Good morning and welcome to the First BanCorp 1Q 2020 Results Conference Call. [Operator Instruction] After today's presentation, there will be an opportunity to ask questions. [Operator Instruction] And I'd like to turn the conference over to Mr. John Pelling, Investor Relations Officer, First BanCorp. Thank you and over to you, sir.

Thank you, Vikram. 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 2020. 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, 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, 1firstbankpr.com. Additionally, we filed a COVID pandemic response investor deck on our website as well. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman. Aurelio? Aurelio Alemán: Thank you, John. Good morning, everyone. Hope you're all safe and a healthy. Before going into the detail of the quarter, I think we need to discuss the more present matter at hand, which is the impact of this pandemic on our customers, employees and how we have managed to a locked down, which were put in place in Puerto Rico and ECR around mid-March and subsequently in Florida with actually less restrictive operating rules. So let's please move to Slide 5. First of all, our hearts go out to all those families impacted by the crisis in both from humanitarian and economic standpoint. This has been hard to many families and I want…

Good morning, everyone. So Aurelio mentioned, we generated $2.3 million of net income this quarter which is a $0.01 per share. That compares with $36.4 million or $0.16 a share in the fourth quarter. We did have several unusual items in all quarters, but you'll remember from last quarter, the expenses associated with the transaction resulted in a non-GAAP adjusted net income of $42.8 million or $0.19 a share. He also made reference to tax pre-provision of $68 million, which compared to $72 million last quarter. This quarter results include two large items. Number one, an $8.2 million tax exempt gain on the sale of securities that improved earnings per share basically by $0.04. And we had a reserve build for loans and debt securities of $59.8 million, driven by the effect of the COVID pandemic on Moody's forecasted economic scenarios. This reserve build had an after-tax impact of $39.8 million, which is approximately $0.18 a share for the quarter. Important for this quarter was the adoption of CECL, which as you know, it's a new accounting rules or expected credit losses. And when we talk about credit losses, it's important to clarify it includes a lot of the loans -- includes on lot's of unfunded commitments as well as any estimated losses on debt securities. As of January 1, we recorded regional allowance for overall credit losses of $93 million upon adoption of the CECL standard. For this quarter, the provision -- the total provision ended up being $77.3 million, which includes the reserve build I just made reference to, up $59.8 million and approximately $17.5 million, which is basically coverage charge-offs for the quarter and it would have been close to what we think would under normal economic scenario would have been the reserve -- the provision for…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] We have a first question from the line of Ebrahim Poonawala from Bank of America. Please go ahead.

So I guess, just in terms of the reserve build, if we can start with that during the quarter. I guess, about 3.2%. One, just from a modern driven standpoint, Orlando, if you can talk about, if the loss rates that you've experienced over the last five, 10 years, led to a much higher loss number, then you would have otherwise -- let's do, what you would otherwise expect if you can just talk to that in terms of the modern aspects that might have led to that result build? And secondly, Aurelio, if you can just talk about is, how does this compare, when you look at your borrowers both C&I and CRE relative to the hurricane and previous crisis that we've had from our balance sheet per capacity of these borrowers and the ability of the island to kind of just navigate through this?

Okay. Let's start with the calculation. As you know, we implemented CECL. Our CECL methodology takes into account as required by CECL what it's called a reasonable or supportable timeframe. In Puerto Rico, we have defined that as two years because we feel that the economy in Puerto Rico has been very difficult to predict over a longer timeframe. So using that two years, it's something that we can feel comfortable on how projections are made. We use Moody's for that calculation, and what Moody's estimated the impact of macroeconomic variables that are key for the different portfolios. The key ones meaning something like unemployment, it's key house price index is key, we see E&P impact population and things like that, but unemployment and HPI are some of the key ones. After that two years, then we revert to what is our historical lows components and for that we use a much higher rate that what we see on some of these components in Puerto Rico today. Like unemployment, it's a good examples so we were two numbers that are above the 12% unemployment rates. So the economic factors that are under reasonable and supportable change by significant amounts from what we had as of the end of the year, when we run the CECL estimates for day one accounting. The reason of the reversion time frames would be sort of similar because we're going to those historical losses that again at much higher than what we have not, so when they combine those two components on how they change, it impacts the numbers. Keep in mind that, Moody's is assuming -- it's estimating as well as we are that, the immediate impact on unemployment would be large over the first, one or two quarters and then starts coming down.…

Yeah. And if you could just talk about -- so it feels like there has been significant stimulus for the Puerto Rico, both from a federal level and locally. How significant is that in terms of bridging some of this time period of the lock downs, if you can talk to that? Aurelio Alemán: Okay. And I'm going to compared to Maria a bit because remember, we did in Maria within a provision of about $70 million that time and we based on actually expect the recovery curves of the different industries. What was the impact in the short term, what happened in the second -- next quarter, next quarter. The proceeds with the European -- it was easier to predict reopening curve because it was based on damage, electrical grid coming back or you have a little bit more expectations on when things will come back to normal. And we actually assume that in certain sector we're going to take a year because of the size of the reconstruction. I mean, others what's going to be no impact in others improving sales right away. So here, in place a little bit similar obviously conditions are different and, but in the store, we didn't have -- we have very limited support, for example, we were not able to start immediately where moratoriums, it took about a month to actually put things into effect. Here we started on March 16 because we already had the programs, regulatory guidance came out. Then the CARES act actually provided some additional flexibility on TDRs. So there are a lot more tools today than we had at the point on the storm. So what we believe that's going to have -- it's going to be great mitigants to short-term deterioration because, large numbers of borrowers,…

Yeah. Very helpful. Thanks for taking my questions.

Thank you. We have next question from the line of Glen Manna from Keefe, Bruyette & Woods. Please go ahead.

So I just had -- I'm doing well. How are you? So I just had a question on the Santander acquisition. There were some language in the press release that, you thought it was unlikely to close by the middle of 2Q '20. Maybe -- and I realize that you can't give us too much detail, but could you describe the process right now given the quarantines would you say the project is not moving forward or just kind of moving forward, but at a slower pace giving quarantining. And as the second part of that, if I recall correctly, from the filing documents you guys had 12 months from the effective date back in October to close the deal. Is that correct? And are there any provisions to extend that, if it wouldn't close by then? Aurelio Alemán: Yeah. I'll first question definitely as we said, I think our statement is fairly clear. What we can say about the transaction, taking into account. What's happening with the pandemic and we're working through request from the different regulators are looking at the deal. We have announced the deal in October, we provided an estimated closing date -- closing time of middle 2020 -- mid of 2020. So what we're saying to the market is, we see that at this stage, unlikely because obviously, yes, People are working but the pace of progress is different. So that's the answer to the first question. The second -- the answer to the second question is, obviously the contract has a lot of language as a public document. And if I remember correctly, yes, expires in -- well, there is a 90-day process to extend and 90 days close to extent. There is a lot of other elements in the agreement that I'm not going to discuss in the call, but I think the agreement, it's pretty clear how prices determining, how NPAs are excluded, how the things that actually the closing date whenever that would be.

Okay. Great. Thank you. And, Orlando, when we last spoke, I think you said that net NII trends were kind of tracking the asset sensitivity simulations that you had put out in the K. Is that still the case?

Yes. The only thing is that I would say, some of it, it's already happened, remember that the Ks was based on December 31 information. Some of it is already happening as rates have come down significantly. The only challenge to those numbers would be on the forward-looking kind of growth scenario depending on what happens with reopening and when we can go back to originating on the normal level. As Aurelio mentioned, the locked down in Puerto Rico, they did shut down the door on loans -- on most loans originations. So we don't know when is that's going to be reopened. And the second thing, it all depends a bit on some of the businesses. So, there is another component coming in other than rates that we need to try to estimate here, which is a challenge at this point.

Okay. And then just lastly, I think we all kind of look back to the last crisis that happened, and think that that's what's going to happen again. But maybe Aurelio you could just tell us what you've done to eliminate some of the soft spots in the portfolio that may have help -- hurt SVP during the last crisis and how you tried to strengthen up the resiliency of the portfolio for the future? Aurelio Alemán: Well, you can go back to, we had higher levels of NPAs back in June 2017 before the last crisis. We have a comparison table in the other presentation that talks about the prior financial crisis. So, it significantly improve our risk profile and quality of the portfolio, not only the reserves on the capital, but we're really the diversification of the book across three regions, across different line of business is, I'm proud of. We have a much moderate construction portfolio. We have less bulky relationships also. So obviously it's a better risk profile from any of the prior-year comparisons. And if you take the 2019 end of the year, asset quality metrics and you go back to any of the prior periods even delinquency levels are they've always so. So we're starting with a great strength on both side of the equation.

The other thing I would add, Glen, it's remember that back in 2008 and so the crisis on the market were really high. So there is a significant implication to loan to values, as we adjusted policies were origination since then and based on the market continue reduction. The reality is loan to values and in a much better place that they were after everything started happening 2008 recession. So that improves the positioning on some of the CRE portfolios. And as Aurelio mentioned the fact that we have is more a construction portfolios by selling and residential construction. So that improves a lot where we stand as compared to prior cycles.

Thank you. We have next question from the line of Alex Twerdahl from Piper Sandler. Please go ahead.

Just a couple of questions back to the Santander transaction and one of the things, if I remember correctly about that deal that was kind of interesting, is that you guys are not acquiring any NPLs from Santander? So I'm just wondering, if you could kind of help us put in time -- to put into the context of what's going on today with loan modifications going on and kind of whether or not their policies are identical to year policies in terms of who gets modified. And sort of what that loan looks like and then whether or not you think that potentially the delay of the transaction could actually wind up, if there are some credits that maybe you could kind of teeter-totter that, it winds up benefiting you guys in a little bit -- in a little way. Aurelio Alemán: Yeah. The reality -- we're not there yet. We have to -- there is a lot of things that we continue to consider looking into, but we just, we're focused on what we have on our hand today. So there is different language in the agreement that you can review and what are the avenues for conditions, like the one you mentioned.

Yeah. The agreement had wording on -- they have to continue to follow the policies they had agreement, they have to be consistent any deviations have to be a withdrawn. So there are things like that, at the end would be sort of a normal business. Moratoriums are -- so are difficult to judge at this point.

Okay. But based on how they did after Hurricane Maria. You guys have some sense for what their criteria might be and therefore, there should be no changes and that should be consistent, you’re comfortable with that holding true?

Yeah.

Next question, back to the reserve and CECL, you talked a little bit Orlando about sort of the shape of what's going to happen going forward, but first off, it seems to me like unemployment is a much bigger input to the reserve or to the CECL model down in Puerto Rico relative to GDP on the island. First off, is that correct? And secondly, can you help us just sort of think around the different outcomes for the provision for the second quarter. Just kind of what would have to change in the CECL model for that provision to go, to be similar to what we saw this quarter or is it a fair expectation that as you down meaningfully or is there a scenario where it actually getting increase from here?

Okay. On the first question, yes, unemployment, it's one of the critical components in the Puerto Rico market that's very obvious. We -- different portfolios have different variables that it's not only one, some of the key ones are, as I mentioned, unemployment and HPI, but others affect different parts of the portfolio, remember that some of it is broken down like you take CRE it takes -- has a component by industry and sector and it's tailored to each market. So the fact that -- if you're taking the case of Puerto Rico the projection is that they were projecting on November, population reduction towards the end of 2021 that has slowed down significantly or stayed flat. So those component change the mix of some of the variables, but clearly the unemployment, one it's going up, and the assumption is that it goes up on -- in the first quarter, it's going to go up in all Puerto Rico as well as Florida market. But it's also, it's also going to start coming down slowly second quarter staying there basically through mid-2021 at those levels and then starts coming down a little bit more going after mid 21. So all those factors are the ones that are leading to these changes when you have, remember, it's not the absolute number, but it's the change and the change its negative immediate. So that has an negative impact immediately. So that's the relevance of how the movement on the estimated macroeconomic happens. Second quarter, I mean it's, there are a number of factors. Clearly, number one would be, what is the projected scenario? We are assuming -- if we assume that the projected scenario movement is exactly the same as this one, then a lot has to do with levels of…

Okay. That's helpful. And then just final question for me. Can you help us just think through the loan balances and kind of, if you exclude out the PPP for the second quarter. If loan originations are essentially halted in Puerto Rico for the last month and a half. How should we think about the loan balances, kind of a maybe put them the context of sort of the pace of amortization in some of your portfolio just so we can sort of be on the same page with that. Aurelio Alemán: Yeah. I think, there is positive and negative here. One you have to consider the level of moratoriums that basically we will not be receiving repayments so loan balances will stay. Right now it's close to 40% of the portfolio, so that's one element, that mitigates the retail contraction. Second element as Florida will continue to see loan activity, obviously not at the same levels of prior quarters, but there is a loan activity. Obviously, I know the PPP, it's a low yield loan, but we already exceeded that $320 million and we probably will get to, to create it by the end of the -- by somewhere at the end of the month or May. And then, the reopening days that reopened on Monday. Obviously, it's going to be, trying to determine our level recoveries. What level of recovery we estimate that basis of origination, we don't have a final answer on that. And in Puerto Rico, we expect that business like the mortgage business and some of the commercial activity being reopened, partially next week or no later than May 15 that is for the private industry is pushing for, but obviously the mortgage basis had no reasons to be closed down at this stage. So as another component, dealers are actively pushing for being able to reopen, they are open in most of the states, not in Puerto Rico. So it's a very difficult estimate to be honest with you, because it depends on reopening and then recovery curves of the volumes.

Okay. Understood. And then just final question for me on the PPP, the $380 million -- $320 million to potentially $380 million that you alluded to, is that, is there a way that kind of breakout the weighted average fee that would be associated with those loans based on their loan sizes? Aurelio Alemán: We don't have it available, but at some point in time, we will update the investor deck with it. We still, we still receiving applications. I have to say that obviously first round was obviously, more sophisticated borrowers move ahead on it. And then, I think smaller business are now the lead. Hopefully funds continue, but we, our average loan it is fairly granular at 63% below $50,000 million of the loan. So when you look at it, the focus is on the lower end not the higher end, at least in our experience, we will continue to receive applications once available.

Obviously, we can't estimated it, we're -- do we need as part of it. The only challenge that I'm -- at this point, Alex, it's not only the estimated fee on the whole thing. It's a matter of also the life of the loan estimated life of the loan, because one thing, it's how in the fees spread out over two years. One thing is the fee over one year in terms of ultimate profitability results. So that's the other challenges that we're trying to assess both components, how long would it take for customers to come back with all the information. And we know that obviously the loan doesn't pay interest for the first-six months. So you already have sort of a six-month number there that that should be taken into account. So those two are the ones we're trying to combined to come up with what we expected life and then what the expected recognition of the piece. And what it does to the yield on those loans.

Yeah. Okay. And then just -- and to that point in Puerto Rico, where -- obviously, the program is very powerful. But also unemployment, the additional unemployment benefits provided by this -- the cares stimulus bill might go a little bit far than in a place like Puerto Rico. Do you expect the weighted average life of these things to be kind of on the shorter side, the way a lot of the banks elsewhere in the country are talking, or do you think that may be viewed loans or is it higher percentage on that actually might just be two year or 1% loan? Aurelio Alemán: I think obviously, remember the forgivable expectations of this loans is high. I will say between 60% and 80%, 75%. So what is remain there is, is yet to be determined. Once we start processing, the second phase of the program, which is a forgiveness applied, that's why it makes us so difficult because is then when you're going to know exactly what could be the remaining terms of this loan.

My guess is that everyone that that is going for the forgivable component, it's going to prior not to start paying anything after six months because otherwise they do need to start making some payments. So that would, showed in some of those, but the other ones, the ones that are use it for something else or the portion of the component reduced which would stay there for a longer term, the two years probably.

Okay. Thanks for taking my questions.

Thank you, sir. This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. John Pelling for any closing remarks. Over to you, Pelling.

Thank you, Vikram. On the investor front for scheduled to attend the Deutsche Bank Conference on May 26th and Sandler was hosting -- or doing our Investor Tour to Puerto Rico on June 11. We will be doing those telephonically. Now, we want to thank you for your continued support. We look forward to seeing all of you again when the markets reopened. At this point, we will conclude our call. Thank you.

Thank you, Sir. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.