welcome to the Popular, Inc. 3rd Quarter 2021 Earnings Call. My name is Bethany, and I'll be coordinating this call for you today. I will now hand the call over to your host, Paul Cargillot, Investor Relations Officer at Poplar. Over to you, Paul.
Good morning, and thank you for joining us and also for your patience as we dealt with some connectivity issues. With us on the call today is our CEO, Ignacio Alvarez our CFO, Carlos Vasquez and our CRO, Lidio Soriano. They will review our results for the Q3 and then answer your questions. Other members of our management team will also be available during the Q and 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 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 web page at popularly.com. I will now turn the call over to our CEO, Ignacio Alvaro. Good morning, and thank you for joining the call. The 3rd quarter was another strong one in which we achieved net income of 248,000,000 Our results reflect the continued strength in economic activity driven by the unprecedented levels of federal stimulus. We also expect our diversified sources of revenue and prudent risk management.
Please turn to Slide 3. Our quarterly net income of $248,000,000 was $30,000,000 higher for the Q2 and $80,000,000 higher in the same quarter of 2020. The sequential variance was driven by a higher benefit from the provision for credit losses, partially offset by higher expenses. Net interest income was in line with the 2nd quarter. Our non interest income increased primarily due to the sale of 2 corporate office buildings.
A higher volume of credit and debit card transactions in the quarter also contributed to the increase. Credit volume trends continue to be favorable in the period with lower NPLs and low levels of net charge offs. During the quarter, we continued to return capital to our shareholders. On September 9, we completed the previously announced $350,000,000 accelerated share repurchase program. And on September 30, we announced the retention of our 6.7% trust preferred securities, of which $187,000,000 at current 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 4. On October 15th, we acquired K2 Capital Group, a national healthcare equipment leasing business with $119,000,000 in assets. This transaction will complement and expand our existing niche healthcare lending business. Our customer base in Puerto Rico continues to grow, increasing by 12,000 in the 3rd quarter and by nearly 42,000 year to date to reach more than 1,900,000 unique customers.
Adoption of digital channels among our retail customers continue to be strong. Active users on our Bibanko platform exceed 1,100,000 and have grown by 18% since March 2020. We captured 66% of our deposits in the Q3 through digital channels. As expected, these trends have adjusted slightly lower but remained significantly higher than pre pandemic levels. Within popular clientele, dollar value of credit and debit card sales have continued to trend higher, increasing by 5% since the same quarter a year ago.
They were also well above pre pandemic levels, 34% higher than the Q3 of 2019. Auto loan and lease originations at DPPR have remained extremely strong. While they have decreased slightly compared to the Q3 of 2020, reflected the reopening of the economy, they were 26% higher versus the Q3 in 2019. We have continued to see strength in the housing market. While the dollar value of mortgage originations at GPCR decreased by 3% compared to the Q3 of 2020, they increased by 51% compared to the Q3 of 2019.
Please turn to Slide 5 for an update on the current macro environment in Puerto Rico. In the Q3, business trends and customer activity remained 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. The rate of us continue to make solid progress on the vaccination front 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 20 years old have been fully vaccinated and 90% have received at least one dose of the vaccine. New oil sales continue to reflect strong consumer demand on a record pace with 31,000 units sold in the Q3. Year to date, auto sales rose 66% compared to the 1st 9 months of 2020, down 36% 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 seen through the same periods in 2018 2019 when the island was rebuilding following the 2017 hurricane. Activity levels in the tourism and hospitality sector have continued to be a source of strength for the local economy. With much of world travel still somewhat limited, Puerto Rico continues to be a popular destination to Mainland residents. Hotel demand remained strong during the quarter. In August, occupancy rates in Puerto Rico have exceeded the comparable period in 2019 for the Q1 of the 2nd 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. Since 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 6th consecutive month impacting the traffic as surpassed the comparable figures in 2019. Cruise ship arrivals recommenced in August.
According to the Puerto Rico Truer to the Company, more than 300 trips are anticipated for the remainder of the 2021, 2022 season. The 20 1,000,000 levels have improved but are still somewhat below pre pandemic levels.
Total non COVID-nineteen has increased by 3%
since December 2020 and by 1% since August 2020. We are pleased with the results for the Q3 and continue to be optimistic about the prospects of 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 6. As usual, additional information is provided in the appendix to the slide deck. Today's earnings press release details variances for the Q2. Net interest income for the Q3 was $489,000,000 an increase of $2,000,000 from Q2.
Non interest income increased by $15,000,000 to $169,000,000 in Q3. Around $12,000,000 of the increase came from extraordinary items, including a $7,000,000 gain associated with the sale and leaseback of 2 preferred buildings, plus $3,000,000 higher net earnings from investments held under the equity method, along with other smaller property variances. The provision for the Q2 was a benefit of 61,000,000 dollars This was $44,000,000 higher than the benefit recorded in the Q2. Video will expand on credit related matters. Total operating expenses were $238,000,000 in the quarter, an increase of $20,000,000 from Q2.
This increase was primarily due to higher employee compensation costs by $3,000,000 mostly driven by annual merit increases, higher professional fees by $4,000,000 a lower core of gain by 3,000,000 plus smaller increases in product categories like FDIC deposit costs and business promotion. Higher product and debit card transactions also drove a $2,000,000 increase in related expenses. For the Q4, we expect expenses to be between $405,000,000 $410,000,000 This is consistent with our guidance for average quarterly expenses in 2021 to be between $380,000,000 $385,000,000 Obviously, if possible, we will try to improve on this number. Our effective tax rate for the quarter was 25%, the same as last quarter. In Q4, we expect the effective tax rate to be between 25% 28%.
Please turn to Slide 7. NII on a taxable accrual basis was 536,000,000 dollars 5,000,000 lower than in the Q2. The primary driver for this decrease was lower investment of real interest income by $7,700,000 due to lower yields, which was partially offset by $1,500,000 higher interest income from loans and lower deposit costs by $1,100,000,000 A lower mix of account income also contributed to this outcome. Departes grew by $1,400,000,000
in the quarter. Most of
the growth was in CPTR with a $700,000,000 increase in Puerto Rico government deposits and a $500,000,000 increase in our retail and commercial deposits. Net interest margin decreased by 14 basis points to 2.77 percent in Q3. On a taxable equivalent basis, NIM was 3.04%, a decrease of 18 basis points. The lower margin was due to higher balances of loan yielding money market and investment securities. Total loan yields increased by 2 basis points in Q3, a result of higher PPP related income of 22,000,000 dollars compared to $14,000,000 in the Q2.
PPP loans yielded approximately 10.1% compared to 4.45% last quarter, due to higher accelerated recognition of fee income of unforgiveness. Year to date, we have recognized $59,000,000 in income from this program. The remaining amortized portion of fees for the PPP portfolio is approximately $40,000,000 of which we expect to recognize half in Q4 and the remainder in the first half of twenty twenty two. As of the end of the third quarter, Puerto Rico deposit were roughly $60,000,000,000 an increase of $700,000,000 from last quarter. We continue to expect deposit balances to come down over time driven by the restructuring of public sector debt and the return to foreign debt service.
Our ending loan balances decreased by $201,000,000 in the quarter. This decline was due to a $354,000,000 decrease in CPP loans and a $140,000,000 run up in our residential mortgage portfolio. Excluding the impact of CPP, loan balances grew by $153,000,000 driven by higher commercial, charter loan and lease balances in Puerto Rico. These increases were offsetting part by lower commercial balances in the U. S.
Driven by high prepayments. We do not expect our own loan growth to materialize until the middle of next year and demand resulting from expected economic growth should outpace the projected PPP loans. Please turn to Slide 8. Our common equity Tier 1 ratio in Q3 was 17.4%, an increase of 80 basis points from Q2, primarily due to net income. On September 9, the corporation completed the previously announced ASR and in total repurchased approximately 5,600,000 shares at an average purchase price of $75.83 Additionally, last month, we announced the redemption of the $137,000,000 outstanding balance of our 6.7% cross preferred securities to be executed in Q4, which will result in reduced annual interest expense of 12,000,000.
Annual book value increased by $2.77 per share to 6.66.1. Dollars 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 19.4% in the 3rd quarter. In summary, during 2021, we have repurchased $350,000,000 in common stock, increased our quarterly dividend by $0.05 per share to $0.45 per share, redeemed $187,000,000 in high cost trucks, and on October 15, we acquired a national healthcare equipment leasing business of $155,000,000 in cash. We have also returned to our normal capital planning schedule, which should result in an announcement of Popular's 2022 capital actions no later than our
January 2022 rep. With that, I
turn the call over to Rene.
Thank you, Carlos, and good morning. During the Q3, the corporation continued to exhibit strong credit quality metrics and low credit costs driven by the improving economic environment. Please turn to Slide number 9 to discuss credit metrics. Nonperforming assets increased by $57,000,000 to $710,000,000 this quarter, mainly driven by an NPL decrease of $52,000,000 coupled with a decrease of 9,000,000 dollars in nonperforming loans and per sale, offset in part by an increase of $4,000,000 in other real estate homes. In Puerto Rico, NPLs decreased by 48,000,000 dollars mainly due to lower commercial NPLs of $34,000,000 This was due to payments received and charge offs taken on collateral dependent loans, coupled with lower mortgage NPL of $60,000,000 resulting from lower inflows and continued improvement in the credit profile of the portfolio.
In the U. S, NPLs decreased by $4,000,000 mostly related to a commercial loan payoff. The $9,000,000 decrease in NPLs held for sale was mainly due to loan sales. The ratio of NPLs to total loans held in portfolio was 2.2% compared to 2.4% in the prior quarter. Please turn to Slide 10 to discuss NPL inflows.
Compared to the Q2, NPL inflows excluding consumer loan decreased by $44,000,000 driven by a decrease of $37,000,000 in Puerto Rico as the prior quarter included the inflow of a $22,000,000 commercial relationship coupled with a decrease of $5,000,000 in mortgage and trade includes. In the U. S, trade includes decreased by $7,000,000 mainly due to lower commercial inflows. Turning to Slide 11. Net charge off amounted to $10,100,000 or an annualized 12 basis points of average loans held in portfolio compared to a net recovery of 1,300,000 or negative 2 basis points in the previous quarter.
The quarter over quarter comparison was impacted by the recovery in the prior quarter of a $7,900,000 commercial relationship in Puerto Rico. Excluding this, the net charge off ratio would have been flat quarter over quarter, 12 basis points versus 9 basis points. Net charge offs continue to be significantly below pre pandemic levels. Our allowance for credit losses decreased by $67,000,000 or 8.6 percent to $719,000,000 driven mainly by improvement in the economic scenarios and credit quality as we will discuss in the following slide. The ratio of allowance for credit losses to loans held in portfolio decreased to 2.49% from 2.70% in the prior quarter.
Excluding TBB loans and guaranteed mortgage loans, this ratio is 2.74%. The ratio of allowance for credit losses to NPL's health care portfolio was 114%, flat for the prior quarter. Please turn to Slide number 12 to discuss details of the drivers of the variance in allowance for credit losses. As we previously mentioned, the allowance for credit losses decreased by $67,000,000 when compared to the previous quarter. Marances were driven by changes to qualitative reserves and economic outlook as well as portfolio credit quality and mix.
While a strong recovery is evident, we also consider more adverse outcomes given uncertainties along the impacts of new virus strains and the Puerto Rico government's ability to utilize available federal assistance. As a result, we continue to assign the highest probability to the baseline scenario, followed by the more pressing issue scenario. Our macroeconomic forecast uses a number of economic variables, with the unemployment rate and GDP being the largest drivers. The current baseline scenario expectations for 2022 GDP growth and the unemployment rate expectations are flat for the quarter. However, Moody's Analytics provisions to certain income related variables in Puerto Rico contributed to a $17,000,000 decrease in allowance of credit losses.
During the quarter, we released $15,000,000 from our quality and key reserve, prompted by the economic environment and improvement in the outlook for the U. S. CRE portfolio. Total portfolio changes, particularly in the Puerto Rico commercial and auto loan portfolio, caused the AECL to decrease by $24,000,000 Portfolio changes include fluctuations in credit quality, volume and mix. To summarize, our loan portfolio exhibited improved credit quality metrics during the Q3 with net charge off activity significantly below pre pandemic levels.
We will continue to monitor the exposure of the portfolios 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, Elidio and Carlos for your updates. Our results in 2021 to date have been strong, driven by solid earnings, improved credit quality, record deposit levels, continued customer growth and the successful execution of our capital actions. We are optimistic about the economic outlook. In addition to the unprecedented level
of federal stimulus related to COVID, Puerto Rico still has
a significant amount of hurricane recovery 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. A successful resolution of the debt situation in Puerto Rico could also be a positive factor. And last but certainly not least, we're looking forward to having the entire team together in our offices again. Given progress in the vaccination process, the general improvement in health conditions in our markets and sound safety protocols in our facilities, we have begun to bring back to the office our colleagues who are still working remotely.
Managers and supervisors returned earlier this month, and the remainder of our workforce will return early November. We are entering the home stretch of 2021. Despite all these challenges, this has been a great year for Culpco thus far, with solid results and significant accomplishments. Our team is energized and committed to ending the year on a strong footing. We're now ready to answer your questions.
The first question comes from Coq Van Dley of UBS. Coq, your line is open.
Thanks very much. I did manage to get in the queue. If you could just start in terms of core loan growth expectations, I understand overall loan growth is going to take a while to overcome the PPP pay down headwinds which already outlined. But how should we think about core loan growth over the next couple of quarters? Well, this is Ignacio.
I think, you got to look at a little bit sector by sector over the next quarters. I mean, besides PGT, we have
a large mortgage loan book in
the U. S, which is paying down about 150 Puerto Rico. 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.
In the commercial, we expect to grow both in Puerto Rico and in the U. S. In the U. S, this quarter, we had a lot of pay downs from the construction of portfolio expansion. But I think you'll see sectors like auto and commercial coming up sooner.
Overall, we continue to say, as I think, Carlo mentioned in his prepared remarks, overall, when you look at the overall loan balance, probably won't keep significant net growth until the second half of next year. Carlos, do you want to add anything? No, Mark. I mean, we're pretty pleased that it's PPP. Both last quarter and this quarter, our loans grew.
So our commentary on net growth is just in the Q4, if roughly half of our remaining typical portfolio gets forgiven, and we have similar run up in our residential portfolio, about $500,000,000 of loans, so we start at minus 500,000,000 dollars already. And in the first half of next year, the other half of our previous portfolio runs is preparing, which we expect. And the mortgage balance hasn't changed, and we start at minus 600 percent. So that is what leads to math. But in general, we're pretty happy that explicitly, both last quarter and this quarter, we had net loan growth.
Okay. And just separately on capital, I noticed you put the leasing business, not a terribly large acquisition, but not a terribly large acquisition, but certainly material given that purchase price. You're continuing to build capital. Reserves look ample given the great contours. How should we think about capital allocation?
I mean, 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 so. We saw all the different ways in which we can manage capital have been reduced. And that will ultimately appear to be the way we operate in the future. We're in the middle of our capital expenditure for 'twenty two now.
And again, we are hopeful that we'll have an announcement by the webcast in January. But in general, given our level 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 U. S. Peers plus our crude plus inclusion. Thank you, Bert.
Our next question comes from Alex Sandler of Piper Sandler. Alex, your line is open.
Good morning, guys. Hello. Good morning. Can you hear me?
Yes. Sorry about that.
I wanted to just start off a little bit more on this K2 acquisition. Initially, it seems like small potatoes in terms of net assets being acquired, but just looking at the purchase price certainly leads me to the suspicion that maybe this is actually a pretty good loan generating engine. And I was hoping that you can expand a little bit more on what origination capabilities this platform has and how it's going to fit into the overall model? So, I don't have the numbers exactly in the projection of originations. But, I can tell you that it's when we look in the space, we said before, we're looking for niche businesses that can complement our existing businesses.
And this is a healthcare equipment leasing company, which we think really will fit well and strategically complements our national healthcare lending business. So we think that we realize the people behind K2, we think they have a good business and we think that the synergies that we can create with our healthcare business are important. And we hope to try to make it to a national platform the same way we've done with PAD in our healthcare vertical. Can you talk a little bit more on sort of what type of loan fees are and what kind of yields that we expect to replenish cash flow? The loans are basically mostly finance leases of medical equipment like machines that you put in healthcare centers.
So just generally healthcare, X-ray machines or other types of MRIs. MRIs. I'm dating myself when I say MRIs. I don't have the I don't have I wouldn't speculate on the yield. Yes.
I don't remember on the yield either, Alex. I think when all the acquisition noise comes out and everything normalizes, call it, in 'twenty three, we expect it to be a period of about high $1,000,000 net income every year and hopefully grow. As Ignacio said, one part of the beauty of this is that not only because it's adding product for our health care clients, it also makes our existing health care offering more competitive. So part of the benefit of this will not be in this period. It will be largely be part of the impact.
Okay. And then just in terms of the sort of the deal like this and the regulatory process, this one is relatively small, but I imagine it does play a role in sort of overall capital allocation from a regulatory standpoint. Is it the same process? Do you have to go through the same process as you do with the buyback and the dividend? The regulatory system is quite complex.
Let's not call it Byzantine, but it's quite complex. So depending how you do an acquisition, it depends how you have to go to different regulatory structures. This case since we're doing it to a subsidiary of Capital Bank, in fact, we only have to go through the New York DSS. So it was a relatively simple straight sort of process. It really, I don't think it would be material enough for the example of the Fed when we look at our capital plan.
Obviously, we look at everything we do, but I don't think it's going to move the needle one way or the other in the capital plan. Okay. And then just another question on the bankruptcy. You sort of alluded to the end being kind of within sight. It's a little bit hard, I think, sometimes for a lot of investors and for me to kind of boil through some of the headlines.
But it seems like we're getting pretty close to a deal between the Board and bondholders, and it seems like the government may have gotten what they want with the pension. Help us understand exactly where we are in the process. Yes. We're actually in a critical stage as you're up to date. So there was negotiations going back and forth.
And both the executive branch and the legislative branch basically said that they weren't going to sign off on any deal that had cuts to the existing pension. And there was also controversy regarding the amount that will be budgeted to support the Albuquerque University, the UPR. They went back and forth in a couple of rounds and they appeared appears to be an agreement in principle regarding that the fiscal board would present a kind of adjustment with 0 cuts to the pension and with at least $500,000,000 for the UPR. Yesterday, the House of Representatives voted on legislation to support that plan of adjustment. One of the technical issues is that the plan of adjustment contemplated exchange of bonds for new bonds for existing bonds.
And there's a debate whether that has to go to the legislature or not. So yesterday, the House approved it. We are still a bit short in the Senate. Apparently, some of the senators are not convinced that the language regarding no pension cuts is ironclad. So I think the Senate is scheduled to take this up on Thursday again.
But you're right, we're very close. The House is passed enabling legislation. And now we're waiting on the Senate. The governor has said he will file the legislation. So really, it requires the Senate to approve it.
The Senate is a very difficult situation for legal because no party has an absolute majority. The party that has the President of Senate has a plurality, they don't have. So it requires more frustrating than usual. And so we're really down to the 9th hour whether this gets approved by the Senate. It could happen as early as Thursday.
If that doesn't happen, they'd have to go back and renegotiate something. I'm hopeful it will happen on Thursday, but we'll have to wait and see. But, hopefully, that's on Thursday. Then the presumption is that the bankruptcy there'll be an exit bankruptcy at some point by the end of this year. And then just remind us how much of public deposits, I think in the past you said somewhere around $10,000,000,000 to $11,000,000,000 that sits on Popular's balance sheet flow out directly related to that bankruptcy.
Is that correct? That's our best estimate. Of course, 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 local institutions, including city. So, but that's our best estimate, yes.
And the process would be, if this neighborhood decision is passed, the plan of adjustment will be considered by the court, and it's up to the court to approve or disapprove the plan of adjustment. Theoretically, they could disapprove it. We I don't think given all the work we've talked to it, I think that's not a right to resolve. 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 because it will go out relative to that because it's a cash down payment. 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, certainly would help NIM TCE and ROA.
Is that correct? That is correct. In this in the existing level of interest rate environment, it is not material to NII. And it will be very significant to our margin. Our margin has basically been driven by this, so tight circle in the last 4 or 5 quarters.
So our margin will be, will return to be more linked to our core business than it has been for last year.
Our next question comes from Jalal Kassidy of RBC. Jalal, your line is open.
Thank you. Good morning, National and Carlos. Maybe this question, Doug, we can start off with Lidio, if he's still there, on credit. Obviously, net charge offs for you folks were very low in the quarter and your rents could pay roughly from the positive number that you had in the prior quarter. But the industry is experiencing incredibly low net charge offs in this part of the cycle.
Can you give us what you think may happen in terms of how long can these low levels remain? And can we start to see some sort of normalization in net charge offs by the end of next year, into 2023, which still will be lower than a bad period, but I would think we can eventually have to start creeping up.
So give you my perspective. I mean prior to the pandemic, if you look over 3, 5 year periods, the charge of Coca Cola were between in a corridor between 75 basis points to 125 basis points. Since the pandemic, we have been significantly, as you mentioned, lower than that, including a net debt in the prior quarter. When you look at NPL formation, when you look at credit delinquency, suggests that at least for the short term, that will continue to be the case. I think a lot of it is going to be dependent upon economic performance and the case of the federal assessment that Carlos and Ignacio alluded to in the prepared remarks that we expect to come to Pato Rinco.
If that were to happen and we continue to see the level of economic activity that might last. I agree with you also that at some point in time, things will normalize
in the future. And Ignacio and Carlos, obviously, you announced this acquisition recently and you've put your cash to work. And you've done other deals, some of them like the Wells Fargo Automobile portfolio in their business a couple of years, I guess. Are there any other opportunities for you folks to put your excess capital to work in acquisitions, whether it's a non depository or even a depository somewhere in the 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.
This K2 seemed like a very nice fit to note on, complements our healthcare vertical, which is doing very well. We think has great potential for the future given the demographics of the country, right? So, we will continue to look for those unique opportunities to effectively liable. We really like the auto sector and it was there and it came across. I have said before that, especially bank acquisition is not our focus in the near future.
We are opportunistic. And when this presents itself, we look at, especially acquisitions of teams that complement our existing businesses. So I think our overall strategy hasn't changed. K2 came around. We looked at it carefully.
It's like we thought it fits perfectly with our existing strategy. So we execute. And then just as a follow-up, I know you need to keep a certain amount of cash on the balance sheet when the government firing draws down those excess deposits from your organization. But Carlos, when you look out, when do you think you may want to start to lengthen the duration of maybe some of those cash assets into longer term securities? Well, given that rates are finally going up, and investment returns seem to be starting to go up, we are looking at that more closely now.
Again, as you know, Gerard, I have changed significantly to extend duration to 10 years to get a yield of 130 or something like that. Now we're in 160. So it's becoming more interesting. So this is the job of our ALCO committee. We look at this every week.
We did extend we did increase our investment portfolio by about $2,000,000,000 this quarter. So we do it selectively when we think there's good opportunities to extend. Again, as rates move up, our willingness to extend will move up accordingly. So are we rushing to the door? No.
Are we taking a good look at the door right now? Yes, we are. Very good. And then just, I apologize I should know this, but do you have a swaps book? Or if you do, is it growing?
Or are you looking to add to it? Some of your peers are doing that now in this period of your outlook for rates. No, we don't have a subsequent period.
We have a follow-up question from Scott Van Dijk of UBS.
Just going back to some of the credit questions, I think everyone kind of focuses on charge offs and the reserve level. But as we look at NPLs, they've been down consistently and they were down substantially in Puerto Rico, about $48,000,000 this quarter. Why couldn't that drop far more meaningfully or are there sort of structural NPLs that we shouldn't expect to see go away? It just seems like with the economic trajectory, the structurally high level of problem assets that we've seen for years because Puerto Rico is in a recession should drop pretty hard. Joe, you want to take that?
Sure.
I can try. When you look at NPLs in Puerto Rico,
the mix of NPLs over time is
mostly mortgage related NPLs. That has takes a little bit longer to resolve and maybe some other type of NPLs. So that leads you to what you maybe call structural NPLs. I mean that's going to take a longer time for it to work throughout. And more so with the last since the pandemic because there have been lack of foreclosures to maintain that mortgage NPLs have actually not decreased on staff as other type of NPLs in the cycle, in this part of the cycle.
So I think that is what is driving the maybe higher level of NPL that we use in Puerto Rico.
Okay. And just on expenses, a number of the National Banks has called out and it's not unique expansion, just greater expense pressure, difficulty in hiring, all that general change. Is that something we should also be aware of within your business? Yes. I mean, we're not immune to the situation.
The hiring situation has become much more difficult. There are salary pressures. In Puerto Rico, we still have an advantage against some of our main main peers, but we are seeing salary inflation in Puerto Rico as you get competition from all kinds of sectors. So that's something that you can anticipate will continue. We've made some salary increases in July as you've seen.
We're going to be reviewing our minimum wage like everyone else is. 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're subject to the same trends.
We have no further questions in queue. So, I'll hand the call back to Ignacio Alvarez for closing remarks.
Again, thank you, Eric, for joining. I apologize for the inconvenience at the beginning of the call. And we look forward to updating all of you on our progress in January. So have a great week. Thanks very much.
This concludes today's conference call. Thank you for joining. You may now disconnect your