Q4 2023 Popular Inc Earnings Call
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Hello, and welcome to todays popular Inc. <unk> earnings call. My name is Jordan and I'll be coordinating your call today, if you dialing in and like to register an audio question you may do so by pressing star followed by one on your telephone keypad.
I'm now going to hand over to Paul Cardillo Investor Relations Officer at popular poll. Please go ahead.
Good morning, and thank you for joining us with us on the call today is our CEO Ignacio Alvarez, our CFO Javier for our CFO, Carlos Vazquez, and our CRO video Suriano.
Ignacio Alvarez: They will review our results for the full year and fourth quarter and then answer your questions. Other members of our management team will also be available during the Q&A session.
Paul Cardillo: Before we begin I would like to remind you that on today's call. We may make forward looking statements regarding popular such as projections of revenue earnings expenses and capital structure as well as statements regarding <unk> plans and objectives. These statements are based on management's current expectations and are subject to risks and uncertainties factors that could cause actual results to differ materially.
Paul Cardillo: Really from these forward looking statements are set forth within todays earnings release, and our SEC filings you.
Paul Cardillo: You may find today's press release under SEC filings on our webpage at popular Dot Com I will now turn the call over to our CEO Ignacio Alvarez good morning, and thank you for joining the call in 2023, we delivered solid results in a challenging environment.
Ignacio Alvarez: Annual net income of $541 million compared to net income of $1 1 billion in 2022.
Ignacio Alvarez: Our adjusted 2023.
Ignacio Alvarez: 223, adjusted net income was $587 million compared to adjusted net income of $808 million in 2002.
Ignacio Alvarez: The variance was mainly driven by a higher provision for loan losses and higher operating expenses.
Ignacio Alvarez: We grew our loan portfolio by $3 billion or nine 3% during the year.
<unk> generated loan growth across most business segments led by commercial loans, reflecting the continued strength of our local economy and our diversified product offering popular.
Ignacio Alvarez: Popular bank achieved growth in commercial and construction loans.
During the fourth quarter, we increased our quarterly common stock dividend by seven to <unk> 62 per share.
Ignacio Alvarez: Credit quality remained solid throughout 2023, as evidenced by lower nonperforming loans, even though our unsecured consumer portfolio did begin to normalize during the second half of the year from historically low levels our.
Ignacio Alvarez: Our capital levels are strong with year end common equity tier one ratio of 16, 3%.
Ignacio Alvarez: Our tangible book value ended 2023 at $59, 74% to 33% increase year over year, primarily due to lower unrealized losses on investment securities and the year's earnings.
Ignacio Alvarez: Over the past year, we have been executing on a broad based multi year technological and business process transformation.
Ignacio Alvarez: While many of these investments are foundational in nature and will take time to show meaningful results. We have already begun to see tangible revenue uplift from several of our early stage initiatives in Puerto Rico. These include enhanced pricing segmentation and our commercial cash management business and streamline processing of small business loans.
Ignacio Alvarez: Our technology and business transformation continues to be a priority. We believe that there are opportunities to grow in our primary market as well as within our existing customer base and these efforts will help us capitalize upon that opportunity.
Ignacio Alvarez: We are confident that these investments will make us a stronger more efficient and profitable company.
Ignacio Alvarez: We continue to target a 14% return on tangible common equity by the fourth quarter of 2025, Please turn to slide four.
Ignacio Alvarez: Adjusted net income in the fourth quarter, excluding the impact of the FDIC Special assessment.
Although the 140 million flat from the last quarter.
Ignacio Alvarez: Our loan balances grew by $1 billion with $749 million <unk> and $287 million at popular bank.
Ignacio Alvarez: Our net interest margin was 3.08% increasing by one basis point, primarily driven by higher loan balances and the repricing of loans and securities and a higher interest rate environment.
Ignacio Alvarez: This was offset by higher deposit costs noninterest income remained solid increasing by $9 million.
Ignacio Alvarez: Excluding the FDIC assessment operating expenses decreased by $6 million.
Credit quality trends remain generally positive with lower npls once again.
Ignacio Alvarez: However, we did continue to see credit normalization in the Puerto Rico unsecured consumer segment, which began in the second half of the year, we have taken actions to address these developments and our incentives to the evolving credit landscape.
Ignacio Alvarez: Deposit balances increased by approximately $300 million, primarily due to a higher level of online deposits at popular bank.
Ignacio Alvarez: $9, 54% increase in tangible book value per share in the quarter was primarily driven by a decrease in unrealized losses in our investment portfolio.
Ignacio Alvarez: Please turn to slide five.
Ignacio Alvarez: During 2023, we added 34000, new customers in Puerto Rico, and now serve more than 2 million unique customers.
Ignacio Alvarez: Utilization of digital channels, among our retail customers also remained strong.
Ignacio Alvarez: Active users an army Banco platform exceeded $1 1 million or 54% of our customer base.
Ignacio Alvarez: In addition, we continue to capture more than 60% of our deposits through digital channels.
Ignacio Alvarez: Consumer spending remain healthy.
Ignacio Alvarez: By credit and debit card sales.
Ignacio Alvarez: By 1% compared to the fourth quarter of 2022, which was a historically strong quarter, our auto loan and lease balances increased by $61 million compared to the third quarter as demand for new cars continue to be strong in Puerto Rico.
Ignacio Alvarez: Mortgage loan balances EBITDAR increased by $103 million in the fourth quarter, driven primarily by home purchase activity in our strategy to retain FHA loans.
Ignacio Alvarez: Puerto Rico economy performed well during the quarter business activity is solid as reflected in the positive trends and total employment and other economic data.
Ignacio Alvarez: The tourism and hospitality sector continues to be a source of strength for the local economy.
Ignacio Alvarez: Passenger traffic at the San Juan International Airport increased by 18% in 2023 compared to the previous year and both the hotel occupancy rate and the average daily rate reflected a 5% to 6% increase over 2022.
Ignacio Alvarez: They are roughly $50 billion of committed federal funds that have yet to be dispersed the pace of the expression of these funds has accelerated and we anticipate that <unk> will support economic activity for several years.
Ignacio Alvarez: We are encouraged by the performance of the Puerto Rico economy, we remain optimistic about the future of our primary market and are well positioned to support our clients. During this historic period.
Ignacio Alvarez: We are pleased with our results for the quarter and the year, particularly strong loan growth in both Puerto Rico and the U S.
As well as the continued strength of our deposit base, which positions us well for 2024.
Finally, I'd like to take this opportunity to recognize Carlos who will retire in March after 27 years of service to <unk>.
As our CFO since 2013 and in various senior leadership positions before that.
Ignacio Alvarez: <unk> sales due to our strategic mindset analytical skills and discipline.
Carlos Vazquez: He has been an important contributor to our growth and financial strength and we are thankful for his leadership throughout all these years.
Carlos Vazquez: On a more personal note I'm sincerely grateful for his support since I joined <unk> and for his friendship which began long before.
Ignacio Alvarez: <unk> our controller since 2012 has worked alongside Carlos for many years, helping to build a strong finance team.
Carlos Vazquez: He is widely respected within the organization and we are confident he will do a great job as our new CFO on that note I will now turn the call over to Carlos for more details on our financial results.
Carlos Vazquez: Thank you Ignacio for those kind words as well for your friendship and leadership I would like to offer my gratitude to my colleagues are popular they make all our achievements possible.
Carlos Vazquez: I also want to thank our analysts bankers and investors, who is keen insights challenging questions recommendations and advice I have greatly appreciated in value primarily I want to thank my successor Jorge for his support over the last 13 years during which we have collaborated.
Carlos Vazquez: Leave all of you in good hands.
Carlos Vazquez: Pleasure and honor to have contributed to this great company for 27 years, Please turn to slide six.
Carlos Vazquez: We reported net income of $95 million in the fourth quarter, excluding the effect of the FDIC assessment adjusted net income was $140 million.
Jorge: <unk> higher than the prior quarter.
Net interest income was $534 million flat with Q3.
Jorge: During the fourth quarter. The net interest margin remained stable despite rising deposit cost.
Ignacio Alvarez: Our current and forecasted asset mix, coupled with the expected rate environment. We should continue to see NIM expansion in Q1 and throughout the rest of 2024.
Ignacio Alvarez: In 2024, we expect net interest income to increase by approximately 9% to 13% from 2023 levels driven by loan growth of 3% to 6% and a continued improvement.
Ignacio Alvarez: Earning asset mix and a higher rate environment.
Ignacio Alvarez: Noninterest income was $166 9 million, an increase of $9 million versus Q3.
Ignacio Alvarez: In 2024, we expect noninterest income to be approximately $160 million to $165 million per quarter, an increase of $5 million from our prior guidance.
Ignacio Alvarez: The provision for credit losses was $79 million compared to $45 million in the third quarter.
Ignacio Alvarez: Total operating expenses were $531 million in Q4 <unk>.
Excluding the effect of the FDIC assessment adjusted operating expenses were $459 million, a decrease of $6 million from Q3 and below our prior guidance of $175 million.
Ignacio Alvarez: The variance in the quarter was driven primarily by a 23 million noncash goodwill impairment in Q3.
Ignacio Alvarez: And lower credit card processing and transactional expenses by 8 million, mainly due to volume incentives recognized during the quarter from the card networks.
For the year of 2023.
<unk> expenses increased by 9% to $1 9 billion, driven primarily by the higher FDIC deposit insurance expense.
Ignacio Alvarez: Impairments taken in Q3 personnel cost and expenses related to customer activity.
Ignacio Alvarez: Excluding the FDIC assessments in Q4, 2023 expenses were $1 83 billion, 5% higher than in 2022, but below.
Ignacio Alvarez: Guidance of 187 billion.
For 2024, we expect annual expenses in a range of $1 89 to 1.9 dollars 5 billion.
Ignacio Alvarez: Approximately half of the predicted increase in expenses.
Ignacio Alvarez: Related to technology investments some that rolled over from 2023.
Ignacio Alvarez: Other half is mostly personnel expenses as we continue to invest in our people.
Ignacio Alvarez: Well as expand our capabilities in cyber risk data and technology.
Ignacio Alvarez: This guidance includes transformation related expenses.
Ignacio Alvarez: Our effective tax rate for the quarter was negative one 6%.
Ignacio Alvarez: The additional FDIC expense changed the mix of exempt versus taxable income increasing the proportion of exempt income.
In addition, Q4 included a tax benefit resulting from the filing of the 2022 tax returns that contributed to a negative rate for the quarter.
For the full year 2023, the effective tax rate was 20%.
Ignacio Alvarez: Excluding the impact of the FDIC assessment. It was 21, 5% close to the lower end of our guidance of 22% to 25%.
Ignacio Alvarez: In 2024, we expect the effective tax rate to be in a range from 19% to 23%.
Ignacio Alvarez: Please turn to slide seven.
Ignacio Alvarez: Net interest margin increased by one basis point to three 8% in Q4.
Ignacio Alvarez: On a taxable equivalent basis, NIM was 326% an increase of two basis points versus Q3.
Ignacio Alvarez: The increase was driven by improved earning asset mix.
Ignacio Alvarez: Higher loan yields and balances our gross most familiar lending categories as well as higher yields on our cash balances and investments. This was offset by higher interest expense on deposits due to increased cost of public deposits and growth in high cost deposit accounts at popular bank.
Ignacio Alvarez: At the end of the fourth quarter, Puerto Rico public deposits were $18 1 billion, an increase of roughly $300 million compared to Q3.
Ignacio Alvarez: The upper end of our guidance.
Ignacio Alvarez: In 2024, we expect pollo deposits to be in the range of 15% to $18 billion.
As usual seasonality should result in public deposit balances trending higher at the beginning of the year and peaking in Q2, mostly related to tax receipts.
Ignacio Alvarez: Excluding Puerto Rico public deposits consolidated customer deposit balances were flat compared to Q3.
Ignacio Alvarez: In Puerto Rico customer deposits decreased driven by commercial outflows for the year approximately $1 3 billion in deposit balances were transferred by commercial and retail customers from <unk> to <unk> Securities.
Ignacio Alvarez: In Q4 deposit increases at popular bank, but primarily driven by increases in time and saving deposits from our online channel.
Ignacio Alvarez: Ending loan balances increased by 1 billion or 3% compared to Q3.
Ignacio Alvarez: Driven by growth in most loan segments of BB PR.
Ignacio Alvarez: By commercial and construction at PB.
Ignacio Alvarez: In 2023 loan balances increased by $3 billion or nine 3% versus $2 8 billion or nine 7% in 2022.
Ignacio Alvarez: We will continue to take advantage of put it in opportunities to extend credit and improved are used and yield of our existing liquidity.
Ignacio Alvarez: In 2024, we expect loan growth of 3% to 6% driven primarily by the commercial loan segments in both banks.
Ignacio Alvarez: Our interest rate sensitivity is relatively neutral.
Ignacio Alvarez: We saw a small margin expansion in Q4 and expect the margin to remain in an upward trajectory in 2024.
Ignacio Alvarez: The magnitude will depend on our loan and deposit growth and mix.
Ignacio Alvarez: The investment portfolio strategy as far as the pace of repricing of public funds and incrementally retail and commercial deposits.
Ignacio Alvarez: Operation.
Ignacio Alvarez: Please turn to slide eight.
Ignacio Alvarez: Deposit betas in the current tightening cycle are above the prior cycle.
We have seen a total cumulative deposit beta of 36% to date driven by public deposits there.
Ignacio Alvarez: The rate of increase in deposit costs for the corporation continues to slow down in the quarter.
Ignacio Alvarez: In <unk>, our total deposit costs increased by 11 basis points compared to an increase of 24 basis points in Q3 led by public deposits.
Excluding policies deposit balances total deposit costs remained flat at 55 basis points.
Ignacio Alvarez: At popular bank deposit costs increased by 33 basis points compared to an increase of 29 basis points in Q3.
Ignacio Alvarez: Led by retail deposits gathered primarily through our online channel.
Ignacio Alvarez: Puerto Rico government deposits are composed of a number of numerous clients and accounts.
The calculation methodology and rate of those accounts may vary depending on the timing of shifts in the related bonuses within accounts on occasion. We may also provide temporary pricing concessions as part of our customary relationship management activities.
In Q4, the mix shift and a customer and a temporary preferential rates resulted in an overall increase of 34 basis points in the cost of all deposits versus a 10 basis points, we had anticipated at the end of the third quarter.
Ignacio Alvarez: We expect the cost of total deposits to remain flat in Q1.
Ignacio Alvarez: Please note that on page 14 of our Investor presentation, we have added a page summarizing the hence the guidance for 2020 for which we are providing in this webcast.
Ignacio Alvarez: Please turn to slide nine.
Ignacio Alvarez: Our return on tangible equity was six 3% in the quarter for the full year, our TCE was nine 4%.
Ratios were impacted by the FDIC assessment.
Ignacio Alvarez: We continue to target a sustainable 14% our TCE by the end of 2025.
Ignacio Alvarez: Regulatory capital levels remained strong.
Ignacio Alvarez: Our Q4 common equity tier one ratio of 16, 3% decreased by 51 basis points from Q3, reflecting continued strong growth in our loan portfolio, which carries a higher regulatory risk.
Ignacio Alvarez: Waiting I'm sorry.
Ignacio Alvarez: Tangible book value per share at quarter end was $59 74.
Ignacio Alvarez: An increase of $9 54 per share up almost 19% from Q3.
Ignacio Alvarez: Over the past two years, we have continued to effectively deploy our capital.
As has been highlighted by the loan growth of almost $6 billion.
The increasing trajectory, our dividend and multiple share repurchases, including the return to our shareholders of the gain on sale of our <unk> stake we.
Ignacio Alvarez: We will revisit couple future capital elections in the second half of 2024 and the near term we continue to seek more clarity on the outlook for rates the economy and the proposed regulatory response to events in the banking sector.
Ignacio Alvarez: Our long term outlook on capital return has not changed anchored by our strong regulatory capital ratios over time, we expect our regulatory capital ratios to gravitate towards the levels of our mainland peers plus a buffer.
Ignacio Alvarez: With that I'll turn the call over to Leo.
Leo Williams: Thank you Carlos and good morning.
Leo Williams: Overall, our corporations mortgage and commercial portfolios continue to reflect credit metrics significantly below pre pandemic levels.
Leo Williams: Credit quality metrics continue to normalize from Puerto Rico's personal loans credit cards, and auto and lease finance loans.
Leo Williams: We're closely monitoring the performance of our consumer portfolio.
Ignacio Alvarez: I have made changes to our underwriting criteria.
Carlos Vazquez: Decrease exposure to higher risk segments.
Ignacio Alvarez: Further your nonperforming loans decreased from $439 million or one 4% of total loans to $258 million or 1%.
Ignacio Alvarez: While net charge offs increased from historic lows during the year, we still compare very favorably against pre pandemic averages.
Ignacio Alvarez: We continue to closely monitor changes in the macroeconomic environment and borrower performance, even higher interest rate and inflationary pressures.
Ignacio Alvarez: We believe the improvements over recent years, and our risk management practices and the risk profile of the corporation loan portfolios.
Ignacio Alvarez: We chose to continue to operate successfully under the current environment environment.
Ignacio Alvarez: Turning to slide number 10.
Ignacio Alvarez: Nonperforming assets and nonperforming loans decreased slightly during the quarter driven by the mortgage portfolio in Puerto Rico.
Ignacio Alvarez: Commercial npls in Puerto Rico remained flat quarter over quarter.
Ignacio Alvarez: Notwithstanding the inflow.
Ignacio Alvarez: 80 million relationship.
Ignacio Alvarez: Energy sector.
Ignacio Alvarez: This relationship drove the increase and bill inflows for the quarter.
Ignacio Alvarez: This inflow the ratio of Npls to total loans held in portfolio decreased 1% from one 1% in the previous quarter.
Ignacio Alvarez: Turning to slide number 11.
Ignacio Alvarez: Net charge offs amounted to $57 million.
Ignacio Alvarez: Our annualized 66 basis points of average loans held in portfolio.
Ignacio Alvarez: Compared to $33 million.
Ignacio Alvarez: 39 basis points.
Ignacio Alvarez: Prior quarter.
The increase was mainly in Puerto Rico, and the biggest variances, we're seeing in commercial and consumer net charge offs.
Ignacio Alvarez: Commercial net charge offs were $4 million.
Ignacio Alvarez: Or 17 basis points variance of 14 million.
Ignacio Alvarez: During 2000 11 million recovery in the previous quarter.
Ignacio Alvarez: Additionally.
Ignacio Alvarez: Consumer net charge offs were 11 million higher.
Ignacio Alvarez: Due to the credit normalization auto personal loans and credit cards.
Ignacio Alvarez: As we have discussed in the past.
Ignacio Alvarez: Prior to the Covid pandemic.
Ignacio Alvarez: Our net charge off were generally between 75.
Mm 125 basis points.
Ignacio Alvarez: For 2024, we expect net charge off for the full year to be between 65 to one.
Ignacio Alvarez: 55 basis points.
Ignacio Alvarez: Due to the ongoing credit normalization and general economic environment.
Ignacio Alvarez: Please turn to slide number 12.
Ignacio Alvarez: The allowance for credit losses increased by $15 million.
Ignacio Alvarez: $729 million.
Ignacio Alvarez: This was driven by a reserve built in the Puerto Rico commercial portfolio.
Ignacio Alvarez: Due to a 10 million specific reserve previously.
Ignacio Alvarez: Previously mentioned, new NPL loan growth and higher resource for the consumer portfolios due to credit normalization.
Ignacio Alvarez: In the U S. The ACL increased by $3 million.
Ignacio Alvarez: Driven by higher commercial loan reserve due to rating migration.
Ignacio Alvarez: The operational ratio of ICL to loans held in portfolio remained flat.
Ignacio Alvarez: Two one to one.
Ignacio Alvarez: 1%.
Ignacio Alvarez: While the ratio of ACL to NPL stood at 204%.
Ignacio Alvarez: Compared to 197% in the previous quarter.
Ignacio Alvarez: The provision for credit losses was $75 million.
Ignacio Alvarez: $32 million increase from the prior quarter.
Ignacio Alvarez: Once driven by the 10 million specific reserve mentioned earlier credit normalization.
Ignacio Alvarez: Talerico retail portfolios.
Ignacio Alvarez: Also contributing to the increase.
Ignacio Alvarez: Our third quarter event, such as recoveries in the Puerto Rico commercial portfolio and a recalibration last quarter of the U S. CRE allowance model, which led to a $60 million reduction in resource.
Ignacio Alvarez: To summarize.
Ignacio Alvarez: Puerto Rico consumer loan portfolio continued to normalize during the quarter, while the corporation mortgage and commercial portfolios continue to reflect strong credit quality trends.
Ignacio Alvarez: Net charge offs and decreasing nonperforming loans.
Ignacio Alvarez: We are attentive to the evolving environment.
Ignacio Alvarez: Encouraged by the performance of our loan book.
Ignacio Alvarez: With that I would like to turn the call over to Ignacio for his concluding remarks. Thank you.
Thank you Leo and Carlos for your updates 2023 was a good year for popular despite a challenging environment, which included high interest rates uncertainty in the geopolitical situation and disruptions in the banking industry. During the first half of the year.
Ignacio Alvarez: Our results reflected solid earnings robust loan growth stable credit quality and continued customer growth.
Ignacio Alvarez: We achieved important milestones, including surpassing 2 million unique customers in Puerto Rico.
Ignacio Alvarez: We also made great progress in our transformation efforts and some of the initiatives already producing encouraging results.
Ignacio Alvarez: I would like to express my gratitude and appreciation to our employees for all their hard work and dedication during the year.
Ignacio Alvarez: In October we celebrated our 130 <unk> anniversary, we're proud of the legacy they made public or what it is today, a strong vibrant organization with deep rooted values.
Ignacio Alvarez: Leveraging the strength, we will continue to transform our organization to ensure success for many years to come.
Ignacio Alvarez: This entails meeting the rapidly changing needs of our customers.
Ignacio Alvarez: Providing our colleagues a workplace, where they can thrive promoting progress in the communities, we serve and generating sustainable value for our shareholders.
I am optimistic about our prospects in 2024.
Ignacio Alvarez: Economic trends in Puerto Rico continued to be positive and we are well positioned to prices to participate in the economic activity that is expected to be generated in the coming years.
Ignacio Alvarez: We're looking forward to a great year, we started with strong momentum and the team is energized we are now ready to answer your questions.
Ignacio Alvarez: Yeah.
Ignacio Alvarez: As a reminder, if you'd like to register an audio question. Please press star one on your telephone keypad. If you changed your mind. Please press star two please ensure your Youtube when speaking.
Ignacio Alvarez: Our first question comes from Timur <unk> of Wells Fargo. Please go ahead.
Ignacio Alvarez: Hi, good morning.
Ignacio Alvarez: Good morning, good morning.
Timur Braziler: Looking at the NII guidance, it's pretty impressive for 2024, especially considering the expectation for loan growth to moderate in the coming year.
Timur Braziler: Two part question first what are your rate assumptions embedded in that NII guidance and second can you maybe talk through NII cadence throughout the year, especially now that public funds.
Timur Braziler: Deposit costs have stabilized.
Timur Braziler: Alright.
Timur Braziler: <unk>.
Timur Braziler: Alright.
Timur Braziler: Yes.
Timur Braziler: David.
Timur Braziler: The underlying rates.
Timur Braziler: Our assumptions are.
Timur Braziler: Embedded in our forecast we are in the lower end of the market as far as number of decreasing rates.
We have them all in the second half of the year.
Timur Braziler:
Timur Braziler: That changes every day of course today up to GDP is lower than it was yesterday, but.
Timur Braziler: So so we are at the low end of the of the consensus reached in the second half of the year.
Timur Braziler: Yeah.
Timur Braziler: With regards to.
Timur Braziler: To NII.
Timur Braziler: Okay.
Timur Braziler:
Timur Braziler: The <unk>.
Timur Braziler: The effect of.
Timur Braziler: Our government funds if in fact rates are flat or coming down.
Should be pretty neutral moving forward.
Correct.
Timur Braziler: I've mentioned in my it might be fair comments.
Timur Braziler: We expect the cause of the buses to remain flat for the first quarter.
Timur Braziler: No.
Timur Braziler: Hopefully we'd be one of the contributors the rest of the computers are going to be dependent on loan.
Carlos Vazquez: Loan growth on what sector of our loan growth happens.
Carlos Vazquez: The speed at which it happens and then.
Carlos Vazquez: The repricing of our investment portfolio as well as it continues to mature.
Carlos Vazquez: Okay and Carlos can you provide just how many rate cuts you are assuming in the back end of the year.
Two.
Carlos Vazquez: Okay.
Carlos Vazquez: Okay.
Maybe one for video.
Carlos Vazquez: Last quarter, you called out the low FICO.
Carlos Vazquez: Used car borrower this quarter, you called out credit cards personal loans in some segments of the auto as being higher risk.
Carlos Vazquez: Maybe just talk through the normalization of the consumer what would you classify as being higher risk balances and then how should we think about this segment relative to the current 11% allowance allocation.
I think generally when youre looking at.
Consumer and retail portfolios.
Carlos Vazquez:
Carlos Vazquez: The higher risk segments are always going to be driven by cycling.
Carlos Vazquez: No.
Carlos Vazquez: The ones that are going to be higher risk.
Carlos Vazquez: We have seen I think I.
Carlos Vazquez: Last quarter I also mentioned the amortization.
Carlos Vazquez: First of all loans and credit cards, we have seen this quarter as it continues.
Carlos Vazquez: I don't know spectrum I think.
Carlos Vazquez: Maybe a gradual increase also in delinquencies and charge offs.
Carlos Vazquez: Which ones maybe I did.
Carlos Vazquez: And not mentioned in the last the last part of it was the last part of your question I'm sorry, Tim.
Carlos Vazquez: Within 11% allowance ratio do you think this normalization causes increased allowance from here or is that normalization and primarily in the charge offs with the allowance ratio staying relatively stable.
Carlos Vazquez: Hum.
Carlos Vazquez: Us.
Carlos Vazquez: Undue.
Carlos Vazquez: I mean I think the.
Carlos Vazquez: No.
Carlos Vazquez: I expect that monetization to continue maybe.
Carlos Vazquez: First half of the year.
Carlos Vazquez: Got it.
Carlos Vazquez: And the movement that you have seen our allowance should be should be replicated in the first half which has been pretty consistent around the two 2%.
One person.
Carlos Vazquez: Excluding any changes in.
Carlos Vazquez: Economic forecasts or anything like that.
Carlos Vazquez: Okay and can you provide balances of what are the lower FICO more higher risk consumer.
Carlos Vazquez: Balance of work that is not a disclosure that we provide.
Carlos Vazquez: Yeah.
Carlos Vazquez: No.
Carlos Vazquez: What we do provide as you know in the appendix, Tim or is it different consumer portfolios and the originations over time in a very extended period of time.
Carlos Vazquez: So from that you will not get the actual bonuses that you're requesting.
Timur Braziler: Get a sense of where the portfolio is because then I think we have eight or nine years worth of origination and most of these products have a life of two or three years I think maybe most importantly, I'm looking at more from a macro context looking at the strength of the Puerto Rico economy.
Timur Braziler: Liquid liquidity more of our clients.
Ignacio Alvarez: We don't foresee the acceleration of losses, I mean, we're seeing a trend of normalization and thus our forecasts on the embedded in the forecast on the guidance that we provided.
Ignacio Alvarez: Losses next year.
Carlos Vazquez: Great. Thank you for the questions and congrats Carlos on a well deserved retirement.
Carlos Vazquez: Thanks.
Carlos Vazquez: Our next.
<unk> comes chroma Garlinger of Citi. Please go ahead.
Hey, good morning, guys.
chroma Garlinger: The one event both of them.
chroma Garlinger: Yes. Thank you I'm curious if we could just take a moment I know you said the loan growth is being partially by just a mix into loans from securities.
chroma Garlinger: How should we think about the overall balance sheet size and it should be obviously lower growth in loans, but it should.
Ignacio Alvarez: Static balance sheet side, it's somewhat acceptable or something we should expect or should we see a little bit of growth in the balance sheet as well.
Ignacio Alvarez: Yeah.
Ignacio Alvarez: Yes.
Ignacio Alvarez: As you've seen on our balance sheet would be pretty static actually this year. This despite the long the big loan growth because what ends up happening is that we have a big shift from securities and cash inflows into our loan portfolio. So.
Ignacio Alvarez: Great.
Ignacio Alvarez: Okay.
Ignacio Alvarez: Okay.
Ignacio Alvarez: Balance sheet growth has done this already a target that we have.
Ignacio Alvarez: Pursuing if it happens it happens.
Ignacio Alvarez: But.
Ignacio Alvarez: Eight.
Ignacio Alvarez: We still have significant amount of liquidity, we still have significant amount of of part of the it doesn't portfolio maturing every quarter there is more than capable of funding loan growth. So.
Ignacio Alvarez: I would probably expect more shift from the investment portfolio and cash to two loans and the overall size may not chase a hell of a lot.
Ignacio Alvarez: Got it that makes sense and then it seems like you are reinvesting some just given the amount of liquidity. It spits off I was just curious where in the curve in terms of duration or you're kind of approaching any sort of reinvestment.
Ignacio Alvarez: Yes.
Ignacio Alvarez: We are having all those discussions have not made those decisions.
Currently there are being invested in shorter term instruments, such as U S. Treasury bills, yes, so it's basically what my.
Turning to stay in cash or cash like instruments Zimmer.
But the but we haven't we are having discussions of <unk>.
Ignacio Alvarez: Potential extension of the investment portfolio, we have not executed any of that the extension we have achieved significant always see as they move from cash tour through our loan book, which has a much higher duration of that cash.
Ignacio Alvarez: Yeah.
Carlos Vazquez: So if I can just sneak one more into I know you gave the expense guidance is that it.
Carlos Vazquez: If it's a high end of the range on revenue should we expect high end of the range on expenses as well.
Carlos Vazquez: Does that include some sort of a commission or a bonus payment as well or potentially.
Carlos Vazquez: Potentially even higher if revenue does come in above the high end.
Carlos Vazquez: No.
Carlos Vazquez: No.
Carlos Vazquez: <unk> done. This early inquiry will include a profit sharing which I think is what youre referring to.
Ignacio Alvarez: We do as you know we have to exceed our budget by giving margin for for that to kick in.
Ignacio Alvarez: So it is not necessarily there.
Ignacio Alvarez: So what's the perfect connection as you suggest between.
Ignacio Alvarez: The high end of one of the.
Ignacio Alvarez: And the revenue on the high end or the expenses, but that's certainly the case.
Ignacio Alvarez: Gotcha I appreciate at San Carlos It's been great working with you enjoy retirement, you've always been really helpful.
Ignacio Alvarez: Thank you.
Ignacio Alvarez: Our next question comes from Alex two adult all pipe Osama Alex. Please go ahead.
Ignacio Alvarez: Hey, good morning, all.
Good morning, Alex.
Alexander Roberts Huxley Twerdahl: Just wanted to dig back into the NIM a little bit.
Alexander Roberts Huxley Twerdahl: The NII guide in the past you guys have kind of quantified each rate cut or each rate hike has a very specific impact on NII. Each quarter are you able to do that.
Alexander Roberts Huxley Twerdahl: Well I mean, I think that.
Alexander Roberts Huxley Twerdahl: Best way to think about that.
Alexander Roberts Huxley Twerdahl: It has to go back to my comment that we are largely rate neutral in our balance sheet composition right now.
Alexander Roberts Huxley Twerdahl: So.
Alexander Roberts Huxley Twerdahl: A change in rates.
Alexander Roberts Huxley Twerdahl: We will not have a very material effect on on the range we provided.
Alexander Roberts Huxley Twerdahl: Because our balance sheet is to a large extent neutral to to move the rates in the short term.
Alexander Roberts Huxley Twerdahl: Okay.
Alexander Roberts Huxley Twerdahl: And then.
Alexander Roberts Huxley Twerdahl: On slide 20, the maturity schedule of the U S. Treasury notes is it pretty fair to assume that the sort of $1 billion or so that comes off each quarter is right around that one 5% yield.
Alexander Roberts Huxley Twerdahl: Yes.
Alexander Roberts Huxley Twerdahl: Yes.
Alexander Roberts Huxley Twerdahl: That's the right number.
Paul Cardillo: Okay great.
Paul Cardillo: And then.
It's just when I look at the net charge off guidance that you guys provided versus what we've seen over the last couple of years and really all of the macro data and unemployment rate and sort of the momentum behind the economy.
Paul Cardillo: It feels like the net charge off guidance being a little bit conservative.
Paul Cardillo: When you come up with that guidance range is it.
Looking at specific.
Paul Cardillo: Inputs.
Paul Cardillo: Or is it really just kind of a hunch that things.
Paul Cardillo: Have to get worse from from a pretty good.
Paul Cardillo: Pretty solid level, where they've been.
I think it's a combination of things we look obviously.
Paul Cardillo: Trends recent trends.
Paul Cardillo: Also look at it.
Paul Cardillo: Do you expect the economic forecast.
Paul Cardillo: <unk> next year, which we provide to our allowance so.
Paul Cardillo: I think it's a combination of factors those two being the most important factors.
Paul Cardillo: Okay.
Carlos Vazquez: In the past Carlos I think.
Carlos Vazquez: Comment that has stuck with me is that people when they are employed tend to pay their bills.
And.
Carlos Vazquez: With unemployment being as strong as it has been an employment growing in all the momentum on the economy and potential tax additional tax breaks coming early this year for sort of the low income sector I mean is it.
Carlos Vazquez: I mean, it feels like you should be able to do much better than that.
Carlos Vazquez: Or at least better than that 65 to 85 basis point range.
Carlos Vazquez: I see that you have described the environment well.
As I think we've discussed in the past we are a little bit.
Carlos Vazquez: Bustled and frankly make the connection as well we are doing our best to understand the drivers.
Carlos Vazquez: Why does this happy when the underlying.
Carlos Vazquez: Uh huh.
Carlos Vazquez: The underlying economy and employment situation is strong, but while we are seeking to understand that fed the connection better.
Carlos Vazquez: Also cannot ignore the fact that we are seeing increased delinquencies and.
Carlos Vazquez: And so we have to make sure that.
Carlos Vazquez: That we reflect that in our outlook.
Carlos Vazquez: No.
Carlos Vazquez: The other thing of course, the environment in the mainland.
Carlos Vazquez: Equally positive.
Most banks the mainland I see are seeing similar.
Carlos Vazquez: <unk> and the consumer portfolio so.
Carlos Vazquez: I guess, we're not the only ones with the conundrum I'm trying to connect all of the.
Ignacio Alvarez: He is doing and unemployment is doing versus how some clients are behaving.
Ignacio Alvarez: So we're working on that.
Ignacio Alvarez: Okay. Thanks for taking my questions.
Ignacio Alvarez: I appreciate it.
Ignacio Alvarez: Next question comes from Kelly Motta of <unk> Kelly. Please go ahead.
Ignacio Alvarez: Hi, Thanks for the question.
Ignacio Alvarez: Good morning.
Ignacio Alvarez: I guess I guess carrying on with that and I got a little turned around earlier in the call. When you were talking about net charge offs and.
Ignacio Alvarez: The reserve.
Ignacio Alvarez: Picked up on that clearly.
Ignacio Alvarez: I just wanted to circle back it looks like.
In your ACO movement in Slide 12, you added about $63 million related to consumer portfolio changes just wanted to confirm if that's related to that deterioration that you see in the consumer portfolio.
Ignacio Alvarez: That implies that some of the increase that you're expecting you may already be in your allowance.
Ignacio Alvarez: Allowance.
Ignacio Alvarez: That portfolio changes a combination of things.
Ignacio Alvarez: I just wanted to change in credit quality is replenishing the net charge offs for the period.
Ignacio Alvarez: So it is all of that combined leads to 60.
Ignacio Alvarez: Did you see.
Ignacio Alvarez: In this slide.
Got it that's that's really.
Ignacio Alvarez: That's really helpful.
Ignacio Alvarez: <unk>.
Ignacio Alvarez: And then I guess touching turning around to the tax rate.
Come down to that can you can you talk again I know, there's some unique factors in Puerto Rico can you talk about.
Ignacio Alvarez:
Ignacio Alvarez: Yeah.
Ignacio Alvarez: What's what's taken your effective tax rate lower than what could.
Ignacio Alvarez: Cause us to come in the high end versus low end of that range.
Ignacio Alvarez: Yes, I mean the.
Ignacio Alvarez: The drivers of the fourth quarter or two I mentioned.
Ignacio Alvarez: Kelly is because of the effect of the additional expense of the FDIC assessment, we ended up changing the mix of taxable versus exempt income and we ended up ended the quarter with much higher proportion of income.
Ignacio Alvarez: Income versus non exempt income that obviously affects our tax rate. The other contributing factor is that we finished our 2022.
Ignacio Alvarez: Returns and that resulted in the benefit that that also lowered the taxes.
Ignacio Alvarez: In the fourth quarter. So those are the two the two effects.
Ignacio Alvarez: No.
Ignacio Alvarez: I certainly hope not to see another FDIC assessment that definitely none of the size of this one.
Ignacio Alvarez: Moving floor, so that part of the condition should not repeat itself and.
Ignacio Alvarez: And we already filed the 22, Texas, So I hope that we can re file them again.
Ignacio Alvarez: Anytime soon although theres always reviews on adjustments none of those things so I think.
Jorge: Look at my colleagues here Jorge was part of Texas.
Jorge: The conditions that led to that variation are pretty using cradic are pretty unique to last quarter.
Jorge Texas: I would say this is jorge.
Jorge Texas: As we go forward I mean, certainly the composition of taxable versus tax exempt income and that mix is always going to impact that range that we're giving you. So if tax exempt income grows faster or the contribution of it because of the disallowed expenses et cetera becomes a higher proportion of our overall effective tax rate.
Jorge Texas: Come down so that condition will exist beyond any type of.
Jorge Texas: Period adjustments that are more unique.
Jorge Texas: That's why we gave you a range.
Jorge Texas: Okay. Thank you.
Jorge Texas: I appreciate all the guidance, maybe maybe talking about fees.
Can you.
Jorge Texas: It looks like it implies an increase at least with the high end relative to last year can you discuss.
Jorge Texas: Some of the initiatives you've taken on one and then two.
Jorge Texas: You.
Jorge Texas: Have you done a review at all how any of the proposed an interchange and overdrafts might impact.
Jorge Texas: Your fee income.
Jorge Texas: Okay.
Ignacio Alvarez: Yes, let me take the.
Ignacio Alvarez: The second part of your question first because it's the simplest answer.
Ignacio Alvarez: I think in the last webcast. We were asked all of the potential effect of the elimination of them late fees on credit cards.
Ignacio Alvarez: We mentioned that our estimate.
Ignacio Alvarez: The potential effect of that was something around $9 million.
Ignacio Alvarez: The additional things that are being discussed now.
Ignacio Alvarez: We're not on the table last quarter as a potential reduction in overdraft NSF fees.
Ignacio Alvarez: We don't have NFS fees for retail.
Ignacio Alvarez: <unk> and <unk>.
Ignacio Alvarez: There are two banks, we do have some overdraft fees.
Ignacio Alvarez: But the effect of that is somewhat muted because overdraft fees in Puerto Rico are already capped at $15 per occurrence and the proposal.
Ignacio Alvarez: On the high end the proposed 2014.
Ignacio Alvarez: In that front and of course. This proposal can change our best guess is that will be effect.
Ignacio Alvarez: It could be.
Ignacio Alvarez: Something between 500000 and $2 million worth of lost fees.
Ignacio Alvarez: And then the last piece of the puzzle that is in discussion now is the potential changes in interchange interchange fees for debit.
And.
Best guess right now that could have an effect.
Ignacio Alvarez: $215 million or something in that ballpark.
Ignacio Alvarez: So those three pieces are again all of these are estimates it will depend on how the final rule comes out and the levels at the end of setting and when it happens and everything else, but those are the best estimates, we have a potential effect as far as lower fees.
Ignacio Alvarez: When we talk all the fees for 'twenty three.
Ignacio Alvarez: I want to make sure that we don't lose context.
Ignacio Alvarez: We lost a significant amount of fees in 2022 as the year evolves.
Ignacio Alvarez: Changes in NFS and overdraft fees.
Ignacio Alvarez: So our guidance our guidance went down.
Ignacio Alvarez: In material amount because of our recognition that we had lost some fees in 2022 now we ended up doing a pretty good job and if you just look at the.
Ignacio Alvarez: How our fees have changed over time.
Ignacio Alvarez: You probably won't be able to tell them, we lost a significant amount of fees because we're pretty good at subsequent them with other income and the fee category.
Ignacio Alvarez: Main contributors to that substitution are the two things that Ignacio mentioned number one we have re priced our offering of cash management services and the corporate sector and that brought in additional fees.
Ignacio Alvarez:
Ignacio Alvarez: And number two.
Ignacio Alvarez: Hum.
Ignacio Alvarez: Uh huh.
Well the main driver of what was that.
Ignacio Alvarez: The repricing of cash management services. So we ended up so conceptually conceptually, making up for the lost faith in.
Ignacio Alvarez: <unk> 2022, and the year ended up pretty flat.
Ignacio Alvarez: We expect.
Ignacio Alvarez: Some of the transformation efforts, we're doing to continue to add.
Ignacio Alvarez: Contribute to this sort of fee income of the company.
Ignacio Alvarez: Part.
Ignacio Alvarez: It is why we are increasing the.
Ignacio Alvarez: The guidance somewhat.
It's not a big increase what is.
Ignacio Alvarez: The increase.
Ignacio Alvarez: An important though.
Ignacio Alvarez: We also saw an increase in the interchange fees from our from our small commercial credit card I think that that's the second factor I don't think I mentioned, it but that's the second factor.
Ignacio Alvarez: Thank you.
Ignacio Alvarez: Great. That's helpful and last question for me do you have where new loans are being originated now just to get a sense of.
Ignacio Alvarez: That's the power of redeploying those cash flows that are coming off.
Yeah.
Ignacio Alvarez: We are.
Ignacio Alvarez: We haven't provided that information in the past then.
Ignacio Alvarez: We are all done with adding guidance and information.
Ignacio Alvarez: Fair enough I thought I could slip one by golly. Thank you.
Ignacio Alvarez: Uh huh.
Uh huh.
Ignacio Alvarez: But I mean.
Ignacio Alvarez: Obviously this will vary but you have.
Ignacio Alvarez: The yields of our different boosting our levels and yields in the press release.
Ignacio Alvarez: Can you can work off of that as a guide at least through to <unk>.
Ignacio Alvarez: Your work of front and back books.
Ignacio Alvarez: Awesome. Thanks, so much.
Youre welcome.
Speaker Change: Question comes from Brody Preston of UBS. Please go ahead.
Speaker Change: Hey, good morning, everyone.
Brian: Hey, Brian.
Brian: Good good how are you.
Brian: Perfect.
Brian: Okay.
Brian: I just wanted to ask within the NII guidance.
Brian: I think I heard you that you've got two cuts in the back half of the year.
Brian: Wanted to ask what you are assuming.
Brian: For a.
Brian: Retail and commercial deposit beta.
Within that NII growth guidance.
Brian: We have not discussed.
Brian: Forward looking data.
Woody.
Brian: But I think is not.
Brian: Unreasonable to assume that the rate of increase in beta should subside.
Brian: All right.
Brian: And.
Brian: More so if drapes and rates start to drop.
Brian: But we haven't given details on forward looking data.
Brian: Got it Okay I wanted to circle back.
Brian: Uh huh.
Brian: Consumer credit discussion.
Brian: I just wanted to make sure.
Brian: Consumer credit allowances about 5.25% right.
Brian: So.
Brian: That looks relatively unchanged quarter over quarter actually came down just a little bit and just given the growth of the.
Brian: The loan portfolio.
I guess.
Brian: The first question there is what's the life of the <unk>.
Ignacio Alvarez: Life alone assumption for the consumer book under seasonal.
Ignacio Alvarez: I mean I.
Ignacio Alvarez: I will say a lot of our consumer books is pretty short dated in terms of duration. So.
Carlos Vazquez: I won't call it let's call it a year or two years.
Carlos Vazquez: Thereabout.
Carlos Vazquez: Okay and is this is this 3% level that you add for annualized charge offs in the consumer book.
Carlos Vazquez: And I just kind of quickly looking back at my model it looks like outside of a couple of quarters. During Covid. This is the highest.
Carlos Vazquez: Period for consumer credit losses that you all have had either from a dollar amount or from a N.
Carlos Vazquez: NCL rate perspective, and so.
Carlos Vazquez: Is this the kind of new level that we should expect.
See here and if it is if it's two years and we're talking about 3% of charge offs is there a case to be made that we need to walk the consumer reserve incrementally higher from here and then where it actually is.
Carlos Vazquez: Okay.
Carlos Vazquez: Youre asking another question, but I will say this I mean, we'll go back to what I mentioned in our prepared remarks our outlook.
Carlos Vazquez: For in terms of losses, we expect losses next year to be between 65 to 85 basis point on one of.
Carlos Vazquez: The drivers and the losses are associated with our retail book.
Carlos Vazquez: We expect.
Carlos Vazquez: Normalisation.
Ignacio Alvarez: <unk> continues in those portfolios and we will see and we are.
Ignacio Alvarez: Close in terms of the losses that we experienced prior to the pandemic vis a vis the losses that we're experiencing today if I may.
Ignacio Alvarez: Also mentioned, we remain positive on the outlook of our consumer books, given the strength of the economy and the liquidity of our clients.
Got it so is there any is there anything specific going on thats, causing the charge off rate.
Ignacio Alvarez: The move to a level that's.
Ignacio Alvarez: Kind of.
Ignacio Alvarez: At the high end I guess on what you would consider normal just given the strength of the economy and given the fact that employment has been so strong in the island.
Ignacio Alvarez: I think thats part of the conundrum.
Carlos referred to.
Ignacio Alvarez: We have seen you have also seen actually in the U S experienced the same in terms of you're going to phase of a very strong economy have you seen.
Carlos Vazquez: Our consumer portfolio deteriorate.
Carlos Vazquez: You want me to speculate I can say I mean, there is potentially.
Carlos Vazquez: A couple of things I can say.
Ignacio Alvarez: I played out of inflation on higher rates I was having an impact in the cash flows of some of our customers.
We might be leading to strategic default.
Ignacio Alvarez: I mean, there is if you look at some of the analysis and started some by sounds like credit bureaus, or something that relates equal FICO inflation and which after the pandemic. The FICO score consumers went up.
Ignacio Alvarez: And that also created an environment in which all cycles.
Ignacio Alvarez: Are you hearing a little bit worse than the behavior.
Ignacio Alvarez: Prior to it.
Ignacio Alvarez: Yes.
And one more thing right. Yes go ahead.
Ignacio Alvarez: Yes.
Ignacio Alvarez: But as you've heard.
Ignacio Alvarez: Alere before say that historically our losses.
Ignacio Alvarez: With that in a range between 35 and 125 basis points.
Ignacio Alvarez: So the range of losses, we're talking about 65% to 85.
Ignacio Alvarez: It's sort of in the low end of that historic range. So I wouldn't I wouldn't characterize.
Ignacio Alvarez: So that range is a very high level of loss is low.
Ignacio Alvarez: And all of our historic ranges.
Ignacio Alvarez: No the commercial the commercial book in the resi mortgage has been great for you guys. I was speaking more specifically Carlos to the consumer book stand alone by itself.
Ignacio Alvarez: So.
Ignacio Alvarez: Thank you. Thank you very much for taking my question guys.
Ignacio Alvarez: Thank you Youre welcome.
Ignacio Alvarez: As a reminder, if you'd like to register an audio question. Please press star one.
Speaker Change: Our next question comes from Gerard Cassidy of RBC. Please go ahead.
Gerard Cassidy: Good morning, everyone. This is Thomas <unk>, calling on behalf of Gerard.
Doug: Hey, Tom Hey, Doug.
Gerard Cassidy: The commercial relationship in the PR commercial portfolio that you guys called out as driving the NPL inflows in the quarter. I think you said it was in the renewable energy sector is there any further color you can give us there you guys keeping a closer eye on similar relationships.
Gerard Cassidy: Yes.
Ignacio Alvarez: This is ignacio.
Ignacio Alvarez: Okay to answer more detailed but really that's it that cases idiosyncratic.
Ignacio Alvarez: Things that led to that problem had nothing to do with the industry in general is more internal to that client and we don't have any significant exposure in that industry.
Ignacio Alvarez: Okay got it that's helpful. And then just high level given the positioning of the balance sheet. Today, you guys mentioned pretty rate neutral over the short term what kind of an interest rate environment would be ideal for popular are over the next 12 to 24 months both on the short and long end of the curve.
Ignacio Alvarez: Yeah.
Ignacio Alvarez: That's that's a better question.
Ignacio Alvarez: Uh huh.
Ignacio Alvarez: I.
Ignacio Alvarez: And Eric answer.
Ignacio Alvarez: Yeah.
Ignacio Alvarez: For us.
Ignacio Alvarez: Normal.
Ignacio Alvarez: A normal curve.
Ignacio Alvarez: The thing we wish for a well we're gonna get a normal occur over the next 18 24 months I don't know Thomas but.
Ignacio Alvarez: And obviously a number of normal curve.
Ignacio Alvarez: Please make the VIX as a banking easier.
Carlos Vazquez: Okay got it fair enough. Thank you for taking my questions and congratulations Carlos on your retirement.
Carlos Vazquez: Thanks, Doug Thank you.
Timur Braziler: Our next question is a follow up from Tim <unk> of Wells Fargo. Please go ahead.
Timur Braziler: Hi, Thanks for the follow up just looking at capital repatriation can you provide us an update or a reminder, as to.
Timur Braziler: When capital plan submission conversation is with your regulators and what we could potentially expect from a timing standpoint, and re engaging a buyback.
Timur Braziler: Yes.
And.
Timur Braziler: The second half of <unk>.
Timur Braziler: The year.
Timur Braziler: Historically, we have done our stress test in the third quarter.
Normally being an important part of our discussions.
Ignacio Alvarez: But I think we've also we have also mentioned a number of times.
Ignacio Alvarez: We are rethinking, how we manage our capital return activities.
Gerard Cassidy: We've also mentioned that in all probability we will gravitate to a format that.
Gerard Cassidy: It's more similar to what other banks do meaning that we will.
Probably not be announcing a buyback and immune of doing an ASR, but I'd rather be announcing an authorization for a buyback to execute over a period of time.
Gerard Cassidy: That was the kind of changes we're talking about in conjunction with those changes we may also change.
Gerard Cassidy: Other parts of how we go cover of planning.
Gerard Cassidy: No.
Gerard Cassidy: Well historically.
Gerard Cassidy: Yes.
Gerard Cassidy: Our stress test.
Gerard Cassidy: In the third quarter has been an important contributor.
Gerard Cassidy: Yeah.
Gerard Cassidy: Even though it is something that we may change depending on things. So long. So it's all in the same process tumor.
Gerard Cassidy: The best our best guess right now is.
Gerard Cassidy: We we will number one get the clarity we're looking for in the three factors we mentioned.
Gerard Cassidy: Our race economy and regulator.
Gerard Cassidy: By the summer and that will allow us to.
Reengagement upfront.
Gerard Cassidy: Great Thanks for that color.
Gerard Cassidy: Thank you.
Ignacio Alvarez: With that I'll hand back to Ignacio for closing remarks.
Ignacio Alvarez: Thank you everyone for joining us and for your questions. We look forward to updating you on our first quarter results in April and.
Ignacio Alvarez: We will have what are the leading the pack there. So thank you very much.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Ignacio Alvarez: [music].