Good day and welcome to the Popular, Inc. Q4 2019 Earnings Conference Call and webcast. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Paul Cardillo, Investor Relations Officer, 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 question. Other members of our management team will also 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 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. Today's results reflect another solid quarter and an outstanding year in which we achieved record core earnings. Before I discuss the highlights for 2019, I'm very pleased to report that in January, 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 $0.30 to $0.40 per share beginning in the second quarter of 2020, and a common stock repurchase program of up to $500 million. We also announced the redemption of our 8.25% Series B preferred stock of which $28 million is currently outstanding. Additionally, on December 31, 2019, we acquired a $74 million credit card portfolio in Puerto Rico. In a separate transaction, we also acquired the rights to issue credit cards under the JetBlue co-branded loyalty program in Puerto Rico, and we plan to launch this new product in the second half of 2020. 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 3. We reported core earnings for the full year. Our annual net income of $671 million reflects an increase of 38% from our 2018 adjusted net income of $487 million. 2019 results benefited from strong deposit and loan growth in both Puerto Rico and the US. Credit quality metrics continue to be positive in 2019. In Puerto Rico, most indicators were better than or close to pre-hurricane level. In the US, credit quality was solid throughout the year and reduced our exposure to the taxi medallion market to $19 million. Our capital levels are strong with year-end Tier-1 capital and Tier-1 common ratios at 17.8%. Our tangible…

Thank you, Carlos, and good morning. The credit quality metrics for the Corporation continue to show favorable trends. In Puerto Rico, our credit metrics reflected lower non-performing loans, lower NPL inflows and stable net charge-offs. In the US, we reached agreements with the majority of our taxi medallion borrowers, resulting in an increase in net charge-offs. Excluding this impact, credit quality metrics in the US remained favorable. We continue to be attentive to the performance of our portfolios and related credit metrics. In terms of our exposure to earthquake area, approximately 8% of our mortgage and 11% of our consumer loan portfolios pertaining to areas declared as major disaster. So far customer inquiries and request for modifications have been limited. In terms of our outstanding direct exposure to the Puerto Rico government, municipalities and other instrumentalities, at year end, the balance was $432 million, a decrease of $26 million when compared to last year. Please turn to Slide number 9, to review credit metrics at the end of the year. Non-performing assets decreased by $26 million to $650 million this quarter, driven by a non-performing loan decrease of $30 million, offset in part by an OREO increase of $4 million. The decline in non-performing loans was mainly driven by improvements in both Puerto Rico and the US. In Puerto Rico, NPLs decreased by $22 million with a $90 million reduction in commercial and a $12 million reduction in mortgage. The decrease in commercial was mostly the result of two commercial loan relationship, while the decrease in mortgage was mostly due to the continued improvement in the portfolio. These reductions were offset in part by higher consumer NPLs of $9 million, mostly related to auto loans. Following the Reliable acquisition, we have experienced an increase in early delinquency, NPLs and net…

Thank you. Lidio and Carlos for your updates. 2019 with an outstanding year for Popular. We achieved record financial results and accomplished important milestone. The integration of our auto business, the asset purchases in Puerto Rico and our recently announced planned capital actions reflect that strength. We begin 2020 on a solid footing and excited about our prospects for the year. Our Puerto Rico franchise is unrivaled. We've consistently grown our retail and commercial customer base and now is our 1.8 million customers. However, we do not take our leadership position for granted and we remain focused on enhancing our customers' experience across all our channels. Our unmatched branch network is enhanced by our innovative digital solutions. Approximately 915,000 of our clients are active online and 80% of these clients use mobile devices to interact with them. In December, 52% of our deposit transactions in Puerto Rico were processed through smart ATMs and mobile devices, a figure that has been growing consistently. The breadth and depth of our retail and commercial product offerings in Puerto Rico allow us to meet the evolving banking needs of our customers. Operation in the main United States were more focused, provides diversification to our footprint. We have a strong commercial lending unit that is complemented by two specialized national lending businesses, condo association banking and healthcare. Our investments in Evertec and BHD Leon contribute to earnings and represent unrecognized value. We are encouraged by our results and remain focused on enhancing shareholder value. We are now ready to answer your questions.

We’ll now begin the question and answer session. [Operator Instructions] First question comes from Alex Twerdahl from Sandler. Please go ahead.

A first off, just wanted to drill in a little bit more to CECL, and I appreciate Carlos for your commentary on not being in a position to provide guidance on future provisioning at this time. But just with the reserve now approaching 3% and losses conceivably being incorporated already in that reserve, is there really a scenario where that reserve does not start to come down in some sort of fashion as 2020 approaches or progresses?

I think as we mentioned - mentioned by Carlos, we are not providing guidance on it, but again two things that you are expected to affect the levels of allowance. One is whether the portfolio grows or not, so that's a factor and the other is charge-off. We expect to have charge-off and there might be slight growth in our portfolio. So, everything else being equal, that should lead to a slight growth in the allowance.

I'm sorry, can you say that again, you said the allowance should grow?

Everything else being equal, growth in the portfolio on charge-offs related to additional growth in allowance, yes.

And then switching gears to talk about loan growth a little bit. We saw some nice commercial loan growth this quarter, was any of that tied to a specific post Hurricane Maria recovery money flowing to the island?

This is Ignacio. It's hard to time directly. I mean some of - some of the - our construction clients probably have some, but I would say it was not directly tied to the recovery efforts. Again, some of the lines, for our clients to do work were increased and they use some of those lines, but I would not attribute it primarily to that. I would attribute it primarily just to a general economic activity.

And then just a final question from me. As we think about expenses for 2020, the $383 million average, does that include profit sharing or is that something that, if you have a pretty good year would wind up increasing expenses again? Carlos Vázquez: No, it does not include profit sharing because obviously we have to beat a whole set of targets to - for the profit sharing to start coming in. So, it does not include any profit sharing.

Next question comes from Gerard Cassidy, RBC. Please go ahead.

Carlos, can you share with us - if I recall in the past when you've returned the capital to shareholders through the stock repurchase programs, you seem to have been able to kind of do it in the beginning, right after the approval in an accelerated fashion. With this $500 million that you were approved for this time around, is it going to be spread out more evenly over a 12-month period or should we expect more of it to be upfront? How are you guys thinking about that? Carlos Vázquez: It's a good question. We are in the middle of consultations with all our teams, investment banking and coverage teams. So, we - it's not finally decided yet exactly how we're going to do it.

And then another question, you guys seem to have some good success in engaging your customers in the digital transformation. You've given us additional statistics. Can you give us an idea, are half of your customers now in digital or two-thirds or how much more you have to go and then what kind of benefit from a cost standpoint do you possibly see in the horizon where maybe you need fewer branches or smaller branches, et cetera?

Yes, I mean if you look at our total number of customers, we size them as 1.8 million, and so 915,000 are active online, which means they transact least I think once a month, so more of them are online. Obviously you know we continue to work on digital. We have found that in Puerto Rico, our customers, although they are active online also appreciate the proximity in the branches. We will continue to experiment on our branch size and how we - how we can incorporate digital into the branches, how we can use our smart ATMs and also we just opened up a branch in The Mall of San Juan, which is sort of a digitally based branch, but we don't - we don't take - we don't process any deposits or do any transactions, no tellers. So look, we'll continue to be working on that, what the branch looks like , but again if you ever been to our branches, the number of transactions in our branches are still high. The number of digital transactions have grown exponentially, but the number of regular paper transactions have only decreased slightly. So, there is not - there is not a correlation between the exponential growth of the digital. So, we'll have to wait, but we're looking at this closely. We're experimenting, if you come to San Juan, you ought to see that branches in The Mall of San Juan, it's really cool. Carlos Vázquez: That's one of the probably interesting differences between our business in Puerto Rico and the business of most of our peers in the Mainland. Gerard, as you know, in the Mainland mostly what banks have seen is a transfer of transactions out of the branch into the digital channel. As Ignacio mentioned, our branch channel continues to be very, very robust and it's really not going down very much. But all the growth is happening on the digital channels. So, we are doing more transactions as our clients take digital. But they are - they do not stop going to the branches when they are digital clients, and that might be slightly different than the mainland.

Yes, interesting enough, even when you ask customers what is one of the most important elements, they look at when they pick a branch - it's still - they pick a bank, is still the branch network. Now one thing you have to keep in mind is that there has been tremendous consolidation in Puerto Rico over the last 20 years and the number of branches in Puerto Rico as a whole has reduced dramatically. And Puerto Rico, the number of branches for 100,000 people is still well below the US.

Very good. You guys obviously talked about the success of the Wells Fargo auto portfolio acquisition and the integration into your organization. You mentioned this quarter, your purchased a credit card portfolio of $74 million in receivables. Two questions, one is, are there potential for more portfolio like acquisitions that you see in maybe 2020? And then second, is there any interest in building out the density of your New York or Florida franchises with actual whole bank acquisitions? Carlos Vázquez: I think to the first point, I think we'd like to characterize ourselves as opportunistic buyers. So I don't think there is a lot of reliable auto transactions left in Puerto Rico. But we keep finding and other institutions are willing to sell, we are opportunistic buyers, so we'll keep looking. In terms of the US, probably, I think we're pretty comfortable with our footprint in the New York area and any place we'd be looking forward, probably to grow in the South Florida, but again we're opportunistic. We - but we're not going to do anything that doesn't make economic sense, just for doing a transaction.

[Operator Instructions] Our next question comes from Glen Manna, Keefe, Bruyette and Woods. Please go ahead.

So last Friday's announcement for the redemption of the Series B, was there anything else in your capital plan that had redemption of any other straight preferred or the trust preferred out there? Carlos Vázquez: No.

No that, we are - all the components of our capital plan are not public.

Okay. And just a follow up on Alex's question, within ALL that looks like it's around the 3% range post CECL day-one and maybe charge-offs going down to 75 basis points and 2% loan growth, I guess the way the street is kind of thinking about it, assuming the portfolio mix doesn't change. You know, it would kind of indicate that the provision - the streets provision for next year of around 220 to 225 is a reasonable methodology under those parameters, would you kind of agree with that or not. Carlos Vázquez: Yes, I mean we've heard - we've heard a lot people are approaching the different ways, partly the most common approach we've heard is the one you just described, so that sounds reasonable. Unfortunately, on the CECL, the part that this approach and not incorporate any way, is any change in the input there goes to the models. So my answer is that, yes, it sounds reasonable, but despite the fact that it's reasonable, it could end up not being accurate because again it is impossible for anybody to be able to gauge the input variables into the models of each bank reporting. So, yeah, it sounds like the right ballpark, but doesn't mean it's going to give you the right end.

And then just a couple of more on, it looks like BPPR's deposit beta on average fed funds movement was around 6% last quarter and BPNA was 11%. We probably have a little remaining deposit repricing, would you expect the betas to stay in that range in each geography as we kind of get that like some period of deposit repricing after the rate cuts? Carlos Vázquez: I mean our deposit beta - the components of our deposit book, the ones you know well and we have a, public sector deposit book, which is our 30% of the in Puerto Rico that has the beta is close to one. We have - the rest of our book in Puerto Rico has a very low beta and the US book that it's probably half and half high beta low beta. If - there is no change in mix, which is always the catch here, then the changes, I think might be similar for additional change in rates, but it looks rates are going to be flattish. So I would expect our deposit cost to reflect flattish rates more than anything else.

And the last one, the cost of borrowings looks like it went up by 14 basis points quarter-over-quarter, I know, three-month LIBOR was down a bit, but what are the dynamics there in - on the borrowing side? Carlos Vázquez: Yes, it's a small component, Glen. I was actually - I wish I can get back to you with an answer on that because I have it on top of my head. There isn't a lot of change on the line and we are speculating they may just be that some parts of the line that were low cost fell off or matured and or something like that. So, you're left with a little bit of the more expensive stuff, but we may have extended some pieces of that - of that line. Again, it is a small line that did not change much in magnitude, but it's a valid question, I owe you an answer on that one.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Ignacio Alvarez for any closing remarks. Please go ahead.

Thank you for joining us today and for your questions. We are pleased with our results and look forward to sharing our results for the first quarter of 2020 in April. Have a great day.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.