Popular Inc

NASDAQ:BPOP

Earnings Call Transcript 2019-Q4

[Operator]

Good day and welcome to the Popular, Inc. Q4 2019 Earnings Conference Call and webcast. [Operator Instructions] Please note that this event is being recorded.

I'd now like to turn the conference over to Paul Cardillo, Investor Relations Officer, Popular, Inc. Please go ahead.

[Paul Cardillo, IR Officer]

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 question. Other members of our management team will also 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 webpage at popular.com.

I will now turn the call over to our CEO, Ignacio Alvarez.

[Ignacio Alvarez, CEO]

Good morning and thank you for joining the call.

Today's results reflect another solid quarter and an outstanding year in which we achieved record core earnings. Before I discuss the highlights for 2019, I'm very pleased to report that in January, 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 $0.30 to $0.40 per share beginning in the second quarter of 2020, and a common stock repurchase program of up to $500 million. We also announced the redemption of our 8.25% Series B preferred stock of which $28 million is currently outstanding. Additionally, on December 31, 2019, we acquired a $74 million credit card portfolio in Puerto Rico.

In a separate transaction, we also acquired the rights to issue credit cards under the JetBlue co-branded loyalty program in Puerto Rico, and we plan to launch this new product in the second half of 2020. These actions evidence the strength of our capital position, which allows us to return capital to our shareholders, while we continue to invest in our franchise.

Please turn to Slide 3. We reported core earnings for the full year. Our annual net income of $671 million reflects an increase of 38% from our 2018 adjusted net income of $487 million. 2019 results benefited from strong deposit and loan growth in both Puerto Rico and the US. Credit quality metrics continue to be positive in 2019.

In Puerto Rico, most indicators were better than or close to pre-hurricane level. In the US, credit quality was solid throughout the year and reduced our exposure to the taxi medallion market to $19 million.

Our capital levels are strong with year-end Tier-1 capital and Tier-1 common ratios at 17.8%. Our tangible book value ended 2019 at $55.10, a 17% increase year-over-year. In Puerto Rico, we grew loans by 1.5%, increased our deposits by 10%, and our net interest margin was 4.3%. In our US operation, we grew loans and our deposits each by 9%, and our net interest margin was 3.32%.

Please turn to Slide 4. Our reported core net income of $167 million, which included an $18 million tax benefit was slightly higher than the previous quarter and $33 million or 24% higher than the adjusted net income for the fourth quarter of 2018.

Fourth quarter results were driven by lower taxes and higher non-interest income, partially offset by lower net interest income, higher provision, and higher expenses. Net interest income was lower compared to the previous quarter.

Fourth quarter was the first quarter to reflect the cumulative impact of the three recent interest rate cuts. As such, the lower yield in our loan and investment portfolios were only partially offset by increases in investment and money market balances.

Credit quality results continue to show favorable trend. The credit metrics of our BPPR operations reflected lower non-performing loans, lower NPL inflows, and stable net charge-offs. The increase in net charge-offs in the US operations was related to the taxi medallion portfolio, which has now been largely resolved.

Please turn to Slide 5 for an update on the environment in Puerto Rico. Economic activity stabilized in 2019 after a post-hurricane rebound in 2018. This occurred despite the macro and political uncertainty that persisted throughout the year and has continued into early 2020.

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 through September was approximately 55,000.

Excluding 2018, which was substantially impacted by the inflow of people coming back to Puerto Rico following the hurricane, the data for 2019 reflects a favorable variance compared to the same periods in 2015, '16, and '17, which averaged outflows of 109,000 people. We will need to see whether the recent seismic activity in the south will have an impact on this trend.

Additionally, the US Census Bureau refinanced - recently estimated that as of July 2019, the population of Puerto Rico remained flat versus 2018. This compares favorable to the 1.7% average annual decline in the population since 2010. Employment trends remain stable throughout the year.

In December, total employment, which includes self-employed individuals was down 1.4% versus December 2018. The unemployment rate was 8.4% in December, which is consistent with levels seen early in 2019.

Salaried employment was flat year-over-year with both private and public employment essentially unchanged compared to the same period last year. The auto industry continued to perform well in 2019. 106,000 new units were sold, down 1% compared to 2018, but up 27% and 24% versus 2017 and 2016. Cement sales were down 6% in 2019 when compared to 2018, though there was considerable surge in activity in early 2018 following the hurricane.

2019 sales were 31% and 17% higher than in 2017 and '16. The dollar value of our customers' debit and credit card transactions in the fourth quarter grew by 6% compared to the third quarter, and by 2% versus the same period in 2018. Our consumer loan origination trends in Puerto Rico have also remained solid, especially in the auto and personal loan segments.

Our mortgage originations, while still at historically low levels were 7% higher than the previous quarter driven primarily by higher home purchase activity. On the commercial loan side, balances increased sequentially. We continue to expect that incremental lending opportunities will be tied to the performance of the local economy, an ongoing recovery effort. Popular's customers in Puerto Rico grew by 8,400 this quarter and have increased by 45,000 since December 2018.

As we have commented before, the sustainability and pace of further progress in the Puerto Rico economy will be heavily dependent on the magnitude and timing of federal recovery funds flowing into the island. The disbursement of the funds has been slower than many had hoped.

This delay is related to concerns regarding the appropriate oversight of the disbursement of federal funds. Recently, HUD authorized the use of $8.5 billion of CDBG-DR funds subject to strict oversight requirements in addition to the $1.5 billion previously released.

While this is definitely positive, recent controversy relating to the distribution of emergency supplies may increase concern over local oversight. It is difficult to predict whether this ultimately will impact the amount and timing of recovery funds received. However, we continue to believe that these funds will be significant and have a positive impact on the economy.

I will now offer a brief update on matters related to the --to the seismic events that have impacted the Southwestern part of the island, including a magnitude 6.4 earthquake on January 7th. I want to emphasize that this event does not compare to the widespread destruction and damage caused by Hurricane Maria. The damage was mostly concentrated in 60 municipalities which, with the exception of Ponce are relatively small.

Fortunately, none of our employees suffered physical harm and our facilities are in sound condition. Unlike Maria, telecommunications were unaffected and power restored within days. We resumed operations on the day following the earthquake and have provided uninterrupted services. All but three of our 164 branches in Puerto Rico are operating normally.

We are in constant communication with our employees and working closely with our customers to help them with their specific needs. While the impact on operations is limited, many of the residents in the south suffered significant damages to their homes, public schools remain closed and the ensuing aftershocks have made it extremely difficult for people in the region to regain it into normalcy.

As we have done in the past, we swiftly responded through our foundation, which has close ties with non-profit organizations and communities in the south to bring immediate assistance to those affected areas. A little more than two years ago, Puerto Rico faced and manage through the impact of Hurricane Maria. Although the scale of these events is not comparable to Maria, we remain attentive to the impact it could have in certain sectors of the economy, principally in the hospitality industry.

Puerto Ricans are once again demonstrating overwhelming solidarity and support and are facing the situation with the result to move forward. We will continue working with them, confident that Puerto Rico will once again demonstrate it spirit and ability to rebuild.

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

[Carlos Vázquez, CFO]

Thank you, Ignacio, good morning.

Before we turn to fourth quarter results, let me expand on Popular's full year 2019 perform. Our net interest income increased by 9% year-over-year to $1.9 billion due to solid loan growth along with robust rollover net interest margin.

In 2019, our provision expense decreased by approximately 37% to $166 million on the back of improved credit trends. Excluding the FDIC-related benefit in 2018, non-interest income increased by approximately 8% year-over-year driven by improvement across most segments.

Operating expenses increased 4% in the year to $1.48 billion. Higher personnel costs and professional fees were the primary driver. Our capital position was robust and ended the year with tangible book value per share increasing by nearly $9 per share to $55.10.

Common equity Tier-1 ratio improving by 88 basis points year-over-year to 17.8%. This improvement was achieved even after the repurchase of $250 million of common stock and an increase in our common stock dividend. As Ignacio mentioned, overall an outstanding year.

Please turn to Slide 6, for fourth quarter results. As usual, additional information is provided in the appendix to the slide deck. Today's earnings press release details variances from the third quarter.

Net interest income for the quarter was $467 million, down $10 million from the third quarter. The primary driver of this decline was a decrease in rates that occurred during the third and fourth quarters of 2019, which along with our asset mix led to a 17 basis points contraction in NIM. This impact was somewhat offset, but higher commercial loans in both Puerto Rico, and in the US, higher auto and personal loans at BPPR and lower interest expense.

This result is consistent with our commentary last quarter that lower interest rates negatively impact our results by $4 million to $5 million per quarter for every 25 basis point drop in rates.

Other factors like asset mix and the shape of the yield curve also impact this estimate. We expect our margin to improve from fourth quarter levels, as a result of present expectations of stable rates, the gradual reduction in our asset sensitivity and the eventual normalization of the level of Puerto Rico government deposits. The government deposit levels exceed our expectations, the margin improvement could be less with our net income will benefit.

At of the end of the fourth quarter, Puerto Rico public deposits were roughly $10.5 billion, which is down from the end of Q3, but consistent with the advance as communicated in our last webcast.

In 2019, our loan portfolio grew by $907 million or 3% despite a run off of $420 million in our legacy mortgage and Western Bank portfolio. In 2020, we anticipate slight growth in loan balances for Popular. In Puerto Rico, we expect to see growth in most segments including commercial, auto and personal loans, despite continued runoff in our legacy mortgage and commercial portfolios.

In the US, we anticipate commercial lending to be the primary driver of higher loan balance. Our provision in the fourth quarter increased by $10.6 million sequentially. Lidio will expand on this during his credit commentary. Non-interest income increased by $9.7 million in the period. The improvement was due to a $3 million increase in insurance fees driven primarily by higher contingent commissions, which usually happen in Q4.

We benefited from a $3 million improvement in mortgage banking results, mainly due to MSR valuation adjustment and finally, a $4.7 million variable variance in the adjustment to indemnity reserves on previously sold loans. Total operating expenses were $391 million, $14.1 million higher than the prior quarter.

Personnel cost increased by $10.6 million in the quarter. These increases were driven by annual incentives and headcount, higher commissions and incremental investments in employee benefits and training.

Professional fees increased by $4.6 million primarily due to higher expenditures in regulatory, accounting and technology fees, offset in part by lower legal fees. Business promotional costs were $4.8 million higher in the fourth quarter, reflecting the traditional seasonality of this expense line.

These increases were partially offset by lower other operating expenses by $9.5 million mainly due to lower operating losses and the non-recurrence of a $2.6 million loss related to an undeveloped corporate site, which was placed for sale during the third quarter.

Profit sharing expenses were $9.4 million in Q4 and total of $28.8 million for the year. If we exclude the 2019 profit sharing expense, which by definition is not budgeted, our average quarterly expense for the year was $362 million, consistent with our original guidance of $364 million.

For 2020, we expect average quarterly expenses to be around $383 million. The increase from 2019 is mostly driven by higher expenses in the following categories. Personnel, as we continue to invest in training and compensation with the related benefits also increasing.

A tight labor market in Puerto Rico, I mean the areas where we operate in the mainland contribute to this increase. Technology, as we continue to modernize our digital capabilities, pure obsolescence, and address regulatory, cyber and compliance needs. Some of the increase results from the completion of multi-year technology investments that now starts to be amortized.

And finally business promotion, especially expenses related to reward programs for our clients, many linked to our revamped credit card offerings in Puerto Rico and growth in our digital channel. Part of this higher technology and rewards expenses are related to our expectation of higher levels of activity by our client. Obviously, we will strive to come in below this expenses - this level of expenses if possible. Management's objectives for 2020, reflect this goal.

Our effective tax rate for the quarter was 8%, which includes a previously disclosed benefit of $18 million related to revisions of the amount of exempt income for the years 2015 to 2017. Excluding these adjustments, our effective tax rate would have been 18%. For 2020, we expect the effective tax rate to be within a range of 19% to 21%.

Please turn to Slide 7. Our capital levels remain strong relative to mainland peers as well with respect to well capitalized regulatory requirements. As Ignacio mentioned at the start of today's call, our announced 2020 couple of plan includes three actions. First, an increase in Popular's quarterly common dividend by 33% or $0.10 to $0.40 per share. We expect to implement this increase for our next quarterly dividend in Q2.

Secondly, we will be implementing a common stock repurchase program of up to $500 million. While our recent buyback programs have been executed via ASR, the detailed implementation plan for this buyback is still under consideration.

Finally, on Friday we announced the redemption of the remaining outstanding balance of Popular's 8.25% Series B preferred stock, as these securities represent the high cost liabilities. Our common equity Tier-1 ratio was 17.8% up from 17.5%, and tangible book value increase in the quarter by $1.69 per share to $55.10.

The increase was driven by our quarterly net income, partially offset by lower unrealized gains on investments and the impact of our common and preferred dividends. Our return on tangible equity was 12.8% in the fourth quarter and 13.4% in 2019. We will continue to pursue our target of maintaining and improving our double-digit return on tangible equity.

Please turn to Slide 8. We have continued our evaluation and implementation efforts for CECL. Based on our analysis we estimate that the allowance for loan and lease losses would increase by a range of $320 million to $350 million or 67% to 73% of the existing reserves. This estimated increase slightly lower than last quarters is driven by the Puerto Rico mortgage, credit card, and auto loan portfolios.

Based on this estimate, the day-one impact of the adoption of CECL would result in a decrease in tangible book value of approximately $2 per share or 4%, This Popular's allowance already exceeds 1.25% of loan, the incremental allowance resulting from CECL will be excluded from total capital. In accordance with present regulatory guidance, we plan to phase in the day-one effects of CECL on regulatory capital over a three-year period.

As such we estimated day-one impact to result in a reduction of CET and total capital of approximately 25 basis points. After the adoption of CECL Popular will continue to be well capitalized. As part of the adoption of CECL, the Corporation has made the election to break the existing pools of purchased credit impaired or PCI loans previously accounted for under SOP. Under CECL these loans will be accounted for as individual loans instead of pools of loans. Up to now PCI loans have been excluded from being reported as non-performing due the estimation of cash flows at the pool level.

Upon transition to the individual loan measurement, these loans will no longer be excluded from non-performing status. This change in accounting treatment would have resulted as of 12/31/19 in an increase of $283 million in reported NPLs.

This increase is composed of $156 million in loans currently reported over 90 days past due, not as NPLs and $127 million in loans that are not delinquent in their payment terms, but would be reported as non-performing due to other credit quality consideration. Again, these adjustments in reported NPLs would be as of December 31, 2019 and could change by the time we report our 3/31/20 results under CECL.

Let me stress that this reporting change does not in any way alter or increase the credit risk containing Populars loan portfolio. However, the accounting treatment of the loans will result in higher reported NPL level. The Corporation will pursue renegotiations with resolutions and loan dispositions that may reduce this post CECL reported NPLs further. We are still refining our simulations of the effects of the new CECL models on the provision for 2020. So we are not going to position to provide additional insight on provision at this time.

With that I will turn the call over to Lidio.

[Lidio Soriano, CRO]

Thank you, Carlos, and good morning.

The credit quality metrics for the Corporation continue to show favorable trends. In Puerto Rico, our credit metrics reflected lower non-performing loans, lower NPL inflows and stable net charge-offs. In the US, we reached agreements with the majority of our taxi medallion borrowers, resulting in an increase in net charge-offs. Excluding this impact, credit quality metrics in the US remained favorable. We continue to be attentive to the performance of our portfolios and related credit metrics.

In terms of our exposure to earthquake area, approximately 8% of our mortgage and 11% of our consumer loan portfolios pertaining to areas declared as major disaster. So far customer inquiries and request for modifications have been limited. In terms of our outstanding direct exposure to the Puerto Rico government, municipalities and other instrumentalities, at year end, the balance was $432 million, a decrease of $26 million when compared to last year.

Please turn to Slide number 9, to review credit metrics at the end of the year. Non-performing assets decreased by $26 million to $650 million this quarter, driven by a non-performing loan decrease of $30 million, offset in part by an OREO increase of $4 million. The decline in non-performing loans was mainly driven by improvements in both Puerto Rico and the US. In Puerto Rico, NPLs decreased by $22 million with a $90 million reduction in commercial and a $12 million reduction in mortgage.

The decrease in commercial was mostly the result of two commercial loan relationship, while the decrease in mortgage was mostly due to the continued improvement in the portfolio. These reductions were offset in part by higher consumer NPLs of $9 million, mostly related to auto loans. Following the Reliable acquisition, we have experienced an increase in early delinquency, NPLs and net charge-offs in our auto loan portfolio. Mostly driven by the seasoning of the acquired portfolio and higher originations in lower FICO segments.

While we are attentive to these trends, we are not overly concerned. As some deterioration was expected following the acquisition of a current portfolio and changes in the residential mix. We remain pleased with the result of the acquisition. In the US, NPLs decreased by $8 million mostly due to an NPL construction loans sold during the quarter. At the end of the year, the ratio of NPLs to total loans held in portfolio was 1.9%, compared to 2.1% in the third quarter of 2019. The increase in OREO was mainly in the Puerto Rico mortgage portfolio.

Please turn to Slide number 10, to discuss NPL inflows. The NPL story is positive, so I'll be brief. Compared to the previous quarter, inflows of NPLs excluding consumer loans decreased by $23 million driven by improvements in the Puerto Rico commercial portfolio as the prior quarter included the impact of certain troubled debt restructured commercial real estate loans. The improvement was offset in part by a slight increase of $5 million in the mortgage portfolio. In the US, inflows of NPLs were relatively flat quarter-over-quarter.

Turning to Slide number 11, net charge-off amounted to $82 million or annualized 1.21% of average loans held in portfolio, compared to $68 million or 97 basis points in the previous quarter. The increase of $14 million from the prior quarter was primarily related to net charge-off to our taxi medallion portfolio of $19 million, reflecting agreements which with the majority of our taxi medallion borrowers.

At the end of the year, net of reserves, the carrying value of this portfolio was $19 million or approximately 19% of its unpaid principal balance. Of the remaining exposure, 80% is on the settlement agreement. Excluding the taxi medallion impact, the corporation net charge-off will have improved by $5 million or 4 basis points.

Net charge-off in Puerto Rico were flat quarter-over-quarter. The Corporations allowance for loan losses decreased by $35 million from the prior quarter to $478 million, driven by a decrease of $18 million Puerto Rico, coupled with a decrease of $70 million in the US.

In Puerto Rico, the decrease was mainly related to a decrease in the commercial qualitative reserves, offset in part by an increase in reserves to the auto loan portfolio. In the US, the decrease in allowance was driven by the previously mentioned charge-off to the taxi medallion portfolio. The provision for loan losses increased to $47 million from $37 million in the prior quarter, with an increase of $6 million in Puerto Rico, an increase of $4 million in the US.

To summarize, credit quality metrics continue to show favorable trends for the fourth quarter. In Puerto Rico results were better or stable on a quarter-to-quarter basis, while in the US we reached settlement agreements with our taxi medallion borrowers impacting charge-offs, excluding this results for the US were strong.

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

[Ignacio Alvarez, CEO]

Thank you. Lidio and Carlos for your updates.

2019 with an outstanding year for Popular. We achieved record financial results and accomplished important milestone. The integration of our auto business, the asset purchases in Puerto Rico and our recently announced planned capital actions reflect that strength. We begin 2020 on a solid footing and excited about our prospects for the year. Our Puerto Rico franchise is unrivaled. We've consistently grown our retail and commercial customer base and now is our 1.8 million customers.

However, we do not take our leadership position for granted and we remain focused on enhancing our customers' experience across all our channels. Our unmatched branch network is enhanced by our innovative digital solutions. Approximately 915,000 of our clients are active online and 80% of these clients use mobile devices to interact with them. In December, 52% of our deposit transactions in Puerto Rico were processed through smart ATMs and mobile devices, a figure that has been growing consistently.

The breadth and depth of our retail and commercial product offerings in Puerto Rico allow us to meet the evolving banking needs of our customers. Operation in the main United States were more focused, provides diversification to our footprint.

We have a strong commercial lending unit that is complemented by two specialized national lending businesses, condo association banking and healthcare. Our investments in Evertec and BHD Leon contribute to earnings and represent unrecognized value. We are encouraged by our results and remain focused on enhancing shareholder value.

We are now ready to answer your questions.

[Operator]

We’ll now begin the question and answer session. [Operator Instructions] First question comes from Alex Twerdahl from Sandler. Please go ahead.

[Alexander Twerdahl, Sandler]

A first off, just wanted to drill in a little bit more to CECL, and I appreciate Carlos for your commentary on not being in a position to provide guidance on future provisioning at this time. But just with the reserve now approaching 3% and losses conceivably being incorporated already in that reserve, is there really a scenario where that reserve does not start to come down in some sort of fashion as 2020 approaches or progresses?

[Lidio Soriano, CRO]

I think as we mentioned - mentioned by Carlos, we are not providing guidance on it, but again two things that you are expected to affect the levels of allowance. One is whether the portfolio grows or not, so that's a factor and the other is charge-off. We expect to have charge-off and there might be slight growth in our portfolio. So, everything else being equal, that should lead to a slight growth in the allowance.

[Alexander Twerdahl, Sandler]

I'm sorry, can you say that again, you said the allowance should grow?

[Lidio Soriano, CRO]

Everything else being equal, growth in the portfolio on charge-offs related to additional growth in allowance, yes.

[Alexander Twerdahl, Sandler]

And then switching gears to talk about loan growth a little bit. We saw some nice commercial loan growth this quarter, was any of that tied to a specific post Hurricane Maria recovery money flowing to the island?

[Ignacio Alvarez, CEO]

This is Ignacio. It's hard to time directly. I mean some of - some of the - our construction clients probably have some, but I would say it was not directly tied to the recovery efforts. Again, some of the lines, for our clients to do work were increased and they use some of those lines, but I would not attribute it primarily to that. I would attribute it primarily just to a general economic activity.

[Alexander Twerdahl, Sandler]

And then just a final question from me. As we think about expenses for 2020, the $383 million average, does that include profit sharing or is that something that, if you have a pretty good year would wind up increasing expenses again?

[Carlos Vázquez, CFO]

No, it does not include profit sharing because obviously we have to beat a whole set of targets to - for the profit sharing to start coming in. So, it does not include any profit sharing.

[Operator]

Next question comes from Gerard Cassidy, RBC. Please go ahead.

[Gerard Cassidy, RBC]

Carlos, can you share with us - if I recall in the past when you've returned the capital to shareholders through the stock repurchase programs, you seem to have been able to kind of do it in the beginning, right after the approval in an accelerated fashion. With this $500 million that you were approved for this time around, is it going to be spread out more evenly over a 12-month period or should we expect more of it to be upfront? How are you guys thinking about that?

[Carlos Vázquez, CFO]

It's a good question. We are in the middle of consultations with all our teams, investment banking and coverage teams. So, we - it's not finally decided yet exactly how we're going to do it.

[Gerard Cassidy, RBC]

And then another question, you guys seem to have some good success in engaging your customers in the digital transformation. You've given us additional statistics. Can you give us an idea, are half of your customers now in digital or two-thirds or how much more you have to go and then what kind of benefit from a cost standpoint do you possibly see in the horizon where maybe you need fewer branches or smaller branches, et cetera?

[Ignacio Alvarez, CEO]

Yes, I mean if you look at our total number of customers, we size them as 1.8 million, and so 915,000 are active online, which means they transact least I think once a month, so more of them are online. Obviously you know we continue to work on digital. We have found that in Puerto Rico, our customers, although they are active online also appreciate the proximity in the branches.

We will continue to experiment on our branch size and how we - how we can incorporate digital into the branches, how we can use our smart ATMs and also we just opened up a branch in The Mall of San Juan, which is sort of a digitally based branch, but we don't - we don't take - we don't process any deposits or do any transactions, no tellers. So look, we'll continue to be working on that, what the branch looks like , but again if you ever been to our branches, the number of transactions in our branches are still high.

The number of digital transactions have grown exponentially, but the number of regular paper transactions have only decreased slightly. So, there is not - there is not a correlation between the exponential growth of the digital. So, we'll have to wait, but we're looking at this closely. We're experimenting, if you come to San Juan, you ought to see that branches in The Mall of San Juan, it's really cool.

[Carlos Vázquez, CFO]

That's one of the probably interesting differences between our business in Puerto Rico and the business of most of our peers in the Mainland. Gerard, as you know, in the Mainland mostly what banks have seen is a transfer of transactions out of the branch into the digital channel. As Ignacio mentioned, our branch channel continues to be very, very robust and it's really not going down very much.

But all the growth is happening on the digital channels. So, we are doing more transactions as our clients take digital. But they are - they do not stop going to the branches when they are digital clients, and that might be slightly different than the mainland.

[Ignacio Alvarez, CEO]

Yes, interesting enough, even when you ask customers what is one of the most important elements, they look at when they pick a branch - it's still - they pick a bank, is still the branch network. Now one thing you have to keep in mind is that there has been tremendous consolidation in Puerto Rico over the last 20 years and the number of branches in Puerto Rico as a whole has reduced dramatically. And Puerto Rico, the number of branches for 100,000 people is still well below the US.

[Gerard Cassidy, RBC]

Very good. You guys obviously talked about the success of the Wells Fargo auto portfolio acquisition and the integration into your organization. You mentioned this quarter, your purchased a credit card portfolio of $74 million in receivables. Two questions, one is, are there potential for more portfolio like acquisitions that you see in maybe 2020? And then second, is there any interest in building out the density of your New York or Florida franchises with actual whole bank acquisitions?

[Carlos Vázquez, CFO]

I think to the first point, I think we'd like to characterize ourselves as opportunistic buyers. So I don't think there is a lot of reliable auto transactions left in Puerto Rico. But we keep finding and other institutions are willing to sell, we are opportunistic buyers, so we'll keep looking.

In terms of the US, probably, I think we're pretty comfortable with our footprint in the New York area and any place we'd be looking forward, probably to grow in the South Florida, but again we're opportunistic. We - but we're not going to do anything that doesn't make economic sense, just for doing a transaction.

[Operator]

[Operator Instructions] Our next question comes from Glen Manna, Keefe, Bruyette and Woods. Please go ahead.

[Glen Manna, Keefe, Bruyette and Woods]

So last Friday's announcement for the redemption of the Series B, was there anything else in your capital plan that had redemption of any other straight preferred or the trust preferred out there?

[Carlos Vázquez, CFO]

No.

[Ignacio Alvarez, CEO]

No that, we are - all the components of our capital plan are not public.

[Glen Manna, Keefe, Bruyette and Woods]

Okay. And just a follow up on Alex's question, within ALL that looks like it's around the 3% range post CECL day-one and maybe charge-offs going down to 75 basis points and 2% loan growth, I guess the way the street is kind of thinking about it, assuming the portfolio mix doesn't change. You know, it would kind of indicate that the provision - the streets provision for next year of around 220 to 225 is a reasonable methodology under those parameters, would you kind of agree with that or not.

[Carlos Vázquez, CFO]

Yes, I mean we've heard - we've heard a lot people are approaching the different ways, partly the most common approach we've heard is the one you just described, so that sounds reasonable. Unfortunately, on the CECL, the part that this approach and not incorporate any way, is any change in the input there goes to the models.

So my answer is that, yes, it sounds reasonable, but despite the fact that it's reasonable, it could end up not being accurate because again it is impossible for anybody to be able to gauge the input variables into the models of each bank reporting. So, yeah, it sounds like the right ballpark, but doesn't mean it's going to give you the right end.

[Glen Manna, Keefe, Bruyette and Woods]

And then just a couple of more on, it looks like BPPR's deposit beta on average fed funds movement was around 6% last quarter and BPNA was 11%. We probably have a little remaining deposit repricing, would you expect the betas to stay in that range in each geography as we kind of get that like some period of deposit repricing after the rate cuts?

[Carlos Vázquez, CFO]

I mean our deposit beta - the components of our deposit book, the ones you know well and we have a, public sector deposit book, which is our 30% of the in Puerto Rico that has the beta is close to one. We have - the rest of our book in Puerto Rico has a very low beta and the US book that it's probably half and half high beta low beta. If - there is no change in mix, which is always the catch here, then the changes, I think might be similar for additional change in rates, but it looks rates are going to be flattish. So I would expect our deposit cost to reflect flattish rates more than anything else.

[Glen Manna, Keefe, Bruyette and Woods]

And the last one, the cost of borrowings looks like it went up by 14 basis points quarter-over-quarter, I know, three-month LIBOR was down a bit, but what are the dynamics there in - on the borrowing side?

[Carlos Vázquez, CFO]

Yes, it's a small component, Glen. I was actually - I wish I can get back to you with an answer on that because I have it on top of my head. There isn't a lot of change on the line and we are speculating they may just be that some parts of the line that were low cost fell off or matured and or something like that.

So, you're left with a little bit of the more expensive stuff, but we may have extended some pieces of that - of that line. Again, it is a small line that did not change much in magnitude, but it's a valid question, I owe you an answer on that one.

[Operator]

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Ignacio Alvarez for any closing remarks. Please go ahead.

[Ignacio Alvarez, CEO]

Thank you for joining us today and for your questions. We are pleased with our results and look forward to sharing our results for the first quarter of 2020 in April. Have a great day.

[Operator]

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