Popular, Inc.

Good morning and welcome to the popular fourth quarter 2020 earnings 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. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to 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 full year and fourth 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 uncertainty. 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 Good morning, and thank you for joining the call. I hope that you and your loved ones are well. Despite the challenging economic environment, we generated $507 million in earnings during 2020 and ended the year on a high note with $176 million in earnings during the fourth quarter. This was one of our best quarters in our history. These results reflect the ongoing rebound in economic activity experienced during the second half of the year 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. In the fourth quarter, business trends and customer activity continued to improve. Building upon the momentum seen in the third quarter, as many of the pandemic-related restrictions were gradually loosened. Employment trends, which deteriorated rapidly in April, have improved, but are still down significantly compared to last year. Total non-farm employment has increased by 6% since April when employment bottomed out, but remains 8% below the December 2019 level. In 2020, new auto sales were 11% lower than the previous year, mainly the result of the restrictions on auto sales and financing from March through May. However, demand has rebounded sharply since May and remains robust. Fourth quarter sales of almost 36,000 units marked the highest recorded quarterly level going back to at least 2013. Cement sales increased by 16% in the fourth quarter as compared to the year-ago period. Tourism and the hospitality sector are improving slowly but continue to lag other areas of the local economy. While airport traffic has been gradually increasing, arrivals during the month of December were still 45% lower than the previous year. Within Popular's clientele, debit and credit card sales in dollars increased by 18% compared to the last year's fourth quarter. For the full year, sales increased by 10%. Auto loan and lease originations at BPPR increased by 11% compared to the year-ago quarter, and we're only down 5% for the full year, notwithstanding the pandemic-related disruptions. Similarly, we saw continued strength in the dollar value of mortgage durations at PPP-R, which were up 20% in the fourth quarter versus the third quarter and increased by 32% in 2020 as compared to 2019. Please turn to slide four for an update on PPP and other operational matters. Most of our branches are now fully operational, and we continue to take measures to ensure the safety of our employees and customers. We are also focused on supporting our customers in this uncertain environment. During the initial phases of the pandemic, we offered payment relief to our retail and commercial customers and are working with those clients who still need assistance. We continue to offer alternative work arrangements for a significant portion of our employee base. We are committed to ensure a safe transition back to on-premise activities, which we currently plan to be no earlier than April. We have been working with local authorities to promote and facilitate COVID-19 vaccination efforts, and we are actively encouraging our employee base to get vaccinated as soon as they are eligible to do so. With respect to the PPP program, $544 million of the loans originated were under $150,000 and are eligible for expedited forgiveness under the SBA's simplified process. We have deployed an online platform for customers to request loan forgiveness and have submitted approximately $500 million in forgiveness requests to the SBA. Leveraging this online platform, we began accepting applications for the second phase of the PPV program last week. To date, we have received more than 3,200 applications, totaling approximately $234 million. On the digital front, we continue to have more than 1 million monthly active users on our Mi Banco platform in Puerto Rico. We captured 71% of deposits in the fourth quarter through digital channels. For the full year, 67% of deposits in BPPR were captured digitally compared to 52% in 2019. Finally, our customer base in Puerto Rico continues to grow, increasing by 6,000 in the fourth quarter to reach more than 1.9 million unique customers. Please turn to slide five. Our annual net income of $507 million reflects a decrease of approximately 24% from our 2019 annual record net income of $671 million. The decrease was largely driven by higher provision expense, lower fees, and lower net interest income related to the economic disruption caused by the pandemic. 2020 results benefited from strong deposit growth and a higher level of earning assets in both Puerto Rico and the U.S. However, both of our banks have lowered their interest margins during the year. Credit quality remains stable throughout 2020. We are pleased with how our portfolios have performed in this difficult period. Our capital levels are strong with year-end Tier 1 capital and Tier 1 common equity ratios at 16.3%. Our tangible book value ended 2020 at $63.07, a 14% increase year-over-year. In Puerto Rico, we grew loans by 7%, increased our deposits by 35%, and our net interest margin was 3.4%. In our U.S. operation, we grew loans by 8%, deposits by 2%, and our net interest margin was 3.21%. Please turn to slide 6. Our quarterly net income of $176 million was $8 million higher than the third quarter and 9 million higher than the same quarter last year. These results were driven by higher revenues partially offset by higher provision and operating expenses, including pre-tax expenses of $23 million related to our New York branch realignment program. 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. All in all, we are very pleased with our fourth quarter results. With that, I will now turn it over to Carlos.