First BanCorp. New

Good morning and welcome to the first Bancorp second 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 then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 John Pelling, Investor Relations and Capital Planning Officer. Please go ahead.

Thank you, Andrew. Good morning, everyone, and thank you for joining First Bank Corp's conference call and webcast to discuss the company's financial results for the second quarter of 2020. Joining you today from First Bank Corp are Aurelio Alleman, President and Chief Executive Officer, and Orlando Berthoud, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, You can access them at our website, onefirstbank.com. At this time, I'd like to turn the call over to our CEO, William Solomon.

William. Thank you, John, and good morning, everyone. This time, before going into the details of the quarter, I would like to discuss what we consider a more pressing matter at hand. Early this morning, under a separate press release, we disclosed an exciting piece of news. Yesterday, we did receive regulatory approval for moving ahead with our strategy transaction with Santander. We're very pleased of achieving this step. We do expect to meet all closing conditions and close the deal by September 1st. As we shared before, this is a transformational transaction for our company. And while there have been many moving parts since anomalies in October, we actually expect that the resulting deal metrics meaning TBB dilution, EPS accretion, and earn back, we'd be in line with those that we reported in October as compared to our standalone projections. Please keep in mind the deal excludes, just to remember some of the metrics that we shared at that point in time, the deal excludes MPAs. The premium is calculated based on the size of the balance sheet at closing. In addition to what we disclosed under the agreement in October, We expect that Santander will deliver to us an additional $28 million on loan loss reserves to account for loans that are subject to COVID-related moratoriums. We also have to consider that over the past few quarters, we have incurred expenses associated with the transaction of about $15 million already, which have impacted our bottom line and tangible book value already. Also, obviously, that will reduce the remaining cost going forward. And I think it's important to consider that given the timing, most of the savings of the transaction and the synergies will occur in 2021. We do expect to complete the full integration by the end of the second quarter of 2021. I think it's important to mention that a disclosure, when we disclose the transaction in October, We did not mention the DTA, but this transaction should have a potential benefit to our DTA. We can expand that later in the Q&A. And I just want to comment, you know, obviously we've been operating under this new COVID environment, and we have learned a great deal from an operational standpoint as we move through to the pandemic. And now, you know, as a larger institution with greater scale, We will definitely look to identify larger synergies and additional opportunities for growth in this consolidation. We're greatly appreciative and welcome both the employees and the expanded client base, and we will work hard to continue enhancing our products, services, and channels to meet or exceed their expectations. So we're very pleased of achieving this step. Please let's now move to slide five of the presentation so we can cover the highlights of the quarter. Definitely the landscape has changed. I would call the operating landscape of the industry. And from the operational standpoint, I must say that we're being extremely proud of our team and the dedicated frontline employees, and also to our customers for their ability to adapt in this challenging operating landscape. Priority number one, it's been the safety of our employees and customers while we provide the services. As of today, still more than 80% of the support staff is working remotely. And in the facilities, we continue to execute strict safety protocols, including contract tracing and preventive testing of COVID. Since the beginning of the pandemic, we've been committed to maximize the benefit of the CARES Act to support our customers. This includes the deferrals. includes the programs such as PPP, and we've also been involved in some other programs such as the FHLB of New York grants and the USDA support to rural communities. We understand that, obviously, those are key benefits to mitigate the challenging times that our customers are, we all experience it. It's really good experience that we and the trend that we continue to see on the Genital channels. They continue to enhance the customer experience and as mobile and online technology tools have definitely facilitated customer interaction remotely. And as you can see in the right side of this slide, definitely transactions have shifted from branches to our alternative digital channels, and we're very pleased to see those trends finally taking place in our market. Please let's move now to slide six to talk a little bit about the quarter. Before that, actually, reopening trends are important. When we talk about the quarter, the drivers are what's happening after the closure, what's happening with the reopening. Early indicators actually look good, But we continue to track these metrics within our customer base across different industries. The information included here pertains to our customer base, and we are tracking on a biweekly basis how the different sectors are moving. Obviously, you know, we're also conscious of the potential impact of additional tightening to the reopening efforts due to the spikes in cases recently. We have to say that the hospitality sector, hotel, restaurants, is definitely the most impacted so far, and the recovery will depend on the reopening in speed. As an example, we're looking into weekly activity of merchants and point-of-sale activity. We experienced significant increase during the last week of June compared to the last week of March. Obviously, retail is open. to the public and spend, it's been actually significantly up. Obviously, the second quarter results for us were hampered by the lockdown. Remember that in Puerto Rico, we were not able to reinate auto loans or mortgages up until May, and basically half of the quarter showed limited origination activity on the consumer side. Residential activity pick up in June. Worth mentioning that Florida did remain open, the Florida market, and we continue originating normal levels of mortgage, actually better than normal. But obviously quarterly originations in consumer driven auto and the residential portfolio, as you can see in the graph, show obviously the positive impact of fuel. The moratoriums, on the other hand, and federal programs have increased customer liquidity materially. When we look at growth, we experienced an outstanding $1.2 billion increase in core deposits, 13.5%, and this includes government deposits. I think it's important to keep in mind that the estimated stimulus for Puerto Rico market is about $14 billion so far, and this is very material. as a percent of the GDP has created this significant liquidity in the market. This should definitely help offset some of the risks that are present over the next couple of quarters. We compare this to the liquidity that we experienced during the last hurricanes and driven by the support and stimulus provided then. So please move to slide seven for a moment. Orlando will expand on this detail, but the quarter ended up with $21 million in net income, or $0.09 per share. As expected, we experienced some deterioration in the economic forecast, and that required an additional reserve bill. This quarter was $29 million, which impacted our bottom line. Pre-tax preparation revenue continues strong, $67 million considered in the right environment and the impact to the NIM. Definitely, I have to say, you know, we do have a fortress balance sheet, extremely well capitalized, total risk-based capital ratio of over 25%, and now the reserve to loans is at 3.555%, which both of these are among the highest of the industry, of the sector. And APAs continue to move down, now below 2.2% of assets. Again, we remain committed to servicing our clients under this, you know, new operational challenge of COVID. We're committed to the safety of our employees and the customers as a priority. And obviously, while we face, you know, we still face uncertainty regarding the future part of the economy, our fortress balance sheet and battle-tested management team will allow us to navigate this pandemic through the end. So with that, I'm going to leave you with Orlando to cover the details of the quarter and be available for the Q&A.