Good morning, and welcome to the Popular, Inc. Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Paul Cardillo, Investor Relations Officer, at Popular Inc. Please go ahead.

Good morning and thank you for joining us on today’s call. With us today is our CEO, Ignacio Alvarez; our CFO, Carlos Vázquez; 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 be available during the Q&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 popular.com. I will now turn the call over to our CEO, Ignacio Alvarez.

Good morning and thank you for joining the call. Today’s results reflect another solid quarter and a strong finish to the year. Before I cover the highlights for 2018, I am pleased to report that today we announced a series of planned capital actions that we intend to execute this year. These actions include an increase in the company’s quarterly common stock dividend, from $0.25 to $.30 per share, beginning in the second quarter of 2019 and a common stock repurchase program of up to $250 million. These actions evidenced the strengths of our capital position, which allows us to return capital to our shareholders as we invest in our franchise to ensure its continued success. Please turn to Slide 3. Early in 2018, we were addressing remaining hurricane related issues and there was much uncertainty regarding the recovery of the Puerto Rico economy. Despite these challenges, we remain focused on serving our customers, executing our business strategies and seizing opportunities that arose. I am extremely proud of our employees. Thanks to their efforts, we overcame the challenges raised by the hurricanes, to achieve strong financial results and accomplish important milestone. For example, we completed a Reliable [ph] acquisition, achieved a successful termination of our loss share agreements with the FDIC and executed several capital actions including a $125 million common stock repurchase. For the full year 2018, we reported net income of $618 million, which includes the benefit recognized on the early termination of the FDIC last year agreements during the second quarter, and the expense related to the impact of the recently enacted tax reform in Puerto Rico on our deferred tax asset. Excluding these items, adjusted net income was $487 million, up from the prior year’s adjusted net income of $276 million. In 2017, we had the…

Thank you Carlos. And good morning. In Puerto Rico, we continue to experience normalization of our credit quality results after Hurricanes Irma and Maria last year. Excluding commercial net charge-off, quality metrics are better or near pre-storm levels. In our consumer portfolio, excluding the Reliable transaction, any delinquency and non-performing loans are below prehurricane levels. The consumer net charge-off ratio for the fourth quarter of 2013 was 2.11%, also below pre-storm levels. In the mortgage portfolio, total delinquency continue to improve, with early delinquencies a level significantly better than those prior to the hurricanes. While NPLs decreased by 20 million, 25 million quarter-over-quarter reaching $324 million. Mortgage charge-offs were 1.14% similar to levels prior to the storms. In commercial lending, net charge-off increased by $49 million compared to the prior quarter. The increase in net charge-off was due to -- to a specific relationship. One, is a problem loan acquired from Westernbank, which we have been working on for some time until which the charge-off what we saw in prior period. The other relationship is a commercial real estate loan for which the hurricanes and increases in interest rate rates have impacted its ability to service its debt as originally contracted. Our Puerto Rico non owner occupied share rate – share portfolio is $2.3 billion of which roughly $750 million is variable rate. We have stretched our portfolio by increasing rates, normalizing our customer’s ability to service their debt and concluded that none of our remaining viable portfolio are a significant and any potential future impact has been included as part of the environmental cycle component of our allowance for loan losses in the fourth quarter. In the U.S. our credit results remain solid, with favorable credit quality metrics. Please turn to slide number 8. At quarter end, our outstanding,…

Thank you, Lidio and Carlos for your update. The year 2018 which marked our 125th anniversary was a strong one for Popular. We achieved solid financial results and accomplished important milestones. The new plan capital actions announced today reflect that strength. We begin 2019 on a solid footing and excited about our prospects for the year. Please turn to Slide 12. We continue to improve our leading market position in Puerto Rico which puts us in a strong position to take advantage of future opportunities as well as to effectively manage challenges that may arise. Banco Popular's franchise is unique. Having consistently grown our retail and commercial customer base we currently serve 1.75 million customers. Given our privileged position we are focused on strengthening the relationship with our customers and improving their experience by providing innovative solutions as part of our digital transformation efforts. Approximate 840,000 of our clients are active online and almost 80% of these clients use mobile devices to interact with us. In December 2018 47% of our deposit transactions in Puerto Rico were processed through smart ATMs and mobile devices, a figure that has been increasing consistently. The strength of our franchise has provided meaningful earnings power even in the most difficult of times and puts us in a strong position to take advantage of the opportunities stemming from the economic recovery on the island. Our growth initiatives in United States have good traction and we expect to see further progress. Finally, we have additional sources of value such as our investments in Evertec and BHD which continue to contribute to earnings and represent unrecognized investment value. We are energized and determined to make good use of this positive momentum to continue delivering solid results and to drive shareholder value. We are not ready to answer your questions.

We will now begin the question and answer session. [Operator Instructions] Our first question comes from Alex Twerdahl of Sandler O'Neill. Please go ahead.

Hey, good morning guys.

Good Morning.

Let me first drill into your deposit base and just ask a couple of questions that I think people are interested in, one, is what is the current level of government deposits that you guys have versus customer deposits. And it would kind of have been the flows during the fourth quarter of sort of your core deposit base versus the government deposits?

Alex, this is Carlos. Our public deposits are around 8 billion right now, and they were slightly down in the fourth quarter. But they haven't changed that much for the last couple of quarters though. Carlos Vázquez: Okay. And then you know as you kind of talk about the $9 billion of emergency funds that have come in 2018 and the 13 billion that are expected for 2019. Do you have any more clarity today on sort of how that might impact Popular’s balance sheet and P&L you know how much of it might actually flow through the bank whether it's directly indirectly per share, really, et cetera?

Well, this is Ignocio. I mean, we have a nearly 50% market share, so the money that flows in Puerto Rico is a good chance that they're flow in through one way or the other. It's hard for us to predict exactly how that's going to happen. Obviously the greater the amount of local involvement in the recovery effort the better it is for us. So that's an important factor.

Okay. So to be determined. And then I just got a sort of a question about you know towards the end of last year there's a bunch of press about the qualified opportunity zones and how it potentially could impact Puerto Rico disproportionately. Just given how much of the island is qualified. Have you seen any investments come down to the island yet or heard much talk about investments being made under that particular program?

I haven't seen an investment but there is a number of opportunities. I mean a number of people were talking about the opportunity. There's been a number of conferences, a number of investors coming to Puerto Rico. Yes I was someone from the construction industry who says they're working on three real projects that would involve opportunity fund. So there I think we haven't seen a specific project today, but there is a number of people that are looking into it. So we're still relatively optimistic that that it's going to have a good impact on Puerto Rico. How much we don't know for sure but there is a lot of interest in the subject still.

Okay. That's helpful. And then just finally, Carlos, the purchase accounting accretion from the Reliable deal I think it was 16.2 million in the fourth quarter. How should we be thinking about modeling that over the next several years? Carlos Vázquez: Yes. I mean the -- I think the balance we have left is about 82 million right now, Alex, I think a large portion of the part of that that has to do with a commercial portfolio is probably done now. So most of what's left is probably consumer portfolio and those loans have an average life of about three years. so if you straight line that in two and a half years you're probably in the right ballpark.

Great. Thanks for taking my questions. Carlos Vázquez: You’re welcome.

Our next question comes from Brett Rabatin of Piper Jaffray. Please go ahead.

Hey, good morning guys. Carlos Vázquez: Good morning, Brett.

Wanted to go back to deposits and ask the increase in the ending period, the nonexpanding TDA at the end of the year versus average for the quarter. Is that sticky and kind of how do you think about managing the liquidity, obviously the government deposits go down eventually, but how are you guys thinking about managing liquidity this year and then any thoughts on that ending period TDA growth?

I mean, I guess first thing is as you mentioned we have been saying for a while that we expect public deposits to trend down and they haven't yet, but they will eventually. When that happens it doesn't really affect liquidity because all the public deposit in Puerto Rico needs to be collateralized. So when and if that happens we got our collateral back and we can either sell it, redeploy it or do whatever we want with it. Most of the other deposit lines continue to be pretty steady. The one that had the most positive change this quarter was actually commercial. So that was the bigger contributor this quarter. It does -- it's a little bit -- but it does change from category to category. But in general we still feel that the deposit business is pretty strong. We have an ample amount of liquidity, so we try to manage it smartly, but liquidity is not a concern that is high in our list right now.

Okay. And then thinking about the loan portfolio this year you're looking for growth in the U.S. and Puerto Rico flat and that was somewhat the trend in 4Q with -- but Puerto Rico was down a little bit. Can you maybe give us some color on just thinking about Puerto Rico being flat this year? Are the lending opportunities not significant enough and sort of your modeling to offset payoffs and our payoffs are bigger issue this year? What – can you maybe…? Carlos Vázquez: A couple a couple of things. First, as Ignacio mentioned, Brad, there's a lot of activity going on, but we haven't and we're closing loans every day. We just haven't seen the rate of new loans exceed the rate of pay downs and pay offs. I do remember that our Westernbank portfolio, [Indiscernible] portfolio is a decaying portfolio that runs out – it probably was about $100 million in the fourth quarter. So that means that the rest of the business grew. As we mentioned we had a strong auto segment in Puerto Rico as well in the fourth quarter. The overall loan balance does get effected Brad, by our Fannie Mae portfolio we service because when those become delinquent we have to report them in our loan balances even though we haven't repurchase those loans yet. And in the fourth quarter that was a reduction of about$60 million, okay. So there is there is there is some variability there. Again we are we are hopeful. As Ignacio mentioned that we will see some loan growth in Puerto Rico, but what we are stopping short of calling it until we see it and we haven't seen yet.

Okay. That's good color. And then maybe just one last housekeeping which you guys have the dollar amount of client transactions for debit, credit in the quarter? Carlos Vázquez: Hold on. I think we do. Just give us a second to flip through our papers. Okay. In the fourth quarter the -- this is -- the dollar amount in the fourth quarter of transactions was 3.71 billion, up from 3.51 in the prior quarter.

Okay, great. Thank you so much. Carlos Vázquez: Thank you.

Our next question comes from Gerard Cassidy of RBC Capital Markets. Please go ahead.

Hi guys. This is actually Steve dialing fro Gerard. Thanks for taking our call. Carlos Vázquez: Hey, Steve. How are you?

Just on your capital return you guys announced capital actions for 2019. Should we assume that this is pretty much it for the year or is there -- are there any other opportunities for further capital actions later in the year? Carlos Vázquez: Yes. I think assuming this is pretty much for the year is the right assumption. There is no regulatory restriction that will keep us from trying to do something else. But the truth of the matter is that the process we have followed over the last three years has proven to be very successful in keeping us moving in the right direction, when we think we have the best and most information so our regulators can do their best analysis on our request is towards the second half of the year. So I would suggest that any of the best assumption right now is that the next capital action announcement will follow the same trend -- the same story we've followed and timing we've followed over the last three years. Again, which we work on in the second half of the year, we hopefully are ready to make an announcement in the first quarter or next year. The only exception to that over the last four years obviously was the hurricane season.

Great. Thanks for that. And just now just back on capital here, so you know your stock prices has bucked the trend last year relative to other banks and you guys are still on a sizeable level capital. Did you guys see acquisitions taking more prominence in your capital deployment strategy now? And are you seeing any acquisition opportunities?

Well, this is Ignacio here. I think you know we always looked at opportunities that are presented to us. But as you know in the last few years they've been very expensive and we're cautious about the economic environment in the U.S. for the next couple of years. So while, yes we'll look at everything that's out there we're going to be -- you know we're going to be -- we're going to be cautious. Carlos Vázquez: And remind you that we cannot do an acquisition on deposits in Puerto Rico. We can buy banking assets in Puerto Rico but not deposits.

Great. Appreciate it. Thanks guys.

Our next question comes from Glen Manna of Keefe Bruyette and Woods. Please go ahead.

Hi. Good morning guys.

Good morning, Glen.

This question I guess is for poor Lidio. Lidio, the two commercial relationships that you took the NCO for in Puerto Rico, where those were those charged off against the special hurricane provision that you took last year? And how much of that provision is kind of left?

I think I mentioned in my prepared remarks that we are for the most part either extinguished – have been bought into the regular provision, all the reserve that we have related to the hurricanes, so none of it. Most of it is out this quarter. In terms of whether the two cases that we cited were part of the hurricane reserved. There were some specific cases in which there was no reserves from the hurricanes.

Okay. Thank you. And on the $250 million repurchase in the past you guys have chosen to do in ASR. Is there any reason why we should assume that you kind of wouldn't follow that path again this year? Carlos Vázquez: We have just started the analysis -- while we have done two ASRs consecutively, Glen, we have – every time we actually have sat down and go through our analysis what we think is the best path of action. We will do the same this time and we will have a plan yet. So yes we've done that for a couple of times. We may do that again. But at this point in time we haven’t reached any decision.

Okay. Thank guys.

Our next question comes from Ken Zerbe of Morgan Stanley. Please go ahead.

Just in terms of fee income line, Hello, I know we need back out, it sound like that $9.5 million of hurricane related recoveries probably won't continue in first quarter. If we take that and sort of back out other possible adjustments like the fair value MSR, what's the right level for fee income kind of as we think on a quarterly basis as we think about 2019? Carlos Vázquez: I mean I think other than those two things that quarter was a pretty normal quarter. So you just did the calculation I think, Ken.

Okay. So like mid 130s [ph] or so. Carlos Vázquez: That level, yes.

Okay. All right. Perfect. Thank you. Carlos Vázquez: Thank you.

Our next question comes from Scott Valentine of Compass Point. Please go ahead.

Good morning. Thanks for taking my question.

Scott, how are you?

Doing well. With regard to margin. I mean this quarter you had some I guess a 10 basis point benefit from the prepayment. And then also the fourth quarter of Reliable. But how we should think about the margin going forward? I know you guys have an asset sensitive balance sheet outlook, the Fed is not going to raise rates as fast as the outlook today changes day to day, but just wondering with the outlook for margins. We think about a core margin maybe of 4.15 in that range given the 10 basis point benefit this quarter that are fair way to look at it then probably mostly stable going forward?

I mean, we had an increase in rates in December that you haven't seen the effect of that yet and that will flow through. Moving forward I think Reliable is all in now. So other than that I think those are the two effects are left.

The one thing we would correct that the prepayment, assuming you mean, the commercial loan that paid off that had a benefit. There's always things in that line that back and forth. I would give that a minimum maybe two to three basis points all in. So I think, the run rate for the quarter is fairly reasonable.

Okay. Thanks, that’s helpful. And then just on the one credit, I guess, the two commercial credits. The one credit you mentioned was fully reserved. The second credit, I think you said was a commercial real estate loan. Was that fully reserved, or was there any reserve against that prior to the charge off, and then maybe if you could give maybe some color on the industry it was in?

On a non-occupied [indiscernible] there was no reserve prior to the actions that we took this quarter.

And then, just on the return of capital, you know looking and I know the regulators obviously you had to deal with regulators and we don’t have that insight into the discussions there. But it seems like with the CET 1 ratio, you guys have a very high very profitable credits getting better. I mean, going forward, do you see it as a incremental process where assuming the outlook Puerto Rico is still so pretty positive that the incremental capital returns keep increasing going forward? Is that kind of the way you guys are thinking about it?

Yes. I mean, I mean we’ve been successful so far incrementing the capital returns and having the regulators be comfortable with our position. So we’ll keep the same path. I mean you know we doubled the common stock repurchase and we increased the dividend at the same time and I think that reflects the progress we’ve made in convincing our regulars of the strength of our financial position.

Yes, I mean we continue to track our peers and hopefully we start continuing to do, towards sometime this year the one interesting thing that we and all our peers will have to deal with is the effects of CECL, because everybody is working on right now. And those details will start coming out probably later this year as all of us start to put out all our new models and into implementation. But in general, we you are correct that we have a strong capital base and we hope to continue to track the trend of our mainland peers.

Thanks very much.

You’re welcome.

[Operator Instructions] Our next question comes from Bob Napoli of William Blair. Please go ahead.

Thank you. Just wanted to follow up on the consumer spending trends in Puerto Rico that you're seeing. I mean, I think you said spending was up 22% year-over-year for credit and debit card spending. What were the trends as you exited the year, on a year-over-year basis and in January? Do you -- do with the changes in government and relief funding and obviously a lot of rebuild going on, do you expect it to have decent growth in 2019 in credit and debit card spending?

Well you know it’s too early to tell January, because we’re still in the month, but we've -- generally a Puerto Rico economy is going steady. It’s not, I don't think it’s going to grow as fast as the fiscal board predicted obviously at the beginning of the term, because the federal funds have come in much slower than expected. But I view it almost as a positive year. You know we’ve had positive growth notwithstanding the fact the funds have come in slower. So you know, we – I’m not sure we’ll see the double digit increase year-over-year that we’ve seen. but we expect it to be you know a steady pace.

And as you exited the year, did you have that like the growth rate I think it was 18% through August, now obviously the comps got a lot easier in September and October.

But for the full year, it was -- it grew by 22%. So it was 18% in August, for the full year it’s 20%, it was 22%.

Yes. Remember that [indiscernible] seasonality…

And is there anything going on secularly that you’re seeing as far as electronic payments versus cash payments?

No not really. No. The trends continue. More of our clients use electronic transactions every quarter and that trend is continuing as Ignacio reported.

On the -- on the deposit side and on the payment side in Puerto Rico ATH mobile has been you know it's continually growing at a fast pace. But you know there’s nothing dramatically changed.

Great. Thank you very much appreciate it.

This concludes our question and answer session. I would like to turn the conference over to Ignacio Alvarez, CEO for any closing remarks.

Yes. Thank you for joining for joining the call and for your questions. The fourth quarter was another strong one for us, and we are very pleased with our results. We intend to build on that momentum and then update you on our progress in April. Thank you.

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