Good day and welcome to the First BanCorp Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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, Nicole. Good morning everyone and thank you for joining First Bancorp's conference call and webcast to discuss the company’s financial results for the third quarter 2016. Joining here today from FBP are Aurelio Aleman, 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 the forward-looking statements made due to the important factors described in the company's latest Securities and Exchange Commission 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 the press release and the DFAST results that we published on Monday, you can access them under the IR section of at our website. At this time, I’d like to turn the call over to our CEO, Aurelio. Aurelio? Aurelio Alemán-Bermudez: Thank you, John. Good morning everyone. Thank you for joining us again to discuss our third quarter results. On the call with me is Orlando Berges, our CFO, who will be discussing the details of the financials. So I am going to give you some highlights first. So please move to Slide 5 of the deck. We are pleased that we posted another positive quarter of earnings, -- on the Under the model severely adverse scenario, which is important up to we are not currently in nor do we anticipate being in during the near future. Our pro-forma resulting capital ratios significantly continue to exceed regulatory well-capitalized requirements. I think it’s important…

[Operator Instructions] Our first question comes from Brett Rabatin of Piper Jaffray. Please go ahead.

Hey guys. Good morning. Aurelio Alemán-Bermudez: Good morning, Brett. Orlando Berges-González: Good morning, Brett.

A quite a few things to – I guess, go over. Let me just first ask on the GDB bonds $35.6 million and you got a marked at $19.5 million. How you come up with that valuation and how do we think about additional write-downs and then, maybe can you go over also the TDF write-down in the quarter, your thoughts on that position going forward as well? Orlando Berges-González: The GDB bonds are, Brett, just to probably $40 million of UPB and they are been carried at around $22 million. Those OTTI adjustments were taken in 2015 and some earlier this year. For the analysis, we consider we assume a 100% default for our EPS as you know, we assume that few months ago, or few quarters ago and the valuation is done using some estimated recovery information which we wait which comes out from some reports that Moody’s has on the Puerto Rico market. Moody’s updates that not every quarter, periodically when I guess when they feel that things have changed. So far, if you look at the value of the bonds that remain within a range of $0.20 to $0.25 per quarter. So we haven’t seen any significant change on the market on those bonds. So we didn’t require any kind of valuation, additional valuations taken in the quarter. It would be difficult for me to tell you that there wouldn’t be any evaluation in the future. Hopefully, if there is a settlement on the agreement, if you look at what the GDB we had originally put on the tables, it would be very close to what we are carrying the bonds, the bonds in our book. So we don’t want to see that, that for now, it depends a bit on what happens in all the…

Okay. And then, just thinking about capital you are over 21% total risk-based, can you remind me what you have to catch-up in preferred and then any thoughts on potentially using that capital as it goes with the next year for share repurchases what is the climate for that? Aurelio Alemán-Bermudez: First of all, the preferreds have – Orlando Berges-González: $36 million of standing a preferred which – bringing in current would cost $2 million, $3 million. I mean, those are non-cumulative shares, so technically, we don’t know anything. If we were to secure some capital actions on – in general, those securities would have – would require that 12 month payment be made – or although that 12 months dividend be paid, paying those dividends would be about $2.7 million to put them current as to a 12 month timeframe. Aurelio Alemán-Bermudez: So, regarding capital actions, I think, we have to think about that as a macro – as the macro evolves. Probably, we continue to produce capital and improve the position and increase the cushion as data show, but to be honest, it’s going to depend on how the macro continues to evolve when we see Puerto Rico financial information, when we see more clarity on the fiscal situation and probably once we see the initial actions on the debt settlement from the Puerto Rico government. So, I will say those are probably key milestones to make the regulatory environment feel that the macro is actually stabilizing and improving.

Okay. And then maybe, one last one and I’ll step back. Just thinking about the – kind of the outlook, are you concerned austerity potentially might have impact in Puerto Rico and does that affects sort of your thoughts on loan growth from here and looking forward to maybe make up the difference or any thoughts on potentially having a more positive tenor on under loan growth or NII. I know you are doing a great job with the funding side on part of that equation. Orlando Berges-González: Well, I have to tell the information that we have at hand with the deal flow that we have at hand, we feel pretty good about the activity that is outgoing out there. There is – the government has a fiscal situation and everybody is trying to understand how deeply they haul on the liquidity and cash flow, but on the other hand, we continue to see debt was coming in, the deal is happening, properties being acquired and business being acquired by new investors. So we are active in the market. We – the consumer behavior is stable. We have taken down the consumer portfolio as a strategy because we have been conservative on risk. We are seeing some opportunities on the conforming mortgage business that we have taken and we are making the fees. So, we look at Puerto Rico as having 20% market share. Now that having 50% market share of all the competitors, but when we look at the 20% market share, we’ll see how we have to grow in terms of reaching that 20% market share. So – and then, as you mentioned, coupled with Florida, - continues to be excellent business activity and we are fully staffed, well secured and we are achieving our goals of every nation across the region. So, I have to tell you, yes, there is risk in the market on the Repo – phase of the government liquidity, obviously that’s why it’s so important to monitor both the fiscal board and the economic task force recommendations. Those are the ones who could generate any other additional growth. But, we have significant number of businesses and we still have 3.4 million people living in Puerto Rico and transacting everyday.

Okay, appreciate that color. Thank you.

Our next question comes from Alex Twerdahl of Sandler O'Neill. Please go ahead.

Hey, good morning, guys. Aurelio Alemán-Bermudez: Good morning, Alex. Orlando Berges-González: Hey, Alex.

First off, Aurelio, you mentioned in your prepared remarks that, you are implementing some new growth strategies in the loan portfolio. I was wondering if you could elaborate a little bit on what those might be, if there is specifically in Florida or if there are also in Puerto Rico and sort of if there is an impact from those already or is that’s something that’s purely in the future? Aurelio Alemán-Bermudez: What, I think, we have the results, obviously, I would not tell my competitor my strategies. But, I can, obviously, we have – it’s a more focused sales effort reaching from the business, optimizing our channels and it really applies to all the products of the region. It’s not just Puerto Rico or Florida or ACR. So from that perspective, it’s really a more focused and granular approach to basically in sales or it’s including the loan origination piece of the equation.

Okay, and then, Orlando, you gave some good color on what was going on in the tax rate. But can you just boil it down for us to tell us what the tax rate should be in the fourth quarter and then also for 2017 based on your current projections? Orlando Berges-González: The tax rate, if you look at the year-to-date tax – effective tax rate, remember, Alex, the complexity advance resulted, the valuation allowance on the DPA and the fact that each company – each of the subs were at their own packed structure, because they are independent of each other. For 2016, if you take the year-to-date number, which should be in that 25.5% more or less range. It’s a good estimate of what we think at this point, it’s going to be the effective tax rate for the year. This year, we did have a couple of things that are – none has already typical and like for some of the cancellation or the repurchase of some of the stocks at the beginning of the year that enters the holding company which has limited revenue. So it offsets some of the revenue that the holding company had to provide some benefits. We obviously had these gain on sale which part of it is in the international banking entity which has a different tax status. So, at this point, I would say that, 2017, it’s probably going to be in that range of 26% to 30%.

26% to 30%. Okay. Orlando Berges-González: Yes, I need to get off that, all the updated numbers, because, again, depending on how much you use or some of the items that have partial valuation of DPAs could change a bit the rate up or down and that’s what complicates the basic calculation from quarter-to-quarter. Once you are off to the third quarter of the year, you more or less know what’s going to happen so it’s easier. But, going forward 12 months it’s going to be more complicated.

Very good. And then, can you share with us what early-stage delinquencies were at the end of September? Orlando Berges-González: Oh, yes, sorry. I forgot to mention that. Early-stage delinquencies were up in September versus June by $41 million. Basically it was two cases on – it was all in the commercial side, it was two cases that we have with what we call technical delinquencies as those two cases mature or expire that facilities and had to be renewed. They should have been renewed by September, but the process of completing with the customers has taken longer and therefore, technically, there are past due because of the past due on the principal side. Both are carrying up to payment. One is going to close this week. The other one I am still trying to get a date of when it’s going to close finally, but those were the two – the two facilities that changed number. On the other components, we are basically the same as last quarter.

Okay, and then just finally, can you give us expense runrate expectations going forward? Orlando Berges-González: We, I mean, we continue to think it’s going to be below 90. The variability of the credit-related affects a bit the number. If you take that one Alex, it’s I think the running rate today is fairly consistent with what we expect for next quarter taking out the OREO, and OREO we are hoping to stay at similar levels that we had in the last two quarters.

Okay, great. Thank you very much for taking my questions. Aurelio Alemán-Bermudez: Thank you. Orlando Berges-González: Thanks Alex.

Our next question comes from Joe Gladue of Merion Capital Group. Please go ahead.

Yes, hi, good morning. Aurelio Alemán-Bermudez: Hey, Joe. Orlando Berges-González: Hi, Joe.

Let me just follow-up on the expense question a little bit – little more detail. You mentioned, there was some severance cost in the third quarter. So just wondering if there is some expense savings associated with that? Orlando Berges-González: Yes, the severance payment of $300,000 and this – the positions – there were not many positions, it was related to some specific positions and those positions are not being replaced. So, clearly there is going to be some savings going forward on the cost of those positions. Part of the savings we already saw on the third quarter because it was done like two-thirds of the – like at the end of August. So we saw part of it, but clearly, it was only three positions that we eliminated, Joe.

And actually, I think my other question has been answered. Thanks. Orlando Berges-González: Thank you, Joe. Aurelio Alemán-Bermudez: Thanks, Joe.

Our next question comes from Brian Klock of Keefe, Bruyette & Woods. Please go ahead.

Hey, good morning guys. Orlando Berges-González: Good morning. Aurelio Alemán-Bermudez: Good morning.

So, I joined on late, so I apologize if you guys have already addressed this, but I noticed that or I didn’t seem like PREPA Fuel Line has been moved into out for sale or anything like that. So I just was wondering, with what your peers have done with their PREPA Lines, wondering what your thoughts are and what your plans with that relationship? Aurelio Alemán-Bermudez: We continue to receive interest payments and we continue to apply those to principal. The most recent one in early October. We continue to monitor the progress on the RSA. The RSA expired or is due for renewal, will be due for renewal in December, it doesn’t closed by December. We continue to feel optimistic that the deal will move through the challenges that I presented, PREPA, it’s pushing for it and it’s – really the last step of the PREPA restructuring, but it’s a very good step toward making PREPA as an entity. So, for now, our position is that we’ll continue to receive monetary situation apply the payments to principal and hopefully we see that is closing by the first quarter at least. Orlando Berges-González: Yes, we don’t – we haven’t had an intention to sell it, that’s why we haven’t moved any.

Got it. Okay, I mean, if that goes well in the RSA, then there is a potential then that could be returned to accrual status, but maybe mid to second half of next year? Aurelio Alemán-Bermudez: Yes, the perception closes and they show that they are going to continue making the payment according to the agreed upon terms. Once you have the general rules, once you have gone through the six months of performance and there is no indication that something has changed in the business. Definitely, we could start moving into number two performing.

Okay and, again, I apologize if you guys addressed this already. I notice that you did do some de-risking of the balance sheet in the quarter, but just looking at the migration into NPLs is a pretty meaningful improvement on the commercial mortgage side in the quarter and overall much lower with C&I and both C&I and commercial real estate inflows being lower. So, you think you are seeing some more stabilization in the commercial credit spend in Puerto Rico despite, like you said all the negative headlines we read about the economy? Aurelio Alemán-Bermudez: Well, there is obviously some stabilization, but remember, we still have some chunky credits we try to book that are on the substandard authority. So, I think we mentioned this before, every quarter we continue to monitor reassess and obviously, we see positives in some of the activity that we are seeing, but we have to monitor it closely any government dependence that could impact any – asset re-pull effect that could impact of those borrowers that are in the substandard authority which are obviously the ones that could move to an adverse category of non-performing. So far, so good, I can tell you.

Thanks for taking your time. Thank you. Aurelio Alemán-Bermudez: Thank you, Alex. Orlando Berges-González: Thank you, Alex.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for any closing remarks.

Thank you, Nicole. Thank you for interest in First Bancorp. During the fourth quarter, we have a few conferences, Bank of America Merrill Lynch Conference in New York in November 17th. We will be attending the Sandler O'Neill Conference in Naples on November 17th and then the KBW Investor Field Trip to Puerto Rico, December 12th and 13th. So we look forward to seeing you then and thank you for your interest. This will conclude the call. Aurelio Alemán-Bermudez: Thank you all. Orlando Berges-González: Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.