Good day, and welcome to the Popular, Inc. Q4 2014 earnings conference call and webcast. [Operator Instructions] And now, I will turn the call over to the Investor Relations Officer at Popular, Inc., Brett Scheiner. Please go ahead.

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 full year and fourth 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 webpage at popular.com. I will now turn the call over to Mr. Richard Carrión. Richard Carrión: Good morning and thank you all for joining the call. I'd like to first address the highlights and key events of 2014, then I'll discuss the fourth quarter, give an update of our U.S. reorganization and provide our thoughts regarding the fiscal and economic situation in Puerto Rico. Carlos will then comment on the quarter's financial results, and Lidio will provide an update of credit trends and metrics. Before we start, I'd like acknowledge our Vice Chairman, Jorge Junquera's 43 years of service at Popular, for he will be leaving us at the end of February, as we recently announced. And serving as CFO of the bank for both prosperous and difficult times, we are forever indebted to his passion, to his dedication, and thankful for his many contributions to Popular. Please turn to the Slide 2. This year we reached a number of key…

Thank you, Carlos, and good morning. Credit metrics for the quarter were highlighted by continued improvement in our U.S. operation and stability in our Puerto Rico operations. In the U.S., we continue to reflect strong credit performance with lower NPLs, lower net charge-off and stable NPL inflows. The improvements were led by favorable economic conditions coupled with the sale of certain non-performing and legacy assets. In Puerto Rico, the classification to non-performing of one borrowing relationship of $75 million from the public sector impacted the results for the quarter. Notwithstanding this classification and a challenging operating environment, credit metrics in Puerto Rico remain stable. Please turn to Slide number 8 to review the details. Non-performing assets decreased to $928 million from $943 million in the previous quarter, driven mainly by a decrease in covered loans and several other real estate owned in Puerto Rico. Non-performing loans increased slightly by $3 million from the previous quarter, driven by increase in Puerto Rico, offset in part by decline in the U.S. region. In Puerto Rico, non-covered NPLs increased by $14 million during the quarter, driven by higher commercial and mortgage NPLs of $13 million and $8 million respectively, offset in part by a reduction of $5 million in construction NPLs. The commercial NPL increase was mainly driven by the previously mentioned $75 million public sector credit, offset by the return to accrual status after a period of sustained performance of the previously disclosed $52 million addition to NPLs during the first quarter of 2014. In the U.S., total NPLs held-in-portfolio decreased by $11 million or 36% to $19 million from the previous quarter. The decrease was primarily driven by a reduction in commercial, legacy and mortgage NPLs, resulting from loan resolution and the previously mentioned non-performing loan sales. Turn to Slide 9…

[Operator Instructions] Our first question will come from Gerard Cassidy of RBC.

Richard, can you share with us, you mentioned about sending in your results for a stress test and potentially asking for capital to return to shareholder this year in the form of maybe a higher dividend and share repurchase. We know of the process for the companies that have their results announced publicly through the CCAR. Can you share with us, and I know you haven't done it yet, because you haven't asked for returning capital. But is it more give and take behind the scenes, what's the process that you're expecting to go through to give back some capital this year? Richard Carrión: Well, I think you're right on it. It's a little less clear for banks of our size, we've been following a process, it's similar to what the CCAR banks do. And last year we had a dry run, in that we also submitted our stress test and with it our application for the repayment of TARP as part of our capital plans. So we think it will be an analogous process towards that, and by the end of the quarter we will submit our stress test with our capital plan.

And do you know, for example, as we all know in the CCAR, if they don't accept it for qualitative reasons similar to what happened to Citigroup last year, they were prevented from raising a dividend or increasing their buyback. If they initially say, no, the number is too high, do you get a sense that you can then just resubmit and not have to wait 12 months to resubmit? Richard Carrión: I hope we can have a dialogue before we make the final submission. But as you say, it's not clear what the process will be. We'll try to have a dialogue, but sometimes it's a more of a one sided conversation.

Second question is, with the recent announcement from the U.S. government about opening up relations with Cuba, have you guys given some thought of expansion. Is that a market that offers potential for Popular? Richard Carrión: We would love to get in Cuba. I think there has been quite a lot more hubbub in the press than reality. The treasury on their OFAC put out some OFAC modifications just last week and we're following pouring over that. I hope to open an office in Cuba before I retire. But at this time, I don't think it's a very real possibility, until some more meaningful changes are achieved in the relationship. So I think that maybe a while off, but we're all over that and definitely interested. There is a lot of cultural affinity. I've been to Cuba a couple of times. We have a couple of Cubans in our top management team. So we're into it, but I think it will be a while.

And then finally, I know you touched on some of the economic issues and obviously the government issues in Puerto Rico. Is there any outside numbers that we can look at that can give us a flavor for the benefit Puerto Rico will see from these lower oil prices? We know in the big picture it should help, but I know the Puerto Rico monthly economic indicator comes out every month, but are you aware of anything that we could keep close an eye on? Richard Carrión: We put out a quarterly economic newsletter. But in general, let me just give you the bottomline, the consumption of oil here is somewhere between 55 million and 60 million barrels a year. So you can do that math fairly easily, assuming prices stay at this level. It's a significant decrease in the price of oil and it is all imported here. I don't think of any negative impact of the decrease in the price of oils. So it is definitely helping at the [ph] bump and it will soon be reflected in electricity prices. But what consumers do with that money, we hope they keep their loans up to date, and whatever is left over they run out and buy something, but we'll just have to see.

Our next question comes from Brett Rabatin of Sterne, Agee.

I wanted to ask for a little color, perhaps if possible, on just thinking about 2015, and you gave some commentary in the prepared comments about no market share, and how you're sort of playing out in terms of the local economy and lending. But as we think about 2015 and the opportunities to keep the loan portfolio flattish, are you guys any more optimistic if that's a possibility this year or there is couple of percent shrinkage kind of feel like more of a realistic scenario for the loan portfolio? Richard Carrión: I think our feeling is flat, but bare in mind that we have our covered loan portfolio that continues to shrink. So the shrinkage will come from the covered loan run-off. We think the rest of the commercial portfolio can remain flat to slightly increase. At least that's what we're shooting for.

And then, can you give any additional color around the pension plan accounting that changed, that resulted in the $100 million, I think it was decrease. Was there a change in assumption there? What kind of drove that? Richard Carrión: Mainly two things, and I should let these guys do some work here, but I actually know the answer to this. So let me show off. One was the decrease in the rate we use to discount the liabilities, which as you know with long-term rates easing towards the other year that pulled that rate down, so your liabilities go up. And the other is the new mortality payables, which assumes we're all going to live longer, so that also increases the liability. My controller is nodding at me, so I think I got it right. But that was just basically, it's -- and our plan even based on market value is about 85% funded right now, even with this thing.

And then everyone is waiting for the proper plan and the fiscal things to happen in Puerto Rico. Any color around the $75 million credit moving to non-accrual. How much of reserve is set aside for that loan? And can you talk about the process of that moving to non-accrual? Was that a function of some of the comments by the GDB recently or what led to moving that loan? Richard Carrión: I'm going to let Lidio tackle that one, but we feel we're very adequately reserved there. But I'll let Lidio go through his process.

I think it's a combination of information that we receive through the quarter, the passage of time and expectations that the probability of receiving all of the principal interest have diminished since the last quarter.

And then, it's my last related question around that. Are you guys thinking about -- you talked a bit in the past about potentially increasing your exposure to some of these entities, if the terms were right. Has that changed any? Richard Carrión: No. I think the key word there, Brett, is selectively. I mean, if we like the credit, if we're like the tenure and we like the terms, we're going to come in. But we're very mindful of having a lean on revenue sources and making sure we get repaid. We want to be helpful at this time, but definitely need to be mindful of the fiscal situation. But we will selectively participate, yes, as we have recently.

Our next question comes from Taylor Brodarick of Guggenheim Securities.

I think just a couple for me. Firstly, I guess, with a restructuring in the United States, is there going to be allow you to deploy more resources to the New York Metro and South Florida markets that, where you were previously stuck with in Illinois and California. And I guess is it just more that to have lower expenses from the consolidation of those operations? Just kind of wanted to refresh on your feeling. Richard Carrión: Well, hopefully a little of both. I mean our intention is to focus on those two markets, and hopefully we will grow organically and eventually there maybe some opportunities there as well as lowering the expense base. And we think we're almost home on that last point by bringing a lot of those central office functions to Puerto Rico. We think we will lower that expense base substantially.

And then on the FDIC loss share asset, just maybe remind us sort of your thinking of that as you approach the five year anniversary of that deal. What were you expecting? I know you can't forecast the cash flows, but what you're thinking of that expense for the next two quarters? Are we going to see a spike or what? Richard Carrión: Really, we can tell you. I'd let Carlos tackle this one. But really it's something quarterly, we have to look at the cash flows do the recasting, check our collections and see where we are with the idea being that IA goes to zero as of June 30. Carlos Vázquez: The commercial part of the IA will go to zero at the end of the quarter. And we are working very diligently to manage that portfolio to the best of our abilities, and we think we are in track to do that. As you have seen the IA goes down every quarter. We receive payments as well from the FDIC that bring it down. So we believe we are on track to achieve the better management of that.

We have a follow-up from Brett Rabatin from Sterne, Agee.

Just wanted to follow-up maybe on the expense run rate. As you guys go through this year, I mean, I don't know, the $290 million guidance. I guess the first thing I was curious about was from an ORE expense perspective would that assume that number kind of stays flattish going forward? And then, I guess, secondly, are you guys going to have any leverage? Do you think going forward in the professional fees bucket, especially post the fourth quarter? Richard Carrión: Well, we had a bunch of special things in the quarter, and that's definitely not our run rate going forward. But I'll let Carlos for get into it. Carlos Vázquez: The first part of your question, whether it's going to be pretty flat, I can assure you, it's not going to be flat. It will vary all around the number we have indicated. As has been, if you look our history over the last four quarters or even more, we do have a fairly volatile expense line. We'll continue to work to make that lower obviously, but we are hoping that it can be lower than that. But our best guess right now is in the ballpark that I mentioned of roughly $290 million on an quarterly average basis for the year as a whole. So it may move up and down, as it did this quarter. If you compare this quarter to the first quarter of this year, it's a bit different, similar movements may happen, but we expect to be in that ballpark. Richard Carrión: We have some higher legal expenses and some comp expenses this year in addition to the ORE. So I think our target is that, it's in that $290 million range is what we want to keep it to.

And again, I know the ORE is difficult to predict, but was that number not seem poised to move down somewhat over the next few quarters? Carlos Vázquez: That number has been very sticky and hard to bring down. And part of it is, because we still have a lot of workout activity going on in the bank, part of it linked to the covered loan portfolio. And also the biggest part of banks still operates in an economy that's fairly challenged. So a number of our U.S. peers have a tailwind that helps them in the ORE, because the other line market is improving, we don't have that tailwind. So that ORE expense, number one, as Richard mentioned is lumpy, but it is sticky on the way down.

Our next question comes from Brian Klock of Keefe, Bruyette & Woods.

The guys asked both of my questions already on the expense side. I guess thinking about in BPNA, and I'm sorry, I had to jump on a little late on the call, so I'm sorry if you guys talked about this already. What are you guys thinking about as far as seeing an inflection point I guess for loan growth coming out of the BPNA segment in 2015? Richard Carrión: Well, we are focused on a couple of markets now and a couple of particular loan segment, so we do expect some growth in the U.S. on the commercial loan side, absolutely.

And I guess, I think that's something that maybe we'll see that maybe in the back half of the year, maybe there is some -- Richard Carrión: Well, hopefully you'll see it in the first quarter. We're seeing a good growth there. Carlos Vázquez: Well, it's a combination, Brian, of a lot of focus now on the two regions where we're operating. And the fact that we used to have a much larger portfolio that includes Illinois, Central Florida and California that had a higher rate of pay-offs. But even when the originations were fairly good, you didn't see it in the balances, because the pay-offs were really fast as well and some of that has gone away with some of the regions. So the combination of the two things, as Richard said, we should start seeing some growth.

And I guess, is there any, I've been thinking about the quarter-to-quarter drop, the $136 million, that you show on Slide 18. Now, is that again just as you're out there making loans, just right now you've got paydowns coming in that they are moving faster? Richard Carrión: Yes, absolutely. Carlos Vázquez: Yes. We also have sales this quarter. Richard Carrión: Non-performance and the legacy stuff.

Our next question comes from Alex Twerdahl of Sandler O'Neill.

I was wondering, if you guys could expand a little bit or talk a little bit about the proposed tax overhaul down in Puerto Rico, what it means to the island? And then also specifically if there is anything in there that would affect your tax rate in 2015 or beyond? Richard Carrión: Again, we know what we hear in the press and what we pickup from the people we know. We think the overall thrust of the program is to increase consumption taxes and to decrease income taxes, both at the individual and the corporate level. However, the consumption tax is a value-added tax, which would be a whole new regime, and it is not clear yet how that will impact us, which is why we were reluctant to give you any guidance on a tax rate. There is some gross profits tax that was put in place two years ago that is slated to go away, and income tax rates should come down, both again at the corporate and the individual level. But how the value-added tax will impact us is not clear. This has to go through a legislative process. And it's a contact sport, as it is in many places. So it is not at all clear. Hopefully, it will be clear by the end of the quarter.

And then just can you remind us, you talked about loan growth in North America. What kind of loan growth in the New York area you're putting on? Is it commercial or is it commercial like multi-family stuff that sound pretty easy to grow rapidly, should you have the desire? RichardCarrión: It's commercial. There is some multi-family there, but frankly not much. The rates are not really to our liking, but that's as far as I can go. But it's mostly commercial. Yes.

I mean the rates are pretty low for the multi-family, I know, but you guys have maybe an advantage being that you don't really pay income taxes in North America, that doesn't make them more attractive to you? RichardCarrión: Again, you just got to look at the rate and see if it makes sense, whether you pay tax or not. We'll assume that just look at the rate and see if you want to keep that paper for seven years, and that's the way to look at it and not on a tax or tax-free basis.

This concludes our question-and-answer session. End of Q&A