Hello everyone and welcome to First BanCorp's First Quarter 2024 Financial Results Call. My name is Seth and I'll be the operator for your call today. [Operator Instructions] I would now hand the floor over to Ramon Rodriguez to begin the call. Please go ahead when you're ready.

Thank you, Seth. 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 of 2024. Joining you today from First BanCorp 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 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 at fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Thank you, Ramon. Good morning to everyone and thanks for joining our earnings call today. Let's move to Page 4 of the slide to discuss the highlight. We're definitely very pleased to start the year with another quarter of a strong operating results. We posted a strong return asset of 1.56%, increase pre-tax pre-provision income to $111 million, and we continue to do what I consider a nice job managing our expenses, resulting in an efficiency ratio of around 52%. This results reflect obviously the hard work and dedication of our colleagues, and more importantly, the trust placed by our clients in all institutions as we continue to support their growth and progress. I like to thank all of them for the continuous support. Consistent with guidance, we grew along by 4% on a linked-quarter basis, mostly driven by healthy commercial and our auto loan production, we do remain encouraged by commercial activity and loan opportunities available within both the Puerto Rico and the Florida region for the year. Total deposits were up by $47 million. We saw stabilization in overall core deposit balance during the quarter, but we did continue to see internal migration of customer seeking higher yields to time deposits, as expected into day rates. We do believe, however, that our balance sheet is very well-positioned to benefit from a higher for longer environment as we redeploy, lower yielding maturities investment into higher yielding assets, we should be margin-accretive for the year like the case of this quarter, those cash flows were reinvested into a loan portfolio. MPAs were slightly up by $4 million to 269 basis points of total assets, primarily due to a negative migration with a $10 million case in the U.S. operation, partially offset by decreases in the OREO balances, we continue to…

Good morning to all. Well, as Aurelio mentioned, we started the year posting strong operating results. We earned $73.5 million for the quarter, which is $0.44 per share. That compares to $79.5 million last quarter or $0.46 a share. This -- as he also mentioned translates into 1.56% return on average assets, which is strong return. Our adjusted pre-tax pre-provision increased slightly to $110.5 million from $110 million we had last quarter. That provision for credit losses on the quarter was $12.2 million, that’s $6.6 million lower than last quarter and that's largely driven by $9.5 million in recoveries we achieve on the sale of a previously charged-off consumer loans. Also during the quarter expenses were down $5.7 million, mostly, the FDIC deposit is special assessment that was recorded in the prior quarter as compared to what we booked this this quarter related to the same assessment. The effective tax rate for the first quarter was 24.3%, which is very similar to 23.5% we achieved for 2023. In terms of net interest income, we saw a quarter where net interest income reached $196.5 million, which is relatively flat, just slightly down from last quarter. But this quarter had one less day that represented $1.1 million reduction in net interest income otherwise, we would have been up from last quarter. The loan portfolios grew $200 million on average and the yields on the portfolio also improved. That led to $5 million increase in net interest income, which was offset obviously by a number of days, which impacted by $1.8 million, the interest income on the loan portfolios for a net increase in the portfolios of $3.2 million. The yield on earning assets went up 10 basis points during the quarter, part of it it's that change in mix that Aurelio was…

Thank you. [Operator Instructions] Our first question comes from Alex Twerdahl from Piper Sandler. Please go ahead.

Hey, good morning.

Morning, Alex.

It sounds -- Orlando, from your prepared remarks, it sounds like you're saying that the expectation from here is for deposit costs and funding costs are pretty flat, or kind of close to their ceiling. But a pretty good amount of mix shift, almost a $1 billion of lower yielding securities mixing either into loans or cash or high yielding securities over the next year. So, it's pretty safe to say that the NIM trajectory from here is going to be a bit higher, assuming that higher for longer narrative that you alluded to earlier?

Yes, the expectation assuming rights start going up, again, which was not the expectation we have, it's right what you mentioned, Alex, its -- we're going to have the benefit of repricing of the investment portfolio, either through loans or through reinvestment of the portfolio. We're going to see some further increases on time deposits. So, there's going to be some cost increases, but the other chunk of the deposits should stay at similar levels where we are now. So, the net result that would be some additional pick up on the margin, as we had mentioned before, we were expecting that inflection point to happen as towards the end of last year, beginning of this year and we're starting to see a bit of that by based on the way rates are moving.

Great. And then just a little bit more commentary maybe on the loan pipelines. I think in the past, you've alluded to the construction portfolio being a place where you'd expect to see some additional distributions or disbursements this year, is that still the case?

Yes, that is still the case. Yes.

Okay. And then just overall expectations for loan growth over the next couple of quarters?

We continue -- we stick to what we provide at the beginning of the year, mid-single-digits, primarily driven by commercial, construction, and auto, which basically mortgage flyer [ph] and some of the other unsecured consumer probably yielding down.

Okay. And I just wanted to ask one of the concerns we hear from a lot of banks that aren't Puerto Rican banks, is just sort of the repricing risk of commercial real estate loans over the next couple of years of loans going from three handles up to seven or eight handles. When in 2020, 2021, when you guys were putting out commercial real estate loans, were there loans going on with three handles? Were they pretty comparable to hear or whether just structurally just higher yields and therefore less repricing risk on the island?

I will say that there is less repricing risk. I don't remember looking loan -- fixed rate loans every handle. I don't see we competed on that market. We decided not to compete on that market. So, we -- I think we had a slide -- prior slide in the presentation or an investor deck that talks about the describe the repricing risk. I'll make sure that slide is put back into it. But we consider that repricing rates fairly low and manageable.

Good. Thank you for taking my questions.

Thank you, Alex.

The next question is from Kelly Motta from KBW. Please go ahead.

Hi. Thank you so much for the question. One bright spot this quarter. It looks like net interest -- non-interest-bearing deposits has stabilized somewhat. As you look ahead, do you think there's -- do you think the pressure from migration into higher costs deposit sources has slowed a bit? I know you mentioned that you're going to continue to be impacted by CDs repricing, but wondering if we're seeing a slowdown in the mix ship that should help somewhat.

Yes, that's definitely what we saw, Kelly, this quarter, if you look at the mix, also my deposits meaning retail and commercial excluding -- including time deposits were slightly down $25 million, time deposits were up $93 million. So, we have seen that shift into time deposits. But clearly the large movement we saw into markets, we are not seeing that anymore. The public funds did increase this quarter, $73 million more or less up, stable kind of sides of the portfolio a little bit up a little bit down every month, depending on the operations of the different entities. But our expectation is that there's going to be a stability in the deposit side this year as compared to what we saw 2022 and 2023, where we saw a lot of money going into the treasury markets and so.

Got it, that's helpful. And then turning to your fee income, there was a nice, nice uptick in mortgage banking as well as it could insurance commission income was up quite a bit? Just wondering if there was anything unusual or not expected to be necessarily repeatable in in future quarters? And if this is a good, good level of mortgage banking activity here.

Okay, well, I mean, the largest component this quarter of change was, obviously, the insurance continuing commission that that happens in the first quarter of each year. It doesn't repeat through the year, it's a function of volumes originated through the year, based on that there is always a level of continued commissions that are paid at the beginning of the following year from the different insurance companies. So, that $3 million is not something that we're going to see in every quarter. But we saw more originations with rates being at a better level, in terms of, of conforming paper that could be sold. So, the expectation is sort of stable kind of thing. Obviously, we need to see what's happening with this recent spike in rates. We don't know that's going to affect a little bit the conforming market. But other than that, it's the expectation, it's sort of a continuation of what we saw in the core.

Got it. Super helpful. Maybe last question for me, I feel like after last quarter, there was an investor focus on particularly consumer in Puerto Rico, with you and your peers talking about some normalization there. But it looks like you guys were able to realize a nice recovery on some previously charged off loans. Just wondering if you could talk more about the health of the Puerto Rican consumer at this stage as well as any kind of puts and takes as we look ahead as to how we should be thinking about the normalization of credit and this environment?

Yes, I think we'll be covering this topic since last year actually expecting that to happen early last year. The excess liquidity provided by the pandemic into the consumer accounts was moving out or being utilized. So, that started to happen more in the second half of last year. Still -- normalization still getting to pre-pandemic levels. We expect that to last a few more quarters, not necessarily a lot longer, primarily on the unsecured components of credit cards and personal loans, which is very similar to what happened in the U.S. industry banks, which is driven by what we believe utilization liquidity by score levels that were artificially higher, around the writing in some of the cases. So, we expect that to continue the -- I think it's important to understanding the consumer side, those losses are reflected immediately. It's a very short cycle. NPAs are not accumulated. So, whatever you see in the short-term, you will see also in the recovery, in a very short-term.

Got it, helpful. I'll step back. Thank you so much for the time.

Thank you.

Thank you. We have no further questions on the call. So, I will hand the floor back to Ramon.

Thank you to everyone for participating in today's call. We will be attending Wells Fargo Financial Services Conference in Chicago on May 14th. We look forward to seeing a number of you at this event and we greatly appreciate your continued support. Have a great day. Thank you.

This concludes today's conference call. Thank you all very much for-- [abrupt end]