Popular, Inc.
Q3 2015 Earnings Call Transcript

Published: 23 Oct 2015

[Operator:]

Good day and welcome to the Popular Inc. Q3 2015 Earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brett Scheiner, Investor Relations Officer. Please go ahead, sir.

[Brett Scheiner:]

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 third 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 detained 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 Carrion.

[Richard Carrion:]

Good morning and thank you for joining the call. I’d like to first address the highlights and key events of the third quarter, then I will 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. With that, please turn to Slide No. 2. In the third quarter, Popular earned adjusted net income of $93 million, up $3 million from both last quarter and last year’s third quarter. We continue to generate strong revenues with capital levels well above peer averages. Tangible book value was $42.71, up from $41.73 last quarter. Our net interest margin of 4.39% decreased 15 basis points from last year’s 4.54% on lower income from our runoff Westernbank portfolio. Our spreads remain strong relative to peers with our Puerto Rico net interest margin of 4.75%. Total NPAs this quarter of $878 million, including covered loans, were up $72 million from last year’s $806 million mostly due to a single large commercial relationship that has continued to meet its debt service. Non-covered NPLs were $635 million or 2.8% of non-covered loans, up $59 million from last quarter. NPL inflows increased $82 million when compared to the previous quarter driven by three large commercial relationships, including the one I just mentioned. Our net charge-offs were $46 million or 83 basis points, essentially flat from last quarter’s $46 million or 89 basis points. At quarter end, available holding company liquidity stood at approximately $221 million. This liquidity position provides an excess of two year’s debt service coverage with no maturities until 2019. In addition, the market value of our stake in Evertec is approximately $211 million and significantly exceeds our position’s current book value of $31 million. As investors, we will continue to participate in a proportionate share of the company’s income, while our investment also represents an additional source of capital flexibility and potential holding company liquidity. Last month, we reinstituted a common stock dividend and intend to return additional capital to our shareholders over time. We are also encouraged by the trends in our U.S. business, particularly the strong commercial loan production. Please turn to Slide 3. Before I turn it over to Carlos, let me comment on our Puerto Rico government exposures and the Puerto Rico economy. Regarding our exposure to the Puerto Rico government, our underwriting process, the structure and the size of our exposure relative to our capital base gives us comfort. Keep in mind that the majority of our direct Puerto Rico government exposure is in loans to municipalities, not publicly traded securities of the central government or its public corporations. Our direct exposure is down $94 million from the previous quarter as a large majority of our PRASA exposure was repaid and we sold approximately half of our Puerto Rico central government bond portfolio. Last quarter, we decided to sell our PRASA exposure and move to loans held for sale, writing it down by $30 million or 40%. As disclosed in last quarter’s 10-Q, this loan remains available for sale. We will monitor developments in this portfolio closely and will make future adjustments as needed while selectively participating in funding the Puerto Rico government’s capital needs where we feel the risk-reward is in our favor. The government of Puerto Rico faces multiple fiscal and liquidity challenges in the coming weeks and months. We believe that any successful solution will likely require three things

[Carlos Vazquez:]

Thank you, Richard, and good morning. On Slide 4, we present our adjusted financial summary for the third quarter. This quarterly data is reconciled to GAAP figures in the appendix to the slide deck. Today’s earnings press release details variances from the second quarter, the largest being lower net interest and non-interest income offset by lower loan loss provision and lower operating expenses. Net interest income for the third quarter was $351 million, down $12 million from the second quarter on lower income from our Westernbank portfolio and a $4 million interest reversal from FHA mortgage loans. We are pleased to have achieved organic growth of 7% in U.S. commercial loans this quarter. This healthy growth follows last quarter’s 9% increase. Despite this U.S.-based growth, our outlook for stable overall loan balances remains unchanged. For 2016, we anticipate that U.S. loan growth will compensate for runoff 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 $2.2 billion Westernbank loan portfolio decreased to 8.59% from 9.44% last quarter. This decrease is due to ongoing loan resolutions, repayments, and the quarterly recast of the portfolio’s expected cash flows. We expect similar yields on this portion of our loan book for the next few quarters, slowly declining thereafter. Our interest-bearing deposit costs rose 4 basis points from the prior quarter to 54 basis points. This was mainly due to last quarter’s accelerated amortization of premiums related to deposits acquired from the FDIC in the Doral transaction, which had the effect of lowering funding costs. Our third quarter deposit cost is roughly in line with the first quarter. Non-interest income, excluding FDIC loss share activity, decreased by $10 million compared to last quarter. This was mostly the result of last quarter’s reduction of indemnity reserves on previous loan sales which were not present this quarter. Popular’s Puerto Rico mortgage business originated $327 million of loans in the third quarter, down from $399 million last quarter though up from $314 million in the third quarter of last year. Total operating expenses for the quarter were down $22 million to $301 million. The decrease was mostly driven by $15 million of lower OREO expenses, although we saw small decreases in nearly all operating expense lines. We expect quarterly operating expenses to be in the range of $305 million to $310 million through the end of 2016. With the integration of Doral and the restructuring of the U.S. business completed, moving forward we do not expect any meaningful expenses relate to these events. Given last quarter’s DPA recapture, our GAAP results will incorporate an effective tax rate of approximately 44% on our U.S. earnings beginning in the first quarter of 2016. For the remainder of 2015 results, we will continue to use a near zero percent for marginal rate for our U.S. business. Our adjusted effective tax rate for the third quarter was 22%. We continue to estimate a tax rate at the low end of a 20 to 29% range for the fourth quarter. For 2016, we expect to be at the upper end of that range as a result of incorporating the aforementioned effective U.S. tax rate. Please turn to Slide No. 5. The loss share portion of our commercial LSA expired at the end of the second quarter. On Slide 5, we provide an overview of the losses expected to be realized and collected from the FDIC through the close-out period of the loss share agreements. Our total $312 million receivable from the FDIC includes $80 million related to the single family mortgage loss share agreement, which expires in five years. The remaining $232 million includes $90 million already billed to the FDIC for second quarter losses and $142 million of reimbursable losses that remain in dispute. While we currently expect to collect the remaining balance, any amount remaining in the loss share assets not expected to be collected from the FDIC will be charged off. Please turn to the next slide. We continue to enjoy strong capital levels relative to mainland and Puerto Rico peers, as well as with respect to well capitalized regulatory requirements. Our Tier 1 common equity ratio was up 25 basis points to 16.2% primarily on our earnings for the quarter. All of Popular’s capital ratios remain robust and well above regulatory requirements. Our Dodd-Frank stress test released earlier this year showed strong results. Please note that due to adjustments in the regulatory schedule, we will file our next DFAST in July of 2016 instead of the end of the first quarter. As Richard mentioned, this quarter we resumed payment of a $0.15 per share quarterly common stock dividend. We continue to pursue opportunities to actively manage our capital while being responsive to the challenging environment in our local market. Our future capital actions are more likely to be tied to improvements in the Puerto Rico fiscal and economic situation than to any specific regulatory filing. It continues to be our goal to maintain strong capital levels that are appropriate for Popular’s risk profile as we work towards our target of a double digit return on tangible equity. With that, I turn the call over to Lidio.

[Lidio Soriano:]

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 a small number of large commercial relationships negatively affecting some reported metrics. Although these cases are not directly related to the current fiscal situation, and while there is no clear negative trend in our credit metrics, we are cautious given the current environment. Please turn to Slide No. 7 to begin the discussion. This slide compares and contrasts Popular’s current portfolio mix to the mix prior to the financial crisis. The key message is that changes in our portfolio composition coupled with changes in overwriting parameters have led to a lower risk profile and better credit performance. 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. In Puerto Rico, our commercial and construction exposure has decreased from 55% of our total loan book to 43%. Construction lending has decreased 91% and now stands at $109 million. On the bottom of the slide, we also segmented the commercial portfolio and included net charge-off distribution by segment since 2008. The important message from the table is our commercial mix has significantly improved by reducing exposure to asset classes with historically high losses. In addition to the markedly improved risk profile, our recently publicly disclosed Dodd Frank stress test provides us with additional comfort. The stress test incorporated a severe adverse scenario for Puerto Rico in which the unemployment rate peaks at 20.4% and economic activity, measured by GNP, decreases by 6.3% during the first calendar year. Under such a scenario, while we forecast over 10% loan losses in the nine-quarter period and reflect a 230 basis point impact to our Tier 1 common equity ratio, we maintain a meaningful cushion in the excess of well capitalized status at all times. As Richard covered on Slide No. 3, our current outstanding direct exposure to the Puerto Rico government and municipalities and other instrumentalities is $579 million, a decrease of $94 million from the previous quarter. The decrease is mainly due to $75 million repaid from our PRASA exposure coupled with the sale of approximately half of our Puerto Rico central government bond portfolio. The remaining securities portfolio is primarily composed of senior COFINA bonds. Our total exposure to the central government and public corporations is manageable, representing only 2% of our total Tier 1 capital. As we have discussed in the past, most of Popular’s direct Puerto Rico government exposure is in the form of municipal loans and not securities. Our municipality exposure consists of senior priority loans to a select group of municipalities whose revenues are independent of the central government. Our top four exposures are to Carolina, where our principal airport and several of our major tourist hotels are located; San Juan, the capital of Puerto Rico; Guaynabo, the municipality with the highest per capita income, and Bayamon, the second most populous municipality. These four municipalities comprise approximately 72% of our total municipality exposure and combined have an operating surplus of approximately $70 million and debt service capacity in excess of 2.2 times. As discussed in previous earnings call, we also have indirect lending facilities in which the government acts as a guarantor. The largest such exposure is in the form of residential mortgage loans to individual borrowers in which the government provides a deficiency guarantee similar to FHA programs in the U.S. In addition to this exposure to the Puerto Rico government, we also have commercial credits where a significant portion of the client’s ability to service their debt comes from revenue derived from government sources and consumer credits, where borrowers are employed by the Puerto Rico government and related agencies. We have segmented our commercial portfolio exposure into multiple risk categories based on dependence on government revenues and criticality of government service provided. We have also stressed our entire consumer portfolio assuming a representative proportion of our clients are government employees that could be impacted by fiscal adjustment measures. We continue to analyze and monitor these higher risk segments, though at this time we feel confident that our exposures are both appropriately sized for our risk tolerance and are manageable given our earnings power and strong capital pace. Please turn to the next slide to discuss additional credit metrics for the quarter. Non-performing assets, including covered loans, increased by $72 million to $378 million, driven by an NPL increase of $56 million and an OREO increase of $16 million. The OREO increase is driven by lower OREO sales volumes in Puerto Rico compared to last quarter. The increase in non-performing loans is mostly associated with three large commercial loans in the Puerto Rico region. Please turn to the next slide for a summary of trends and NPL inflows. Compared to the previous quarter, NPL inflows excluding consumer loans increased by $82 million mainly driven by the previously mentioned large commercial loans in Puerto Rico, including a single $49 million credit relationship which remains current. NPL inflows in the U.S. were flat on a linked quarter basis at $16 million. Please turn to the next slide. Net charge-offs, excluding write-downs amounting to $46 million, were essentially flat compared to the second quarter of 2015. The second quarter included a $5 million recovery from the sale of a portfolio of previously charged off credit cards and auto loans. Excluding this impact, net charge-offs decreased by $4 million, mostly driven by lower commercial losses offset in part by higher mortgage losses in Puerto Rico. The net charge-off ratio decreased to [indiscernible] 83 basis points compared to 89 basis points in the previous quarter, mainly due to the impact in average balance of loans reclassified from the core portfolio in the prior quarter. In the U.S., charge-off amounted to a recovery of $900,000 compared to losses of $1.3 million in the previous quarter, driven by the commercial and legacy portfolio. The adjusted provision for loan losses in the third quarter remained flat at $59 million. This provision represented 128% of net charge-offs compared to 130% in the previous quarter driven by a slight decrease in the Puerto Rico region. The corporation allowance for loan losses increased by $23 million on a linked quarter basis driven primarily by the Puerto Rico commercial loan portfolio. In the U.S., the allowance was flat quarter over quarter. The ratio of allowance for loan losses to loans held in portfolio increased slightly from 2.3% in the previous quarter to 0.4% in this quarter. The ratio of allowance for loan losses to NPLs held in portfolio stood at 84% compared to 89% in the previous quarter. With that, I would like to turn the call over to Richard for his concluding remarks. Thank you.

[Richard Carrion:]

Thank you, Lidio. Please turn to Slide 11. Before we open the lines 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. Notwithstanding ongoing stability in our main credit quality indicators, we remain attentive to fiscal and economic trends. Popular’s credit risk profile is meaningfully different from the one with which we entered this credit cycle, which together with our strong capital levels improves our position. We also benefit from our Evertec ownership and our stake in Banco BHD Leon, the second-largest bank in the Dominican Republic. Given the fiscal and economic challenges we face on the island, we’re focused on the current situation while acting to minimize its risks. We’ve managed the bank within this environment for the last nine years, completing several troubled loan sales, refocusing our loan books on lower [indiscernible] business lines, raising approximately $2 billion of common equity, and completing two in-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 in TARP, had two credit MOUs lifted, restructured our U.S. balance sheet and back office, purchased $1.7 billion of loans in the Doral transaction, and reinstated our common dividend after more than six years. Nonetheless, we’ll 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, which has been demonstrated in the past few years. Our story is to a large extent linked to Puerto Rico, it’s economy and its future. We’re aware of that and remain committed to working to improve the island’s prospects. Throughout its 122 year history, Popular has seen Puerto Rico thrive under a myriad of different situations. We remain confident that Puerto Rico will emerge from the current challenges as a more vibrant, robust and diversified economy, and we will do everything in our power to ensure this outcome. Although Popular in intrinsically linked to Puerto Rico, Popular’s is also a story of a solid organization that has navigated through a complex environment and has emerged as a stronger, better capitalized and more diversified institution. We look forward to reporting on our progress in the next few months. With that, I’d like to open the call for questions.

[Operator:]

[Operator instructions] Our first question comes from Brian Klock of Keefe, Bruyette & Woods. Please go ahead.

[Brian Klock:]

Hi, good morning gentlemen.

[Richard Carrion:]

Morning Brian.

[Brian Klock:]

Richard, you talked about obviously the challenges. We read the newspaper every day about what’s going on in Puerto Rico and the debt situation. You guys have still done a pretty good job generating some solid returns there. I guess maybe the first question, just thinking about what’s in the near term here about if it there is--you know, if it does take a little longer on the fiscal situation, I guess, what are your thoughts about the liquidity situation at the GDP and if there’s anything in the near term, and I guess how you’re handling that potential risk.

[Richard Carrion:]

Well, we don’t have much in the way of loans to GDP, so in that sense I think we’re fairly neutral. We are however concerned about how the government navigates the next few months, absent any meaningful plan. We think, as I mentioned in my remarks earlier, that there will have to be some kind of restructuring, and that ideally will have some legal framework so that that restructuring can take place in an orderly fashion. There will have to be some kind of oversight or fiscal control board, however you want to call it, and there needs to be some kind of stimulus - you’re not going to cost cut your way out of this. You do need to balance budgets, but you also need growth to get out of this. So you know, we think whatever happens will have to contain those elements. The question is, how bad does it get before there is action on that front?

[Brian Klock:]

Right, fair enough.

[Richard Carrion:]

We are prepared to manage through those scenarios. We would hope the political process can start moving before things get dicier.

[Brian Klock:]

Okay, fair enough. When I think about Puerto Rico, I guess when you make some adjustments for some of the non-recurring items that went through the margin and the non-covered piece, or the non-Westernbank piece, long yields actually looked to be pretty solid for the quarter, so maybe there’s a question of just what you’re seeing there. And then my second question is with all the challenges on Puerto Rico’s side, the U.S. franchise is putting up some good growth and a good story there, so maybe talk about both, how you’re holding in on the margin in Puerto Rico and how you’re growing in the U.S.

[Richard Carrion:]

You know, I’ll let Carlos give you a little more color there, but you’re right.

[Carlos Vazquez:]

Yes Brian, you’re correct. If you look at the actual loan book, our margin is actually holding pretty well on the lending book. This quarter, the variance was a bit large, but there’s a couple--three specific things that drove it

[Brian Klock:]

Great. Then like I said, my last question and I’ll get back in the queue, is just a good story in the U.S. - it looks like some momentum. Maybe you can talk about the loan growth and the outlook. It seems like some pretty steady pre-tax ROI numbers there.

[Carlos Vazquez:]

Yes, the U.S. continues to perform well. They are--you know, we have a couple of commercial loan [indiscernible] that continue to do well and the loan growth is there. We have finished basically with all the restructuring of our back office, and that has lowered costs. So yes, we’re absolutely very happy with the way the U.S. is progressing.

[Richard Carrion:]

And an important point to make on the U.S., Brian, is that this is not crazy growth. We’re actually being very cautious and attentive to returns. As you know, in some of our markets, both New York [indiscernible] markets and some of the lending that’s going on is fairly aggressive, so we are achieving the growth while passing on deals that we think the returns also make sense, so it’s a very good story.

[Brian Klock:]

Great. Thanks for your time, guys.

[Richard Carrion:]

Thank you.

[Operator:]

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

[Alex Twerdahl:]

Hey, good morning guys.

[Richard Carrion:]

Morning.

[Alex Twerdahl:]

I just wanted to circle back to something that Carlos said in his prepared remarks. You said when discussing the capital return, you said that you will continue to pursue opportunities to actively manage capital that are tied more to the improvement in the fiscal and economic situation in Puerto Rico than to any specific regulatory filing. What does that mean?

[Carlos Vazquez:]

That wasn’t clear, Alex?

[Alex Twerdahl:]

Does that mean you could--

[Carlos Vazquez:]

No, it really means that we are not subject, as the CCAR banks are, we’re not subject specifically to the results of the stress test and a capital filing, so our board is free to make those decisions. Obviously we don’t do this in a vacuum and we have very active discussions with regulators before any change, and we will actively look to do more things in terms of capital returns, but we have to balance that with the environment we’re operating in. We thought it was a good first step to reinstate the dividend and we’ll be looking to do other things aside from dividend in the future, but right now we want to see how the next few months plays out.

[Alex Twerdahl:]

Okay, that makes a lot of sense. So it’s the board’s decision, and the timing of a buyback or dividend increase, or any other activity, capital return has nothing to do with when you file your nest DFAST or your next--you know, any sort of specific date next year. It’s more just the board’s decision?

[Carlos Vazquez:]

That’s it. That was exactly the point. Yes.

[Alex Twerdahl:]

Okay, great. Then how are you guys thinking about the pace of runoff in the WBank portfolio over the next couple quarters and years?

[Richard Carrion:]

I think if you look at the historical runoff, Alex, it varies but if you round it to $100 million a quarter, you’ll be in the right ballpark. That’s where we are right now. It’s [indiscernible], they may stall that a little bit moving forward, but how much is hard to tell. So if you go with the historical, you’ll probably be ahead of the game in the runoff. It will be in that ballpark.

[Alex Twerdahl:]

Okay, and then could you just remind us the loans, the WBank’s, the loans that you’re selling that you had the extra provision for this quarter, what that portfolio is?

[Richard Carrion:]

Hold on for a second. The bulk sale loans? Do you have that number?

[Brett Scheiner:]

Yes, it’s around $153 million in carrying value.

[Richard Carrion:]

Yes, about 153 is the carrying value of those loans.

[Alex Twerdahl:]

And then the $10 million you took this quarter as a provision against that, and you expect that to--you expect to sell those loans sometime in the next couple months?

[Richard Carrion:]

Yes, correct.

[Carlos Vazquez:]

But Alex, that is part of our dispute.

[Richard Carrion:]

Yes, it’s part of what we’re arguing with the--

[Carlos Vazquez:]

That will be resolved when all the discussions are completed.

[Alex Twerdahl:]

Okay. Do you know what the--do you have on hand the unpaid principal balance of that portfolio?

[Carlos Vazquez:]

We can--$896 million of the total portfolio.

[Brett Scheiner:]

But again, the carrying value is $153 million.

[Carlos Vazquez:]

Yes, $896 million.

[Alex Twerdahl:]

Great. Thank you for taking my questions.

[Richard Carrion:]

You’re welcome.

[Operator:]

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

[Ken Zerbe:]

Great, thank you. Good morning everyone.

[Richard Carrion:]

Hi Ken, how are you?

[Ken Zerbe:]

Doing well. Just in terms of a buyback, obviously your capital position has improved even further this quarter. I think that under almost any estimate, 16% CE Tier 1 is very, very high.

[Richard Carrion:]

That number [indiscernible] the Fed.

[Ken Zerbe:]

Well I guess my question is if you have the discretion to buy back shares and your stock is trading at a fraction of tangible book, and I understand you want to be conservative and it sounds like everything is broadly fine with credit and your direct Puerto Rico exposure, I’m just trying to reconcile, why aren’t you being a little more aggressive when it comes to buying back stock well below tangible?

[Unidentified:]

Okay, this is--as Richard said, we’re sort of talking [indiscernible] past tense now, but [indiscernible] that we’ve paid our first dividend in six years two weeks ago, so this is a very important first step, and we are trying to be deliberate on how we manage our capital return moving forward. As Richard mentioned, while our board has discretion to do these things, this is a consultative process with our regulators, and what we try to do is balance the feedback from our regulators and our outlook and obviously the market, and our interest to return capital to our shareholders. Again, not everybody will agree on where that balance comes out at any point in time, but that’s what we’re trying to achieve.

[Richard Carrion:]

And obviously, the regulators’ opinion weighs heavily on whatever we do, but we understand the math of buying back stock at less than book value. I mean, we will--we’re very well aware of that.

[Ken Zerbe:]

Understood. So if I make the assumption that regulators are the, let’s call it the single biggest prohibition against buying shares near term, at what point--in your view, what do you think changes their mind? Is it an 18% CE Tier 1, or you have--

[Richard Carrion:]

No, I don’t think it has as much to do with us as their concern with the general environment and the situation in Puerto Rico. Until they see things a little clearer, not necessarily a total solution but until they see clarity in that environment, I think that’s going to weigh heavily on what they think. [Indiscernible]

[Ken Zerbe:]

All right, understood. Thank you.

[Operator:]

Again, if you have a question, please press star then one. Our next question comes from Jordan Hymowitz of Philadelphia Financial. Please go ahead.

[Jordan Hymowitz:]

Thanks guys. I was just wondering, with Cuba starting to open up a little bit, is there any potential interest that you guys have in expanding there?

[Richard Carrion:]

There is plenty of interest, and I think eventually there will be some potential there. That is going to take a while. I mean, I think there’s been some positive steps, but for there to be meaningful progress there, Congress is going to have to move, and frankly we don’t see that happening in an electoral year, given Florida politics. So I think it’s probably a process in the five-year range, but who knows. But we are extremely interested in that possibility.

[Jordan Hymowitz:]

Can you say specifically what Congress would have to do for you to--

[Richard Carrion:]

They would essentially have to repeal Helms-Burton, is the answer to that.

[Jordan Hymowitz:]

Okay, thank you.

[Richard Carrion:]

Until Helms-Burton, it was essentially a presidential directive, so it could have been--it could have been eliminated by the administration. After Helms-Burton, it will require Congressional action and legislation.

[Jordan Hymowitz:]

Okay, thank you.

[Operator:]

Our next question comes from Taylor Brodarick from Guggenheim Securities. Please go ahead.

[Taylor Brodarick:]

Great, thanks. I think just one left for me. For the large kind of commercial loans in PR that went to NPL status, any sort of color about why they’re different from maybe the macro situation, and maybe a sense of what you would think that that would reoccur going forward?

[Lidio Soriano:]

I don’t think we want to go into the details, but what we can tell you was what we said in the prepared remarks, in the sense that this is not a case that is directly related to the current fiscal situation, and again that we see no negative trends in our portfolio. Having said that, we remain cautious given the current environment in Puerto Rico.

[Taylor Brodarick:]

Okay, thanks.

[Operator:]

This concludes our question and answer session. Thank you for attending today’s conference.

[Richard Carrion:]

Thank you.

[Operator:]

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