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Edited Transcript of FBP earnings conference call or presentation 25-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 First Bancorp Earnings Call

Santurce May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of First Bancorp earnings conference call or presentation Tuesday, April 25, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aurelio Aleman-Bermudez

First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico

* John Pelling

First BanCorp. - IR Officer

* Orlando Berges-Gonzalez

First BanCorp. - CFO and EVP

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Conference Call Participants

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* Alex Twerdahl

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

* Brett Rabatin

Piper Jaffray Companies, Research Division - Senior Research Analyst

* Joe Gladue

Merion Capital Group LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the First BanCorp. First Quarter 2017 Earnings Conference Call and Webcast. (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.

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John Pelling, First BanCorp. - IR Officer [2]

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Thank you, Gary. 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 2017.

Joining me 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 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 those at our website at www.firstbankpr.com.

At this time, I'd like to turn the call over to our CEO, Aurelio Aleman. Aurelio?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [3]

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Thank you, John. Good morning, everyone, and thank you again for joining us to discuss our first quarter results. On the call with me today is our Chief Financial Officer, Orlando Berges. Orlando will provide the details on our financial results. But first, let me walk through some of the key highlights for the quarter.

Please turn to Slide 5. We're quite pleased with the results of the first quarter, especially in light of the fact that our main markets continues to face the fiscal headwinds that I believe everyone is aware. We did generated $25.5 million of net income during the quarter or $0.11 per share. Orlando will cover in detail. Obviously, this number shows some noise on OTTI charges and the tax benefit. Orlando will cover that in detail. But most importantly, we -- I want to highlight that we improve all our core operating metrics during the quarter, including credit, capital, the deposit franchise and, most importantly, the core earnings.

Our pretax preprovision income came in at $55.4 million. We -- now we have 2 quarters in a row where we achieved the $55 million level coming from a prior [$50 million for] some consecutive quarters. This could become our new target.

We continue to expand our NIM, up 12 basis points during the quarter. And we continue to show a good trend on money in our expense base, which was below the $90 million level this quarter. Actually, if we exclude REO expense, it was below the $85 million. And I think, we have mentioned in prior calls that our goal was to sustain expenses below the $90 million excluding REOs while $85 million will become our new target.

Core deposit, net of government and brokered, increased $86 million while we decreased reliance on brokered CDs by $81 million. So the franchise continues to get stronger. Our performing loan portfolio grew slightly by $14 million and originations were healthy. We're going to cover that later. The overall loan book declined largely due to the sale of PREPA and the associated charge-offs. Our nonperformings declined $87 million, which is a pretty good number for the prior trends and also inflows declined by $34 million. Our capital position grew in the quarter. We continued to improve the tangible book value now to $7.97 a share.

So let's turn to Slide 6 to cover some of the trends of the loan portfolios. The -- as we can see in the chart on the left, the overall portfolio did decline primarily again for PREPA. We also -- we continued to see Florida to be the biggest contributor to sustaining the portfolio. Florida grew by $50 million in basically all categories.

Origination activity on the right side was healthy. We have to comment that there was a large renewal of $117 million on commercial renewals for 3 loans during the quarter, which obviously impact the number. But still, taking that out, we'll show a solid origination quarter. On the consumer side, there was a reduction in credit card utilization, which usually happens in the first quarter, offset by stronger auto lending originations. We expect the auto trend to continue improving.

On the mortgage front. The overall market contracted during the quarter, but our share continued to improve, and we also expect better volumes in mortgage during the second quarter. Again, the reason diversification was important. It's helping us to sustain the loan portfolio. As we continue to focus on the derisking activities, replacing nonperforming asset with some performing loans. Now 23% of our loan portfolio is located in Florida and ECR. And as I comment in every call, we build the relationship pipeline to continue stable during 2017.

So please turn to Slide 7. Just some light comments on the deposit franchise. Nice growth of $107 million. Commercial is doing very well also. Government deposit slightly increased $22 million. Excluding government, it's still above $80 million. Virgin Islands region also contributed to the growth. Slight decline in Florida driven by the strategy that we mentioned in prior calls that we continue to optimize the deposit costs.

And let's turn to Slide 8 so we can cover the Puerto Rico government exposure. Very happy to say that our outstanding exposure declined $78 million this quarter, a combination with the PREPA sale and, obviously, the adjustment in OTTI. Now basically, the government assets for direct exposure of $245 million, it's below 30% of our loan book and the indirect is down to $110 million. At this point in time, 78% of our direct exposure is to municipalities. And also important to highlight the NPA portion of the exposure to the government is being carried at $0.56 (sic -- see Presentation, page 8 - 56%] of UPB net of reserve and charge-off.

On the PROMESA front, I think there's a lot of noise out there. So I'm not going to comment a lot. Everybody is aware that a fiscal plan was approved with some important goals that have to be met before the budget is approved. So even though we saw a fiscal plan approved, there's some triggers that could drive some changes from now to June and are -- were made public to the market. And obviously, from now to next week, we're also very attentive to the developments on the restructuring negotiations. As everybody is aware, the legal stay will expire early next week. So we do expect austerity measures in the near term, but ultimately, the restructuring framework will result in better fiscal discipline and more money will develop. We -- over the past several years, as we mentioned, we constantly reassess the potential impact to our borrowers and portfolios of government actions.

I believe -- we believe with the approval of the fiscal plan and the way the upcoming budget has been built, we will see this time more definitive and less uncertain actions to be included in the budget. And I think, with that input, we will -- as we always do, we would reassess any potential impact. If you look into the fiscal plan, you'll see there's actions that could impact property taxes, the actions that could impact furloughs. Some of them are contingent to the liquidity of the government. So on the other hand, we have seen -- we have read positive news in the recent weeks about how tax collections are improving versus budget. So we have to monitor the development from now to the end of the quarter and see the final budget and see exactly what measures get included into the budget. And that will be part of our quarterly assessment.

So now I'm going to hand the call over to Orlando to discuss the details, and we'll come back to Q&A later. Thank you.

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [4]

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Good morning, everyone. As Aurelio mentioned, for the first quarter, we posted a net income of $25.5 million or $0.11 per diluted share. This compares with $23.9 million last quarter. The calculation per share does reflect the fact that we did pay dividends on preferred throughout the quarter, lowering the amount of income available to common holders.

Assets for the quarter were up $11.9 billion, which is basically flat from last quarter. And some of the things Aurelio touched on, we'll talk over the next few slides. Included in the results for the quarter, it's a $12.2 million other and temporary impairment charge on Puerto Rico government securities that I will touch upon in a couple of slides and also a $13.2 million tax benefit for the quarter. This quarter, we changed the tax status of a couple of subs from taxable corporations to limited liability companies. With this structure, we can make the election to treat the entities as partnership for income tax purposes in Puerto Rico, which allows us to use losses from one entity against earnings of another entity. As a result, we ended up reversing $13.2 million of net reversals of deferred tax assets, valuation allowance that we had on the books.

Also in the quarter, as Aurelio mentioned, we completed the sale of the PREPA lending facility. That resulted in a small provision of $600,000 -- provision for loan losses of $600,000. And also, in the quarter, we increased by $10.8 million the specific reserve for the commercial mortgage loans guaranteed by TDF that we have on the books, a function of obviously what happened in the fiscal plan and some of the downgrades that we saw later on in the latter part of the quarter.

Total provision for the quarter was $25.4 million. It's $2.2 million higher than last quarter, including this $10.8 million specific reserves on TDF. The impact of that reserve was offset by reductions on general and some specific reserve on some other commercial loans, which is a function of reductions in historical loss rates, reductions in adversely classified loans that we've had on the book. And in addition, we also had reductions on required reserves and consumer loans. Part of that is on the credit card side. We sold a small chunk of previously charged-off loans and recorded a $1.2 million on that.

On net interest income. For the quarter, it was pretty good. We ended up at $122.5 million for the quarter, which is $1.5 million higher than last quarter. The -- this increase in net interest income includes the fact that with rising rates prepayments on mortgage-backed securities were much lower requiring lower amortization on the quarter as compared to prior quarters. And also, we did purchase at the end of last quarter a few securities, MBS securities, that were higher yielding taking advantage of rates at the time, which held interest income on the security side.

We also benefit from the repayment we did last quarter of the outstanding repos, the $300 million outstanding repos, which were expensive at 3.63% those -- were those repos. So we had a full quarter benefit of that reduction in expense. On the other hand, this quarter had a couple of late like last quarter that impact net interest income at $1.4 million. But other than that, it was a pretty good quarter from a net interest income standpoint, which obtained a margin of 4.42% for the quarter, which is significantly up 12 basis points from last quarter, which is significantly higher.

Cost of funds. We've managed to maintain the core deposit cost of funds at basically the same levels. We probably have seen a little bit uptake on the time deposit side. Total interest-bearing deposit increased 2 basis points and noninterest-bearing core deposits only 1 basis points, I mean core deposits on our funding operation, on our banking operations excluding brokers.

On the brokered CDs side, we have seen significant reduction on the balances, therefore significant reduction on the expense side. We redeemed $253 million in the quarter of maturing brokered CDs and renewed only $172 million of those. However, the cost of funds on brokered deposits have been going up. The maturing brokered CDs were at a cost of $105 million. New brokered CDs coming in at $146 million. So the core deposit strategy is essential on the funding side. Otherwise, we'll see some pressures coming from the wholesale funding side on the cost of funds.

Noninterest income for the quarter was $8.2 million, which compares with $23 million in last quarter. This $15 million decrease was largely driven by the $12.2 million OTTI charge on Puerto Rico government. At the end of the quarter or starting early April, there was a downgrade by Moody's of the government development bank bonds, and that combined with the fiscal plan update led us to revise, we call the estimated recorded rates, which ended up resulting in a much higher OTTI adjustments that we had already booked. So we ended up booking a $12.2 million additionally this quarter.

Also keep in mind that last quarter, you might remember, we had $1.8 million on insurance commissions related to the sale of large fixed annuity contracts, and we had a $1.5 million gain from the recovery of a residual CMO that had previously been written off.

So on a non-GAAP basis, if we adjust for these items, noninterest income was $20.5 million for the quarter, $200,000 higher than last quarter. That's a net effect of $2.3 million on contingent commissions, insurance commissions that where we see by our insurance agency the first quarter, which is based on prior year's productions. It happens every first quarter of the year offset by $1.7 million decrease in revenues from the mortgage banking activities. As Aurelio mentioned, the originations were lower in the first quarter, the mortgage originations. The market activity was lower resulting in decrease, obviously, in both conforming and nonconforming paper and, therefore, resulting in lower sales in the quarter.

On the expense side, continue with our strategy to manage expenses closely. Expenses for the first quarter amounted to $87.9 million, which is $3.6 million higher than last quarter, but this is a lot has to do with the $2.7 million adjustment we recorded in the fourth quarter of '16 to reduce the credit card rewards liability points that expired. These were points that existed at the time of acquisition of the portfolio back in 2012 and expired at the end of December.

In the quarter, we had an increase of OREO expenses mostly due to a $1.9 million write-down on the value of 1 commercial property we have in OREO.

Employee compensation is up, but it's mostly payroll taxes, which there is a seasonality there since we'll start again on reaching the limits of payroll taxes. On the other hand, we had lower credit and debit card processing expenses associated with the lower volumes. And we continue to maintain our strategies. Aurelio just changed our targets. He just gave you our new targets on expenses. So I just learned now that we have a new target.

On asset quality. Nonperforming, Aurelio did mention that came down by $87 million to $647 million, which compares to $735 million at December. The nonperforming loans are down $83 million to $568 million. This decrease is in part due to the sale of the PREPA facility, which had a book value of $64 million at the time of sale as well as other collections and charge-offs on other commercial nonperforming loans.

Inflows to nonperforming were down, were $33.5 million in the quarter, down $34 million from last quarter. Last quarter did include one large commercial nonperforming of $34 million that -- it's a large part of the reduction.

We saw reductions in inflows on basically all categories except a slight tick on the inflows on the residential side. Adversely classified commercial loans decreased by $70 million to $419 million in the quarter.

Charge-offs for the quarter was $27 million, 1.26% of loans compared to $31 million last quarter, 1.43% of loans last quarter. The charge-off included a $10.7 million charge-off on the PREPA sale previously reserved amounts. And last quarter, remember, that had $4 million -- $4.6 million of charge-offs associated with the small pool of $16 million that we sold in the quarter.

If we exclude these items, net charge-off for the quarter was $17 million or 78 basis points of loans, which is $9.9 million lower than last quarter, which were 1.22% of loans. Basically, it reflects an $8.9 million reduction in commercial and construction loans in Puerto Rico mostly. $3 million reduction in consumer loans. Auto, boats and the recovery of $1.2 million I previously mentioned on the credit card. It's a large chunk of debt, offset a bit by a $2 million increase in residential mortgage net charge-off, primary foreclosures and permanent analysis based on loan-to-value levels. The allowance level remain at 2.30% compared to 2.31% last quarter, very much in line. But the allowance to nonperforming increased to 42.6% as compared to 36.7%, driven by the PREPA sale and the additional provisioning on the TDF loans.

On the capital front, not much to mention. However the ratios continued to go up. Obviously, with capital generation -- with the revenue generation, capital goes up. We did pay preferred dividends throughout the quarter. As you might remember, we started paying dividends on the preferred in December, and we continue to pay dividend -- monthly dividends throughout the quarter. And also, we have continued to make all interest payments on the trust preferred securities. So the capital structure remains in line with continued growth.

And now I'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Brett Rabatin with Piper Jaffray.

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Brett Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [2]

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Wanted to first ask on the new expense guidance of $85 million. Does that include the OREO expenses? And that would obviously indicate that you're going to have lower expenses going forward. Can you talk maybe a little more about what you're expecting on the various...

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [3]

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Sure. We've been talking about $90 million excluding REO. If you see where we are today and where we've been over the past few quarters, actually, $80 million, $85 million excluding the REO in both quarters. So the guidance is excluding the REO. REOs are a moving target. It depends on potential transactions that we decided to sell or not, the level of appraisals that you have to do any specific quarters, valuation of properties. So it's a very difficult target to estimate in terms of timing. When you look at it through the year, usually we hit the target, but it provides noise within quarters. So that's why we set ourself, the quarterly target excluding the REOs.

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Brett Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [4]

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Okay. And then wanted just to go to some of the noise around the government exposure. Can you give us some color around the updated mark on the TDF funds, the guarantee and the underlying properties? And then, would you think about -- you sold PREPA. Would you think about possibly getting out of the TDF and the GDB exposure? I know you've marked down pretty heavily but ...

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [5]

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Well, I think there's -- I have to be honest. There are some comprehensive conversations taking place from now to May 1 regarding lowering exposure. So I would prefer to delay this question until further.

Obviously, the stay expire next week. I think the release includes how aggressive we'll be marking the asset close to and basically the relative value that we have provided to the guarantee in addition to, obviously, the real estate collateral of the operating entities. I think we can comment that one of the hotels, the largest exposures, have continued to pay interest on the facilities. So it's generating tax flow without the need of the guarantee. The other 2, obviously, are being short and continue short of that -- of making those payments. I think when you look at the detail on the press release, you can actually derive where they're being carried at. They blended with the OTTI charge, as we said, this 56% of the UPB. And obviously, a large portion of them have the real estate collateral under. So you might see more detail when we file the Q, okay, on that exposure, yes. But your statement is right. We've been really aggressive marking it down, yes.

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Brett Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [6]

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Okay. And then just last, I know some of the originations were refinancings. But does loan growth improve with Florida or basically is a flat kind of outlook still more likely?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [7]

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Was the question on...

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [8]

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For the year, you mean?

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Brett Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [9]

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Yes. Just to make...

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [10]

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For the year -- yes, the outlook is flat. Obviously, what we're trying to do is replacing the NPLs with the NPAs, with performing. And we also measured the size of the performing book, which was up $14 million. The performing portion, obviously, the earning asset generation versus the nonperforming asset reduction. It's the trend, as we mentioned before, we're trying to focus on doing a better job this year in moving the NPAs down, and hopefully, we can achieve that. And Florida, it's counted to be one of the contributors. We also are looking to stabilize the contraction of the consumer portfolio in Puerto Rico, which when you look at the credit metrics of the consumer portfolio, it's basically showing the best credit quality metrics for the past 4 years. So we see -- we still see an opportunity to reduce that contraction, while actually start seeing a turnaround. So those were the components. But yes, net-net, flat portfolio through the end of it until the end of the year, yes.

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Operator [11]

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The next question comes from Alex Twerdahl with Sandler O'Neill.

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Alex Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [12]

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I just wonder if you can give us a little bit more color around if the DTA and the valuation allowance was some of the things you did this quarter. It sounds like you reversed a little bit more devaluation allowance from the sort of the DTA associated with FirstBank. But then, just at the bottom of the page, actually, I don't know what page it is, when you talked about income taxes in the press release, and now it says the net valuation allowance has gone to $195.5 million. So when we kind of think about the valuation allowance and the potential one day for that to be reversed assuming that earnings at some point can get much better, should we be thinking about $195.5 million? Or should we be thinking about the valuation allowance of $154.7 million associated with FirstBank?

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [13]

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Yes, the $154 million, it's a number that we've been discussing mostly. That's now down to $154 million. Remember that in Puerto Rico, we're tax based on legal entities. So in some of the changes I mentioned before, it's trying to see how we maximize tax usage. The 2 large components were the FirstBank deferred tax asset valuation allowance and then there was -- there is a valuation allowance on the holding company because the holding company is mostly expenses. This legal restructure we did allows us to have these entities that are true to the partnership. We had -- we already had one entity, which had losses, which was part of the FirstBank valuation allowance, and those losses couldn't be used unless you had another similar entity. Now with the restructuring, we can use some of it, and that's why we were able to reverse -- did some net reversals of those $13 million that I mentioned. But also, the restructuring will allow us to start using or realizing some benefits out of the losses we're having at the holding company and being able to use some revenues against NOLs at the bank. So the holding company component, it would be difficult to have a reversal or estimate a reversal because of the revenue components that are there, but the other things on the FirstBank side of it, which is a $155 million you mentioned, it's the one that we're focused on.

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Alex Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [14]

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Okay, so $155 million. So the rest of it is really there, but it's going to be hard to foresee it ever being reversed?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [15]

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Yes. At this time, based on the legal structure we have, it will -- it would be.

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Alex Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [16]

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Okay. And then, with the new expense guidance of $85 million per quarter, we've kind of been using sort of a pretax preprovision estimate of sort of like $50 million is kind of a reasonable bogey, try to beat that every quarter. Should we now be thinking of that number as $55 million of pretax preprovision, which is -- you've beat that over the last couple of quarters, but is that now a healthy projection going forward? Or are there some other components in the P&L that we're not thinking about?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [17]

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Well, we don't call it a projection. A projection is very different to a goal or a target. So but obviously in line with the expense, we'll -- obviously, we'll work hard to sustain the $55 million. But yes, there is other risks that would impact that $55 million, so obviously sustaining the loan portfolios or not being able to achieve to get back the noninterest income on the mortgage side. The mortgage market is still soft. So I think it's important to recognize that the rate environment, you know, will have an impact on the noninterest income side of the mortgage as we have less mortgages to sell in the secondary market significant portion of the Puerto Rico production. It's sold -- on account basis, it's already 80% of the origination volume. So with those 2 considerations, you know, obviously, it should be somewhere between the $50 million and the $55 million, understanding that the mortgage market could pose a risk in general, not to only FirstBank but to the overall industry.

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Alex Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [18]

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Okay. And then can you give us a little bit more color on the TDF loans? I know you said 56% of unpaid principal balance. But if I'm not mistaken, it's 3 loans. Can you give us the breakdown on those 3 loans, the unpaid principal balance and the holding values of each?

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [19]

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The 3 of them it's -- the unpaid principal balance is $110 million on the 3 of them, the book value, I'm sorry, on the 3 of them.

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [20]

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Yes, I think, Orlando, the $56 million also includes the securities portion. So it's blended, okay?

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [21]

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Yes. We -- to your question on the carrying amount, though, we plan to put that on the Q, Alex. What happened is that we're in the middle of negotiations with the government on a lot of this and hopefully we can get some clarity on where is this going to end, and we're trying to stay away for any public information on the specific loans in the meantime. Hopefully, we'll disclose that on the Q. But it's in line with what probably you have seen on the last few quarters. We've been applying interest to principal as we collect them. And as I mentioned, the book value, it's $110 million before reserves. And the carrying amount, the $56 million, the carrying amount includes the bonds. And both the TDF and the -- I'm sorry, the GDB and the Puerto Rico authority bonds, which has an unpaid principal balance of $65 million, where we have taken over $34 million of OTTI charges. So I can give you some more view by 10-Q dates, and hopefully that will help you.

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Operator [22]

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(Operator Instructions) The next question comes from Joe Gladue with Merion Capital Group.

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Joe Gladue, Merion Capital Group LLC, Research Division - Research Analyst [23]

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Just hoping you could give us a little color on what's going on in Florida. I know you had the new Broward offices. Just wondering how they're going. And if you could give us a little color on, I guess, what was driving the decrease in deposits in Florida?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [24]

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Do you want to go ahead, Orlando? Yes.

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [25]

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Let me first clarify, Joe. The Broward offices are not new. We've had it for some time. The newer facilities we have is in Brickell. We opened it last year, and we did remodel some facilities at -- on (multiple speakers) area...

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [26]

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West Kendall.

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [27]

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And West Kendall. Deposits in Florida -- the growth in deposits are mostly it's in Puerto Rico and a little bit in the Virgin Islands. Deposits in Florida have come down a bit. The market has become very expensive on deposits, especially on time deposits. And we've been able to continue to increase deposit base in Puerto Rico at a lower rate, which is not what happened 5 years ago. So we do not want to compete on time deposits. We have continued to pursue our business strategy in Florida for business generation. So our noninterest-bearing deposits have continued to come up in the market, in the Florida market, and we've been growing on that as we have gained our core customers on the franchise. But that's not enough to offset the reductions in time deposits. And for now, we don't foresee us trying to compete in there. We don't need that expensive funding. So we continue to advise funding -- deposit growth from our Puerto Rico operation.

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Joe Gladue, Merion Capital Group LLC, Research Division - Research Analyst [28]

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Right, okay. I guess just wanted to get a better idea on the -- with the change in the tax status of the entities, how is that going to affect your overall tax rate going forward? Or what -- how should we envision for tax?

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Orlando Berges-Gonzalez, First BanCorp. - CFO and EVP [29]

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Yes, the obviously, there was a onetime change, which is the one you refer to here because of valuations allowance. So part of the benefit came in, in that onetime are one of the entities will continue to generate something. So right now, we're estimating that effective tax rate for a year, on a yearly basis should be somewhere around, including all entities, including entities that are having some losses, somewhere between 25% and 26%. But that's based on current estimated yearly revenues and mix between entities. So that obviously is subject to movement as we dependent on exempt versus not exempt and taxable versus nontaxable entities. But that should give you an idea of where we're seeing it right now.

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Joe Gladue, Merion Capital Group LLC, Research Division - Research Analyst [30]

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All right. And I guess lastly, I'll ask if you can -- do you have any feelings on the timing for the Fed order?

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Aurelio Aleman-Bermudez, First BanCorp. - CEO, President, Director and Director of FirstBank Puerto Rico [31]

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No, we -- obviously, we don't share the conversation with the regulator. Unfortunately, I cannot give you any guidance on that.

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Operator [32]

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(Operator Instructions). Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Pelling for any closing remarks.

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John Pelling, First BanCorp. - IR Officer [33]

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Thank you, Gary. We appreciate your interest in First BanCorp. Upcoming in May, we have the Piper Jaffray conference in Palm Beach, May 15 and 17. And then we're doing a Puerto Rico Community Bank Day with Piper as well on June 13 in New York. At this time, we'll conclude the call. Thank you, everyone. We appreciate your interest.

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Operator [34]

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