Popular, Inc.

Good day and welcome to the Popular Incorporated third quarter conference call. All participants will be in 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. Please note this event is being recorded. I would now like to turn the conference over to Paul Cardillo, Investor Relations Officer.

Please go ahead. Good morning and thank you for joining us. With us on the call today is our CEO, Ignacio Alvarez, our CFO, Carlos Vazquez, and our CRO, Lidio Soriano. They will review our results for the third 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 well. We generated 168 million earnings in the third quarter, notwithstanding the uncertain economic environment. These results reflect the rebound in economic activity experienced during the period due to further opening of the economy and the unprecedented level of federal stimulus. Our strong results also reflect our diversified sources of revenue and prudent risk management. Please turn to slide three for an update on the current business environment in Puerto Rico. Following a strict lockdown between mid-March and late May that helped curtail the initial spread of the pandemic, many of the restrictions that were in place were gradually loosened. We have seen a revival in business activity as the economy reopened. Economic trends and customer activity continue to improve. Employment trends, which deteriorated rapidly in April, are still down significantly compared to last year, but have also begun to improve. Total nonfarm employment has increased by 7% since April, but remains 8% below September 2019 levels. New auto sales have rebounded sharply, and in the third quarter were up 18% year over year. While demand for automobiles remained strong, lack of inventory may impact sales going forward. Demand sales increased 29% in the third quarter, both sequentially and as compared to the year-ago period. Debit and credit card sales increased by 32% compared to the second quarter of 2020, and by 27% versus last year's third quarter. Year-to-date sales are up 7% compared to 2019. Similarly, DPPR's third quarter mortgage originations have rebounded, increasing by 69% compared to the third quarter of 2019. Tourism is improving slowly, but it continues to lack other areas of the local economy. Hotel occupancy, bottom in April at 5%. However, as restrictions were lifted, Occupancy levels increased to 43% to the end of July. While airport traffic has been gradually increasing, arrivals during the month of September were still 48% lower than the previous year. Please turn to slide four. We are offering full banking services at 94% of our branches. As a management team, we continue to take measures to ensure the soundness of our operations and the safety of our employees and customers. We are offering alternative work arrangements for a significant portion of our employee base. We have further strengthened our return to work protocol to ensure a safe transition back to on-premise activities when possible, which we currently plan will be no earlier than January 2021. During the quarter, we paid a second special bonus to our branch employees in recognition of the unique challenges they faced during this period. We are also focused on supporting our customers in this uncertain environment. During the initial period of the pandemic, we offered payment relief to our retail and commercial customers and continue to work with those clients who still need help. With respect to the PPP program, we have deployed an online platform for customers to request loan forgiveness. 86% of the total loans originated are below $50,000, qualifying them for the simplified process. We expect that the forgiveness process will be substantially completed during the fourth quarter of 2020. We continue to have more than one million monthly active users on our Mibanko digital platform in Puerto Rico. We captured 70% of deposits in the third quarter to digital channels. Year-to-date, 66% of our deposits have been captured digitally compared to 52% in 2019. Finally, and most impressively, Given Puerto Rico's recent demographic trends, our customer base continues to grow, increasing by 41,000 in the third quarter to 1.9 million customers. We turn to slide five. Our quarterly net income of $116 million was $41 million higher than the second quarter and $3 million higher than the same quarter last year. Third quarter results were driven by higher revenues and lower provision, partially offset by higher operating expenses. The increase in net interest income was driven by an increase in our investment portfolio and lower deposit costs. Credit quality trends were solid in the quarter. However, we remained vigilant as the economic outlook is still uncertain. In the quarter, we completed a series of bulk mortgage repurchase transactions from our GSE servicing portfolio totaling $808 million. These transactions, along with a shift of a portion of our short-term investments to agency mortgage-backed securities, were executed in order to deploy liquidity to increase interest income and improve our margins. Please turn to slide six. Before turning it over to Carlos, I want to comment on a series of actions to realign our New York Metro branch network. As part of this realignment, 11 of our lower-performing branches in the New York Metro area will be closed. We anticipate the closure of these locations to be completed by the end of January. These actions will impact 83 employees who will be receiving severance and transition assistance. We remain committed to the New York Metro market and will maintain our presence in most of the current communities, providing critical accessibility to financial products and services that our customers rely on. Eight of the branches we are closing are within two miles of another one of our branches. We will continue to operate 27 branches throughout the New York metro area, our largest retail network in the mainland United States. This difficult decision was made following a detailed review of our current network, including foot traffic, branch proximity, customer needs, and accessibility of supplemental services. The branch realignment will allow us to reduce operating expenses Leverage resources to focus on small and medium-sized businesses, and enhance our digital offering to support changing customer behaviors. As a result of these actions, we expect to record a pre-tax charge of approximately $25 million, with $23 million to be reflected in the fourth quarter of 2020. Going forward, we estimate annual savings will be $13 million, with an expected payback period of approximately two years. We are confident that our branch repositioning strategy will strengthen our operations in New York as we continue to meet the growing and diverse needs of our customers, employees, and the communities that we serve. I will now turn the call over to Carlos.