Good morning and welcome to the First Bancorp Second Quarter Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I'd now like to turn the conference over to John Pelling, Investor Relations Officer. Please go ahead, sir.

Thank you, Keith. Good morning, everyone and thank you for joining First Bancorp's conference call and Webcast to discuss the company's financial results for the second quarter of 2017. Joining 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 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. 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 issued by First Bancorp, you can access them on our website at www.firstbankpr.com. At this time, I'd like to turn the call over to our CEO, Aurelio Alemán. Aurelio? Aurelio Alemán-Bermudez: Thank you, John. Good morning, everyone. Thank you for joining us to discuss the second quarter results. Orlando and I will walk you through the details of the financial results. Please let me start with the highlights of the quarter. Please turn to Slide 5 of the deck. We're very pleased that we posted another quarter of positive results. Especially in light of the fact that our main market continues to face both political and fiscal headwinds. I really want to recognize the great work of my management team. Challenges in our main market in Puerto Rico and at the same time, executing on the growth opportunities that we have in the closure market. We generated $28 million of income this quarter or $0.30 per…

[Operator Instructions]. And the first question comes from Alex Twerdahl with Sandler O'Neill.

Just a couple of questions on credit. First a little bit more color on the TDF loan and sort of exactly what still needs to be done before that agreement closed? Aurelio Alemán-Bermudez: Obviously, we have an agreement that closing and that agreement is probably of the restructuring that to be made public Fiscal Board and we need certain changes at the legislator side of creating an entity that replaces GDB that will be the entity that - which remains the and continues forward. That, I understand, next week, it's going to be. So as you have seen, we have - if you look at the numbers we have written down significantly, the value of the guarantees taking the charge-offs. So once we have closely, according to, we believe, are the values.

Okay. And do we have enough information at this point to make any assumption? Once the agreement closes, if it does according to plan, what will happen to that loan, to those set of loans following the agreement? Will they remain as nonperforming loans? Aurelio Alemán-Bermudez: Yes, the idea of the loans is to the loans, this these loans could become performing loans based on the tax loans and the value of the collateral that we have today.

Okay, that's great. And then the other big loan that you restructured during the quarter, a result during the quarter of the $27.6 million commercial resolution. Is there anything special about the timing of that resolution? Does that suggest maybe a little bit more aggressive stance from you guys to move some of these things through? Or something happened with the collateral? Or what kind of drove that? Just the timing specifically on that resolution? Aurelio Alemán-Bermudez: Well, if you look at the classified loans, we still have nonperforming loans, we still have loans that will be working for some time in the legal framework. So there is always a finish line here. And some of these finish line. So because of the time of resolution that it takes in the court, but the courts are moving and usually we - it's priority to cut down the tree of the NPA . Orlando Berges-González: It's a case we've been working for some time. It's not a new case working on for some time on the case, final line - the finish line this quarter.

Okay. Is it something that could have been even potentially several years that this resolution took to come to fruition? Aurelio Alemán-Bermudez: We have some cases that are being in court for 3, 4 years. So this - I think this was probably 2 years' timeframe approximately. We have some cases that have taken longer, yes.

And then on the OREO, I know you sold a little bit this quarter. What kind of OREO properties you're able to sell? And are there other OREOs in the portfolio that look like what was sold this quarter? Orlando Berges-González: Yes. We actually divide the portfolio in 2 components. Obviously, residential, there is a - as we go through a foreclosure process, there is a constant flow from nonperforming loans to OREO as we complete the different closure processes and we do sell every quarter a good amount of those loans. So that's a consent in and out on the portfolio. On the commercial side, it takes a little bit longer. As we have previously mentioned, there are 2 or 3 large properties, there are 3, in fact, large properties in there that we have as part of the portfolio that we've been working on some final resolution and some legal things that could help getting disposition. We have interest in a couple of the properties that once we achieve resolution, we might be able to complete those transactions. We're shooting to try to complete during the year and hopefully, that would help reducing that balance. But it's something we've been working on. The commercial is - the consumer - the residential is easy to estimate, what goes in and out, but the commercial takes a little bit longer.

[Operator Instructions]. And our next question comes from Joe Gladue with Merion Capital.

Just a couple of questions. On the professional services line, the increase in there, I think, you said that a lot of that was related to loan workouts and everything. Just curious, is that new level going to continue where it sort of some temporary spike in that, that will go away in coming quarters? Aurelio Alemán-Bermudez: It's not something that we expect to continue. We have a trend of NPA reductions. So usually it's linked to the process. We had expenses at a certain level, but we have some specific charges that impacted the quarter as well as at the on the technology front. We did - in the technology side, we did complete the implementation of the new mortgage platform under the relations side which requires additional investment on the consulting side in implementation of the final stage of implementation of the project which was budgeted and actually brings , paperless in the mortgage business.

Okay. All right. That sort of leads into my next question which was - just wanted to be sure I understand that the yields - on the residential mortgage side looks like yields were down about 15 basis points versus in the first quarter and I just want to make sure I understand what was driving that? Aurelio Alemán-Bermudez: I think some of the - obviously, we're reducing Puerto Rico which has been yield and we've been looking Florida, growing Florida in the mortgage, so some of that is . In Puerto Rico, remember it's primarily a fixed rate mortgage business. In Florida, some volume, some of which obviously shows not only so it's traditionally been Puerto Rico. Obviously, the NPA levels on the portfolio is smaller. The NPA levels remain around the same level. So that's the other . Orlando Berges-González: And we also had a - every quarter, we have on the mortgage side, we have mortgages that finally geared and get up to-date and you get payments put up today than - so you have a big cut on earnings there. The amounts that we had in this quarter was lower than last quarter. So that had some impact on the income side. And also the - that increase on the inflows of $3 million, $2.4 million of mortgage inflows into nonperforming did have some impact on the yield. But quoted rates haven't changed much. It's a mix of our portfolio by region and some of this impacts on the nonperforming.

Okay. And I guess I'll ask about the government deposits you have. Is that - I guess the level of those as they peak - should they be coming down or do expect them to be relatively stable? Aurelio Alemán-Bermudez: To be honest, we've been expecting some reductions and some use of the liquidity of this deposit, it's not been the trend. It's been . We also have been a portion of the deposits belongs to transactional account of the public agencies. Entirely - it's not an entirely central government money. So they have continuous of the core deposit strategy to bring the operating accounts and provide other services to both municipalities and agencies which - public agencies which are the largest depositors in the sector. So - but yes, the answer is yes, we were expecting some reductions . Orlando Berges-González: And we ended up with an increase of $60 million this quarter. So we - went the other way.

Okay. And I guess lastly, I'll just ask about the municipal exposure. My understanding is that the central government is likely going to be reducing some of their subsidies to the municipalities and just wondering how that makes you feel about the - those credits. Aurelio Alemán-Bermudez: Well we think the - based on the level of dependency that our portfolio has on that subsidy, we think it's manageable with the municipalities to adjust in the expenses and continue the that they've been doing. So we're not concerned about the - in our portfolio, there are some municipalities out of our portfolio that have a very high dependency on these subsidies. But remember, the largest municipalities are the ones that banks are being underwriting and they are linked to fairly strong property tax which is the primary source of our loans repayment. So this measure as an impact. Obviously, you have to be watchful, though. Changes in law or how the process continues to evolve. We don't expect - there is nothing in the budget that concerns us regarding our municipalities by managing the changes, yes. Orlando Berges-González: As Aurelio mentioned before, that almost 3 quarters of the municipalities we - the exposure to municipalities, it's 3 municipalities that their revenue, the central government allocation is only 4% of the revenues. And for the entire portfolio that we have, it's under 6%. And keep in mind, the structure of collection of the property taxes goes to the comes to us before it goes to a municipality.

And the next question comes from [indiscernible] with Keefe, Bruyette, & Woods.

I just want to make sure I have it right on that agreement with the TDF. The - that's being done as part of the GDB restructuring under the auspices of the FOMB. So any fixed income instrument that's issued as part of it would presumably be remote from any possible further debt restructuring because it would be in an already restructured entity? Is that kind of correct for my thinking or not? Aurelio Alemán-Bermudez: It's being interpreted. That's correct.

Okay. And could you refresh my memory? What are the properties that are guaranteeing? What's their current operating status? Was it 3 properties or? Aurelio Alemán-Bermudez: These are three hotels, properties. And three of them are operating, yes. Orlando Berges-González: And one of them was the one that had been making all the payments on its own. The other 2 did need support from TDF.

Okay. And on - could just remind me, on the muni loans, what is the tenure on those loans? Orlando Berges-González: Well, it changes. It could be - you have 2 structures. It could be less than 7 years which are the ones that are less than of the loan. And the ones that were listed as securities at original terms of 25 years. So they have different terms outstanding, but they are longer terms.

And as there are no more questions, this concludes both the question-and-answer session and the conference call. Thank you for attending today's presentation. You may now disconnect. Have a nice day.