Popular(BPOP) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved a net income of $422 million for Q3 2022, or$ 196 million excluding the impact of the Evertec transactions, which is $16 million lower than Q2 [6][7][25] - Net interest income increased by$ 46 million to $580 million, driven by higher yields on investment securities and loan growth [26] - Noninterest income rose by$ 269 million to $426 million, excluding a$ 558 million pretax gain from Evertec transactions, the adjusted noninterest income was $168 million [27][29] - The provision for credit losses increased to$ 40 million from $9 million in the previous quarter [32][59] - Total operating expenses were$ 476 million, an increase of $70 million from Q2 [32] Business Line Data and Key Metrics Changes - Total loan balances grew by$ 1.2 billion, with strong commercial loan growth in Puerto Rico [8][39] - Commercial loan balances at BPPR and Popular Bank increased by $489 million and$ 332 million, respectively [13] - Auto loan and lease balances at BPPR increased by $97 million or 2% compared to Q2 [13] - Mortgage originations at BPPR decreased by 36% compared to Q3 2021 due to rising rates and limited inventory [14] Market Data and Key Metrics Changes - The Puerto Rico Economic Activity Index for August was 1.5% higher than August 2021, indicating continued economic strength [19] - Total non-farm employment in Puerto Rico increased slightly, with an employment rate of 5.8%, the lowest ever [19] - New auto sales decreased by 11% in Q3 compared to the same period in 2021 but remained above pre-pandemic levels [20] - Year-to-date, total passenger traffic in Puerto Rico increased by 8% compared to 2021, indicating a strong tourism sector [21] Company Strategy and Development Direction - The company is focusing on digital transformation and enhancing the omnichannel experience for clients following the acquisition of Evertec [6][10] - The management remains optimistic about the future of Puerto Rico and aims to leverage opportunities while addressing potential challenges [22][63] - The company plans to maintain its current level of dividends and revisit capital actions in the second half of 2023 [50] Management's Comments on Operating Environment and Future Outlook - Management noted that while the economic environment remains uncertain due to inflation and rising interest rates, they are optimistic about Puerto Rico's economic recovery [22][63] - The impact of Hurricanes Fiona and Ian was evaluated, with limited effects on credit risk reported [15][17] - The company is closely monitoring borrower performance amid macroeconomic changes and believes its loan portfolio is well-positioned [52][62] Other Important Information - The company completed a$ 400 million accelerated share repurchase program and plans to complete an additional $231 million ASR [10][48] - The effective tax rate for the quarter was 14%, down from 23% in Q2, primarily due to the Evertec transactions [35] Q&A Session Summary Question: Capital actions delay until the second half of '23 - Management confirmed that the decision to delay capital actions was internal and not directed by the Fed, with stress tests completed [68][86] Question: Guidance on expenses for Q4 and 2023 - Management clarified that expenses are expected to be$ 450 million for Q4, with 2023 expenses anticipated to be higher than the current run rate [70][72] Question: Net interest margin outlook - Management indicated that the net interest margin is expected to decline in Q4 but should trend higher in 2023, with government deposit costs impacting this [75][77] Question: Loan growth and competition - Management noted no significant new entrants in the commercial loan market, maintaining a steady loan demand across sectors [99] Question: Credit quality outlook in the auto loan space - Management reported an increase in used car prices in Puerto Rico, but overall credit quality in the auto loan portfolio remains strong [100]