Good morning and welcome to the First BanCorp second-quarter results conference call. [Operator Instructions]. Please note that 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, Kaylee. Good morning, everyone and thank you for joining First BanCorp's conference call webcast to discuss the Company's financial results for the second quarter of 2015. Joining me today as always 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 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 of these forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release issued by First BanCorp you can access it at the Company's website 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 second quarter. On the call with me today is Orlando Berges, our CFO. Orlando will cover most of the details of the financial results and I will walk you through some of the important highlights of the quarter. Please move to slide 5. Before I cover some of the details I think it is important allow me to summarize some very important highlights for this quarter. It was another busy quarter where we made several important strategic announcements that continue to show our continued progress. First at the end of April we previously announced the lifting of the consent order from the FDIC. Second, at the end of May we announced an accelerated derisking transaction that-- it cost some capital but it really drove our risk profile and significantly reduced our nonperforming assets by approximately $110 million. And third, at the end of June we released our [indiscernible] results which show strong results in capital, the analysis showed the strength of the balance sheet even in a severely adverse economic environment which really is not the scenario that we are in today and even despite that we are living here in Puerto Rico today. During the quarter we also successfully completed the integration and rebranding of Doral customer's branches and the mortgage portfolio an operation that we acquired during the first quarter. This transaction further solidified the franchise and our market position as the second largest bank on the island in this market. And we should continue to see good benefits as we [indiscernible] on these customers and we use this expanded branch and ATM network. Please let's move to slide six so we can cover some additional detail. It was a net loss…

Good morning, everyone. As Aurelio mentioned, the second quarter showed a net loss of 34.1 million, it is $0.16 a share compared to 25.6 million gain in the first quarter of $0.12 a share. The results however include a number of significant unusual items that affect comparability and I want to walk you through the different components to further attempt to put together what is a more comparable result with the prior quarter. The first item Aurelio touched upon, we had a 48.7 million loss on a book sale of assets. As we had disclosed earlier this quarter, we completed the sale of nonperforming adversely classified commercial construction loans with a book value of 147.5 million, as well as some OREOs with values of 2.9 million on a cash transaction. The sales price was 87.3 million. The impact was mostly on the provision where we had 46.9 million, but there were also a couple of components [indiscernible]. There was one held for sale loan where the impact was booked through the other income line items, as well as the OREO loss that was booked through the expense line items. If we exclude the 46 million -- 46.9 million impact the provision for the quarter declined $5.7 million compared to the prior quarter. I'd like to make reference to page -- if you go later on you can see page 4 of the press release, you can see there some details attempting to normalize and eliminate some of these components from the different categories. The second large item we had in the quarter also Aurelio touched upon it, we had a 12.9 million other than temporary impairment charge on the Puerto Rico government securities. We conducted a quarterly analysis and based on the length of time the securities have traded below…

Thank you, Orlando. Before opening the Q&A session I want to point out something that we have put on slide 20. These are really important metrics that show how our franchise improved during a challenging cycle and we cover here our prior five years where definitely it has been challenging and we all know that in Puerto Rico. On the other hand, when you look at the metrics we -- across all important core metrics as a quality capital on the core franchise, they all show significant improvement. Definitely the diversification of the region is also an important component. Florida, it is getting stronger and growing and the Eastern Caribbean region also is showing some stability and opportunities. To say that our franchise has never been stronger and is really poised to increase shareholder value. Obviously we all know that we are disappointed at the level the stock is trading right now, well below its book value. Well, with that summary I just want to open the session for questions. Thank you to all.

[Operator Instructions] Your first question comes from Brian Klock with KBW.

I thought what was interesting is thinking about all the headlines that you read about Puerto Rico and the economy and the macro situation. Looking at slide 5 of your slide deck, a pretty busy quarter for you guys where you hit a lot of milestones. The consent order lifted, continued derisking of the balance sheet, Dodd-Frank stress test, the DFAST results are very strong and then integrating the Doral branches that you acquired. So all that stuff going on, but yet the origination numbers are probably the best we've seen in a while. So I guess, Aurelio, maybe talk about the thought process of going into the next -- second half of the year. It sounded like you are pretty positive on that momentum in originations continuing. So maybe just kind of highlight a little bit more where you think the growth is going to come both in the Puerto Rico and the Florida franchises?

You know, one thing, Brian, obviously in all honesty the headlines on the markets are much more negative than what the activity that is going on in the island. And we continue to have 3.6 million people in Puerto Rico, we continue to have businesses, mortgage origination, model sales and activity going on and tourism metrics that show stability and improvement. So, there is activity, yes, there is a challenge on how the government is going to manage their finances and could have an impact on the economic front. But we continue to get focused. Remember from our industry point of view we are dealing with a less competitive environment. I'm not saying it is not competitive, but we are less number of players, first of all the year [indiscernible] consolidation and we benefited from that one. And we have now a larger branch network, more origination channels. We kind of did not increase in certain products like the commercial in Puerto Rico, but we are increasing the mortgaging conforming paper actually which is the one that we originated on selling in the secondary market. So see originations in Puerto Rico, we are targeting to remain stable. It doesn't necessarily mean that the Puerto Rico portfolio is going to grow. We feel that we can grow the Florida portfolio and we can actually grow the Eastern Caribbean portfolio. But the expectation is not that we're going to be able to grow Puerto Rico this second half. I think this quarter it is very definitive in looking at the government plan and make sure that the economic activity is not interrupted by the actions that are going to be taken which we are not completely clear of what it's going to be. We continue to focus on the franchise fronts and look for opportunities. And we have done that and prior cycles and we continue to focus on that going forward.

Okay, thanks for that extra color. And just as a follow-up, the margin was pretty solid too, one of the stronger margins among banks of your peer size. I guess talk about the thought process going forward and the ability to kind of continue to protect the NIM. Obviously there was some of the bond premium amortization in the PREPA loan impact. But I guess going forward from here can we keep the margins stable or, Orlando, what is your outlook for the net interest margin?

Margin pressure is going to be there, Brian. Keep in mind that obviously the consumer portfolio, even with originated levels have gone down, that's a high yielding portfolio. We expect stability on the yields on the mortgage side on what we have in portfolio. And there could still be some opportunities on the funding side, but we have been lower in our funding side. So I won't tell you that it can be improved from where it is at this point, a little bit of pressure. But we do expect it to stay above 4% and probably above the 4.10% -- 4.18%, it is a pretty good one and we managing to try to keep it. But I see some pressure still on the margin because of the consumer portfolios.

Okay, I mean that is fair enough. And thanks for your time, guys.

Your next question comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

I just had a couple questions here on credit here. First off, can you just give us a bit more color on that $44 million SNC that you guys had? Is that -- was that moved onto adversely classified as a result of the SNC exam? What kind of a loan was it? And how big the entire SNC exposure is for you guys?

That loan was yet as part of the exam was lower to adversely classified. It is a large facility, I don't know the size of the overall facility it is, but its customer information and we cannot disclose specifics on the customer. But it’s a large facility that has been working out with the different banks. A lot of things have been done with that facility. And we feel that down the line that facility could come back to a better classification. But in the meantime and with all the noise it is a CRE-related kind of facility. We understand that part of the movement on the regulators, although we feel that there is some strong components of that loan that could go either way. But in the meantime it is still performing and we are getting paid on the loan and we feel that it is going to stay like that.

Okay. How big is your total Shared National Credit exposure?

We can get back to you with a firm number, probably it's going to be on the Q, but it is probably around 300 million. It hasn't grown or it hasn't really achieved any growth. It has been in the same range that we have been having for probably the past five years. Most of these facilities are legacy credits that are in the portfolio.

Okay. And then on the slide that lays out your exposure to the government, you have 131 million of indirect exposure to the tourism development fund. Are there any loans that you have to hotels that are being paid out of that fund right now?

Out of the 131 million is about four facilities, three facilities. And a portion of those payments is being paid by the fund, not -- this is a secondary source of repayment, it is not the primary source. The borrower is the primary source. And the secondary source of repayment comes from this fund. It’s a protected fund which we view -- we analyze the liquidity of the fund on a yearly basis. It's a structure that has been operating for a long time, obviously understanding that one of the government priorities is tourism. And they really have to share with you that the revenue that the government gets for these hotels, it is much more than the expense that comes out of the fund to support the credits, because they get revenues on the casinos and they could revenues on the other taxes.

Okay. But do you have any loans right now that are not paying by the primary borrower that are being supported by that fund?

Partial payments are being provided by the fund, which is the remaining portion to complete the debt service. But the primary cash flows comes to the bank and the secondary cash flow is the subsidy.

Okay, is there a way to quantify how?

They are paying I'm sorry?

Is there a way to quantify that exposure of customers that were part of the payments coming from the fund?

Well, the primary focus is real estate, it is the facilities on the hotels, which is and we have the cash flows of the hotels before that. And then comes the portion of the payment that is not covered by the cash flow and that is what comes out of the fund. So that really the primary exposure is supported by the real estate by the real estate of these hotels.

Okay. And then just my final question, is there a way for you to quantify or at least give some general color on your exposure to customers who are dependent on the central government?

We are actually working on some of that and we have not disclosed that to the market. But as soon as we have that data validated we will. It is something that we monitor as part of DFAST. We stress the portfolios in different scenarios and we stress the whole government portfolio in different scenarios. But aside from that we monitor government employees that are in the different consumer businesses and we monitor we manage individual commercial relationships that depend on cash flow as their primary source for servicing the government. And that is part of the monitoring that we do and we don't and we monitor it on a quarterly basis to see if we see any specific price. You can argue that we need to see what is going to happen here, but in a normal liquidity event that we that is not the one that we are expecting at this stage could happen. But obviously it is either some of the cash flows that are incremental we haven't seen the explanation of it how it is going to come into play and those covers, the new tax the new sales tax increase and covers the gas tax. So obviously over the next couple of months, Alex, it is something very important, especially August, where we get better explanation of how the government is planning to use those cash flows. And that is why [Indiscernible] that will come to the market with our sense on that type of exposure.

[Operator Instructions]. Your next question comes from Taylor Brodarick with Guggenheim Securities. Please go ahead.

Great. Thank you. I guess first question would be, in your discussions with the Fed about the written agreement, is there a quantitative metric that you are sort of working towards, whether it is, hey, we need to get NPAs to this level to get better clarity of when that could be lifted? Any detail you could provide would be great.

Well, if you the [Indiscernible] are public documents, the conversation with the regulators are private. But if you read the agreement, the agreement was we enter into an agreement exactly at the same time that we entered into the FDIC. There is nothing in that agreement that we have not complied with if you go back to the agreement. From our perspective it is a process matter. And obviously conditions in the market in Puerto Rico I have to say that it's obviously from the execution of our plan of strategy hasn't been has not been any limitation.

And then as far as PREPA, your exposure there, have you disclosed or going to disclose in your Q kind of what you provisioned against that credit?

No, we don't.

We don't typically provide specifics on a loan. Important things we do have a reserve, a specific reserve on the loan and, as I mentioned, Taylor, we have been booking our interest to principal on the loan. So the principal at the end of June came down from the 75 to 74.1 outstanding amount. And as we continue to collect payments we will continue to go with actual cash collections.

Great. Thanks. And then on the brokerage CDs, it looks like probably the next six months to a year have got sort of a lift in the amount that is going to be coming off the books. Do feel good about your core deposit gathering being able to sort of replace that and just where your funding is over the next year.

We have had a strategy to reduce the brokerage CDs and increase core deposits for some time now as you have seen on results and that strategy continues. We have for the first half of the year Aurelio mentioned that we have had good success in Puerto Rico, separate from Doral. Doral has been a larger number and we hope to continue with those strategies and slowly but surely get it in capture in some of the market components to help us to continue with that strategy. So far we haven't seen anything that tells us differently. And we should continue pursuing those increase in core deposits and reductions in brokers.

And then last question, just looking at the property tax revenue exposure. Anything changed that you have noticed with real estate values just given the heightened scrutiny on the macro situation?

Real estate values are still seeing some reduction in some sectors of the market but that does not affect property [indiscernible] revenues in Puerto Rico, Taylor. The property taxes are based on a scale of-- I don't remember exactly but it is 1960 type prices in the mid-60s, so the base that is used to calculate and charge property taxes won't change for market value of the properties as the way the system is structured today. So any changes in values today won't change the property tax revenue component because of that-- just because of the change in value.

That does conclude First BanCorp's second-quarter results. Thank you for attending today's presentation. You may now disconnect.