Good morning, and welcome to the First BanCorp. First Quarter 2021 Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to John Pelling, IR Officer. Please go ahead.

Thank you, Betsy. Good morning, everyone, and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the first quarter 2021. Joining you today from First BanCorp are Aurelio Alemán, 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 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, 1firstbank.com. At this time, I'd like to turn the call over to our CEO, Aurelio Alemán. Aurelio. Aurelio Alemán: Thank you, John. Good morning to everyone, and thanks for joining our call today. Please let's move to Slide 5 to discuss some of the highlights. Before I go into detail of the quarter, as you have hopefully seen, we're really very pleased to announce earlier today the Board's approval of $300 million share repurchase program. The repurchase may be in the open market or in privately negotiated transactions. Timing and exact amount will be subject to market conditions. Given our outside capital position and the continued earnings accretion, we are committed to return excess capital to our shareholders, and we're very, very pleased to move forward with this announcement. Now before talking about financial results, I'd like to touch on the macro, the integration and how the pandemic…

Good morning, everyone. Well, Aurelio touched up on this. But just to start, the net income for the quarter was $61 million and $0.28 a share, which compares with the $50 million or $0.23 a share we had last quarter. The quarter results had, on the positive side, the $15 million provision release for loans compared to $7.7 million provision we had last quarter. That's $0.04 per share last quarter impact as compared to this quarter. The results also include the $11 million we had on transaction expenses associated with the Santander acquisition. As we have seen in the quarter, the expectations on some of the macroeconomic deterioration has not reflected as aggressively as was originally considering the projections. We've seen unemployment impact being less. We've seen lower impacts on home price index as well as a CRE index. As a result, as we have seen in the market, in the general banking market, the provisioning needs have come down considerably as compared to what we saw in 2020. In net interest income, that's still a little bit of the item where we continue to see some pressure. Clearly, net interest income was down $1.5 million in the quarter. Part of that is -- there was 2 less days in the quarter that impacted results by $2.2 million. But on the other hand, we recognized about $2.5 million more in accelerated fee income recognition on the PPP loans that were repaid in the quarter, the $175 million Aurelio mentioned. Mortgage portfolio has come down, as he also mentioned. On average, the portfolio was down $121 million, which resulted in a reduction in interest income of $2.4 million for the quarter. But on the other hand, the consumer portfolio was up $45 million, which increased net interest income by $1 million…

[Operator Instructions]. Our first question comes from Alex Twerdahl from Piper Sandler.

First off, wanted to just ask about the buyback, the $300 million you guys authorized. It looks like it expires in a little bit over a year. Is the intention to kind of use that is like $75 million a quarter or do you -- would you consider doing something like an accelerated share repurchase program? Aurelio Alemán: As we mentioned, Alex, all the alternatives are on the table. And as we continue to move on and disclosures are required, we will move on. Obviously, market conditions are a driver to determine the exact amount of timing. So, as soon as we -- something comes up that we have to disclose, you will know about it immediately.

Okay. And when can you actually start being in the market repurchasing shares? Aurelio Alemán: We expect by May 1 to be in the market, we expect.

Okay, great. And then I wanted to drill in a little bit more on some of your commentary on the potential rebound for loan growth in the second half. I think you alluded to some reconstruction projects, may be helping to drive that and obviously the economy reopening. Maybe it would be helpful if you could elaborate a little bit more on some of those projects. And then there are certainly a lot of people out there that think that as some of the stimulus wanes, that loan growth could really explode whether it's later this year or earlier next year, and maybe you can talk a little bit about how you're positioning the balance sheet over the next couple of quarters in order to really be able to make sure to monetize or to take on as much of that loan growth as you possibly can. Aurelio Alemán: Well, first of all, at the end -- it's market conditions and execution. It's a combination of both. If you look at it by business, we expect the mortgage business to continue its trend of hybrid refinancing. And actually, we have seen an increase in purchases. There is actually new construction in Puerto Rico for the first time in many years that are being now -- are into closing and are into being delivered. Even though that doesn't necessarily achieve growth in our portfolio, obviously the runoff is being accelerated. At some point in time, that runoff will also level. Look, at the consumer, we saw obviously, the liquidity in the consumer hands, as we all know, is extremely high when you look at the deposits. Auto sales continue to grow. They have shown sustainable increase. We expect that to continue. And we also expect when you look at the unsecured…

Our next question comes from Glen Manna from KBW.

Congratulations on the buyback. It's been a long time coming, and this is a recognition of all the work that you guys have done at the bank over the last 10 years. Aurelio Alemán: Thanks, Glen.

Some of your competitors have said that long-term capital ratio, specifically CET1 on the Island, could be entering kind of a new inflection point given all the stimulus on the Island, the return to growth. This is moving out of a perennial state of recession. And I know we just got the buyback today. But thinking forward, how do you think about long-term capital on the Island? And could it go down to the 12% range CET1 over time? Aurelio Alemán: Well, again, look at the economy cycles as always has been. At some point in time, Puerto Rico had very beneficial economy for banks to be in a different position. Obviously, we've been [indiscernible] money in tough times for the last 15 years, and obviously it's about time to do the recovery. If it continues to show and we probably have the better opportunity to get to that level that you mentioned based on the -- what is the designated funds and the activity that we're seeing. So, very difficult to predict, but when you look at all the evidence and elements that are taking place, it's a possibility.

Yes. I don't see any reason why not. It's seen significant improvement trends over the years and in the number of components. So as that continues, we definitely see the need for high capital ratios not being there as much as it was before. So, we see a space on some of these key regions like the Common Equity Tier 1 that you mentioned.

Okay. And as we kind of look through and assess credit and we've been moving our banks down to that kind of CECL day 1 level, how would you compare the assumptions in your current level of reserving versus what you were assuming at CECL day 1 back in January 2020?

Still, you have to look at components. The CRE index, it's still worse than what we were seeing before when we did CECL day 1. HPI, it's moving in the direction, and the new projections are moving in the same direction. We're going to get there. Unemployment, the unemployment levels, we feel, are going to be at similar levels going forward. So we still see -- I mean, there is a little bit of -- we want to be able to see that the trends continue to show that same way as being projected, and that will take us there. But with the expectation on the economic front and assuming there is no unexpected thing with the virus that changes the lockdowns, we've seen more normalization of the economy and all of that. So we are seeing that we should be able to get to those levels that we saw before in terms of projected economic -- macroeconomic numbers. So it would -- not yet there, but we are on track in that direction.

Okay. And then just two quick cleanup questions. It looks like you've recognized about $36 million in pretax merger charges. $48 million was the original projection. Is that still a good projection? And then on the premium amortization, how much premium am could be left in the securities book?

I couldn't understand your first question. You said merger taxes?

No, the pretax merger charges. When you announced the merger, I think you said there would be $48 million and I think you have about 75% of those in now. Is $48 million still a good number?

What we had announced was about $76 million of expenses associated with the transaction. The $48 million was more probably you were calculating... Aurelio Alemán: The synergies.

Synergies based on what we had mentioned, the synergies based on Santander and ongoing running expenses. So it was $76 million in expenses, what we were expecting. Aurelio Alemán: Which started in 2019, Glen.

Right. So that's still a good number, that $76 million? Aurelio Alemán: Yes. And the $48 million also.

Okay. And on the premium am, how much is left on that? Could we see it go down?

Premium amortization, you mean, related to what, to the -- you're talking about portfolio, investment portfolio or are you talking about something else?

Yes, I'm talking about the investment portfolio, yes.

The thing is that there is premiums on -- most recent purchases have a level of premium associated with the coupons that were available in the market. So it's a function of what happens with the trends in rates. I can see, with the rates coming back down, a little bit of reduction. I don't have exactly the number of premiums we have on the portfolio at this point, not going to give you that number. I would need to check that, and probably I'll include something on the Q then to disclose that since we haven't specifically mentioned the number on releases. But there is a level of premiums because most portfolio purchases over the last few months have had a level of premium involved in all of them.

[Operator Instructions]. Our next question comes from Jonathan Krautmann from Rubric Capital Management.

There's a lot going on in Washington, D.C. with the new administration, and it seems like PR has a good partner in the White House and congressional leadership, whether it's efforts to increase pharmaceutical manufacturing or infrastructure spending. But what are the key areas, I guess, that you folks are watching that will affect the business here as far as Washington, D.C. and various initiatives there? Aurelio Alemán: Well, definitely, the -- obviously, every time they talk about tax reform, we open our eyes. This has been a long-term matter. The corporations that -- the tax benefit that applies to corporations that specifically manufacturing more than anything else. So it's always been -- it's been a risk for some time. It's been mitigated, I think this time, better than ever. Probably there's a lot more visibility of the challenges that Puerto Rico faces and how these potential changes could impact. So I think we all have to make sure that we provide the right feedback and the right education, and we understand this is also a focus on the Fiscal Board. Manufacturing, still 45% of the GDP, so it's a key component, plus the supply chain that is behind it. So it is important. Obviously, we know tourism is growing and it's a future opportunity. Foreign investment from Act 20/22 are also an opportunity. So I would say those are the 2 elements that we have to continue watching and providing feedback and making sure that the private sectors provide feedback to Congress in terms of what potential implications it could have in Puerto Rico. I think everybody is aware of the challenges. What is the objective of, obviously, improving tax collections in the U.S. or increasing to pay for definitely the very expensive stimulus that we have all received. So definitely, it's a priority, but yes, the manufacturing sector will be our primary concern.

That concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for any closing remarks.

Okay. Thank you, Betsy. On the Investor Relations front, we will be participating in the Seaport Financial Virtual Conference on May 15. Do you have any comments to add? Aurelio Alemán: Yes. I just want to add that, again, how pleased we are to reach this milestone and be able to initiate our -- announce our buyback program and be able to initiate these capital deployment initiatives. So thanks to all our investors.

Thank you. At this point, we'll conclude the call.

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