Good morning, and welcome to the Popular, Inc. Q2 2014 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to the Investor Relations Officer at Popular, Inc., Brett Scheiner. Please go ahead, sir.

Good morning, and thank you for joining us on today's call. Today, I am joined by our Chairman and CEO, Richard Carrión; our CFO, Carlos Vázquez; and our CRO, Lidio Soriano, who will review our second quarter results and then answer your questions. They will be joined in the Q&A session by other members of our management team. 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, our financial quarterly release and supplements. You may find today's press release and our SEC filings on our web page at popular.com. I will now turn the call over to Mr. Richard Carrión. Richard L. Carrión: Good morning, and thank you all for joining the call. I'd like to first address the highlights and key events of the second quarter, give an update of our U.S. reorganization plan and provide our latest thoughts regarding the fiscal and economic situation in Puerto Rico. Carlos will then go into greater detail on the quarter's financial results and Lidio will provide an update of credit trends and metrics. So please turn to the second slide. In the second quarter, Popular earned adjusted net income of $86 million, in line with results for last quarter and well ahead of last year's second quarter. Our reported GAAP results reflect the impact of 2 significant accomplishments: Our repayment of TARP, which includes a $414 million accelerated amortization expense; and our BPNA restructuring, which includes a $187 million goodwill write-down, both noncash charges. We continue to generate strong revenues,…

Thank you, Carlos. While continuing to operate in a challenging economic environment in our main market, we are pleased to report that asset quality remains stable during the second quarter, driven by strong credit performance in the U.S. region. In the U.S., we continue to benefit from an improving economy and the results of our derisking strategies. During the second quarter, the BPNA segment continued to reflect strong credit quality, led by lower NPLs, lower inflows and lower early delinquency. During the quarter, the Puerto Rico region experienced an increasing NPLs, mostly mortgages, stable net charge-offs and decreases in both NPL inflows and early delinquency. Let us turn to Slide #7 to review the details. Nonperforming assets remained flat at $956 million or 2.6% of total assets on a linked-quarter basis, primarily driven by a decrease in NPLs in the U.S. region, offset by an increase in NPLs in Puerto Rico. In the U.S., NPLs decreased by $37 million or 36% from the first quarter of 2014, primarily driven by a $28 million reduction in commercial NPLs, reflecting the resolution of a number of nonperforming relationships and $9.5 million attributed to the reclassification of loans from the California, Illinois and Central regions to discontinued operations. In Puerto Rico, NPLs increased by $41 million, mainly due to a $33 million increase in mortgage NPLs and an $8 million increase in commercial NPLs. As discussed in our previous earnings webcast, the increase in mortgage NPLs is mostly driven by a reduced level of outflows resulting from the bulk sale completed during the second quarter of 2013. Our Puerto Rico mortgage exposure is marginal and losses continue to be low at less than 1% of loans. We continue to realize approximately 80% of the unpaid principal balance of default upon disposition of the…

[Operator Instructions] The first question is from Brian Klock of Keefe, Bruyette, & Woods. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: I guess, first question is just around some of the noise. I know there's a lot with the discontinued operations this quarter. And I think a lot of investors may be looking at the $11 million impact that was in bottom line earnings from the discontinued operations. Is the right way to think about that is when the branches -- when a branch sale closes in the fourth quarter, that the restructuring that you guys are doing in the mainland operations, beginning in 2015, should generate savings of $45 million? So you're not going to see that lost income hit the bottom line as you've guided to before. Is that the correct way to think about that? Richard L. Carrión: That's the correct way to think about it. Brian, our idea is once it's all done and while we think we'll get the sales done before the end of the year, there will be a little overlap while we adjust the centralized -- the functions that we're moving around. But when the dust settles, we should have a bank that's half the size, and the net income should be roughly the same. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: Right. So overall, we have return on assets, return on equity, all those metrics will be even more... Richard L. Carrión: We believe there'll be some room for capital release as well. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: And then that's my follow question, again, a significant amount of excess capital. I guess, is there any way that you think -- I don't know, if I can put the cart before the horse here, but the capital return in next year's stress plans is maybe something you could think about next year? Richard L. Carrión: Yes. Excess capital is not a phrase we hear much from regulators these days. But that is definitely what we'd like to do and we think we're very much in the position to do that. But as with everything, it depends on the regulators.

The next question is from Brett Rabatin of Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Wanted to, I guess, first, make sure I heard the numbers right on the guidance on the tax rate going forward. What was that number? And then I also -- not sure I quite caught the expense go-forward as well. Carlos J. Vázquez: The guidance on tax is consistent with last quarter. We stated that we expected the tax rate for the full year to be around 31%. And our comment on the expenses is that, obviously, we had indicated a range of $305 million to $310 million before. But now with the effect of discontinued operations, that range has been adjusted to $285 million to $290 million. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Okay, great. And then, I guess, the other thing I was just wondering about was you're -- you obviously had a reduction in exposure to Puerto Rico government during the quarter. But you may move -- or it sounds like you do intend to move that exposure back up. Can you talk about, I guess, what that would involve and then just any thoughts around kind of how you view the exposure you have presently in terms of -- I know it's all well-collateralized, but just how you see that -- your exposure evolving over the next quarter or 2? Richard L. Carrión: Well, again, it will depend on the opportunities we see. As we said, we will selectively participate in financings when we think the risk-reward is in our favor. So far, we think it's been that way. And the fact that it's down owes more to the short-term nature of most of our exposure, and a lot of…

The next question is from Ken Zerbe of Morgan Stanley.

Just had 3 questions. I guess, first, in terms of expenses, if I back out the restructuring charge, I think you're around $271 million. That obviously is well below your guidance going forward of the $285 million to $290 million. Why was the expenses so low this quarter? Carlos J. Vázquez: Well, almost every line had a good performance this quarter, Ken. But as you know, our expenses are not... Richard L. Carrión: Linear. Carlos J. Vázquez: Are nonlinear. They're not consistent quarter-on-quarter. They tend to be fairly volatile. So even though this quarter is lower than our guidance, we believe we've guided to the appropriate level to think of our expenses.

Okay, great. Second question, just on the tax rate, it looks like -- if I calculated my numbers right, it looks like the tax benefit on a net basis added about $0.14 to your core EPS. How should we think about the tax rate for the second half of the year, given that your full year guidance is 31%? Because just trying to make sure I get the numbers to match and we're backing out the right things because -- are you guiding for second half at 31%? Or are there some other adjustments we need to may make? Carlos J. Vázquez: What we mentioned this for the full year, so there should be some -- the numbers will be different in the second half of the year than the first half. Again, there's all the changes that have happened results from the mix of our revenues, which depend on many things. Part of it depends on provision as well. So it is our best guess right now on where it's going to be, what we described is what we expect the rate to be for the full year.

Okay, all right. I'll follow up on that one offline. And then my third question, just in terms of the provision expense. Obviously, the recoveries in the U.S. have been very helpful to help offset the higher provision expense in Puerto Rico. But just given the sale of the U.S. regions, do you guys have any thoughts in terms of what a more normalized U.S. provision expense might be, given now that sort of half your business is going away? Carlos J. Vázquez: Well, we... Richard L. Carrión: It's not half -- half our U.S. business, but...

Yes, half your U.S., Yes, of course. Carlos J. Vázquez: No. We'll -- as you know, Ken, we try not to give forward-looking guidance on provision, and we're not going to start now, much less as our business is going into restructuring. So we've had very good performance in the U.S, partly because in the present restructuring, we've accelerated some of the resolutions on some loans. But the bad loans do run out eventually.

The next question is from Alex Twerdahl of Sandler O'Neill. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: First off, can you just remind us how much of that loss share is commercial in nature and thus will expire next April? Richard L. Carrión: I think it's -- north of 2/3 of it is -- probably around 70% of it is commercial at this point in time. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: Okay. So the loss share income, even though it jumps around... Richard L. Carrión: Not the -- I'm talking about the assets that are covered. Yes, the -- so most of it is commercial. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: Okay. So I mean, I guess, if you're looking at it from a modeling perspective, that loss share income that obviously would jump around a lot should be reduced and kind of trend towards 0 towards the second half of next year. Is that correct in thinking? Richard L. Carrión: Absolutely, absolutely. It should definitely trend towards 0 by the end of the second quarter, yes. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: Okay, great. And then secondly, not to harp on this tax rate issue, but does the tax rate change next year after the U.S. operations are completely -- or I guess, after that -- after the branch sale closes? Richard L. Carrión: No, that should not change, no. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: That 31% is good for 2015 as well? Richard L. Carrión: Yes, so far. I mean, we'll try our best to lower it. But, yes. Alexander Twerdahl - Sandler O'Neill + Partners, L.P., Research Division: And then just finally, in terms of the loans that you have to PREPA and PRASA, you talked about some additional reserves based on some weakness in the economy, et cetera. Have you had to put up any additional reserves against those loans or take any sort of mark down on them?

We don't comment specifically on -- this is Lidio. We don't comment specifically to... Richard L. Carrión: General reserves.

But we have -- I mean, I think our reserve cover -- adequately covers the risk that we have in our portfolio today.

The next question is from Taylor Brodarick of Guggenheim Securities.

I think we've hit on most of my questions. But Lidio, I guess, any commentary about, obviously, better performance on the commercial NPL inflows versus what you're seeing with the Puerto Rican consumer? Just any other detail about the health of the consumer, how that's changing your outlook going forward for mortgage NPLs.

Could you repeat the question? Sorry...

Yes. I was just looking at the difference between the improvement in sort of the commercial NPL inflows and mortgage NPL inflows. And it seemed like -- looking at what happened in Q2, I was just curious if anything notable happened that we're not seeing in the economic data with the Puerto Rican consumer and how you changed your outlook -- if you changed your outlook for sort of mortgage NPLs going forward as a result of that.

Nothing significantly occurred during the quarter. We -- I don't think we have changed our outlook in terms of mortgages. It is an asset class, as we have stated, that we feel very comfortable with. Losses are low, continue to be below 1% of total loans, and nothing has significantly changed.

[Operator Instructions] The next question is from Gerard Cassidy of RBC.

The question I had was regarding the process of returning excess capital. Clearly, you're not a CCAR bank where those banks supply their information to the regulators once a year and they get approval for the following 12 months. Is it as structured for you being a non-CCAR bank, where you're only permitted to ask once a year? Or what's the process for banks your size versus the CCAR banks? Richard L. Carrión: The short answer is no, it's not as structured. But the practical answer is you still are going to have to do the stress test and all of that to support whatever your doing with the capital plan. So as a practical matter, you do it together with your new stress test. So that's really what drives it, Gerard. It's not that, that it's as structured as the CCAR bank.

And to your knowledge, and I know this is news since, obviously, you guys just exited TARP and you haven't done this yet. But is the turnaround time reasonable? I mean, obviously, with -- the CCAR process it is about 3 months. But is it faster for a bank your size, whereas if you submit it in 1 month, you'll get an answer within 30 days or so?

That's a good question, Gerard. Richard L. Carrión: Yes. you'd have to ask them down in the -- down at the Fed. I don't know.

Okay. And then the second question is are you guys seeing any opportunities -- and I apologize if you said this on the call, I was a little late to the call. But are you seeing any opportunities to buy portfolios of assets, whether it's of other Puerto Rican banks or U.S. banks in markets that you want to stay in, like Florida or New York? Richard L. Carrión: Well, we've been actively looking at that for, I would say, the last 18 months. And we've reported on several purchases that we've made. And frankly, it's helped to maintain our portfolio levels. But nothing -- we just -- it's something we do on an ongoing basis, and we're very active looking at different things.

[Operator Instructions] The next question is from Brian Klock of Keefe, Bruyette, & Woods. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: Just 2 quick questions for Carlos. One, Carlos, have you updated us, I guess, lately on what the sort of pro forma Basel III Tier 1 common ratio would be? Carlos J. Vázquez: No. We will post this one...

In the 10-Q for the second quarter. Carlos J. Vázquez: In the Q for second quarter, we'll have some disclosure on that. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And is it fair to think that it still might be in that 100 to 150 basis point reduction from the Basel I levels? Carlos J. Vázquez: It'll be in the 10-Q. Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division: And then my follow-up, I guess, in the tables -- Table O in the supplement, it looks like with some of the covered -- the Western portfolio asset quality trend is improving, you had a reclass into the accretable yield of about $142 million. So should we expect there to be -- that accretion that's going into interest income in the quarter, it had to be higher than the 79.9 that was in the second quarter? Carlos J. Vázquez: As you know, Brian, we'll have to do the reclass of the portfolio this quarter, as we do every quarter. And as a result of that reclass, we're going to get a new number. We would love to be able to provide a better look at what that number is. But the truth of the matter is that it changes quite a bit, and it's very, very hard to forecast what the number is going to be. Richard L. Carrión: I think the good news is we've got 4 quarters to go, and our estimates will get increasingly better.

This concludes our question-and-answer session. I would like to turn the conference back over to Richard Carrión for any closing remarks. Richard L. Carrión: Great. Thank you, all, for being on the call, and we look forward to talking to you again in a few months. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.