First BanCorp. (FBP) Earnings Call Transcript & Summary

Good morning. Before we begin today's virtual meeting, it is the company's responsibility to inform you that this meeting may contain 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 the important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the meeting. At this time, I'd like to turn the meeting over to the Chairman of the Board of Directors of First BanCorp., Mr. Roberto Herencia.

Thank you, operator, good morning to all, and welcome to the First BanCorp. 2020 Annual Meeting of Shareholders. I want to open by thanking and recognizing the First BanCorp. Board of Directors, First BanCorp. executives and employees and all First BanCorp. shareholders from around the world who are joining us virtually today. I would also like to take a moment to thank first responders and health care professionals across the globe, whose dedication, compassion and resilience during these exceptionally challenging times have been nothing short of inspiring. Because of your commitment to your communities and to each other, I am confident that we will return to normalcy in due course. Today meeting is very different. Typically, we host our meeting in Puerto Rico, where we highlight our accomplishments from the past year. And there, I, say, have the opportunity to socialize. We wish we could host this meeting as usual, but we place a high priority in keeping people safe and healthy during this crisis. We appreciate your flexibility during this pandemic to make this a virtual meeting, and we trust that you and yours are well. For those who are dealing with illness, we wish you a speedy recovery. For those who are dealing with loss, we offer you our deepest sympathies. I am Roberto Herencia, Chairman of the Board of First BanCorp. Joining me on the line today is Aurelio Alemán, Director, President and CEO of the Corporation; Orlando Berges, Executive Vice President of the Corporation and CFO; and Sara Alvarez, Deputy General Counsel and Assistant Secretary of the Board, who will serve as Secretary for this meeting. Also in attendance today are our fellow members of the Board of Directors, those being Mr. Juan Acosta Reboyras, Ms. Luz Crespo, Ms. Tracey Dedrick, Mr. Daniel Frye, Mr. Bob Gormley, Mr. John Heffern and Mr. José Menéndez-Cortada. I would also like to recognize the participation of CPA Lisa Roney and CPA Brian Hecker, representatives of Crowe LLP, the corporation's independent registered public accounting firm. I will now call this meeting to order. We will first provide a brief management report after which we will conduct the formal business portion of the meeting. I want to personally thank our Board of Directors, and on behalf of the Board, thank Aurelio, our leadership team and the organization for a stand-up response to this crisis, which will likely linger for some time. People matter the most in times like this, and we have an outstanding team. We understand better than most what has to be done to navigate this environment and prosper on the other side. It is now my distinct pleasure to leave you with our President and CEO, Aurelio Alemán.

Thank you, Roberto, and good morning, everyone, and thank you for joining us today virtually. First of all, our hearts go out to those families and individuals impacted by the pandemic from both a humanitarian and economic standpoint. The COVID-19 experience has been hard to many families. And I want to personally acknowledge and thank my team and our dedicated frontline employees who have been supporting our clients every day during the pandemic and general lockdown that we are experiencing in our markets. Before expanding on the current situation, I want to briefly discuss our performance in 2019. We recognize 2019 is now in the past, but it really helps us to get stronger for managing a cycle like the one that is approaching. During 2019, we generated net income of $167 million, a 1.34% return on average assets and earnings of $0.76 per diluted share. On an adjusted basis, adjusted net income was $166 million, which compares to $137 million to 2018 results. Our pretax, pre-provision income increased 14% to $284 million in 2019, compared to $250 million in 2018. Loan originations and renewals grew 24% to $4.3 billion, leading to a slight increase in the overall loan portfolio on a year-over-year basis. Growth in the loan portfolio was partially offset by strategic reductions in the residential mortgage as well as several large nonperforming assets. Growing the consumer and commercial loan portfolio has been benefiting our net interest margin, which was 4.85% for 2019, compared to 4.55% in 2018. For the year, overall deposits net of brokered grew $474 million or 6% to $8.9 billion. All these accomplishments during the year were achieved while continuing to organically reduce our nonperforming assets by $130 million or 32%. Our special asset group made great strides de-risking the loan portfolios and selling individual nonperforming assets during 2019. Improving our asset clarity metric has driven improved bottom line results for the franchise. Additionally, on October 21, 2019, we announced the signing of a stock purchase agreement to acquire the Banco Santander Puerto Rico operations in an all-cash transaction. The transaction is still pending the customary regulatory approvals. The success of FirstBank during 2019 is attributable to the superior execution and hard work of our officers and employees who have contributed dramatically to position us to the future. We would like to thank our Board of Directors for the leadership, guidance and continued support. We are fortunate to be able to count on the council of such an experience and dedicated group of professional, especially in the times of great uncertainty. Now I would like to briefly talk on the present situation. At the end of 2019, we ended the year with the highest capital ratios among Puerto Rico publicly traded banks and in the top 5% of U.S. peers. In addition, we dramatically improved the asset quality, and we improved the quality of our funding, liquidity resources. As a result, we are entering this new crisis from a position of what we consider institutional strength to support our people, our clients and our shareholders. I have to say that no one was really prepared for this type of event, but based on recent experience that we had managing natural disasters, we acted swiftly, adjusted our plans accordingly and moved our teams in the right direction. We have been very pleased with our operational strength and actions. Our digital channels are supporting our customers under the limitations of social distancing. We swiftly implemented our moratorium programs, contacting borrowers. We also achieved strong performance in the rollout of the small business administration Paycheck Protection Program with now over $350 million of loan disbursed to approximately 4,000 small and medium-sized businesses. The strong regulatory support and unprecedented measures included in the CARES Act with programs such like the PPP and the moratorium should definitely help mitigate credit quality deterioration in the short term. In addition to the federal stimulus package, it's important to mention that Puerto Rico government and fiscal board also allocated approximately $900 million to stimulate the local economy and support those impacted by the current pandemic. An uncertain credit environment would persist until a reliable time line for reopening the economy is established and performance of pandemic-sensitive businesses is properly assessed. We remain vigilant as certain markets begin to gradually open. Definitely, 2020 will be a challenging year for our industry and also for the overall economy. Our strategic vision relies on leveraging both the Florida and Eastern Caribbean operations to diversify our current earnings stream from the larger Puerto Rico business. The 3 geographical regions support diverse and comprehensive business strategy that relies on the unique strength of each region. Most importantly, our organization has been through more than our fair share of financial crisis and natural disaster. And we have a proven and experienced management team who have built a risk management framework able to respond and mitigate the risks that lie ahead. Again, our capital levels are among the highest in the industry and our reserve coverage position are also among the highest. Thank you for attending this meeting today. I will now leave you with the Board Secretary and Assistant General Counsel, Ms. Sara Alvarez.

Thank you, Aurelio, and good morning to all. As is our custom, we will conduct the business portion of this meeting first and answer questions at the end of the meeting. The meeting agenda and the rules of procedures for the conduct of the 2020 Annual Meeting are available for your review on the meeting website. We ask that you review these documents and appreciate your cooperation with the rules of conduct. As a reminder, a shareholder attending the meeting can vote their shares online from now to the closing of the polls by logging onto the meeting website as a shareholder and clicking the Vote Here button on your screen. If you have previously voted by proxy and do not wish to change your vote; your vote will be cast as previously instructed and no further action is required. If you have logged into the meeting as a shareholder, you may submit a question by typing the same in the Ask a Question text box on your screen. When asking a question, please include your name and affiliation to the company. To assure that we receive your questions before the Q&A session is closed, we encourage you to submit your questions now. Questions related to the matters voted at the meeting will be addressed to the extent possible prior to the closing of the polls. We will do our best to answer as many questions as time allows. To give everybody a chance to ask a question, we will limit each shareholder to 1 question or topic. Questions and answers may be grouped by topic and substantially similar questions will be grouped and answered once. At this point, I would like to inform you that joining us today is Mr. [ Ramil Robles ], who represents Broadridge Financial Solutions, Inc., the entity that has been appointed by the Board of Directors as Inspector of Election for this annual meeting. Mr. [ Robles ] is in charge of the tabulation and certifications of the votes cast in this meeting. Please note that most of the shareholders have voted by proxy and their votes have already been counted. As Assistant Secretary of the Board of Directors, I have received an affidavit of distribution from Broadridge Financial Solutions certifying that the materials related to this meeting were mailed or made available to the corporation's shareholders as of April 1, 2020, which, as noted in the proxy statement, is a record date for shareholders entitled to receive notice of and to vote at this meeting. Our first matter is to determine the existence of a quorum for the purposes of conducting this meeting. We have in possession a list of shareholders of the corporation's common stock as of the close of business on April 1, 2020, provided by Computershare, who are our register and transfer agent, which shows that the holders of 218,160,725 shares of common stock issued and outstanding have the right to vote in this meeting. Our Inspector of Election has informed us that they are represented by proxy approximately 89% of the shares of common stock entitled to vote at this meeting. Consistent with state law and our bylaws, the list of shareholders entitled to a notice is available for your review at the office of the Secretary of the Board. Given that the majority of the shares of common stock entitled to vote are present at this meeting, either participating in this call or by proxy, I certify that this meeting is duly convened for the purposes of transacting the business properly brought before it. The first item of the agenda is the reading and approval of the minutes of the Annual Shareholders Meeting held on May 16, 2019. I will proceed with the reading of the minutes.

Ms. Alvarez. This is Orlando Berges here. As a stockholder, I would like to present a motion for the minutes of the 2019 Stockholders' Meeting to be deemed read.

I, Roberto Herencia, second the motion.

Thank you, Mr. Berges and Chairman Herencia. The minutes of the Annual Meeting of Shareholders held on May 16 are approved. They will be available for your review at the office of the secretary of the Board of Directors. We will now proceed with a description of the matters properly brought before this meeting. The first proposal is the election of directors. For this purpose, the Board of Directors duly nominated the following 9 individuals to serve as directors of the corporation for a 1-year term expiring at the 2021 Annual Meeting of Shareholders. These are: Juan Acosta Reboyras, Aurelio Alemán, Luz Crespo, Tracey Dedrick, Daniel Frye, Robert Gormley, John Heffern, Roberto Herencia and José Menéndez-Cortada. The Board of Directors recommends a vote for each nominee to the Board. The second proposal relates to the advisory approval of the compensation structure of the corporation's named executive officers. The Board of Directors recommends a vote for the advisory approval of the named executive officers' compensation, as disclosed in the corporation's proxy statement. The vote on the approval of this proposal is informative and hence nonbinding on the Board. The first -- the third proposal relates to the ratification of the appointment of Crowe LLP as the corporation's independent registered public accounting firm for fiscal year 2020. The Board recommends a vote for the ratification of the appointment of Crowe LLP as the independent registered public accounting firm of the corporation for the fiscal year ending December 31, 2020. The affirmative vote of a majority of the shares represented herein and entitled to vote is required for the approval of all 3 proposals. If there is any shareholder who has not voted and who wants to vote at this time, we ask that you please do so now by clicking on the Vote Here button on your screen. I will pause here now to allow shareholders to vote and address any questions received on the proposals. [Voting]

We understand that all that wish to vote have done so at this time. Having received no questions on the proposals, the polls for voting on the matters before this meeting are now closed. The Inspector of Election has informed us that the proxies have been tabulated and that the corporation has received the proxies necessary to elect all 9 directors, approve on advisory basis the corporation's named executive officers' compensation as described in the corporation's proxy statement and ratify the appointment of Crowe LLP as the corporation's independent registered public accounting firm for fiscal year 2020. The final voting results of the matters properly brought to your attention at this meeting will be reported on a Form 8-K to be filed with the Securities and Exchange Commission, which -- within the next 4 business days. Please note that a replay of today's webcast will be available for 1 year on the corporation's website. This concludes our agenda for the business portion of the meeting. We will now proceed to the questions-and-answers session where questions of general nature may be addressed. As previously mentioned, if you have logged into the meeting with your control number, you may ask a question by typing it into the Ask a Question text box on your screen. If there are no questions, this meeting is duly adjourned. Thank you all for participating today, and we appreciate your continued support.

Ladies and gentlemen, this concludes your call for today. You may now disconnect.