Q3 2021 Popular Inc Earnings Call
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Hello, everyone and thank you for your patience the popular Inc. Third quarter 2021 earnings cool is due to begin shortly while we allow more participants to join if you would like to register to ask a question. Please press star one on your telephone keypad.
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Alright.
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Hello, everyone and thank you for your patience the popular Inc. Third quarter 2021 earnings cool.
Who is just to begin shortly if you would like to register a question that Q&A. Please press star followed by one on your telephone keypad.
[music].
Hello, everyone and welcome G D popular Inc. Third quarter 2021 earnings call. My name is Bethany and I'll be coordinating their school for you today. If you would like to register a question a Q&A. Please press star followed by one on your telephone keypad I will now hand, the call over to your highest pool Cardillo Investor Relations officer at popular.
Pillar over to April.
Good morning, and thank you for joining us and also for your patients as we dealt with some connectivity issues.
With us on the call today is our CEO Ignacio Alvarez, our CFO, Carlos Vazquez, and our Cro's video Soriano, who will review our results for the third quarter.
<unk> and then answer your questions other.
Other members of our management team will also be available during the Q&A session.
Before we start I would like to remind you that on today's call. We may make forward looking statements that are based on management's current expectations and are subject to risks and uncertainties factors that could cause actual results to differ materially from these forward looking statements.
Set forth within todays earnings press release and are detailed in our SEC filings.
In today's press release, and our SEC filings on our webpage at popular Dot com.
I'll now turn the call over to our CEO Ignacio Alvarez good morning, and thank you for joining the call. The third quarter was another strong one in which we achieved net income of 240.
Our results reflect the continued strength in U S.
Economic activity driven by the unprecedented levels of federal stimulus.
They also reflect our diversified sources of revenue and prudent risk management.
Please turn to slide three.
Our quarterly net income of $248 million.
830 million higher than the second quarter and $80 million higher than the same quarter of 2020.
The sequential variance was driven by a higher benefit and the provision for credit losses, partially offset by higher expenses.
Net interest income was in line with the second quarter.
Noninterest.
Was income increased primarily due to the sale of two corporate office building.
Higher volume of credit and debit card transactions in the quarter also contributed to the increase.
Credit quality trends continue to be favorable in the period with lower npls and low levels of net charge offs.
During the quarter we.
Noninterest need to return capital to our shareholders on September nine we completed the previously announced $350 million accelerated share repurchase program.
And on September 30, we announced the redemption of our six 7% Trust preferred securities.
Of which $187 million is currently outstanding.
These actions evidence the strength of our capital position, which allows us to return capital to our shareholders. While we continue to invest in our franchise. Please turn to slide four.
On October 15th we acquired <unk> capital Group.
National healthcare equipment leasing business with 119.
<unk> million dollars in assets this.
This transaction will complement and expand our existing niche healthcare lending business.
Our customer base in Puerto Rico continues to grow increasing by 12000 in the third quarter and by nearly 42000 year to date to reach more than $1 9 million unique customers.
Adoption of digital channels, among our retail customers continues to be strong.
Active users an army Banco platform exceeded $1 1 million and have grown by 18% since March 2020, we.
We captured 66% of our deposits in the third quarter through digital channels.
As expected these trends have adjusted slightly lower but remain significantly higher than pre pandemic levels.
Within popular clientele, the dollar value of credit and debit card sales have continued to trend higher increasing by 5% compared to the same quarter a year ago.
Sales.
We are also well above pre pandemic levels.
<unk>, 4% higher than in the third quarter of 2019.
Auto loan and lease originations at <unk> have remain extremely strong.
While they had decreased slightly compared to the third quarter, and 2020, which reflected the reopening of the economy.
They were 26% higher versus the third quarter in 2019.
We have continued to see strength in the housing market.
While the dollar value of more duration originations at <unk> decreased by 3%.
Paired to the third quarter of 2020, they increased by 51% compared to the third quarter of.
2019.
Please turn to slide five for an update on the current macro environment in Puerto Rico.
In the third quarter business trends and customer activity remain robust.
We continue to see strong momentum in recent quarters as most of the Covid related restrictions that were in place.
Have either been relaxed or eliminated.
Puerto Rico has continued to make solid progress on the vaccination front and.
And we are proud to say that we are now we have the highest vaccination rate of any U S state or territory.
According to the CDC website, 81% of the population over 12 years old had been fully.
Of 2090% have received at least one dose of the vaccine.
New auto sales continue to reflect strong consumer demand and our iron on a record pace with 31000 units sold in the third quarter.
Year to date auto sales were up 66% compared to the first nine months of.
Back in 'twenty.
32% from the same period in 2019.
Cement sales have also remained strong.
Year to date sales through August were higher than the level of sales seem to the same periods in 2018 and 2019 when the island was rebuilding following the 2017.
<unk> Hurricanes.
Activity levels in the tourism and hospitals already sector has continued to be a source of strength for the local economy.
With much of World travel is still somewhat limited, Puerto Rico continues to be a popular destination for mainland residents.
Hotel demand remained strong during the quarter in.
August occupancy rates in Puerto Rico have exceeded the comparable periods in 2019 with a fourth consecutive month.
Airport traffic has continued to improve.
Year to date passenger traffic has more than doubled compared to last year and has now exceeded comparable 2019 levels.
September traffic was up 130% compared to the same month, a year ago and was 20% higher than in September of 2019.
This was the sixth consecutive month that passenger traffic has surpassed the comparable figures in 2019.
Cruise ship arrivals recommenced in August.
According to the Puerto Rico Tourism company more than 300 trips are anticipated for the remainder of the 2021 2022 season.
Employment levels have improved but are still somewhat below pre pandemic levels.
Total non farm employment has increased by 3% since December.
2020, and by 1% since August 2020.
We are pleased with the results for the third quarter and continue to be optimistic about the prospects for the future. However, we will remain attentive to how the evolving health situation may impact the economy I will now turn the call over to Carlos for more.
Detail on our financial results.
Thank you Ignacio good morning, Please turn to slide six as usual additional information is provided in the appendix to the slide deck.
<unk> earnings press release details variances from the second quarter.
Net interest income for the third quarter was $489 million in <unk>.
Kris a $2 million from Q2.
Non interest income increased by $50 million to $169 million in Q3 around $12 million of the increase came from extraordinary items.
Including a $7 million gain associated with the sale and leaseback of two corporate buildings plus.
$3 million higher net earnings from investments held under the equity method.
Along with other smaller positive variances there.
The provision for the second quarter was a benefit of $61 million. This was $44 million higher than the benefit recorded in the second quarter radio will expand on credit related matters.
Total operating expenses were $288 million in the quarter, an increase of $20 million from Q2.
This increase was primarily due to higher employee compensation cost by $3 million, mostly driven by annual merit increases higher professional fees by $4 million.
A lower Oreo gain.
At $3 million plus smaller increases in other categories like FDIC deposit cost and business promotion.
Higher credit and debit card transactions also drove a tumor a increase in related expenses.
For the fourth quarter, we expect expenses to be between 405.
<unk> by $110 million this.
This is consistent with our guidance for average quarterly expenses in 2021 to be between 380 <unk> hundred 80.
$85 million, obviously, if possible we will try to improve on this number are.
Our effective tax rate for the quarter was 25% the.
And perhaps last quarter.
In Q4, we expect the effective tax rate to be between 25 and 28%.
Please turn to slide seven.
NII on a taxable equivalent basis was $536 million 5 million lower than in the second quarter. The primary driver for this.
Decrease was lower investment portfolio interest income by $7 7 million due to lower yields which was partially offset by $1 $5 million higher interest income from loans and lower deposit costs by $1 1 million.
The lower mix of exempt income also contributed to this outcome.
Deposits grew by $1 4 billion in the quarter. Most of the growth was at <unk> was a $700 million increase in port, Puerto Rico government deposits and a $500 million increase in our retail and commercial deposits.
Net interest margin decreased by 14 basis points to 277%.
In Q3 on a taxable equivalent basis NIM was three 4% a decrease of 18 basis points.
The lower margin was due.
Due to higher balances of low yielding money market and investment securities.
Total loan yield increased by two.
<unk> points in Q3, a result of higher PPP related income of $22 million compared to $14 million in the second quarter.
PPP loans yielded approximately 10, 1% compared to 445% last quarter due to higher accelerated recognition of fee income of <unk>.
Basically weakness.
Year to date, we have recognized $59 million in income from this program.
The remaining unamortized portion of fees for the PPP portfolio is approximately $40 million of which we expect to recognize half in Q4 and the remainder in the first half of 2022.
For Gaslog at the end of the third quarter, Puerto Rico public deposits were roughly 20 billion, an increase of $700 million from last quarter.
We continue to expect Pollo deposit balances to come down over time, driven by the restructuring of public sector debt and the return to current debt service.
Our ending loan balances decrease.
$201 million in the quarter.
This decline was due to a $254 million decrease in PPP loans, and a 140 million runoff in our residential mortgage portfolio.
Excluding the impact of PPP loan balances grew by $153 million driven by higher.
<unk> by commercial auto loan and lease balances in Puerto Rico. These.
These increases were offset in part by lower commercial balances in the U S driven by high prepayments.
We do not expect overall loan growth to materialize until the middle of next year when demand, resulting from expected economic growth should outpace the forgiveness.
PPP loans, please turn to slide.
Our common equity tier one ratio in Q3 was 17, 4% an increase of 80 basis points from Q2, primarily due to net income.
On September nine the Corporation completed the previously announced ASR and in total repurchased approximately.
<unk> <unk> 6 million shares at an average purchase price of $75 84.
Additionally, last month, we announced the redemption of the 187 million outstanding balance of our six 7% Trust preferred securities to be executed in Q4, which will result in reduced annual interest expense.
<unk> of $12 million.
Tangible book value increased by $2 77 per share to <unk> 66 <unk>.
This increase was primarily driven by our quarterly net income and partially offset by dividends and lower accumulated unrealized gains on investments.
Our return on tangible equity was 19.
Four 4% in the third quarter in summary, during 2021, we have repurchased $350 million in common stock increased our quarterly dividend by <unk> <unk> per share to <unk> 45 per share.
Redeemed 100 million in high cost Trump's on October 15th we acquired.
<unk> Flash all health care equipment leasing business for $155 million in cash.
We have also returned to our normal capital planning schedule, which should result in an announcement of popular 2022 capital actions. No later than our January 2022 webcast with that I'll turn the call over to Leo.
No.
Thank you Carlos and good morning.
During the third quarter. The corporation continued to exhibit strong credit quality metrics.
And low credit costs driven.
Driven by the improving economic environment.
Please turn to slide number nine to discuss credit metrics.
Nonperforming.
Assets decreased by $57 million.
So $710 million this quarter.
Mainly driven by an NPL decrease of $52 million.
Coupled with a decrease of $9 million in nonperforming loans held for sale.
Offset in part by an increase of $4 million in other real estate.
Yeah.
In Puerto Rico.
<unk> decreased by $48 million.
Mainly due to lower commercial npls of $34 million.
This was due to payments received on charge offs taken on collateral dependent loans, coupled with lower mortgage npls of.
$1 million.
Resulting from lower inflows and continued improvement in the great profile of the portfolio.
In the U S npls decreased by $4 million most.
Mostly related to a commercial loan pay off.
The 9 million decrease in Npls held for sale was mainly due to loan sales.
<unk> 16, the ratio of Npls to total loans held in portfolio was two 2% compared to two 4% in the prior quarter.
Please turn to slide 10 to discuss NPL inflows.
Compared to the second quarter NPL inflows, excluding consumer loan.
Increased by $44 million drill.
Driven by a decrease of $37 million in Puerto Rico.
The prior quarter included the inflow of a 32 million commercial relationship coupled with.
A decrease of $5 million in mortgage NPL inflows.
In the U S NPL inflows decreased by seven.
<unk> million dollars.
Mainly due to lower commercial inflows.
Turning to slide number 11.
Net charge offs amounted to $10 1 million.
Or an annualized 12 basis points of our loans held in portfolio.
Compared to a net recovery of $1 three.
Our negative two basis points in the previous quarter.
The quarter over quarter comparison was impacted by the recovery in the prior quarter of a $7 9 million commercial relationship in Puerto Rico.
Excluding this the net charge off ratio were being flat quarter over quarter.
12 basis points versus nine basis points.
Net charge offs continue to be significantly below prevent deneke levels.
Our allowance for credit losses decreased by $67 million.
Or eight 6% to surround our $19 million.
Do you remain Levi improvements.
<unk> million Olympic scenarios and credit quality.
As we will discuss in the following slide.
The ratio of allowance for credit losses to loans held in portfolio <expletive>.
The decreased to 249% from 270% in the prior quarter.
Excluding PPP loans and guarantees.
In the end this.
This ratio is 274%.
The ratio of allowance for credit losses to Npls held in portfolio.
Was 114% flat to the prior quarter.
Please turn to slide number 12 to discuss details on the drivers of the variance.
Mortgage loans for credit losses.
As we previously mentioned.
The allowance for credit losses decreased by $67 million when compared to the previous quarter.
Variances were driven by changes to qualitative reserves and economic outlook.
As well as portfolio credit.
And mix.
While a strong recovery is evident.
We also consider.
More adverse outcomes given uncertainties around the impact of new virus strength and the Puerto Rico government's ability to utilize the available systems.
As a result.
Quality, we continue to assign the highest probability to.
The baseline scenario.
Hello by the more pessimistic scenario.
Our macroeconomic forecast uses a number of economic firewalls.
With the unemployment rates and GDP being the largest drivers.
The current baseline scenario.
<unk> patients for 2022 <unk>.
GDP growth and the unemployment rate.
Expectations are flat quarter over quarter.
However, Moody's.
Moody's analytics remissions.
So certain income related variables in Puerto Rico contributed to a $17 million decrease in the.
Allowance for credit losses.
During the quarter, we released 50 million from our qualitative reserve.
Prompted by the economic environment and improvements in the outlook for the U S.
CRE portfolio.
Total portfolio changes, particularly in the Puerto Rico commercial auto loan portfolio.
Across the ACL to decrease by $24 million.
Folio changes include fluctuations in credit quality volume.
On mix.
To summarize our loan portfolio activity improved credit quality metrics during the third quarter.
With net charge off activity significantly below pre pandemic levels.
So we will continue to monitor the exposure of the portfolio to pandemic related risks and changes in the economic outlook.
With that I would like to turn the call over to Ignacio for his concluding remarks. Thank you <unk> and Carlos for your updates our results in 2021 to date have been strong driven by solid.
Earnings improved credit quality record deposit levels.
<unk> customer growth and the successful execution of our capital actions, we are optimistic about the economic outlook in.
In addition to the unprecedented level of federal stimulus related to Covid quarter.
Puerto Rico still has a significant amount of hurricane.
Solid funds that have yet to be dispersed, which we expect will now start flowing at a faster pace.
The combined impact of these factors and continued consumer spending should generate considerable economic activity in many sectors for the coming years, and we are well positioned to benefit from such activity.
Recover SSO resolution of the debt situation in Puerto Rico will also be a positive factor.
And last but certainly not least we're looking forward to having the entire team together and our offices again.
Given progress and the vaccination process, a general improvement in health conditions in our markets and sound safety protocols in our facilities.
ACD had begun to bring back to the Opex, our colleagues and we're still working remotely.
Managers and Supervisors returned earlier this month.
And the remainder of our workforce will return in early November.
We are entering the home stretch of 2020 wine.
Despite all these challenges this has been a great year.
Thus far.
<unk> with solid results and significant accomplishments.
Our team is energized and committed to ending the year on a strong footing.
We are now ready to answer your questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
The.
First question comes from Brooks sunlight of UBS. Your line is open.
Okay.
Thanks, Thanks, very much I did manage to get in the queue.
If you could just start off in terms of core loan growth expectations I understand overall loan growth is good.
Take a while to overcome the.
The PPP paydown headwinds, which you already outlined.
How should we think about core loan growth over the next couple of quarters.
Well.
This is Ignacio I think I think you got to look at it a little bit sector by sector over the next quarters I mean besides.
Besides PPP, we have a large mortgage loan book in the U S, which is paying down.
About 150, <unk>, Puerto Rico, and Puerto Rico.
So, but I think we expect to see continued loan growth in auto and in the commercial sector looks very strong also so those are sectors that we expect to see growth.
And the commercial we expect to grow both in Puerto Rico, and and in the U S and the U S. We this quarter, we had a lot of paydowns from the construction loan portfolio, especially.
I think youll see sectors like auto and commercial.
Up sooner.
Overall, we continue to say is.
Carl mentioned in his prepared remarks that overall.
When you look at the overall loan balance probably won't see <unk>.
Significant net growth until the second half of next year.
Carlos.
No Brian.
We are or we're pretty pleased that ex PPP.
Both last quarter and this quarter.
Our loans grew.
So our commentary on net growth is just.
Fact that in the fourth quarter.
Roughly half of our remaining preclinical portfolio gets forgiven and we have savings on a run off in our restaurant portfolio or half a billion dollars of loans. So we start at minus $500 million already and in the first half of next year.
The other half of our <unk> portfolio of brands is.
His program, which we expect on the mortgage front doesn't change then we started at minus 600 for the first half of next week. So that is that is that is.
But at least the math, but but in general we're pretty happy that ex PPP.
Here is last quarter or this quarter, we had net loan growth.
Okay.
Sure.
Separately on.
On capital.
I noticed you bought the leasing business.
Not a not a terribly large.
Position, but that's certainly not material given that purchase price.
You are continuing to build capital.
Reserves work.
Ample given the credit contours.
How should we think about.
Capital allocation.
Well I mean, we.
We keep.
Trying to touch all the buttons or pull all the levers whichever way you want to.
Address.
Or think about it.
This year I think we have successfully done solely so all the different ways.
Ways in which we can manage.
Capital has been put to use.
And that will hopefully continue to be the the way we operate in the future. We are in the middle of our <unk>.
Capital plan for 2000 to now again, we are hopeful that.
We'll have an announcement by the webcast in in January.
<unk>.
Managed account.
Given our levels of capital, we will probably have to continue to pull all the levers to achieve what we want to do which is over time to move our capital levels in the direction of our our U S peers, plus plus plus some cushion.
Okay. Thanks ill jump.
Drop back in the queue.
Thank you Brooks.
Yeah.
Our next question comes from Alex <unk> of Piper Sandler Alex Your line is open.
Good morning, guys Hello.
Good morning.
In general yes.
Yes, sorry about that.
Wanted to.
Just start off a little bit more on this <unk> acquisition initially seems like kind of small potatoes in terms of the net assets being acquired but just looking at the purchase price.
Certainly leads me to the suspicion that maybe that this is actually a pretty good loan generating engine.
And I was hoping that you could expand a little bit more on sort of what kind of origination capabilities.
This platform has and how it is going to sort of fit into the overall model.
Well.
I don't have the numbers exactly in the prediction of originations, but I can tell you that.
It's.
When we looked.
In the states, we've said before we are looking for niche.
The niche businesses that can complement our existing businesses and this is.
Healthcare equipment leasing company, which we think really fits well strategically complements our national healthcare lending business. So we think.
Think that we really like the people behind <unk>, we think they have.
Business, but we think that the synergies that we can create with.
Our healthcare business are important and we hope to try to make it into a national platform. The same the same way we've done with pad in our healthcare.
Critical.
Can you talk a little bit more on sort of what type of loans. These are and.
And what kind of yields that we.
Expect to replace the couch with cash with.
Yeah.
The long term basically mostly finance leases.
Medical equipment like machines that you put in.
Health care centers.
Yes generally healthy.
Health care.
X ray machines or other types of Iran. What's that MRO MRI is I'm sorry.
Dating myself.
And where is that kind of thing.
I don't have I don't have I would not exactly on the yields here or there are a number of the yield.
Alex.
I mean.
When all of the acquisition noise comes out.
So and everything normalizes.
Call. It in 'twenty three we expect it to contribute about high single digit millions net income every year.
And hopefully grow.
Either as I said, one part of the beauty of this is that not only does it add an important product for our health care clients. It also makes our existing healthcare offering more competitive. So so part of the benefit of this acquisition will not be in the subsidiary itself. It will actually be part of.
Okay.
Okay, and then just in terms of the sort of thing.
Sure.
When you do a deal like this and the regulatory process. This one is relatively small, but I imagine it does play a role in sort of the sort of overall capital allocation from a regulatory standpoint to get the same process.
Do you have to go through the same process as you're doing with the buyback.
And the dividend.
Yes.
The regulatory system is key.
Quite complex, let's not call it <unk>, but it is quite complex.
Depending how you do an acquisition it depends how you would have to go through different regulatory structures. This case since we're doing it through a subsidiary of popular bank.
And in fact, we only had to go through the New York DFS. So it was a relatively simple straightforward process.
It really.
Don't think it would be material enough for the for example, the fed when we're looking at our capital plan. Obviously, they look at everything we do but I don't think its going to move the needle one way or the other in the capital plan.
Okay and then just.
Another question on the on the bankruptcy you sort of alluded to the end being kind of within side, it's a little bit hard.
I think sometimes for a lot of investors and for me to kind of oil through some of the headlines but it seems like they are getting pretty close to a deal.
Between the board and the bondholders and it seems that the government may have gotten what they wanted.
Can you just help us understand exactly where we are in that process.
Yeah, well, we're in a we're in.
Actually in a critical stage.
You are up to date, so there was.
The negotiations going back and forth and both the executive branch and the Legislative branch had basically said that they werent going to sign off on any deal.
The pension head cuts to the existing pension.
And there is also.
There was also controversy regarding the amount of amounts that would be budgeted to support the public University.
<unk>.
They went back and forth a couple of rounds and appeared there appears to be in.
Agreement in principle.
Regarding.
The fiscal board would present, a plan of adjustment with zero cuts to the pension and with at least $500 million for the <unk>.
Yesterday.
The house of Representatives voted on legislation to support that.
Plan of adjustment.
One of the technical issues is that and the plan of adjustment contemplated exchange of bonds for new bonds for existing bonds.
And there is a debate whether that has to go through the legislature or not so yesterday the house approved it.
They are still a bit short in the Senate apparently somewhat.
Some of the centers.
Not convinced that the language regarding no pension cuts is ironclad.
I think the Senate is scheduled to take this up on Thursday, again, but you're right. We're very close the house did pass the enabling legislation and now we are waiting on the Senate and the Governor has said he was signed legislation so it really.
It requires the Senate to improvement the Senate is a is a very difficult situation in Puerto Rico, because no party has an absolute majority.
The party that has the speed.
The president of the Senate has a plurality, but they don't have so it requires more horse trading unusual and so we're really down to the ninth.
Yeah.
Whether this gets approved by the Senate it could happen as early as Thursday.
If that doesn't happen then you have to go back and renegotiate something I'm hopeful it'll happen on Thursday, but we'll have to wait and see.
So if that does happen on Thursday, then the presumption is that the bankruptcy there'll be able to exit bankruptcy at some point.
Our end of this year, and then just remind us how much of.
Public deposits I think in the past you said somewhere around $10 billion to $11 billion.
That sits on popular large balance sheet blowout directly related to that bankruptcy is that correct.
That's our best estimate of course.
But the government has not told US exactly we hold most of the public funds.
But there are other financial institutions that have public funds, including.
Including local institutions, including city. So that's our best estimate yes.
And the process would be if this enabling legislation is passed the planet.
So when we considered by the court, it's up to the court to approve or disapprove. The plan of adjustment theoretically they could disapprove it.
I don't think given all the work that has gone through this I think thats not a likely result, so hopefully we will have something by the end of the year in which case I'm not clear how soon the money will go out but.
Magellan in a royalty as soon thereafter, because it's a cash down payments so.
Okay.
And in terms of the financial impact to you guys.
If I'm remembering correctly, it's not I think the language is not material to NII, but it certainly would help the NIM.
TCE and ROA is that.
But it will.
That is correct and this and this and the existing level of interest rate environment. It is not as material to NII.
Sure.
It would yes, it will be very significant to our margin.
<unk> has basically being driven by this so factor for four or five quarters.
Correct. So our margin will be will returning too will return to be more linked to our core business than it has been for the last year plus.
Thank you for taking my questions.
Thank you. Thank you.
I would just like to remind participants to press star one.
One if you'd like to register a question.
Our next question comes from Gerard Cassidy of RBC. Your line is open.
Thank you good morning, Nacho and Carlos.
Good morning.
Maybe this question good when we can start off with linear or if he's still there on credit.
Obviously net charge offs for you folks were very low in the quarter and granted they were up slightly from the positive number that you had in the prior quarter, but.
The industry is experiencing incredibly low net charge offs at this part of the cycle can you give us an.
What you think may happen in.
So how long can these low levels remain and do we start just start to see some sort of normalization in net charge offs by the end of next year into 2023, which is still will be lower than you know.
A bad period, but I would think that they eventually you have to start creeping up.
Yeah, I'll give you.
In terms of my perspective, I mean prior to.
The pandemic if you look over three.
Three five year periods.
We will put all are aware between.
So our corridor between 75 basis points 195 basis points.
Since the pandemic, we have been significantly.
You mentioned lower than that.
Net benefit.
In the prior quarter.
When you look at NPL formation, when you haven't got any delinquency.
Yes.
But the short term that will continue to be the case.
And I think a lot of it is going to be depending up on that.
Economic performance undergoing.
Hey.
Including pedal assist under Carlos Ignacio alluded to.
Prepared remarks that we expect to come to Puerto Rico, So it will happen.
You see the level of economic activity.
That might last a little bit, but I agree with you also that some point in time things will normalize.
In the future.
Very good.
Ignacio and Carlos Obviously, you announced this acquisition recently and are you putting your cash to work and.
You've done other deals similar like the Wells Fargo automobile portfolio in their business a couple of years back I guess are there.
Or any other opportunities for you folks to put your excess capital to work in acquisitions, whether its a non depository or even a depositary somewhere in the mainland.
Yeah.
We have traditionally been opportunistic buyers of assets.
And we continue to be so and so.
People bring opportunities to us and we review them.
K to seem like a.
Very nice fit.
It's a bolt on he compliments, our health care vertical which is doing very well and we think has great potential for the future given the demographics.
Of the country right.
So we will continue to look for those type of unique opportunity just like reliable, we really like the auto sector and it was there and it came across.
I've said before that.
Especially bank acquisition is not our focus in the near future.
We but we are.
Opportunistic when things present themselves that we look at especially our acquisitions of <unk>.
Things that complement our existing businesses. So I think our overall strategy Hasnt changed.
<unk> came around we looked at it carefully.
We thought fit perfectly with our with.
Speed strategy. So so we execute.
Very good and then just as a follow up I know you need to keep.
The amount of cash on the balance sheet one.
The government finally, and draws down those excess deposits from your organization, but Carlos when you look out.
Do you think you may want to start to lengthen the duration of maybe some of those cash assets into.
Longer term securities.
Well you know.
Given that rates are finally seem to be going up and investment return to St. Louis starting to go up.
We are looking at that more closely now again.
Again.
As you know Gerard I.
I have it pains me significantly to extend duration to seven to 10 years to get our yields up.
130, or something like that now in our 160 <unk>, So it's becoming more.
We are seeing so.
This is the job of our Alco Committee, we look at this every week.
Did extend we did increase our investment portfolio.
By about $2 billion this quarter so.
So we do it selectively when we think there's good opportunities to extend.
Sure.
Again as rates move up our willingness to extend will move up accordingly, So we rush it goes or no.
We're taking a good look at the door right now yes, we are.
Very good and then just.
And I apologize I should know this but.
<unk> do you have a a swaps book or if you do is.
Is it growing or are you looking to add to it some of your peers are doing that now in this period of their outlook for rates.
No we don't have it.
Okay very good okay. Thank you.
Thank you.
<unk>.
We have a follow up question from Brooks sounded like of UBS. Your line is open.
Thank you.
Just going back to some of the credit questions I think everyone kind of focuses on.
Charge offs and the reserve level.
But.
Yeah.
As we look at Npls and they've been.
Down consistently and they were down substantially in Puerto Rico, a $48 million this quarter.
What's.
Yeah.
Yeah.
Why couldn't that drop.
You know far more.
Meaningfully or are there.
Sort of structural Npls that we shouldnt expect too.
To see go away. It just seems like with the economic trajectory the structurally higher level of problem assets that we've seen for years, because Puerto Rico was in a recession.
It should.
Should drop pretty hard.
Okay.
So do you want to take that sure.
Right now when you look at Npls in Puerto Rico.
On the mix of Npls over time is.
Mostly mortgage related NPS.
Npls.
That has fixed.
Little bit longer to resolve and maybe some other type of npls. So that leads you to what you may be cool structural npls I mean, that's going to take a longer time for us to work through a more so over the last since the pandemic because there've been lack of foreclosures and NPL mortgage npls.
Actually no decrease as fast.
The type of Npls in the cycle.
Part of the cycle. So I think that is what is driving the maybe higher levels of npls.
Importantly.
Okay.
And.
<unk> expenses.
Yeah, and remember the mainland banks hedge.
Uh huh.
And it's not unique to banking just greater expense pressure difficulty in hiring.
That general theme is that something.
We should also be aware of.
Yeah.
Within your business.
Yes, I mean, we were not immune to the situation in the hiring situation. It has become much more difficult.
Their salary pressures.
In Puerto Rico, we still.
Have an advantage against some of our.
Our mainland peers, but.
We arent, we arent seeing salary inflation in Puerto Rico.
As you get competition from all kinds of sectors.
And that's something that.
We can anticipate we will continue we've made some salary increases in July as you've seen.
We're going to be reviewing our our our.
Minimum wage like everyone else's. So these are this is a.
We have somewhat of a.
Beneficial position in Puerto Rico, but we're subject to the same trends we.
We're subject to the same time.
Understood. Okay. Thank you for the follow ups.
Yeah.
Yeah.
We have no further questions in the case I'll now turn the call back to Ignacio Alvarez for closing remarks.
Yeah.
Again, thank you everyone from joining I apologize for the inconvenience of the beginning of the call and we look forward to updating all of you on our progress in January so have a great week. Thank.
Thank you very much.
Yeah.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
Uh huh.
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Okay.
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Yes.
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