Good morning, and welcome to the Popular Inc. Fourth Quarter 2015 Earnings conference call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to the Investor Relations Officer of 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 Carrion; our CFO, Carlos Vazquez, 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 Web page at popular.com. I will now turn the call over to Mr. Richard Carrion.

Good morning and thank you for joining the call. I'd like to first address the highlights and key events of 2015 and the fourth quarter. Then I would present an update on our business and our thoughts regarding the fiscal and economic situation in Puerto Rico. Carlos will comment on the quarter's financial results and Lidio will provide an update of credit trends and metrics. Please turn to Slide Number 2. This year we reached a number of key milestones in improving the performance of our Bank. In February, we announced the purchase of $2 billion of assets and the assumption of a similar amount of deposits as part of the Doral Bank transaction with subsequent acquisitions of their insurance and mortgage servicing portfolios. In addition during the year, we completed the restructuring of our U.S. operations and in September we reinstated a quarterly dividend. These accomplishments come in concert with improved financial results for the Company. For the full year 2015, we reported net income of 895 million which includes the effects of the partial recapture of our U.S. deferred tax assets. Adjusted net income from continuing operations was 375 million improving on the prior year's 305 million. Our credit quality improved as total NPAs including covered loans of 843 million were down from 933 million at year-end 2014. Non-covered NPLs decreased 29 million to 602 million. NPLs were 2.7% of non-covered loans compared to 3.3% last year. Our stable credit metrics were the result of aggressive loss mitigation efforts, resolutions, restructurings and NPL sale. Our tier 1 capital and tier 1 common ratios at year-end were both 16.2%. Turning to Slide 3, as you can see we continue to improve our leading market position in Puerto Rico. Banco Popular franchise is unique and has consistently grown its retail…

Thank you, Richard, and good morning. On Slide 6, we present our adjusted financial summary for the fourth quarter. This quarter’s data is reconciled to GAAP figures in the appendix to the slide deck. Today’s earnings press release detail variances from the third quarter, the largest being lower loan loss provision and higher fee income, offset by lower FDIC loss share income and slightly higher operating expenses. Net interest income for the fourth quarter was 351 million, flat from the third quarter, as lower commercial loan income was compensated by [trend like] [ph] mortgage interest income and slightly higher income from consumer loans. We continue to achieve healthy organic commercial loan growth in our U.S. operations with fourth quarter growth of 6%, down slightly from 7% last quarter. Despite this U.S. based growth, our outlook for stable overall loan balances for 2016 remains unchanged. We anticipate that our U.S. loan growth will compensate for the Westernbank run up in Puerto Rico. On the Island, we have offset limited organic growth with selective loan portfolio purchases over the last few years. We will continue to pursue this acquisition strategy if attractive transactions become available. The average yield of our $2.1 billion Westernbank loan portfolio increased to 8.82% from 8.59% last quarter. We expect similar yields on this portion of our loan book for the next few quarters, slowly declining thereafter due to ongoing loan resolutions, repayments and the quarterly recast of the portfolio's expected cash flows. Our interest-bearing deposit costs were flat through prior quarter for progressed 54 basis points as improvements in deposit mix offset an increase in volume and tenure of client time deposits in our U.S. operation. Non-interest income, excluding FDIC loss share activity, increased by 11 million compared to last quarter. This was mostly the result of…

Thank you, Carlos, and good morning. Despite challenging economic and fiscal conditions in our main market, overall asset quality remained stable during the quarter. With three items impacting our reported results; first, we sold a verifying loan portfolio for Puerto Rico with a book value of 34 million of which approximately 21 million were in non-performing. The incremental provision associated with the sale was 5.9 million which were adjusting the non-GAAP results; second, commercial net charge offs in Puerto Rico were impacted by 31 million in charge offs related to certain borrowers for which specific reserves were recorded in prior periods; finally, we placed a $15 million individual customer relationship into non-performing status. This loan is secured mainly by Puerto Rico Securities. In the U.S., we finalized the first step for value adjustments related to the assets acquired and liability assumed from the development transaction. This process led to a lower fair value of asset acquired particularly for a portfolio respective of item known. Doral factoring that in portfolio is mostly a New York based portfolio with unpaid principle balance of 249 million and a revised fair value of 155 million. The main factors impacting our fair value assessment were borrower concentration, collateral values, and documented payment capacity. Please turn to Slide 9 to begin the discussion. This slide compares Popular’s current portfolio mix to that at the end of 2007. The key message is that the corporation has de-risked its loan portfolio by reducing its exposure to asset classes with historically high loss content. In the U.S., we no longer have a subprime consumer and mortgage business. Our U.S. bank is now a community and niche lender with a much lower risk profile. Our construction exposure is mainly in New York with experienced developers and prudent loan to values.…

Thank you Lidio, and please turn to Slide 13. Before we open the line to questions let me conclude today's remarks by reviewing the actions we're taking to drive shareholder value. Our healthy revenue generation and our leading market position in Puerto Rico allow us to earn above average margins. Popular's credit risk profile is meaningfully different from that of a few years ago. In spite of the difficult macro environment we continue to see stability in our main credit quality indicators while remaining attentive to fiscal and economic trends. This together with our strong capital levels improves our outlook. We also benefit from our Evertec ownership and our stake in Banco BHD León the second largest bank in the Dominican Republic. Given the fiscal and economic challenges we faced on the island we're focused on the current situation, while acting to minimize its risk. We have managed the Bank within this environment for the last 10 years completing several troubled loan sales, refocusing our loan books on lower loss content business line, raising approximately 2 billion of common equity and completing two end market FDIC assisted acquisitions. All while earning positive profits in our Puerto Rico business during the island's prolonged recession. More recently, in the past 18 months we have repaid close to 1 billion impart, have two credits MOU’s lifted, restructured our U.S. balance sheet and back office, purchased 2 billion of assets in the Doral transaction and reinstated our common dividend after six years. We will continue to seek additional opportunities in the current environment. We're encouraged by the progress we are seeing in our U.S. operations and by the strength of our Puerto Rico franchise. The next few months will be a defining period for Puerto Rico's future. We remain confident that Puerto Rico will emerge from the current challenges with a more vibrant and diversified economy and we will do everything in our power to ensure this outcome. Throughout its 122 year history Popular has persevered through a myriad of different challenges on the island. Although our company is intrinsically linked to Puerto Rico, Popular is also a story of a solid organization that has navigated through a complex environment and has emerged as a stronger, better capitalized and a more diversified institution. We look forward to reporting on our progress in the next few months. And with that I'd like to open the call for questions.

Thank you. We will begin the question-and-answer session. [Operator Instructions] Our first question is from Gerard Cassidy of RBC, please go ahead.

A question for you regarding the return of additional capital to shareholders, can you give us some further color on what the timeline might be that you could go back to the regulators to ask for that? And what type of percentage of current earnings you might be comfortable asking for?

Well we are not the -- we don’t have really to get regulatory approval. What we do is have an active dialog with regulators. Clearly, we want to see how the next few months turn out before we make a move in that direction. We’re conscious of where the stock price is, we’re conscious of the mathematics of buying back stock at this price, and we think we could afford to do a higher percentage of our earnings in terms of dividend return. But at this point, we’re going to wait to see how the next few months pan out before we make a major move.

And so you do not have to wait for the filing of 2016 DFAST?

No.

Okay, that’s just wanted to make sure. And then secondly maybe Lidio can expand upon that $15 million credit that you identified that moved into non-performing to give us a little more color about the securities and what’s behind it in terms of collateral?

To reiterate and make sure we got the right number, it is 15, half of 30, the amount - individual consumer relationship but it's mostly backed by Puerto Rico Securities, like given the obviously gyrations in the price of securities in Puerto Rico we place into non-accrual during the quarter.

And then finally, regarding your average loan balances, obviously it's a struggle to grow the loan book in Puerto Rico, we recognize that. Is it feasible to expect the average loan balances by the end of ’16 to be higher than where they are at the end of ’15? Or should we continue to expect them to kind of slowly decline?

I think what our view on that is that we expect loan losses to be flat during the year with some contingent run off on the Westernbank portfolio, our Puerto Rico business continues to be reasonably healthy given the environment, our bankers are very busy, we’re making new loans every day. And then we have nice growth in U.S. but a summation of all of those pieces would probably be loan balances that look about the same when we end this year.

And then actually last question, the last quarterly call I think you guys gave us some color on the consumers through their debit card transactions, how they were handling the fiscal situation and the headlines from it. Is there any trends that you can identify that the consumers are still spending money with an upward trend or now have they really pulled back?

Well, we look at both credit and debit card sales and it's a pretty big sample of the universe obviously. And we look at that, we back out the increase in the tax we make a guess as to lower gasoline, uninformed guess, I should say, as to lower gasoline prices. We still find that the last couple of months were positive an increase in sales vis-à-vis last year. So, that is in a sense the consumer has been continuing to spend and obviously the low price of oil while it seems to rattle the markets is pretty good if you’re a consumer in Puerto Rico and buying gas and paying for electricity. But we think that has probably pumped in a significant amount as a countervailing force to the other things that are going on, and so bottom-line sales have been slightly up to flat.

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

I guess first of all, I did hear your comments that loan growth [indiscernible] stabilized. Just switching over to deposit growth I mean it was a teeny bit weaker than what we were expecting, nothing material but just kind of more curious on your outlook for deposit balances given what’s happening in the Island, is it fair to assume deposits can actually stay stable as well, or is that noticeably different from loans?

We’re surprised by your comment that the deposit growth was lower frankly because we have seen very robust deposit growth particularly in terms of transactional accounts.

Perhaps I have high expectations.

Yes, deposits have been pretty healthy, probably more important part of your question Ken is what happens going forward, we don't guide on deposits, but all we can do is comment on our past experience and in past experience in Puerto Rico when a situation has got a little bit challenging usually it happens our deposit balance go up. So, again the best practice is not make a forecast but so far we’ve see good behavior in the deposit growth and historically when the economy is challenged deposits have tended to go up.

And then just the other question I had, in terms of a non -- I want to say non-GAAP perhaps adjustments you've had in terms of the reorganization, the book sale losses, impairments et cetera, at what point should we expect those to start trailing off, because I'd imagine we're getting close to that point already but just kind of wondering what the outlook is into early '16?

I feel you, Ken, they keep telling me this is last quarter but what the -- so the accountants come up with something every time with the DTA this time...

And we – Ken, it is our goal to be a [indiscernible] bank, it is our goal to have really clean numbers that don't have any adjustment to them, some of these we can't help it, situations come up where transactions occur that are not part of a normal course of business. So, as you know we were pretty diligent on our adjustments and careful about them. So, we're just trying to make sure that we present the market the best shot we can come up with what a running core business looks like, but yes, I mean we share your goal, we're trying to make that [indiscernible] adjustments go away, we just haven't succeeded yet.

Our next question is from Brian Klock of Keefe, Bruyette & Woods. Please go ahead.

So interestingly it seems that you read the newspapers everyday and it seems like Puerto Rico is going to just fall into the ocean. Obviously there is challenges there, but looking at your asset quality trends you guys have done pretty well this year with a tough environment. So, maybe thinking about so there's already been right the -- the Puerto Rico government has withheld tax rate funds, so, there's already been impact on the consumer. So, with everything that's going on now with Popular, now being so much delayed and I guess with the GDB and it's a early situation as the rest of the debt restructuring has been worked on, I guess how do you think this plays out by the time we get to the end of this fiscal year for the government, I know you talked a little bit about Richard what you think needs to be done. So, I guess is there, it seems like we have to get some things done before this fiscal year end. So, right, I guess maybe just think, is that think logical as they -- there can be some meaningful progress done by the middle of this year?

Absolutely I think there has to -- something needs to happen in before June 30th, before the end of the fiscal year. Now we are convinced of that, we're somewhat disappointed that some of these deals are taking a little longer to get done. We'd like to see more action coming from the Congress and as we've said repeatedly and even testified before the Senate, that we think the solution will have to have some kind of debt resolution structure or mechanism, we think the solution needs to have some type of fiscal board to ensure adherence to a good disciplined fiscal regime and more importantly we think the solution has to include some kind of stimulus towards private investment because at the end of the day we just want to see growth again and reverse some of the trends. So, we're not happy about where things are, but we think it will require urgent action in the next few weeks and months and we are convinced something's going to happen before June 30th.

Yes I appreciate your thought.

It's difficult to kind of handicap the dynamics of this because it's -- there is a lot of politics involved and it's tough to predict particularly in an election year both locally and in the state.

So, it's interesting in thinking about stimulus with everything else going on, it feels like, if I remember the numbers, if Popular could get resolved with the Redhawk Group planned us out there and that can get moved forward, the next phase it would be I guess would be restructuring of Popular which is a few billion dollars of capital that would be infused right, they would come into Puerto Rico economy, so in addition the low prices of oil and it's another stimulus for the economy, right, if am I correct?

Exactly I think the key to getting that restructuring done is that once that's done, it opens the way for a lot of capital investment and the replacement of very outdated loan mortgage plans. So, it is fundamental to get that one done as quickly as possible.

Exactly, and…

And Brian these are complex deals to stable the earnings with a lot of hurdles but we’re doing everything we can to make sure it gets done.

Great, and I hope the political leaders have that in mind as well that how big of an impact that could have to move that forward on all accounts.

Absolutely.

So the other quick question and I am sure Lidio I am not sure if you have it available or if we have to wait till the Q. But do you have the classified balances for BBPR at the end of the year versus I think it was about 3.2 billion was in Puerto Rico at the end of the September quarter?

It's not going to be significantly different than September but you have to wait until the Q.

Okay, fair enough. All right, okay. So and I guess maybe last question to one of the things that you guys have put up some challenged numbers here in Puerto Rico to challenging environment, the U.S. operation seems to be getting some traction. So, I guess can you talk about the expectation? Can you put up the same sort of growth that you guys have put in the last couple of quarters and ’16 in the U.S. BPNA franchise?

Yes, we think so, absolutely.

Our next question is from Alex Twerdahl of Sandler O’Neill. Please go ahead.

A couple of questions here please quickly, the Doral reassessment. Is that a onetime thing? Or is that something that have said in ever year?

No, that’s the onetime thing, you get 12 months from the date of the transaction to get it done. So it's a onetime thing.

And then you say that almost $77 million of the change in the loan portfolio is due to medallion loans. But what is roughly the other half of the $147 million of adjustment to loans, so what kind of loans are those?

They’re mortgage consumer 1 to 4 family mortgage loans, construction loans in the U.S. and some limited CRE and C&I loans in the U.S. The total mark on the Doral portfolio including the taxi medallion was around 10%.

10% additional this quarter?

The total mark, so that the total discount…

Of the total for the Doral assets that we acquired.

And then Lidio if you have them handy, can you just rattle through some of the statistics on that medallion piece? It's like for example, how many medallion loans the 248 unpaid principle balance represents? And I think you said that it was due to concentrations to some big borrowers. Can you just tell us how big, how many loans, or how big the loan value might be to one borrower?

Sure, I’ll give you some of the numbers that I have handy with me. We have approximately 248 loans that compose the outstanding balance that we have from that portfolio. Our biggest relationship is approximately 55 million of on paper and to the balance our current value then obviously with the discount you can do the math, more or less.

But it's 248 loans and the anti potential balance is $248.6 million. Did I hear that correctly?

Correct, yes.

And then on the bulk loan sale, you say the book value is 34 million plus. What was the unpaid principle balance on that? And what was the final sale price?

Yes, the on paper balance was 68 million and the price paid was between 47 and 48, 47, 75%, yes.

Okay, and those were all commercial loans, commercial real estate loans?

Those were all commercial loans of the dairy farm industry.

Agriculture though.

And then just finally, can you help us think through if we do get some restructuring, some former Chapter 9 or whatever I think we have a good handle on layer exposures are to the bonds and to the loans to the central government. But assuming that there was restructuring would also include some reduction to maybe some balances owed to various contractors and what not, who you could have exposure to. Can you help us just think through sort of what the impact would be to your balance sheet if in fact we do get some Chapter 9 and how you’ve been able to quantify those exposures internally? And whether or not those types of things are incorporated in DFAST? And just maybe a little bit more discussion about that?

Let me just give you obviously we’ve spent a lot of time thinking about this and we’ve taken a crack at the impact on both our commercial and our consumer and mortgage portfolios. Basically, looking at the impact of government employees getting laid off and what that would do to our consumer portfolios looking at our client base in terms of commercial clients and what is their spending to the government in terms of how much they rely on the government for their revenues and what are the criticalities of the functions they provide and then take it across increasing loss queue and default an increasing or for actually pending up the classification of all these loans and seeing that impact, all of those there have turned to be well within the scenarios we have done for our DFAST, I don't know Lidio if you want to.

I think that's perfect.

Good, so you've caught me well, and it will be one [Multiple Speakers]

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

I think most of that's going to drive, but just wanted to ask from a regulator perspective, kind of how what they've been thinking here with all the noise that's been happening in Puerto Rico. How has their mindset changed regarding capital ratios or kind of how they look at share institution, any thoughts on how they've changed with their view on Puerto Rico and what maybe they've done recently in terms of communication with you?

Well, regulators as you know are -- tends to be risk owners otherwise they won’t be regulators. So, they are pretty nervous, but I think we keep very good communication with them, we buy along with them, we taken through some of the things we do to just try to get ahead of these things, we think they're pretty comfortable with our position and what we've done, we think they think we are by far the better association and institution on the island and they like to get some intel from us, I think we think because they never really come out and say that you're going to interpret the body language there but we think they're fairly comfortable with what we are.

And then just thinking about you mentioned early in your comments, liquidity might fall short from so many things going on in Puerto Rico. Do you have plans to change anything with your securities possessions with Puerto Rico debt?

We have very little exposure there frankly, so there's not much I mean I don’t know Carlos if you want to.

Right, now there's the serious possession with -- it is on the table on the deck on Page 5 it's only about $18 million so to speak any change on that will not be material to our results.

[Operator Instructions] Our next question is from Leo Harmon of FMA. Please go ahead.

Wanted to talk a little bit just big picture, obviously as you all have pointed out on the call that over the last four years and particularly over the last 10 years so you've driven a lot of growth in tangible book, you've increased earnings power, you've sold out assets, you've right sized the balance sheet, your reward for that is trading at the 50% of tangible book. And obviously there's a disconnect somewhere between what the market is perceiving and what you're perceiving, so as you are talking to your Board, can you walk through what you're thinking about strategically whether or not you think about going private, whether or not you think about looking that larger partners to be able to capture the difference between perception and reality?

Well, it is frustrating at times to look at everything we think we have accomplished objectively and then you look at the stock price, we just keep banging away, yes we do have -- we have had these results at times where there is an alternative to being in the public market, what -- it hasn't gone so much beyond that thus far.

It is we believe -- we're sharing your frustration, there is a lot of environmental in the behavioral of our the various opportunities, lot of response to the environment in Puerto Rico that we have to operate in, that we can help and move in the right direction well we obviously we can solve that on our own, so we're just trying to run a really good time in the meantime and eventually devaluation will recognize that.

Our next question is from Michael Cohen of Opportunistic Research. Please go ahead.

Was just following-up on the taxi medallion, can you provide just a bit of additional detail, 248 million in taxi medallion loans, are those exclusively in New York City and how many medallions are those against and what do you have the average medallion value at, and average loan to value?

Let me see if I can pick -- answer some of the questions that you posed, as I mentioned in the call the majority of our exposure is in New York about I want to say 91% to 92% it's in New York City, we have about another 5%-6% in Chicago and then the rest miscellaneous exposure in other jurisdictions. So the majority is in New York City. In terms of the number of medallions let me see if I have that information handy. The number of medallions is 337 million exactly is -- 437 medallions is the composition of our portfolio and what was the other questions, the…

I am sorry you said there is 137 medallions?

437.

437 medallions and roughly 91…

If you tell me the value, I can give you a current value to loan to value. So I mean that certainly it is a difficult thing to answer precisely actually because of the Part B of the values of medallions in New York City.

And how many of those medallions are in New York?

I said 91% New York City, about 5%-6% Chicago and then the rest in other jurisdictions, particularly Miami.

[Operator Instructions]

Okay, thank you very much.