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Popular Inc  (NASDAQ:BPOP)
Q4 2018 Earnings Conference Call
Jan. 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, and welcome to the Popular Inc., Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask question. (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.

Paul Cardillo -- Senior Vice President, Investor Relations Officer

Good morning and thank you for joining us on today's call. With us today is our CEO, Ignacio Alvarez; our CFO, Carlos Vazquez; 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 filings. 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.

Ignacio Alvarez -- President and Chief Executive Officer

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 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 milestone. For example, we completed the Wells Fargo acquisition, achieved the successful termination of our loss-share agreements with the FDIC and executed several capital actions, including $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 agreements 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 deposit growth and higher interest rates, 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 pre-hurricane levels. In the US, credit quality was solid throughout the year, except for the taxi medallion portfolio that now has a 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 US operations, 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 topline growth and a reduction provision, partially offset by higher expenses. The increase in expenses was driven by costs 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 two 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're 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 loans 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 six years. On the commercial loan side, we have not yet seen loan growth, but we expect additional learning 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, salaried employment had stabilized, down 2.1% from September 2017, but up 0.8% since December 2017. This improvement was driven by an increase of 1.7% in private sector jobs, partially offset by 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 estimate. Despite the decline in population, Popular's customers have continued to increase. Excluding approximately 30,000 new unique customers brought in with Reliable transaction, our customer base in Puerto Rico increased by approximately 58,000 since the hurricane and by 50,000 in 2018. In short, based on the metrics we're 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 CBDG (ph) 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 eight 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.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

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 long 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 agreements, which we executed in the second quarter. Additionally, in the last two quarters, we repaid $450 million in 7% senior debt and replace it with $300 million in 1.125% (ph) senior debt.

Our provision expense decrease 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 five months' worth of Reliable expenses were the primary drivers of the increase. Our capital position was robust in 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 ratio 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 lower loan loss provision, offset in part by higher operating expenses and higher taxes.

Net interest income for the quarter was $476 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 payoff of Westernbank commercial loan resulted in the recognition of $5.7 million (ph) in income in the quarter.

Our net interest margin was 4.25% up 18 basis points from last quarter. The 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 US. The retail and corporate deposit segments in Puerto Rico saw small increase in costs 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 achieved 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 three 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 (ph) 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. We now expect Reliable to contribute a range of $55 million to $60 million of net income in 2019, including servicing 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 US 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, non-interest 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 of Popular have now been closed.

Our Puerto Rico mortgage business originated $164 million loans in the fourth quarter. A decrease from $172 million in the third quarter. Originations continued to trend at a pace below pre-storm 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 increase 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 reimbursements on hurricane insurance claims and a gain on sale of certain property. If we adjust the fourth quarter expenses for the following four 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 of Reliable operations will add approximately $40 million to Popular's expense base. Higher pension, technology, regulatory and personnel costs are expected to result in average quarterly expenses for year 2019 of approximately $364 million.

On December 10, 2018, the Governor of Puerto Rico signed into law, the Puerto Rico tax reform, which among other things reduce the corporate income tax rate from 39% to 37.5%. As a result, in the fourth quarter, Popular recognized a non cash income tax expense of $27.7 million as the reduced tax rate required we adjust the net DTA of our Puerto Rico operation. Our effective tax rate in the fourth quarter excluding the 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 remained strong related 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 two 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 two buyback programs have been executed via ASRs, the detailed implementation plan of this buyback is still in the designing 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 effects of the Reliable acquisition, capital actions, dividends on our quarterly results. We will continue to pursue our target of maintaining and improving our double digit return on tangible equity, while keeping capital levels are appropriate for Popular's risk profile.

With that, I'd turn the call over to Lidio.

Lidio Soriano -- Executive Vice President and Chief Risk Officer

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 pre-storm levels. In our consumer portfolio, excluding the Reliable transaction, early delinquency on non-performing loans are below pre-hurricane levels. The consumer net charge-off ratio for the fourth quarter of 2018 was 2.11% also below pre-storm levels.

In the mortgage portfolio, total delinquency continued to improve, with early delinquencies a level significantly better from those prior to the hurricanes. While NPL decreased by $20 million -- $25 million quarter-over-quarter, reaching $224 million. Mortgages charge offs were 1.14%, similar to level levels prior to the storms. In commercial lending, net charge-off increased by $49 million compared to the prior quarter. The increase in net charge-offs was due a specific relationship. One is a problem loan acquired from Westernbank, which we have been working out for some time and for which the charge-off was reserved in prior period.

The other relationship is a commercial real estate loan for which the hurricanes and increases interest rate risk have impacted its ability to service its debt as originally contracted. Our Puerto Rico non-owner occupied CRE portfolio is $2.28 billion, of which roughly $750 million is variable rate. We have (inaudible) underwriting our customers' ability to service their debt and concluded that none of our remaining variable CRE 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 US, our credit results remained solid with favorable credit quality metrics.

Please turn to Slide Number 9. 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 at 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 repayment of the loans. 75% of our exposure are to the four largest municipalities in the San Juan metro area.

We also have indirect lending facility 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 guarantee, similar to associate programs in the US. Turn to Slide Number 9 to discuss credit metrics for the quarter. Non-performing assets decreased by $18 million to $748 million this quarter, driven by non-performing 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 US 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 helping portfolio decreased slightly 2.3% from 2.4% in the prior quarter. The increasing OREO was mainly in Puerto Rico due to the resumption of foreclosure activities.

Please turn to slide number 10 to discuss NPL inflows. The NPL story is positive, so I'll be brief. Influx of NPLs were flat quarter-over-quarter. Puerto Rico mortgage inflows for the quarter remains significantly better than the pre-hurricane levels, primarily due to lower early delinquencies post moratorium.

Turning to slide number 11, net charge-offs amounted to $107 million or an annualized 1.63% (ph) 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. 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-off in the US increased by $7 million. The corporation's allowance 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 one large relationship previously reserved for, coupled with improvement in the loss estimates of the purchase crediting per portfolio, improving loss trends in our consumer portfolio, and lower European reserves.

Last year, hurricane reserve has been mostly reallocated utilized or reserved. The US segment's allowance for loan losses decreased by $11 million mostly related to construction relationship charge offs during the quarter. The provision for loan losses decreased to $43 million from $54 million in the prior quarter, reaching pre-hurricane levels. The decrease of $11 million was mainly IN Puerto Rico due to the continued improvements in credit metrics after this hurricane.

To summarize, the credit quality results for the fourth quarter were favorable with continued strength in the US and metrics are close to or better than pre-hurricane levels in Puerto Rico. With that, I would like to turn the call over to Ignacio for his concluding remarks. Thank you.

Ignacio Alvarez -- President and Chief Executive Officer

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 efforts.

Approximate 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 such as 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 are now ready to answer your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Alex Twerdahl of Sandler O'Neill. Please go ahead.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Hey, good morning, guys.

Ignacio Alvarez -- President and Chief Executive Officer

Good morning.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Good morning.

Alex Twerdahl -- Sandler O'Neill -- Analyst

I want 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?

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Yes, Alex, hi, this is Carlos. Our public deposits 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.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Okay. And then as you kind of talk about the $9 billion of emergency funds that have come in 2018 and the $13 billion that are expected for 2019, do you have any more clarity today on core (ph), so 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.

Ignacio Alvarez -- President and Chief Executive Officer

Well, this is Ignacio. I mean, we have a nearly 50% market share, so the money that flow to Puerto Rico is a good chance that they're flowing through it 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.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Okay. So to be determined. And then I just had a sort of a question about, toward 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 of 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?

Ignacio Alvarez -- President and Chief Executive Officer

I haven't seen an investment, but there has been a number of opportunities. I mean, a number of people were talking about the opportunity. There's been a number of conferences, a number of investors coming to Puerto Rico. Yesterday I met someone from the construction industry who said they're working on three real projects that would involve opportunity fund. 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 -- it's going to have a good impact on Puerto Rico. How much? We don't know for sure, but there is a lot of interest in the subject still.

Alex Twerdahl -- Sandler O'Neill -- Analyst

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?

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

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

Alex Twerdahl -- Sandler O'Neill -- Analyst

Great. Thanks for taking my questions.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

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

Brett Rabatin -- Piper Jaffray. -- Analyst

Hey, good morning, guys.

Ignacio Alvarez -- President and Chief Executive Officer

Good morning, Brett.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Good morning.

Brett Rabatin -- Piper Jaffray. -- Analyst

I wanted to go back to deposits and ask the increase in the ending period, the non-spent (ph) DTA at the end of the year versus average for the quarter, is that sticky and kind of how do you think about managing the liquidity and obviously the government deposits go down eventually, but how are you guys thinking about managing liquidity this year and then any thoughts on that ending period DTA growth.

Ignacio Alvarez -- President and Chief Executive Officer

I mean -- the first thing 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 deposit 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.

Brett Rabatin -- Piper Jaffray. -- Analyst

Okay. And in I'm thinking about the loan portfolio this year, you're looking for growth in the US and Puerto Rico flat, and that was somewhat the trend in 4Q but Puerto Rico was once down a little bit. Can you maybe give us some color on just thinking about Puerto Rico being flat this year? Are the lending opportunities not significant enough and for the year modeling to offset payoffs and I don't know, payoffs are bigger issue this year or what -- can you maybe --?

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

A couple of things. First, as Ignacio mentioned, Brett, there's a lot of activity going on, but what we haven't -- and we're closing loans every day, we just haven't seen the rate of new loans exceed that the rate of pay-downs and payoffs. Do remember that our Westernbank portfolio, our Western portfolio is a decaying portfolio that runs out -- it probably was 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 the Fannie Mae portfolio we service, because when those become delinquent we had to report them in our loan balances, even though we haven't repurchased those loans yet. And in the fourth quarter that was a reduction in 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.

Brett Rabatin -- Piper Jaffray. -- Analyst

Okay. 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.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Hold on. I think, we do. Just give us a second to flip through our papers. Give me a second. Okay. In the fourth quarter, this is -- the dollar amount in the fourth quarter of transactions was $3.71 billion.

Brett Rabatin -- Piper Jaffray. -- Analyst

Okay.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Or $3.51 billion in the prior quarter.

Brett Rabatin -- Piper Jaffray. -- Analyst

Okay. Great. Thank you so much.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

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

Steven Duong -- RBC Capital Markets. -- Analyst

Hi guys. This is actually Steve dialing in for Gerard. Thanks for taking our call.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Hey, Steve, how are you?

Steven Duong -- RBC Capital Markets. -- Analyst

Hey, 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?

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Yeah. I mean -- I think assuming this is pretty much it for the year is the right assumption. There is no regulatory restriction that will keep us from trying to do something else. But the truth of the matter is that the process we have followed over the last three 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 toward the second half of the year. So I would suggest that any -- the best assumption right now is that the next capital action announcement will follow the same trend and the same story we've followed and timing we followed over the last three 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 four years obviously was the hurricane season.

Steven Duong -- RBC Capital Markets. -- Analyst

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?

Ignacio Alvarez -- President and Chief Executive Officer

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're cautious about the economic environment in the US for the next couple of years. So while, yes, we'll look at everything that's out there, we're going to be -- we're going to be cautious.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

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

Steven Duong -- RBC Capital Markets. -- Analyst

Right. Great. Appreciate it. Thanks, guys.

Operator

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

Glen Manna -- Keefe, Bruyette & Woods -- Analyst

Hi. Good morning, guys.

Ignacio Alvarez -- President and Chief Executive Officer

Good morning.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Good morning, Glen.

Glen Manna -- Keefe, Bruyette & Woods -- Analyst

This question, I guess is for Lidio. Lidio, the two 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?

Lidio Soriano -- Executive Vice President and Chief Risk Officer

I think, I mentioned in my prepared remarks that we are for the most part -- in which have been brought into a regular provision for the reserve that we have related to the hurricanes, so none of it is -- most of it is out of this quarter. In terms of whether the two cases are -- that we cited were part of the hurricane reserved, they were not -- they were -- this was some specific cases in which there was no reserves from the hurricanes.

Glen Manna -- Keefe, Bruyette & Woods -- Analyst

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?

Ignacio Alvarez -- President and Chief Executive Officer

We just started the analysis in -- while we have done two ASRs consecutively, Glen, we have -- every time we actually have sat down and gone through an analysis what we think is 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 last couple of times. We may do that again, but at this point in time we haven't reached any decision.

Glen Manna -- Keefe, Bruyette & Woods -- Analyst

Okay. Thanks guys.

Ignacio Alvarez -- President and Chief Executive Officer

Appreciate it.

Operator

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

Ken Zerbe -- Morgan Stanley -- Analyst

Hey, thanks.

Ignacio Alvarez -- President and Chief Executive Officer

Hi, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

Just in terms of fee income line -- hello? Just I know we need to back out the -- it sound 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, we think about 2019.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

I mean, I think other than those two things. The quarter was pretty normal quarter, so you just did the calculation, I think, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

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

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Level, like it.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. All right. Perfect. Thank you.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Scott Valentin of Compass Point. Please go ahead.

Scott Valentin -- Compass Point Research -- Analyst

Good morning. Thanks for taking my question. Just --

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Hi, Scott, how are you?

Scott Valentin -- Compass Point Research -- Analyst

Doing well. 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 fourth quarter of Reliable. But how should we think about the margin going forward. I know you guys have an asset sensitive balance sheet outlook as the Fed is not going raise rates as fast, that's the outlook today, that changes day to day. But just wondering what the outlook for the margin is?

As we think about a core margin maybe of 4.15% (ph) 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?

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

I mean, we had an increase in rates in December that you haven't seen the effect of that, yet. And that will flow through moving forward. I think Reliable is all in now. So other than that I think those are the two effects are left so.

Ignacio Alvarez -- President and Chief Executive Officer

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 minimal maybe 2 basis points to 3 basis points all in. So I think the run rate for the quarter is fairly reasonable.

Scott Valentin -- Compass Point Research -- Analyst

Okay. Thanks. That's helpful. And then just on the one credit -- I guess, the two commercial credits. The one credit you mentioned was fully reserved. The second credit I think you said about the 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?

Lidio Soriano -- Executive Vice President and Chief Risk Officer

On non-occupied CRE, there was no reserve prior to the action that we took this quarter.

Scott Valentin -- Compass Point Research -- Analyst

Okay. Thanks. And then just on the return on capital, looking -- I know the regulators, obviously, you to deal with the regulators and we don't have that insight to the discussions there, but it seems like with the CET1 ratio, you guys have a very high, very profitable, credit's getting better. I mean, going forward, do you see that the 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?

Ignacio Alvarez -- President and Chief Executive Officer

We've been successful so far incrementing the capital returns and having the regulators be comfortable with our position. So, we'll get 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.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

I mean, we continue to track our peers. And hopefully, we will continue to do that toward -- sometimes they see -- the one interesting thing that we and all our peers will have to deal with is the effects of CECL, which everybody is working on right now and those details will start coming out probably later this year as all of us start put our -- all our new models into implementation. But in general, we -- you're correct that we have a strong capital base. We hope to continue to track the trend of our mainland peers.

Scott Valentin -- Compass Point Research -- Analyst

Thanks very much.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

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

Robert Napoli -- William Blair -- Analyst

Thank you. 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?

Ignacio Alvarez -- President and Chief Executive Officer

Well, it's too early to tell, January because we're still in the month, but we've -- in 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 the 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.

Robert Napoli -- William Blair -- Analyst

And as you exited the year, do 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 --

Ignacio Alvarez -- President and Chief Executive Officer

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

Robert Napoli -- William Blair -- Analyst

Right. Yeah.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

There is -- remember the (inaudible).

Robert Napoli -- William Blair -- Analyst

And is there anything going on secularly that you're seeing as far as electronic payments versus cash payments.

Ignacio Alvarez -- President and Chief Executive Officer

No, not really. No.

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

The trends continue. More of our clients use electronic transactions every quarter and that trend is continuing, I think as Ignacio reported.

Ignacio Alvarez -- President and Chief Executive Officer

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.

Robert Napoli -- William Blair -- Analyst

Great. Thank you very much. Appreciate it.

Operator

This concludes our question-and-answer session. I would like to turn the conference over to Ignacio Alvarez, CEO for any closing remarks.

Ignacio Alvarez -- President and Chief Executive Officer

Yes. Thank you for joining -- for joining the call and for your questions. The fourth quarter was an another strong one for us, and we're very pleased with our results. We intend to build on that momentum and then update you on our progress in April. Thank you.

Operator

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

Duration: 54 minutes

Call participants:

Paul Cardillo -- Senior Vice President, Investor Relations Officer

Ignacio Alvarez -- President and Chief Executive Officer

Carlos Vazquez -- Executive Vice President and Chief Financial Officer

Lidio Soriano -- Executive Vice President and Chief Risk Officer

Alex Twerdahl -- Sandler O'Neill -- Analyst

Brett Rabatin -- Piper Jaffray. -- Analyst

Steven Duong -- RBC Capital Markets. -- Analyst

Glen Manna -- Keefe, Bruyette & Woods -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Scott Valentin -- Compass Point Research -- Analyst

Robert Napoli -- William Blair -- Analyst

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