Popular, Inc.

Good day and welcome to the Popular, Inc. second quarter 2020 earnings conference call. 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 touch-tone phone. To withdraw your question, please press star, then two. Please note today's event is being recorded. I would now like to turn the conference over to Paul Cardillo, Investor Relations Officer of Popular, Inc. Please go ahead, sir.

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 second quarter and then answer your questions. 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.

Good morning, and thank you for joining the call. I hope that you and your loved ones are healthy and staying safe. Before addressing our core results, I'd first like to discuss the current business environment in Puerto Rico as outlined in the first two slides of the presentation. The pandemic and related economic disruption continues to have a significant impact on the markets we serve, particularly in Puerto Rico. The strict lockdown mandated by the governor of Puerto Rico on March 15th helped curtail the initial spread of the pandemic. As a result, starting on May 26th, many of the restrictions that were in place were gradually loosened and the local economy largely reopened over the past couple of months. As the economy reopened, we had started to see a revival in business activity, especially in the month of June. However, the recent surge in positive cases and hospitalizations led the governor on July 16th to announce the rollback of some business and recreational activities and to impose further restrictions on inbound travel. While affecting a much smaller portion of the economy than the original lockdown, these restrictions will undoubtedly have a significant impact on the hotel and restaurant segment, the severity of which will depend on the length of these restrictions. Employment trends deteriorated rapidly in April and are still down significantly compared to last year, but they have begun to stabilize. The peak in unemployment claims to date in 2020 was during the first week of April. Nonfarm employment improved by nearly 5% from April to June. New auto sales had been severely impacted by the lockdown and were 49% lower in the second quarter as compared to the second quarter of 2019. However, June was the best month of auto sales in the past decade, and auto sales were 5% higher than the year-ago period. Additionally, cement sales in the second quarter were 6% lower than last year's second quarter, but up 42% in the month of June year-over-year. Our customer spending increased as the economy reopened. While debit and credit card sales in the second quarter were down 5% compared to the year-ago period, they increased 7% sequentially from the first quarter. In June alone, sales were 43% higher than in June 2019. Similarly, while BPPR's second quarter mortgage arrears were 50% lower than the second quarter of 2019, originations for the month of June were on par with 2019 results. Tourism, however, continues to lag. Hotel occupancy bottomed in April at 4%. However, as restrictions were lifted, occupancy levels had increased to 23% by mid-June, driven primarily by internal summer tourism. Additionally, according to the Puerto Rico Tourism Company, hotel occupancy reached 78% over the three-year Fourth of July weekend, 92% of which were local tourists. However, we are already seeing this positive trend reverse as a result of the recently announced restrictions. According to the operator of the San Juan International Airport, during June 2020, arrivals decreased by 67% compared to June 2019. And year-to-date through June, Puerto Rico received 46% fewer passengers than during the same period in 2019. Local and federal governments continue to provide relief and assistance in response to the pandemic. The Puerto Rico government has approved $787 million in fiscal stimulus. Also, it is estimated that Puerto Rico will receive approximately $14 billion in funds under various federal stimulus programs. Puerto Rico residents are entitled to receive the supplemental federal unemployment benefit of $600 per week, though that benefit is currently scheduled to sunset on July 31st. As a management team, we've taken measures to ensure the soundness of our operation and the safety of our employees and customers. Most of our branches are open, though some are still operating under reduced schedules. We are communicating regularly with our employees to keep them informed of the evolving health and business environment. We continue to offer alternative work arrangements for a significant portion of our employee base. We have established a return-to-work protocol to ensure a safe transition back to on-premise activities when deemed advisable. I am also happy to announce that during the quarter, we extended healthcare coverage to part-time employees. We remain focused on supporting our customers and enhancing their experience at Poplar. We have provided broad payment relief for our consumer and commercial lending clients. We've encouraged customers to use alternative digital banking options. We've seen a 13% increase in active online users since March 2020 and surpassed 1 million monthly active users on our Mi Banco digital platform in Puerto Rico, a very significant milestone. Additionally, in the second quarter, we captured 72% of our deposits through digital channels compared to 56% in the first quarter. Finally, and most impressively, given Puerto Rico's recent demographic trends, our customer base continues to grow, increasing by 52,000 since March 2020 to nearly 1.86 million customers. Following the passage of the CARES Act, Popular secured funding approval under the SBA's PPP program for more than 28,000 loans for small and minimum-sized businesses, totaling over $1.4 billion, including $1.2 billion in Puerto Rico, 215 million in the mainland United States and 29 million in the U.S. Virgin Islands. In fact, we originated 69% of all PPP loans originated to date in Puerto Rico. The businesses supported by these loans employed 278,000 persons and 73% of the loans originated were for less than $25,000. Additionally, Poplar has secured more than $300,000 in Federal Home Loan Bank of New York grants to support local nonprofits and small businesses in Puerto Rico and the US metro area. As we continue to respond to this rapidly changing situation, our plans and actions will continue to evolve. Please turn to slide five. As in the first quarter, our second quarter results reflect the impact of the economic disruption caused by the pandemic. Our quarterly net income of $120 million was higher than the $34 million reported in the first quarter, However, it was down 25% from the $171 million reported in the year-ago period. Second quarter results were driven by lower provision. Revenues were down in the quarter and were partially offset by lower operating expenses. The decrease in net interest income was driven by the cumulative impact of interest rate cuts by the Fed, partially offset by the issuance of the PPP loans, lower deposit costs, and the increase in our investment portfolio driven by higher deposit balances. Credit quality trends remain stable. However, the full extent of future economic disruption as a result of the pandemic is still uncertain. I will now turn the call over to Carlos, who will discuss the financial results in more detail.