First BanCorp. New

Good day and welcome to the first Bancorp fourth quarter and full year 2020 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to John Pelling, investor relations officer. Please go ahead.

Thank you, Alyssa. Good morning, everyone, and thank you for joining First Bank Corp's conference call and webcast to discuss the company's financial and fiscal year-ended 2020. Joining you today from First Bank Corp are Aurelio Alleman, President and Chief Executive Officer, and Orlando Berges, 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 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, Aurelio Allman.

Aurelio. Thank you, John. Good morning, everyone, and thanks for joining today. We wish you all a healthy 2021. Please let's move to slide four to discuss the highlights of the year. We're definitely very pleased with our results for the year. I'm truly proud of what our team was able to accomplish, overcoming all the many challenges posed by the pandemic in the operating environment. It really was a transformational year for our company with the acquisition that closed on September 1st, which has further expanded our market share, solidified our position in Puerto Rico, with now over 30% growth in our customer base, reaching 675,000 customers. We're also very pleased with the technological advancement on the year and our digital preparedness. Our clients' adoptions of digital channels continue to improve during 2020, reaching an increase of over 33% in logins and digital transactions increasing over 55% for the year. It is a priority to continue investing in technology infrastructure projects and digital, and so we continue driving efficiency as we progress in parallel with the integration. We were definitely very focused on the integration and has been running on schedule and is planned to be completed by the end of the summer. On the economic side, the macro and geopolitical landscape in Puerto Rico seems to continue to be improving. Economic measures stemming from additional stimulus and disaster relief funding will definitely provide additional support to those impacted by the pandemic and the overall environment. Lockdowns continue at a different layer, but when we look at December activity, it was actually fairly healthy considering the limitations in operating hours. Most impacted sectors, as we know, continue to be hospitality and retail. On the other hand, we're entering 2021 on very solid foot and a fortress balance sheet to support that economic recovery. We have very strong liquidity, solid research coverage, and very strong capital to begin the year with. For the year, we generated $102 million in net income, $0.46 per share, shy to the $167 million that we generated in 2019, definitely impacted by the economic effects of the pandemic and the increased probation driven by CECL and the acquisitions. Pre-tax preparation was strong, increasing 6% to $300 million, with actually only four months of our combined company. And in spite of COVID, actually, long activity, in spite of COVID or long activity, which impacted long activity, we'll cover that later, and obviously, you know, in spite of the yield curve that the banks are operating, which definitely impacted the top-line revenue. Longer initial renewal for the year reached $4.4 billion, an organic core deposit growth, a record growth of $2 billion. So it was really, really a very positive core year for the company. Now let's move to slide six to cover highlights of the quarter. For this quarter, as we announced this morning, we generated net income of $50 million, $23 per share. This compares to $28 million in the past quarter. It's important to highlight that this is the first full quarter of operation of the combined franchise. PPNR came in very strong with 86 million, up from 77 in the prior quarter. And I think importantly, we were past the moratoriums, and we were very closely monitoring asset quality metrics. Asset quality metrics remain stable. and obviously there is focus on those borrowers negatively impacted by the effects of the pandemic. We really say it is early to predict final inflows to MPA created by the pandemic, but when we look at initial metrics, post-moratorium delinquency metrics as of year end still compare better when we look at December 19 pre-pandemic levels. As I said, we continue to invest in technology to better serve our customers during this quarter. We implemented a new online and mobile platform for credit cards, and we also continue the rollout of our new Branch Digital One platform. And then, when we look at capital, you know, CTE-1, 17.3, definitely post-acquisition impact still very, very strong and among the highest. So please, let's move to slide seven. I'd like to expand a bit on loans and loan activity and deposits. As I say, loan orientation activity was robust for the quarter, 1.4 billion. This excludes credit card activity. Primarily, growth was in the commercial and the auto portfolio. I think we all know that commercial activity, it's seasonal, and yes, we have a very solid quarter of deals that got delayed in the year. We also have some volumes on the Main Street loan programs and PPP. So if we exclude Main Street and PPP, orientation still increased by 278 million to 1.2 billion, so still strong. The overall portfolio now, it's at 11.8 billion, declined slightly. from prior quarter, I will say primarily due to strategic reductions in residential, we continue to reinate primary conforming loans, which has helped the non-interest income, and also we receive repayments of about 49 million on the PPP loan forgiveness process. For this quarter, we anticipate another approximately 100 million of repayment in PPP, Obviously, it depends on the speed that SBA process the forgiveness. And we're now, obviously, as you know, working in round two of PPP, which was recently approved. Our initial estimates are around 250 million in loans during the first half of 2021 on PPP loans. We know that this could replace some of the normal commercial volume over the next months as it happens. in the first round of PPP. But definitely, this is a great, great support to small businesses. We expect these loans to be smaller, more granular, and to be more focused on the smaller businesses. On the deposit front, there's ample liquidity in the market. We continue to see inflow of funds. We continue to see deposit growth. And we expect the year to continue on that trend. So we're really focused on increasing loan generation. We have excess liquidity that we need to deploy. And when we look at the quarter, core deposits were up another $257 million. The pipeline, it's growing. Obviously, consumer mortgage trends continue very solid and very consistent. And as always, commercial is always more deal-driven, so we're working hard to build that pipeline. Now let's please move to slide eight. I think it's important to highlight that the earnings power of our franchise now reached a new high with 86 million of PPLR on the combined operation, again, being only the first quarter of this. The enhanced funding profile of the combined institution also contributes to mitigating some of the yield curve impacts on the overall yield of the portfolios. And obviously now we have more customers to reach and more customers to go after for long generation. Looking into 2021, obviously there's gonna be some noise still because of the integration. The first half of the year, It's definitely focused on integration. We want to finish that by summer. So there's some expenses that are there to be able to achieve the full benefit of integration. So they will be primarily focused in the first half of the year. And then on the second half of the year, it's important to know that as market recovers, everything reopens, which is what we expect. And as we grow revenues, there's also some variable expense tied to these revenues that could bring some increase. You know, we're targeting a long-term efficiency ratio of 55% following the completion of the integration. I want to make comment that we really need to, you know, we realize that, recognize that it's challenging for banks to achieve, you know, mid-50s in the current yield curve environment. So we also expect, you know, hopefully some improvement in in the curve at some point in time at the end of the year. Let's move to slide six to slightly touch on the capital and the balance sheet. Again, liquidity continues to build in the quarter, so we have, you know, we continue to see excess cash. Reserve coverage remains at a similar level of prior quarters, so very strong reserve coverage at 3.3%. And then, you know, capital is, again, very strong with CET1 at about 17% after completing the acquisition. As I said in the last call, you know, capital deployment opportunities remain a priority and are the focus of management and board. Last night, we announced the approval to increase the dividend this quarter to $0.07 per share, definitely driven by current and projected earnings. And as I commented in the past earnings call, during this quarter, we're actively working on the updated stress test and updated capital plan to be presented to our board in order to conclude on potential additional capital actions moving forward. So with that, I'll turn the call to Orlando, and we'll come back for questions. Thank you.