question from Jamie Camilla of BPI Wealth. Can we ask for a breakdown in growth of fee income? What are the biggest contributors other than insurance business?
Well, there are three. Payments and information services, which includes payments plus cash management, remittance, and all the transfer of value businesses. The second is asset management, which is generally called in this market wealth, but it's a combination of private banking, trust and investments, and BDO Sec trading income. Not trading income, but the commissions. Then the third would be the insurance business, which is the premiums from life and the property and casualty.
Got another question from Priyanka Choudhary of MUFG. How much are the expected maturities in fiscal year 2025, and what would be the funding plan for these?
Well, the two issuances that we had this year are for very short tenors, just one and a half years. They will mature in 2025. Given the continued growth in the portfolio, given the opportunities also for sustainable lending, there's a high likelihood that we will just refinance them as they fall due.
A question here from Cristina Ulang of FMIC. What is the ambition of BDO Network Bank? Branch size, loan book size, and earnings contribution this year and in the medium term?
I guess you're looking at targets. BDO Network Bank is supposed to cover the less dense markets that are mostly small businesses and personal accounts. We use that format because you can really establish three-man branches as opposed to the regular six or seven for the Unibank. They will be complementing the universal bank by going into that market. At this stage, the three key areas, personal loans or multipurpose personal loans, MSME, and CASA growth, they're all growing in excess of 20% a year.
We'll continue to do that. In terms of income, you're not likely to see much improvement because we're still spending on the network. If you look at it, we're adding about 80 to 100 branches every year because we want to be first in the localities that are not banked. That's what we're doing now. It will be a while. We're still investing in it.
Second question from Cristina. Regarding the bigger provisions buffer, what industry sectors and business segments of the loan book are vulnerable forward in terms of credit risk?
Well, it depends on the black swan. If you look at 1997, it was real estate. If you look at 2008, it was broad-based and financial institutions. If you look at the pandemic, it is really the lower end of the middle market. That is the reason we set it aside, because we know it is coming. We do not know what it is, and we do not know what it will hit. There are so many things that can happen. You saw the Ukrainian crisis suddenly hit us with commodities, and therefore construction companies for a while were vulnerable, and we were able to recover from that. Now we are seeing oil crisis, we are seeing the South China Sea. We have so many uncertainties ahead of us, and we would like to protect the balance sheet. Clearly, provisions is one way to do that.
Question from Trevor Kwong of AllianceBernstein. Could you share more details behind the recovery of middle market loan growth?
With the stability of inflation, foreign exchange, and interest rate, and maybe the outlook for it to go down, all of the deferred capital expenditure is now starting to come forward. Expansion plans also on the working capital is starting to come in because the optimism is starting to set in.
Thank you. Another question from Cristina. What is your assessment of the impact of the POGO ban on the real estate industry sector as it relates to collateral values and credit risk of the industry, high-rise, residential, and office?
Well, if you're looking at the impact on BDO, it's probably not much because we're not big into commercial real estate lending. We are looking at end-user financing based on the ability and sustainability of the borrower's income. It's probably not going to have much impact on us. Okay.
All right.
Thank you. I guess it's boring. There's nothing unusual. It's just carrying on with what we've been doing. Okay. Thank you.