Good morning and welcome to the First BanCorp Q3 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, Jessica. 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 2013. Joining me today are Aurelio Aleman, President and Chief Executive Office; 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 important factors described in the company’s latest Securities and Exchange 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 press release or webcast presentation issued by First BanCorp this morning you can access it at the company’s website www.firstbankpr.com. At this time I would like to turn the call over to our CEO, Aurelio Aleman. Aurelio?

Thank you, John. Good morning everyone and thank you for joining us again to discuss our third quarter results. On the call with me today is Orlando Berges, our Chief Financial Officer. Orlando as well will provide the details on the financial results. I will cover some of the key highlights for the quarter and then we’ll get into the Q&A also. Please move to slide five of the deck. I am really pleased with our results this quarter. We continue to move forward. As we said we focus on a dual track, first of all improving asset quality by continued de-risking of the balance sheet and parallel to that strengthening the core franchise and we did show progress again in this quarter in both. In addition this quarter two important events I want to highlight. One we successfully completed the secondary offering with the U.S. Treasury. And second we also completed very important step in our business strategy by completing the credit card conversion of the portfolio that we purchased last year. Now we have a portfolio that we can market and we can continue to grow. Net income for the quarter was $15.9 million and that includes about $3.4 million in non-recurring expenses that were related to the secondary offering and the credit card conversion. Excluding these items net income would amount to $19.3 million. Actually this result was further impacted by an addition of $8.9 million of expense noise related to the loss on the [inaudible] and 3 million increase in tax reserve. The franchise continue to make good progress. Margin increased 16 basis points to 420, deposits grew $78 million, brokered CDs declined $102 million, originations were really good at $920 million and expenses were down nicely as we spoke in the last call, including credit…

Good morning everyone. So Aurelio mentioned at the beginning of the call we posted an income of $15.9 million for the quarter, $0.08 a share. That compares to a loss of almost $123 million or $0.60 a share last quarter which obviously was affected by the bulk sales and Lehman adjustment we posted in the second quarter. The results for this quarter include two items that are sort of one-time items $1.7 million in expenses associated with a secondary stock offering which was completed in August on the sale of treasure shares as well as $1.7 million in credit card conversion cost as we completed the migration of the credit card system. We adjust for the effect for these items net income for the quarter was $19.3 million or $0.09 a share which compares to $16.8 million last quarter in the second quarter, if we exclude the effect of the bulk sale and the Lehman securities. So it is a $3 million, normal $3 million improvement in the results. This quarter also had a couple of other significant items. We had a $5.9 million loss on the equity in earnings of the unconsolidated entity which is the venture that we have on the loans were sold back in 2011, which as we have discussed in the past is accounted for on their hypothetical liquidation model and it’s some of the fair value adjustment change it could affect the accounting entries we need to post on that component. The other significant thing was a $3 million additional reserve we posted on certain tax positions which are attributable – attributed to an extension of the administrative appeals process we’ve had for a while. On the other hand if we look at some of the other components the results for the quarter show…

Thank you, Orlando.

Questions are little bit later.

Thank you. Before we open for questions just a few highlights I want to comment. Definitely we continue our focus in the dual track. The risking, is still work to do there, core franchise still opportunities, innovation, you know we’ll make sure we’ll continue working closely with the government and GDB supporting the economy again and providing update for information to our investor community. Our top priority remains the asset quality improvement. You know we have to recognize, we have steps to do in reserve loan sales, we have OREO to move out of the balance sheet. We did close to $200 million of between OREOs and held for sale. Inflows were better for the quarter about $20 million better but we still have a sizeable classified asset book that we need to closely monitor. Franchise metrics continue to improve and we still have expenses opportunities that we are taking. We also have the new credit card portfolio which haven’t been marketed over the last, you know there is no marketing in this portfolio for the last three years as it was managed prior by FIA so that is an opportunity for us and the execution of the core deposit strategy continues to be in top of the list. Loan originations were healthy and we feel good about the pipeline so that is a key element of the execution. The DPA obviously you know the questions get asked. We’ll continue to work closely on our profitability and we’ll provide more clarity on the DTA as we continue to move on but it’s a significant number we’ll like to have in the capital structure as soon as possible. So now we will open the call for Q&A.

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Erika Najarian, Bank of America. Please go ahead. Erika Najarian – Bank of America Merrill Lynch: Yes, good afternoon. My first question is on the allowance against the exposure that you detailed directly to the Puerto Rican government and the tourist industry, could you give us a sense of how much you have reserved for in terms of the $327 million in direct lending exposure and the other $199 million of tourist and liquid exposure?

The government loans that we have on the books at this point are all what we would call past weighted loans. What we do with all past weighted loans including government is they go through a general valuation allowance that we estimate based on experience and losses on the portfolio. We don’t treat the government separately from our commercial portfolio. So general valuation allowances are applied to that portfolio. At this point I don’t have the exact number but it’s probably going to be somewhere around one, half percent or so of that portfolio would be the reserve amounts. Erika Najarian – Bank of America Merrill Lynch: And could we extrapolate the same for $199 million, that’s separate from that $327?

Well the $199, are you referring to the TDM parent fees? Those are the loans [Technical Difficulty] purpose we judge the loans based on whatever the type of loan that is behind the guarantee. So the reserves are established based on the risk associated with the loan, most of them probably would have a similar general valuation allowance but there could be some differences in one or the other depending on the final assessment we do on the case. Erika Najarian – Bank of America Merrill Lynch: Okay, and my second question is on your expense run-rate, clearly you have made significant progress quarter-over-quarter and as you think a about 66% efficiency ratio and a core expense run rate of $96 million could you tell us what your near term goals are over the next few quarters in terms of where you can drive this efficiency down to or if you are more comfortable, where you can drive that expense run rate to?

Well the efficiency ratio today its 70% for the quarter. If you adjust for this components of related $3.4 million in expenses as well as venture number that would have been close to 65. As we had mentioned in last quarter’s call we expect that credit related expenses to go down about $10 million in the second half of the year as compared to the first half. They were down $7.5 million. We still feel that there are some opportunities in there to achieve those $10 million and that we should see. And some of the other components as we have done discussed in the past are related to eventually FDIC instruments reduction and some of those other items. So it’s all, I mean to some extent it’s related to the non-performing portfolio and how we are going to – how things continue to move along in terms of legal and other expenses. But clearly we mentioned at one point that we were targeting long-term 55% efficiency. We won’t see that this year but we should be between in that range of 60 to 65 for the latter part of the year assuming those reductions. Erika Najarian – Bank of America Merrill Lynch: Great. Thank you so much for taking my questions.

Thanks.

Our next question comes from Matthew Clark with Credit Suisse. Please go ahead. Matthew Clark – Credit Suisse: Hey good morning guys. Can you give us some more color as it relates to the underlying activity in that unconsolidated entity, the moving parts there and I guess our expectation going forward, just trying to forecast that better?

I am sorry Matthew, that wasn’t clear, what was the question there? Matthew Clark – Credit Suisse: Question relates to the loss of the unconsolidated entities and debenture that you guys have, I am just curious how general line activity there and how we should think about that line item going forward?

We are projecting that line item it’s a challenge to be honest, Matthew. The accounting doesn’t really follow the economics in this specific component. So fluctuations have come a lot from any changes that are done. Remember that debenture it’s managed by independent group, which are the minority owners. So any changes in their estimated timing or strategy of a specific case could change based on the discounted cash flow components what’s the value. Our exposure in here it’s limited to investment we had with the different charges we have taken, that number it’s down to about $13 million today. So to some extent the maximum amount we could charge down assuming the fair value changes, discounted fair value changes are this space would be those $13 million. But it would be very, very difficult for me to tell you specifically when. We were expecting this year to have our losses on accounting components related to the venture based on the cash flow estimates that we have seen, but some, to be honest have been higher, little bit higher than we expected. So again it’s $13 million exposure that we have that could affect few quarters. You probably saw the second quarter we had a profit of about $600,000, the first quarter we had a loss so it’s been very lumpy in terms of impact in results. Matthew Clark – Credit Suisse: Okay. And then can you talk maybe a little bit to just any incremental change in customer behavior since the economy’s been under some pressure and you had a change in tax loss and it looks like your, for example you resi mortgage number has pumped up but then your inflows were down, accounting for, I think the larger portion of that $20 million decline. So just trying to get a sense for any kind of incremental change among your customers and even your business customers as well?

Yeah I will say, this is Aurelio, Matthew, I will say the two primary events that we can classify for September, is number one the originations of mortgages and number two the OREO sales. OREA sales in Puerto Rico went down 11% in September. It’s usually the third quarter is slower because of occasions and all that but this was much lower than anyone anticipated. So I will say those are from a consumer reaction and consumer confidence, those were the two primary events that we saw happening in the quarter. From an NPA level we did not experience any of the trends that we can say was different from that behavior, is really from originations. We will see the last quarter of the year is usually a better one but we were closely monitoring it. Matthew Clark – Credit Suisse: Okay. And then I guess on your expectation for regulatory release and getting out of the consent order, I know it’s always difficult to gauge something like that with regulators but just curious as to what you think the headlines down there have maybe pushed that out a little bit?

Well we continue to comply and we have complied with everything requested in the order, including having a significant portion of the capital ratios. And it’s really when they will [relate] to decide to add the judgment. The judgment also includes what’s happening in the environment. So we cannot tell when they would be reacting on it, because we are complying with everything that has been in the question and including the most important components which are ratios and level of classifying loans. Matthew Clark – Credit Suisse: And then maybe just one last one, I guess the incremental borrowing that you are lending, I am sorry lending that you are doing to the government. I guess can you just give us a sense for the types of terms you are getting and your comfort level with I know your exposure there are still to probably still somewhat underweight that exposure but just curious what gives you confidence on lending?

Well, there is different sources of guarantees from the government primarily they realize they are all in the latest part of the year in the quarter are short-term facilities and are related to – one of them is related to the oil line participation of the oil line operators which has a priority over other expense, is really an expense, they cannot operate without oil so that’s a – it’s a priority. We also have some other facilities that are guaranteed by property taxes which is also priority. We feel very comfortable with the exposure that we have with the government and those facilities. Matthew Clark – Credit Suisse: Okay. That’s it from me. Thank you.

Our next question comes from Todd Hagerman with Sterne Agee. Please go ahead. Todd Hagerman – Sterne Agee & Leach Inc: Good morning everybody. Just a couple of questions, Aurelio as you talked about the credit quality trend, I am just curious again you have nice improvement in the quarter. I am just wondering as you look at the pipeline and talk to your bankers and so forth can you give us a sense of, if I look at fourth quarter Q1 is that something that we’re looking at kind of the steady pace down, steady measured pace or is this something that as you look forward there are things that may be in the pipeline that could cause a greater extent of improvement in terms of magnitude. I am trying to get a sense of just kind of the trend in the pace of the trend in terms of the improvement?

Yeah, Todd. To be honest I’d say it’s a very difficult question it kind of what we are looking but let me give you what are the moving parts here. Obviously we are working in parallel to try to move some of the loan sales that we talk about in the give notes that are held for sales or OREO so some of them last long. So it depends on how successful we are in moving those out. That’s one of the moving parts and obviously we have a dedicated team to add and we are aiming to achieve progress on that front. In this quarter we only sold a small portion of it in the third quarter. So but that there is a lot of effort on that initiative. The other moving part which Orlando mentioned we have some classified loans that are lumpy and we monitor them very closely. It’s quarter-by-quarter activity and they continue to perform but I cannot anticipate if they would perform every quarter on their own. Some of them are improving and getting out of the classification. So but it really all depends also on economic conditions of each of them on their businesses. So it’s something that we have to monitor very closely and hopefully our plan is between the ins and the out that we show improvement every quarter and that’s what we are aiming. But there are moving parts to it as they have been for over for the last three years and it’s something that we have a lot of the resources behind it and it’s our key priority as I always mention. Todd Hagerman – Sterne Agee & Leach Inc: Okay. And then just as it relates to the card portfolio and the conversion now can you give us kind of an idea of how should we think about the credit quality of that portfolio, the targeted customer base within the company and kind of your expectations in terms of that rollout and kind of what we think are the different economics related to that portfolio, just trying to get a sense of now that we are there with the conversion how do we think about the strategy going forward, both from a customer segment standpoint as well as a credit quality standpoint and how that’s going affect both the P&L as well as balance sheet?

Yeah obviously there is some – the portfolio has been on the book for more than a year. So you can see some trend on losses and the portfolio trend, the portfolio has been trading quite before we purchase it for the last three years the portfolio has been peaked at some in time close to $500 million and is now at $320 million, $330 million. So and the fact is there has been very little activity on promoting the portfolio, on cross selling the portfolio and activation and usage. So first of all we have a very large number of accounts that are excellent clients, prime clients and the first growth that we expect is really from activation of the same customer base and increased utilization that’s really starting number one. There is a significant number of accounts that are usage is low. When you look at the credit quality of the portfolio, it’s a prime portfolio. It went through a large cleanup for some years so it’s a prime portfolio. The second initiative it’s related to new products and new marketing of targeting bank clients cross selling or other products with another very large base of clients that not credit card clients today. And I would like to invite to become credit card clients. So there is a well-structured strategy that you are going go see going out to the market actually already started. And we can go in more detail.

And you need to mention that the losses that we’ve been tracking on that portfolio have in fact been significantly lower than what we had included in our original projections on the acquisition. So it’s been a very good quality portfolio in that sense. Todd Hagerman – Sterne Agee & Leach Inc: Great. That’s very helpful. Thank you.

Our next question comes from Taylor Brodarick of Guggenheim. Please go ahead. Taylor Brodarick – Guggenheim Securities: Thank you. A question about Florida obviously with originations did hiring ramp up in that market or has the growth there encouraged you to hire more, expand your teams going forward?

Well we actually I think we’re done with the hiring right now. We in the regions that we have decided, we did as I mentioned before we built a commercial team that focused on the middle market and commercial clients and we built also a corporate team early in 2013 which has produced excellent result to the year. So we continue to hire on the transaction banking side related to services and expanding our deposit strategy, brought on – I will say on the loan side probably there is a couple of positions. But not an extended group of people. So we are almost done there. Taylor Brodarick – Guggenheim Securities: Okay, great. Everything else has been answered. Thank you.

(Operator Instructions). Our next question comes from Alex Twerdahl with Sandler O’Neill. Please go ahead. Alex Twerdahl – Sandler O’Neill: Hey good morning guys. Thank you. I wanted to ask you a little more about potential loan growth in the future. You put up originations this quarter of 830 some odd million dollars. I know there is a lot of churn in the loan portfolio and we have plenty of capital. How easy would it be to convert, to go from originating $830 million to actually showing some loan growth? What kind of has to happen, is it all about just giving more loan set that might turn off your book or do you have to actually originate more volume in that or may be just talk about some of the moving parts there?

Well we have to take it by business, number one. Obviously we should continue to see the held for sale going down. So when you look at loans even though we grew the loan portfolios excluding held for sale when you add held for sale obviously we reduce that so net growth wasn’t there. So that is a key strategy, continue removing the held for sale and growing the three components we achieved growth in the commercial we achieved growth in the consumer and we achieve growth in the mortgage. I think I made a comment that we would target, that we would like the loan portfolio to reach $10 million. We are not there and it’s going to depend on the market. It’s going to depend on the economy, it’s going to depend on the competitive environment. We have increased sales focus, we have increased sales resources and marketing. And because we don’t want to give it up on the credit parameter we want to make sure that we have increased volume of originations to have the optimality of selecting the risk credit. So it’s very difficult to tell but the primary bible is really the market. There is a good pipeline, there are deals on the table, the more challenging one as I say is the mortgage business. Rates are coming down again so we saw reduction in rates in the last week. That could be an opportunity but it’s very driven by rate as we all know. In Florida we’re targeting to grow Florida we and do have some opportunities in that market that we will continue to execute. But think about we are aiming to get the loan portfolio back to $10 million, I cannot tell you it’s not going to happen in the short-term, it’s not going to happen in 2013 but it’s one of our goals for next year. Alex Twerdahl – Sandler O’Neill: Okay, great. And then as you look at the complexion of your NPLs today versus a year ago, you talked about the top priority as continuing to be asset quality and with the success that you’ve had in some of the book loan sales through this year they are successful but expensive, talk about your appetite for potential further book loan sales, is that’s something that completely off the table now or is it still some chance that we see more of those?

At this stage the focus is organic. I will not say that we will never do a held for sale again because you don’t know how things move but our goal, our objective at this stage to move while we have on held for sale, move while we have in OREO and try to resolve some of the complex cases into OREO so we can move them out too. And that’s really the driver. We’re not planning any large sales at this stage. Alex Twerdahl – Sandler O’Neill: Okay, great. And then just lastly Orlando may be you can give us a little bit of guidance on what tax rate we should use for 2014?

Well, the difficult part in there it’s obviously Alex is the DTA component. At this point as we had mentioned before we – the DTA requires some proven track of earnings before we can start talking about reversing it which said we continue a good track we might have the possibility late 2014 or early ‘15 assuming we don’t achieve the reversal of the DTA then you are talking about basically no tax other than taxable some of the small stop that we have that are making money. Otherwise there is a component which is like tax exempt on our portfolio. I would have to say that our normalized tax rate should be somewhere between 25% and 32%, somewhere in that range depending on the mix of tax exempt instruments we have which could be through the investment vehicles that we have or through some of the lending that have tax exempt status. So that’s the one that could change it. Alex Twerdahl – Sandler O’Neill: Okay, great. Thank you very much guys.

This concludes our question-and-answer session. I would like to turn the conference back to Aurelio Aleman for any closing remarks.

Well we thank you all for joining us. And as I always say we are available to continue answering questions or talking we are going to be participating on several conferences in November, Sandler, Deutsche Bank. So we’d like to reach investor community to continue communicating and answering concerns about Puerto Rico and our markets. Thank you all again for joining.

This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.