Popular Inc (BPOP) 2018 Q4 法說會逐字稿

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 filing. 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 $0.30 per share, beginning in the second quarter of 2019, and a common stock repurchase program of up to $250 million. These actions evidence the strength 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 milestones. For example, we completed the Wells Fargo acquisition, achieved the successful termination of our loss share agreement 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 loss-share agreement during the second quarter and the expense related to the impact of the recently enacted tax reform in Puerto Rico on a 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 negative effects of the hurricanes, while in 2018 we benefited from the positive growth and higher interest rate as well as the contribution of the Reliable acquisition. Credit quality results for the year were positive. In Puerto Rico, most metrics were better than or close to prehurricane levels. In the U.S., credit quality was solid throughout the year, except for the taxi medallion portfolio that now has the carrying value of less than $50 million. Our capital levels are strong with year-end Tier 1 capital and Tier 1 common ratios at 16.9%.

In Puerto Rico, we increased our deposits by 14% and our net interest margin was 4.27%. In our U.S. operation, we grew commercial loans by 7% and our deposit base by 4% and increased our margin.

Please turn to Slide 5 to discuss the highlights of the fourth quarter. In the fourth quarter, Popular reported net income of $106 million. Excluding the impact of the DTA valuation, adjusted net income was $134 million compared to last quarter's net income of $141 million.

Adjusted results were driven by continued top line growth and a reduction in provision, partially offset by higher expenses. The increase in expenses was driven by cost related to the early extinguishment of debt, our profit sharing plan and the previously announced voluntary retirement program, in which 313 employees elected to participate. This program facilitates our colleagues' transition to retirement and allows us to provide talent development opportunities and facilitate mobility within the organization.

Net interest income was $25 million higher than the previous quarter, mainly due to an additional month of earnings from Reliable. We had another quarter of positive credit results with lower NPLs and stable inflows. The increase in net charge-offs was driven by 2 large commercial relationships in Puerto Rico, which were partially offset by lower mortgage and consumer charge-offs. Lidio will expand on these results later in the call.

Before I turn the call over to Carlos, I will share some metrics we track and comment on the progress we are seeing in Puerto Rico. Our customers' debit and credit card activity reflected increased spending. Spending for 2018 rose by 22% compared to 2017 and 2016 and 29% compared to 2015.

Trends regarding consumer activity are also encouraging. Our originations were 35% higher than 2017, driven by auto and personal loan and 13% higher than in 2016. The auto industry continued to do extremely well. New units sold in 2018 reached 108,000, 28% higher than the previous year and the highest figure in the last 12 years.

The mortgage business has not recovered as well. Our estimates point to a slight market contraction during 2018 as compared to the previous year. On the positive side, home sales in 2018 reached their highest level in the last 6 years.

On the commercial loan side, we have not yet seen loan growth, but we expect additional lending opportunities to arise as the economy continues to recover. We believe that continued economic growth and larger projects should generate additional demand for financing. Cement sales, often considered an indicator of the healthy economy, showed continued strength, up 41% year-to-date versus 2017 and 26% higher than in 2016.

Total employment, which includes self-employed individuals, increased by 1.6% during 2018. The unemployment rate was 8.3%, one of the lowest in recent decades. As of December, salary employment had stabilized, down 2.1% from September 2017 but up 0.8% since December of 2017. This improvement was driven by an increase of 1.7% in private sector jobs, partially offset by a 1.8% decline in public employment.

With respect to migration trends, the most recently released passenger data from the San Juan airport reflects that the net number of people who left the island from September 2017 to September 2018 was approximately 150,000. This is a significant amount but much lower than initial estimates. Despite the decline in population, Popular's customers have continued to increase. Excluding approximately 30,000 new unique customers brought in with the Reliable transaction, our customer base in Puerto Rico increased by approximately 58,000 since the hurricanes and by 50,000 in 2018.

In short, based on the metrics we are seeing, the recovery of the Puerto Rico economy following the storm continues to be steady. The sustainability and pace of the recovery will, however, be heavily dependent on the magnitude and timing of federal recovery and private insurance funds flowing into the island. Insurance companies have disbursed approximately $5 billion out of an amount estimated by the Puerto Rico Fiscal Oversight Board to reach $8 billion.

Regarding federal funds, close to $9 billion was disbursed in fiscal 2018 in emergency relief assistance to individuals, public corporations and municipalities. While the flow of CBDG Disaster Recovery funds has been slower than many hoped, it appears that these funds should begin to be disbursed in the first half of 2019. The current Puerto Rico government fiscal plan anticipates an additional $13 billion of federal and insurance funds to be disbursed in fiscal year 2019 and over $50 billion in the next 8 years. These inflows will undoubtedly have a stimulative impact on the economy. However, the effect will be tempered somewhat by the government austerity measures imposed by the revised fiscal plan.

Looking beyond the immediate stimulative effects of the recovery process, the island's long-term prospects will depend on the decisions regarding Puerto Rico's rebuilding and the implementation of necessary structural reform. It is imperative that we take the advantage of this unique opportunity to implement those reforms that are essential to achieving a long-term sustainable growth. This will require discipline and increased cooperation between the Fiscal Oversight Board and the local government.

I will now turn the call over to Carlos, who will discuss the financial results in more detail.

Thank you, Ignacio. Good morning. Before we turn to the fourth quarter results, let me start by expanding on Ignacio's summary of Popular's full year 2018 performance.

2018 was a dynamic year for Popular in which we achieved quite a lot. Our net interest income increased by 16% year-over-year to $1.7 billion on the back of strong loan growth along with a net interest margin that exceeded 4%. Our acquisition of Wells Fargo's Puerto Rico auto finance business, closed in the third quarter and has already yielded significant benefits, as did the early termination of the FDIC loss-share agreement, which we executed in the second quarter.

Additionally, in the last 2 quarters, we repaid $450 million in 7% senior debt and replaced it with $300 million in [6.125%] senior debt. Our provision expense decreased in 2018 by approximately 29% to $226 million, given the 2017 hurricane-related expenses.

Excluding the 2018 benefits from terminating the FDIC loss-share agreements, fee income increased by approximately 30% year-over-year, driven by improvement across all segments.

Operating expenses increased by 13% year-over-year to $1.4 billion. Higher personnel cost, professional fees and 5 months' worth of Reliable expenses were the primary drivers of the increase.

Our capital position was robust at the beginning of the year and ended the year at even stronger levels, with tangible book value per share increasing by nearly $4 to $46.90 and common equity Tier 1 improved by 60 basis points to 16.9%. This capital improvement was achieved even after the repurchase of $125 million of common stock and the Reliable acquisition for $1.9 billion.

Please turn to Slide 5 for the fourth quarter results. Note that additional information is provided on Slide 6 and the appendix to the slide deck.

Today's earnings press release details variances from the third quarter, which were driven by higher net interest income, higher fee income and a lower loan loss provision, offset in part by higher operating expenses and higher taxes. Net interest income for the quarter was $426 million, up $25 million from the third quarter.

The increase was driven by higher loan volumes mainly in our auto business in Puerto Rico as well as higher volumes and rates on investments, partially offset by higher volumes and cost of interest-bearing deposits.

Additionally, the early pay off of a Westernbank commercial loan resulted in the recognition of $5.7 million in income in the quarter. Our net interest margin was 4.25%, up 18 basis points from last quarter. A contribution from Reliable was the primary driver of the sequential improvement, adding 9 basis points to the NIM. The yield on earning assets increased 23 basis points in BPPR and 20 basis points in Popular Bank.

Total deposit cost in the quarter increased 9 basis points to 65 basis points. The cost of our interest-bearing deposits was up 11 basis points to 83 basis points, mostly due to higher volume and rate for Puerto Rico public sector deposits and higher deposit cost in the U.S. The retail and corporate deposit segments in Puerto Rico saw small increase in cost of 2 basis points.

During the quarter, we deployed cash for the purchase of investment securities, adding approximately $400 million of treasury securities. These investments achieve more attractive after-tax yields without adding credit risk or materially changing the characteristics of the investment portfolio. The overall duration of the bond portfolio is still under 3 years.

We are pleased with the financial performance of the Reliable acquisition, especially considering the strong demand in the auto lending sector in Puerto Rico. The combined retail portfolio of Reliable and Popular auto grew by $170 million during Q4. The results for the quarter include approximately $18 million in net income contribution from Reliable compared to approximately $12 million in the third quarter. The acquisition is performing better than anticipated, and we now expect Reliable to contribute a range of $55 million to $60 million of net income in 2019, including service and fee income and conversion cost.

Focusing on loan growth, we still anticipate slight growth in overall loan balances for Popular in 2019, driven by continued growth in the U.S. and stable balances in Puerto Rico. Our provision in the fourth quarter decreased by almost $12 million. Lidio will provide more details on credit during his commentary.

In the fourth quarter, noninterest income increased slightly, reflecting a benefit of $9 million from the valuation of our MSR, offset by lower other operating income. Loan modification fee income decreased by $7 million from the third quarter. Having completed the majority of the hurricane-related mortgage modifications, we do not expect this item to be material moving forward. Additionally, other operating income for the quarter included $10 million in hurricane-related recoveries, consistent with the third quarter. We think most material hurricane-related insurance claims for Popular have now been closed.

Our Puerto Rico mortgage business originated $164 million in loans in the fourth quarter, a decrease from $172 million in the third quarter. Originations continue to tend -- trend at a pace below prestorm levels. Total operating expenses for the quarter were $396 million, up $31 million from the prior quarter. As discussed during last quarter's webcast, in the fourth quarter, we recognized an expense related to the early retirement program. This number, at approximately $19 million, is slightly higher than our previous estimate of $13 million due to a larger acceptance rate by employees. The program is expected to reduce salary expense by about $10 million in 2019.

Additionally, fourth quarter personnel costs were elevated in part due to increased profit-sharing expense given Popular's improved performance, which totaled $17.5 million for the fourth quarter and $25.5 million in total for 2018.

Fourth quarter expense numbers also include the previously announced $12.5 million expense for the early termination of Popular's $450 million 7% notes due 2019. Approximately $12 million of expenses are related to having the full quarter of Reliable operations under Popular. Business promotion costs were higher in the fourth quarter and reflect the traditional seasonality of this expense line.

Finally, OREO expenses improved compared to last quarter due to incremental reimbursement on hurricane insurance claims and the gain on sale of certain properties.

If we adjust the fourth quarter expenses for the following 4 items: one, the $19.5 million for the retirement program; two, $17.5 million for the profit-sharing plan; three, $12.5 million for the early extinguishment of debt; and lastly, $11.7 million of Reliable expenses, adjusted fourth quarter expenses will be approximately $335 million, which is in line with our most recent guidance.

For 2019, the expected normalization of OREO expenses resulting from a return to normal foreclosure activity and a full year Reliable operation will add approximately $40 million to Popular's expense base. Higher pension, technology, regulatory and personnel cost are expected to result in average quarterly expenses for year 2019 of approximately $364 million.

On December 10, 2018, the government of Puerto Rico signed into law the Puerto Rico tax reform, which among other things reduced the corporate income tax rate from 39% to 37.5%. As a result, in the fourth quarter, Popular recognized a noncash income tax expense of $27.7 million as the reduced tax rate required we adjust the net DTA of our Puerto Rico operations.

Our effective tax rate in the fourth quarter, excluding DTA valuation expense, was approximately 30%. This is higher than in the third quarter and higher than our prior guidance, as more income was recognized at the 39% marginal tax rate in Puerto Rico. In addition, due to Popular's tax position, the debt extinguishment expenses are not subject to a tax benefit. In 2019, we expect our tax rate to be in a range of 22% to 25%.

Please turn to Slide 7. Our capital levels remain strong relative to peer banks as well as with respect to well-capitalized regulatory requirements. In the fourth quarter, we completed our previously announced $125 million buyback through an accelerated stock repurchase program. As Ignacio mentioned at the start of today's call, subject to the approval of our Board of Directors, our 2019 capital plan includes 2 actions. First, an increase of Popular's quarterly common dividend by $0.05 to $0.30 per share, which we expect to implement for the distribution of our next quarterly dividend. And secondly, we will be implementing a common stock repurchase program of $250 million. While our last 2 buyback programs have been executed via ASR, the detailed implementation plan of this buyback is still in the design stage.

Tangible book value in the quarter was $46.90, up from $44.62 last quarter due to a decrease in unrealized losses in our investment portfolio and our earnings for the quarter, offset by common and preferred stock dividends. Our common equity Tier 1 ratio was 16.9%, up from 16.2% on the effect of the Reliable acquisition, capital actions, dividends and our quarterly results. We will continue to pursue our target of maintaining and improving our double-digit return tangible equity while keeping capital levels that are appropriate for Popular's risk profile.

With that, I turn the call over to Lidio.

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-offs, credit quality metrics are better or near prestorm levels.

In our consumer portfolio, excluding the Reliable transaction, early delinquency and nonperforming loans are below prehurricane levels. The consumer net charge-off ratio for the fourth quarter of 2018 was 2.11%, also below prestorm levels.

In the mortgage portfolio, total delinquency continued 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. Delinquency net charge-off was due to a specific relationship. One is a problem loan acquired from Westernbank, which we have been working out for some time and from which the charge-off was reserved 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 nonowner-occupied share rates -- share [rippa] portfolio is $2.3 billion, of which roughly $750 million is variable rate. We have [stretched] our portfolio by increasing rates and analyzing our customers' ability to service their debt and concluded that none of our remaining viable share portfolio are of significance and any potential future impact has been included as part of the environmental factor 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 #8. At quarter end, our outstanding direct exposure to the Puerto Rico government, municipalities and other [municipalities] was $458 million, flat from the prior quarter. Popular does not own any debt issued by Puerto Rico central government or its public corporations.

Our municipality exposure consists mainly of senior priority loans to a select group of municipalities whose revenues are largely independent of the central government. In most cases, the good faith credit and unlimited taxing power of each municipality is pledged to a repayment of the loans. 75% of our exposure are to the 4 large municipalities in the San Juan metro area. We also have indirect lending facility in which the government acts as a guarantor. The largest of exposure is in the form of residential mortgage loans to individual borrowers in which the government provides a guarantee similar to FHA programs in the U.S.

Turn to Slide #9 to discuss credit metrics for the quarter. Nonperforming assets decreased by $18 million to $748 million this quarter. Driven by nonperforming loan decrease of $21 million, offset, in part, by [marginal] increase of $3 million.

The decreasing NPLs was driven by lower Puerto Rico mortgage NPLs of $25 million and U.S. construction NPLs of $6 million, offset in part by an increase of $12 million in Puerto Rico commercial NPLs. At the end of the fourth quarter, the ratio of NPLs to total loans held in portfolio decreased slightly to 2.3% from 2.4% in the prior quarter.

The increase in OREO was mainly in Puerto Rico due to the resumption of foreclosure activities.

Please turn to Slide #10 to discuss NPL inflows. The NPL story is positive, so I'll be brief. Inflows of NPLs were flat quarter-over-quarter. Puerto Rico mortgage inflows for the quarter remain significantly better compared to prehurricane levels, primarily due to lower early delinquencies post moratorium.

Turning to Slide #11, net charge-offs amounted to $107 million for an annualized 1.63% of [average] loans held in portfolio compared to $64 million or 1% in the third quarter. The increase of $43 million from the prior quarter was mainly driven by higher Puerto Rico commercial net charge-off of $49 million. This increase was in part offset by lower consumer net charge-off of $6 million and lower mortgage net charge-off of $4 million.

Net charge-offs in the U.S. increased by $7 million. The corporations allowing for loan losses decreased by $64 million from the prior quarter to $569 million, mainly driven by a decrease of $53 million in Puerto Rico due to 1 large relationship previously reserved for, coupled with improvement in the loss estimates of the purchase crediting portfolio, improving loss trends in our consumer portfolio and lower European reserves.

Last year hurricane reserve has been mostly reallocated, utilized or reversed. The U.S. segment allowing for loan losses decreased by $11 million mostly related to construction relationship charge-off during the quarter.

The provision for loan losses decreased to $43 million from $54 million in the prior quarter, reaching prehurricane levels. The decrease of $11 million was mainly in Puerto Rico due to the continued improvements in credit metrics after the hurricane.

To summarize, the credit quality results for the fourth quarter were favorable with continued strength in the U.S. and metrics that are close to or better than prehurricane levels in Puerto Rico.

With that, I would like to turn the call over to Ignacio for his concluding remarks. Thank you.

Thank you, Lidio and Carlos, for your updates. 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 planned 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 effort.

Approximately 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 since 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're now ready to answer your questions.

(Operator Instructions) And our first question comes from Alex Twerdahl of Sandler O'Neill.

I wanted to 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 what kind of have been the flows during the fourth quarter of sort of your core deposit base versus the government deposits?

Yes. Alex, this is Carlos. Our public deposit are around $8 billion right now and they were slightly down in the fourth quarter. They haven't changed that much for the last couple of quarters, though.

Okay. And then as you kind of talk about the $9 billion of emergency funds that have come in, in 2018 and the $13 billion that are expected for 2019, do you have any more clarity today on [courts] or how that might impact Popular's balance sheet and P&L? How much of it might actually flow through the bank, whether it's directly, indirectly, per share, really, et cetera?

Well -- this is Ignacio. I mean, we have a nearly 50% market share, so the money that flows in Puerto Rico is a good chance that they 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 had a sort of a question about, towards the end of last year, there was a bunch of press about the qualified opportunity zones and how it potentially could impact Puerto Rico disproportionately just given how much 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 any investment, but there has been a number of opportunities. I mean, a number of people are talking about the opportunity. There's been a number of conferences, a number of investors coming to Puerto Rico. Yes, there was someone from the construction industry who says they're working on 3 real projects that would involve opportunity funds. So there -- I think we haven't seen a specific project to date, 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 in 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?

Yes, I mean, the -- I think the balance we have left is about $82 million right now, Alex. The -- I think a large portion of the part of that had to do with the commercial portfolio is probably done now. So most of what's left is probably consumer portfolio. Those loans have an average life of about 3 years, so if you straight-line that, in 2.5 years, you're probably in the right ballpark.

Our next question comes from Brett Rabatin of Piper Jaffray.

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

Yes. I mean, I -- the first thing is, as you mentioned, we have been saying for a while that we expect public deposits to trend down. They haven't yet, but they will eventually. When that happens, it doesn't really affect liquidity because all public deposits in Puerto Rico need to be collateralized. So when and if that happens, we get 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 -- and 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 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 are payoffs a bigger issue this year? What -- can you maybe...

A couple of things. First, as Ignacio mentioned, 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 payoffs. Do remember that our Westernbank portfolio, our Western portfolio is a decaying portfolio that runs out -- it's probably worth 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 affected, Brett, by our -- the Fannie Mae portfolio we service, because when those become delinquent, we have to report them in our loan balances, even though we haven't repurchased those loans yet. And in the fourth quarter, there was a reduction of about $60 million, okay? So there is some variability there. Again, we are hopeful, as Ignacio mentioned, that we will see some loan growth in Puerto Rico, but we are stopping short of calling it until we see it and we haven't seen it yet.

Okay. Now that's good color. And then maybe just one last housekeeping, would you guys have the dollar amount of client transactions for debit, credit in the quarter?

All done, I think we do. Just give us a second to flip through our papers.

I think we have it here.

Give me a second. The -- 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 billion in the prior quarter.

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

This is actually Steve dialing in for Gerard. So just on your capital return, you guys announced the 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?

Yes. I mean, I think assuming this is pretty much it for the year is the right assumption. There is no regulatory restriction that would keep us from trying to do something else. But the truth of the matter is that the process we have followed over the last 3 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 the best assumption right now is that the next capital action announcement will follow the same trend, the same story we followed and timing we followed over the last 3 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 4 years obviously was the hurricane season.

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

This is Ignacio. I think we always look at opportunities that are presented to us. But as you know, in the last few years, they've been very expensive, and we are 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 cautious.

And remind you that we cannot do acquisition on deposits in Puerto Rico. We can buy banking assets in Puerto Rico but not deposits.

Our next question comes from Glen Manna of Keefe, Bruyette, & Woods.

This question I guess is for Lidio. Lidio, the 2 commercial relationships that you took the NCO for in Puerto Rico, were those charged off against the special hurricane provision that you took last year? And how much of that provision is kind of left?

Yes, I think I mentioned in my prepared remarks that we have, for the most part, either extinguished -- have been bought into a regular provision, all the reserves that we had related to the hurricanes, so none of it is -- most of it is out this quarter. In terms of whether the 2 cases that are -- that we cited were part of the hurricane reserve, they were not. They were -- this was 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 an ASR. Is there any reason why we should assume that you kind of wouldn't follow that path again this year?

We have just started the analysis -- while we have done 2 ASRs consecutively, Glen, we have -- every time we actually have sat down and gone through analysis what we think the best path of action. We will do the same this time, and we don't have a plan yet. So yes, we've done that for the last couple of times. We may do that again, but at this point in time we haven't reached any decision.

Our next question comes from Ken Zerbe of Morgan Stanley.

Just in terms of fee income line, I know when you back out the -- it sounds like the $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?

I mean, I think other than those 2 things, the quarter was pretty normal quarter. So you just did the calculation I think and...

Got you. Okay, so like mid-130s or so?

[That level, yes].

Our next question comes from Scott Valentin of Compass Point.

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 full quarter of Reliable, but how should we think about the margin going forward? I know you guys have an asset-sensitive balance sheet outlook. It was -- the fed's not going to raise rates as fast -- as that's the outlook today; that changes day to day. But just wondering what the outlook for the margin is? Are you thinking about a core margin maybe of 4 15, in that range, given the 10 basis point benefit this quarter, is that a fair way to look at it? Then probably, mostly, stable going forward?

I mean, we have a -- we had an increasing rate in December that you haven't seen the effect of that yet and that we will flow through moving forward. I think Reliable is all in now. So other than that, I think those are the 2 effects that are left, so...

The one thing we would correct, the prepayment, I'm assuming, you mean the commercial loan that paid off, that had a benefit. There's always things in that line that go back and forth. I would give that a minimum maybe 2 to 3 basis points all-in. So I think the run rate for the quarter, it's fairly reasonable.

Okay, thanks. And then just on the -- the 1 credit -- I guess the 2 commercial credits, the 1 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 you can give maybe some color on the industry it was in?

On nonoccupied CRE, there was no reserve prior to the actions that we took this quarter.

And then just on the return of capital, looking -- I know the regulators, obviously, you have to deal with regulators and we don't have that insight to the discussions there, but it seems like with the CET1 ratio, you guys have very high, very profitable, credit is getting better. I mean, going forward, do you see it as incremental process where assuming the outlook for Puerto Rico is still 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, yes, 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, 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 regulators of the strength of our financial position.

Yes. I mean, we continue to track our peers and hopefully we can continue to do that towards -- sometimes they see -- the one interesting thing that we and all our peers will have to deal with is the effect 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 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 peer -- our mainland peers.

(Operator Instructions) Our next question comes from Bob Napoli of William Blair.

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 in January? Do you -- with the changes in government and relief funding and obviously a lot of rebuild going on, do you expect to have decent growth in 2019 in credit and debit card spending?

Well, it's too early to tell in January because we're still in the month. But we -- and generally 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 federal funds have come in much slower than expected. But I view it almost as a positive; we've had positive growth notwithstanding the fact the funds have come in slower. So 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 a steady pace.

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

Well, for the full year, it was -- it grew by 22%. So it was 18% in August. For the full year, it was 22%.

Remember the [delinquencies] and…

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, I think Ignacio reported.

On the deposit side and on the payment side in Puerto Rico, ATH mobile has been -- it's continuously growing at a fast pace but there's nothing dramatically changed.

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 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 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.