Popular, Inc.

Hello and welcome to today's Popula fourth quarter 2022 earnings call. My name is Bailey and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Paul Cardillo, Investor Relations Officer at Popula. Please go ahead.

Good morning and thank you for joining us. With us on the call today is our CEO, Ignacio Alvarez, our COO, Javier Ferrer, our CFO, Carlos Vasquez, and our CRO, Lidio Soriano. 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. Before we begin, 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 are set forth within today's earnings press release and are detailed in our SEC filings. You may find today's press release and our SEC filings on our webpage at popular.com. I will now turn the call over to our CEO, Ignacio Alvarez.

Good morning, and thank you for joining the call. Our results for the quarter and the full year were solid and reflect the strength of our franchise. Our record annual net income of $1.1 billion reflects an increase of 168 million above our 2021 annual net income of 935 million. The increase was largely driven by the benefit of the Evertech transactions and the partial reversal of the DTA valuation allowance. The results also reflect higher net interest income, partially offset by higher provision expense and higher operating expenses. The 2021 results included a provision benefit of 193 million. During the summer, we completed the acquisition of key customer-facing channels from Evertech and also made important changes to our contractual relationship with them. Leveraging these transactions, we have embarked on a broad-based, multi-year technological and business process transformation. The needs and expectations of our clients, as well as the competitive landscape, have evolved, requiring us to make important investments in our technological infrastructure and adopt more agile practices. Our technology and business transformation will be a significant priority for the company over the next three years and beyond. We believe that there continues to be an opportunity for growth in our primary market as well as within our existing customer base, and these efforts will help capitalize upon that opportunity. We are confident that these investments will make us a stronger, more efficient, and profitable company. Throughout 2022, we continue to return capital to our shareholders. During the year, we repurchased 8.25 million shares of common stock for 631 million, which surpassed our original expectation of 500 million. We also increased our quarterly common stock dividend to 55 cents per share, representing nearly 164 million in dividends paid in 2022. Credit quality remained strong throughout 2022. We are pleased with how our portfolios have continued to perform particularly with net charge-offs well below historical levels and a lower level of non-performing loans. Our capital levels are strong with year-end common equity Tier 1 ratio of 16.4%. Our tangible book value ended 2022 at $44.97, a 31% decrease year-over-year, primarily due to unrealized losses on investment securities. However, during the fourth quarter, tangible value increased by 16%. Please turn to slide four. Our quarterly net income, excluding the partial reversal of the DTA valuation allowance, was 189 million, or 7 million lower than the adjusted third quarter net income of 196 million. Fourth quarter results were impacted by lower net interest income, which reflected higher loan income but was more than offset by the higher cost of public deposits as well as a higher provision for credit losses. Loan growth was strong and broad-based during the quarter, both geographically and across most loan segments. Total loan balances held in portfolio grew by $560 million. Commercial loan growth in particular was healthy at most banks in the fourth quarter. Our net interest margin decreased by four basis points to 3.28% in the quarter. Higher deposit costs, particularly in our Puerto Rico public deposit portfolio and a popular bank, impacted the margin. This was offset in part by an improvement in asset mix due to loan growth and a reduction in the investment portfolio. Credit quality trends remained favorable during the period. Non-performing loans decreased in the quarter and net charge-offs have remained well below pre-pandemic levels. Please turn to slide five. Our customer base in Puerto Rico with approximately 28,000 during the year, reaching 1.98 million unique customers. Adoption of digital channels among our retail customers continues to be strong. Active users on our Mediuncle platform exceeded 1.1 million, or 56% of our customer base. Additionally, we continue to capture more than 60% of our deposits through digital channels. This trend remains significantly higher than pre-pandemic levels and well above our island peers. Commercial loan growth was strong. Commercial loan balances at BPPR and Popular Bank increased by $118 million and $255 million, respectively. Credit card and auto loan and lease balances at BPPR increased by $53 million and $31 million, respectively. In the fourth quarter, the dollar value of credit and debit card sales of our customers increased by 11% sequentially, and we're 6% above the fourth quarter of 2021. As on the mainland, mortgage originations in Puerto Rico have been impacted by rising rates and limited inventory of available properties. The dollar value of mortgage originations at BPPR decreased by 29% compared to the fourth quarter of last year, driven by lower refinance activity due to the interest rate environment. However, loans to finance the purchase of homes decreased only 11% during the same period. The local economy continued to perform well during the fourth quarter and business activity has remained strong. We remain encouraged by solid employment levels. In December, total non-farm employment in Puerto Rico increased slightly from its level in September and was 4% higher than in December of 2021. New auto sales increased by 3% in the fourth quarter compared to the same period in 2021. While auto sales declined by 4% in the year, 2022 was the second highest year of sales since 2006, easily surpassing pre-pandemic levels, evidencing continued robust demand for cars. The industry is forecasting new car sales of 118,000 for 2023 well above pre-pandemic levels. The tourism and hospitality sector continues to be a source of strength for the local economy, as Puerto Rico is a popular destination for mainland residents. Airport traffic has remained robust. Year-to-date through December, total passenger traffic increased by 7% compared to 2021. Hotel demand has also remained strong. Occupancy rates were up more than 500 basis points in 2022 and the average daily room rate continues to compare favorably to historical results. In short, we are pleased with the results of the year, particularly our robust loan growth and continued strength in credit quality. We are mindful of the global economic uncertainty and market volatility, but remain optimistic about the future of Puerto Rico, our primary market, and our ability to manage through any potential challenges that may lie ahead. I now turn the call over to Carlos for more detail on financial results.