Good morning and welcome to the First BanCorp Fourth Quarter and Fiscal Year 2015 Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note today’s event is being recorded. I would now like to turn the conference over to John Pelling, Investor Relations Officer. Please go ahead sir.

Thank you, Rocco. Good morning everyone and thank you for joining First Bancorp's conference call and webcast to discuss the company’s financial results for the fourth quarter and fiscal year 2015. Joining me today 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 press release issued by First BanCorp, you can access them under the IR section of at our website at www.firstbankpr.com. At this time I would like to turn the call over to our CEO, Aurelio Aleman. Aurelio. Aurelio Alemán-Bermudez: Thank you, John. Good morning everyone and welcome to the New Year and thank you for joining us again to discuss our end of year results and fourth quarter. On the call with me today is Orlando Berges, our CFO, who will provide significant details on the quarter and the year. Please let’s move to slide five. I would like to first of all do a summary of the year. It is a busy slide, it was a very busy year for First BanCorp. And first of all I would like to thank my dedicated officers, employees, and Board members for all the hard work during the year. I also want to thank…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Alex Twerdahl of Sandler O'Neill. Please go ahead.

Hey, good morning. Aurelio Alemán-Bermudez: Good morning, Alex.

Just wanted to go back to the reserve that you took this quarter related to the government exposure and you kind of went through it, but is that $19.2 million, is that totally related to the four loans that are direct to the government exposure or is it quantitative for all commercial loans to any sort of exposures that might exist out there? Orlando Berges-González: No, this one component was totally associated with the direct and indirect loan exposures to the government excluding municipalities. So it’s not related to the other. The main thing here is that we feel all economic components are considered on the other portfolios but the government-specific uncertainty had additional risks that we felt needed to be considered on any kind of qualitative adjustment factors. Aurelio Alemán-Bermudez: Yes, I think the indirect -– just to clarify, the indirect portion that Orlando commented is what we include in slide 9, the TDF exposure of a $129 million. So it is the four loans that you see on the right side plus the $129 million of TDF.

And the TDF loans, those were -– those have a special reserve that were associated with them in the third quarter, is that correct? Aurelio Alemán-Bermudez: And they also have -– they have like collateral as some of the other banks of the government have real estate collateral so… Orlando Berges-González: Yes, the third quarter, we put in some reserves which are also general reserves based on loan classifications of the TDF facilities. This quarter we just classified versus additional amounts considering the risk, the uncertainty of risk.

Okay. So the total reserve, I mean, is there a way that we could back into it or can you tell us what the total reserve against your direct and indirect government exposure is? I mean if you just divided that $19 million by the $111.5 million, you get like 17%, but is that kind of where the entire reserve for the total government and direct and indirect exposure is or is it lower than that? Aurelio Alemán-Bermudez: I think if we exclude municipalities its approaching 20%.

Okay. Aurelio Alemán-Bermudez: The municipalities will chart a difference methodology because of their cash flows assigned and directed.

Okay and the TDF loans are the only ones that are currently included and adversely classified is that correct? Aurelio Alemán-Bermudez: That’s correct. Orlando Berges-González: Plus we prep up.

In prep okay, and can you just help us think through, it seems like based on some of the headlines that I am reading and you have kind of eluded to that Congress is working on some sort of a solution for Puerto Rico whether its full access to chapter 9 or if it is some variation of restructuring, can you just help us think through sort of how your thinking about your exposures to various indirect, various commercial customers and consumer customers that rely on the government and whose cash flows could potentially be reduced in some sort of a restructuring? Aurelio Alemán-Bermudez: Well you know to be honest some sort of restructuring will mostly impact the investment portfolios on the bonds. More than the other exposure of the loan side because the restructuring is aligned to the $72 billion in bonds. So any restructuring we can put actually a framework, and I think any restructuring is also linked to how before we do a restructuring, how we make sure that economy is going to get back on track. So if we are going to frame, we have to frame the two together. My answer is Alex, a restructuring is not bad for the banks because in the headlines because we can frame the potential of government losses. The other is a small portion of the portfolios compared to a real balance sheet. But when you look at the economic uncertainty is what basically everybody is more concerned that and obviously a restructuring will bring better outcome to the economic uncertainty. It would put a more positive future into the economic development of Puerto Rico. So we have to look at them together. Yes, restructuring is going to take a hit, it's going to be losses associated. But it is going to bring together the tools for the economic development of Puerto Rico. It is not going to happen by itself.

And then final question just to that point if there is some future outlook for Puerto Rico suggesting that the economy should improve dramatically and pricing for some of these troubled loans that you have on your balance sheet in a possible bulk sales should improve is that something that you could consider at this point or is it still totally depending on…? Orlando Berges-González: Right now we haven't got it reserve. We feel we are on the safe side of the equation based on the conditions that we have today. If we see better news on the restructuring there is really three main points that are common ground for everyone, health benefits, equalization, economic incentives, and restructuring. With this restructuring there are different flavors of groups that favor chapter 9, other group favor some other entity. But the three main objectives of the effort with Washington and local politicians is they help industry, the economic incentives and restructuring. So at the end of the day if bonds are restructured then the loans that we have and government base, the pliers that is pending, environment base, tax reform that are pending then we are going to see a better outcome, a better projection on the potential losses on the loan portfolios.

Okay, I appreciate the color guys, thank you. Aurelio Alemán-Bermudez: Thank you.

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

Good morning gentlemen. Aurelio Alemán-Bermudez: Good morning Brian.

And I think just before I get into question just thinking about back in the year all the hard work you guys did, obviously the macro environment is something that was pretty challenging but thinking about the 170 basis point plus pre ROA, continued declines in your NPAs and capital ratios that continue to build. So I mean, pretty darn good quarter and good year for you guys. So I guess good work for the year. Aurelio Alemán-Bermudez: Thank you, Brian. Thank you.

So I guess just two questions, follow-up on the government exposure questions, can you just remind us on the TDF that there’s -– the commercial real estate that is the primary source of payment and the cash flows you're getting there. So I guess maybe two things, is there a way to tell us what the loan to values we will have on those commercial real estate loans? And then was there -– what's the payments that you’re -– you’ve received in 2015 from the TDF? Orlando Berges-González: We got -– we can't give you the data. I think we put some data in the Q, we put some data in the last Q and we're going to put some data in the K. I don’t know if we have it right away here but the -– there's partial payments made by the entity and there’s -– the difference is paid by the TDF fund. We don’t have that onto values and we don’t publish that onto values. But these are key properties like at least the share, the Conventional Centre Hotel is the largest one and right near the Conventional Centre is we have some property in Doral and the properties in the Caribbean. So those are quality real estate behind them. And obviously when we say we’re taking a conservative approach it’s also linked to the government liquidity concerns and that’s why –- but we continue to see the tourism industry on the other hand as the priority, one of the priorities that the government would continue to support and we’ll continue to support. Because remember, it’s very important to understand that these hotels contribute more to the government coffers in terms of room tax and casino revenues, casino tax than the portion of the payment that the government supplies back to the TDF. So it’s still an excellent business to the government to continue protecting. Aurelio Alemán-Bermudez: I don’t – Brian, I don’t have the numbers through the end of the year. We’ll get that. Obviously it’s going to be included on the K. But through September we had about $4 million of payments received from TDF.

Okay. Aurelio Alemán-Bermudez: Government financing on these facilities and the number on 2014 was about $4.5 million. So there is – the $4 million we have received obviously is in the last quarter.

Okay, great, thanks for that. And then a secondary point really on those hotels, I mean you’ve got good cash flows on the primary source of payment on those and like you said the government’s getting more revenues than what the TDF payments are being made out and the guarantee, so it’s still… Aurelio Alemán-Bermudez: Less.

Yes, exactly. So I guess thinking about, staying with credit as a follow up on that, with this what I think is a prudent reserve build you did in the fourth quarter. You had really good migration trends in the underlying credits especially on the commercial and even the consumer. So I guess with everything that’s going on and the issues related to the macro, maybe you can just kind of highlight again just what you’re seeing with the underlying trends and the formation trends and the more higher severities of the commercial and construction, seems like the – that migration trend is going in the right direction. Aurelio Alemán-Bermudez: I – yes, I think obviously we've been cleaning up, after a 10-year recession cycle it’s doing a lot of cleanup in old bank balance sheet. And the very large chunk of credits are less now than what we were years ago. I think the consumer side has been supported by the reduction in oil costs, early delinquencies looking good. So they -– and obviously, we've been originating with conservative policies for some time now. So I think those components are important to be laid out. I think the risk of extended uncertainty and liquidity is more – we monitor it very closely and we have classified some relationships that are dependant –casually dependent on payments from government. We don’t call them indirect, we call them casual dependent, so when we mention indirect we don’t include those. So we have those as individual loans analyzed based on their own merits in the residual cash flow and in the -– how the receivables are moving or not, so some of them are being already classified. The government mentioned that they owe $1.8 billion to suppliers so some of those are probably…

That’s great. Thank you that’s some similarly good color Aurelio. I think I mean one of the things you mentioned there with a lot of good nuggets was and everyone to worry about oil and gas prices and it is one area in the U.S. that benefit significantly that is the Puerto Rico economy. So definitely it is a big help for you guys at this point? Aurelio Alemán-Bermudez: Yes, but remember that we don’t have public transportation. So everybody owns a car, one car or two so they depend a lot of the price of the gas or the pump. It is a subsidy right now.

Yes, perfect. And just my other question is really just on the expenses, like you said I think you guys have done a good job on expenses control even in the quarter with the FDIC insurance premium that went up in the business to business tax. You still had pretty steady control on expenses. If you could just give us a little color on that -- on the early retirement program, I guess maybe just talk about how many people actually did take advantage of it and now is that all in, whether something that happened in the fourth quarter at the end so the benefits will be fully reflected into the first quarter, and should we think about the run rate of the 2.5 million cost saves starting in the first quarter of 2016? Aurelio Alemán-Bermudez: We decided to before the opportunity offered to people with some definitions of years of service and years of age opportunity to take an early retirement. We don’t have a pension plan. We have a 41k but it was general. The 2.2 million is a impact in the quarter of the amount that we offer those employees in both salaries or benefits -- and/or benefits. Or as part of the program it was not a large chunk of employees. It was about 53 employees, but obviously because of the tenure some were higher salary employees. Not officers, we did not extend to executive officers or to any Senior Vice President of the Institution. The $2.5 million I mentioned, it’s based on our estimate of what the positions that we will be, we will fill some of those positions but it’s only a small percentage of that. And it should start –- most of it should start on the second month of the year. There are some people that are still in the bank within the first month. And it is going to be spread out. The $2.5 million is estimated annual savings, so we’ll see our 11 months of that. But starting, definitely starting in February.

Great. Thanks Aurelio, Orlando and thanks for your time guys.

And our next question comes from Taylor Brodarick of Guggenheim Securities. Please go ahead.

Thank you. Just two for me. I think the first question would be assuming a more normalized Puerto Rico environment, I mean your CET1 ratio obviously about a 1000 basis points above well capitalized levels. What levels do you think you -– could you give a sort of a more detail around your thinking of what level you’ll be more comfortable running the bank at? Orlando Berges-González: Tough question, Taylor. Aurelio Alemán-Bermudez: Yes, let me answer. I think there is a framework Taylor. And we have obviously be satisfied that -– there is a framework to get to that, to get quantitatively based on the qualitative factors. And definitely we're going to run it again. I think if we look at the disclosure of DFAST there is a quotient that have to placed and there is obviously, we do have plenty of capital to -- for that number to be lower than what we have on hand today. But to give you a definitive answer I would like to look at numbers first and… Orlando Berges-González: I mean, keep in mind that we need to -– any bank needs to run the institution most likely at a level that its well capitalized and have to built in the buffers associated with the impact that are required, the 2.5% box. So those levels, but what I have done Taylor it’s that with all the uncertainty and all the things going on, obviously the DFAST numbers include that uncertainty. It wouldn’t be responsible to give you numbers at this stage without making a humongous number of assumptions on what's happening in the future, how those macroeconomic variables that go into DFAST for unemployment, inflation and so on are going to be affected. But clearly the number is lower than the one we have today.

Right, right. And speaking of DFAST looks like the Fed is going to require the CCAR banks to stress their severely adverse scenarios even more this year. I know you can’t really telegraph any details of your conversations but do you feel like your numbers, which were pretty draconian for your DFAST results last year will materially change, given just asset quality remaining fairly stable? Orlando Berges-González: I mean based on current numbers and there is no changes on -– dramatic changes on assumptions it should remain. Aurelio Alemán-Bermudez: Remember that those scenarios included very higher employment numbers that have not materialized and included very high utility ratio and property values that have not changed from -– significantly from last year. So, I think just considering how the parameters are remodeled then on the assumptions and employment has remained stable, employment ratios and the house price index and CRE index has also remained fairly stable which are some of the components. And even GDP, retail sales, the intrinsic metrics have remained really stable to last year on that trend. So we are not approaching any scenario in terms of mere what the DFAST economic scenarios that were modeled.

Okay, great, thank you for the comments.

[Operator Instructions]. Showing no further questions, I would like to turn the conference back over to Mr. Pelling for any closing remarks.

Thank you, Rocco. Coming up in February we have the KBW conference in Boca Raton, Florida on Thursday, February 11th. And there is also a Sandler O'Neill field trip for Puerto Rico scheduled for February 23rd and 24th. We look forward to seeing you at these events. We thank you for your interest and your continued support in First BanCorp this time on the call. Thank you. Aurelio Alemán-Bermudez: Thank you all.

And thank you everybody. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.