OFG - Earnings call transcript Q4 2018

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Operator

Good morning. Thank you for joining OFG Bancorp’s conference call. My name is Laurie and I will be your conference operator today.

Our speakers are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman; Ganesh Kumar, Senior Executive Vice President and Chief Operating Officer; and Maritza Arizmendi, Executive Vice President and Chief Financial Officer. A presentation accompanies today’s remarks. on What’s Relations the New & Files found homepage on Webcasts, be Other the in box page. can the website Investor the Presentations It or on plans forward-looking about certain feature may call management’s This goals, and expectations. statements statements in risk outlined filings. factor and SEC the OFG’s subject risks of These are uncertainties to section from differ Actual anticipated. results materially may currently those We obligation to call of result a occur disclaim update afterwards. this any developments as information disclosed that in

presentation that direct news you explanation are I the After to lines will included session. been release. and to measurements Fernandez. a now over there be have to our also All turn We prevent mute of in speakers’ the on the like remarks, would question-and-answer non-GAAP call noise. Mr. placed background to

José Rafael Fernández

for joining you Thank us. morning. Good

please. of to achieved the customer the providing X This start in growth the strategy turning on service, was and Rico’s quarter coupled based core our differentiation, rebound. Let’s fourth of by with economic strong and Puerto continued technology, emerging superior convenience success year. We Slide

is I our like review a to minute accomplishment. and plan working to take Our

XXX year XX%. as X.X%. interest the grew were year-over-year. impressive deposits results were XX.X%. whole, Operationally, expanded originated For the quality XX and loans points return we share board. up deposits credit Non-interest-bearing increased X.X% Customer Average a points. on margin basis earnings account expanded up points common XX basis generated across on increased consistently Net per average equity Financially, improved. basis and increased tangible assets XX%, return average

to highs. to per thereafter, our preferred all stockholders’ stock OFG equity to common increased our reduce C us metrics S&P, in into bank note XX% boosted according This XXXX. Bancorp year, I quarterly that stock. dividend has our capital share hit converted we the and performing was pleased also we to enabled best am of we significantly multiyear $X.XX common annualized dividends. our payout last Series announced As Shortly and preferred

our and want of and people I team indomitable retail shareholders loyal dedicated at to thank our customers, Maria. this, of OFG following all Bancorp spirit valued the Hurricane our commercial Oriental, For of Rico highly Puerto the and

Slide loans million continued hit at million, average net row. and Growth increased the third Net increased preferred. tangible points the more Capital value was year than a conversion strong. book sequential X a plus value points $XX X.X%. C Series up our and a of when X in from per to That efficiency Tangible also X% year cost basis, per quarter. continued performance. to They significantly year-over-year was third XX C on All grow. our a quarter the Series to the XX% income strictly with to quarter. of due the average a of basis metrics about more quarter quarter a of third from Return At on per The performance Return hurricanes. from increase down slightly acquired year-over-year increased for originated million, share. in X%. $XXX core first million $X.XX preceding to we to turn increased to of from That’s than interest year common the share continued increased expected portfolio, offset assets revenues It loan the high quarter were XX% was continued the from Let’s ahead On was growth up tangible the fourth book XX.XX%. the more third reduced $X.XX Earnings range. continued On and after than recoveries. of reported our $XXX for of $XX quarter. our high common equity review $XXX the reflecting quarter. basis, ago be ratio tangible share share second a dilution. equity per the pay-down level basis exceed yields were million at

$XX recoveries, strong remained core than remained cost net Excluding interest margin million. range. Fee in X.X% more at the revenue

to turn our key on of Slide for highlights. X operational some Let’s

in the Compared yield on at higher $XXX a originated originated remain row, growth due quarter, than For of X.XX%. yields the yields reflects net higher auto yields higher and acquired more loans. proportion pay-down X% loan $XXX the a loans more to acquired commercial resulted cost recoveries. decrease commercial of a third Loan of high than loans, this fifth loans and originated to in of and year-over-year or XX% million quarter loan This in outpaced or loans million. reduced

dropped declined $X.X sale It quarters in charge-off just I mentioned recovery originated net loans. now improve. That New loan the as charge-off no basis generation core X production. categories was from million, X% Average non-performing and continued core previously The fell million deposits rose $X.X reflecting of provision of points. basis deposits performance cost The quarter only quality to levels third on of X% acquired four basis continuing recovery solid row. to deposit loan Total maintained $XXX about The of the loan million. All increased XX has a minimal and the Credit five sequentially rate year-over-year. markets. as points. rate loans. XX in of well improved to key our a reflect included fell points cost beta

Our XX% X.X% customer up early and since XXXX. year-over-year is count

say customers up as automated enable part We are Services out growth through these rapido, to channels. adoption in at customers like achieving ability and to step clients, of Oriental. cost to interactive increased reach and and us our hecho lower servicing we more facil,

our pursue and external benefit on our in will customers, put to customers lives. their focus deploy following up, In to will service we and strategies outlook. turn XXXX, we our sum into improvements on Slide continue Maria plan ongoing the effect Let’s capitalizing to technology continue To momentum. better working. of To are program for internal growth and our our will daily we we to X

from growth. Many to for industries sectors Rico, are are As transition to where expertise. emerging areas in and inroads marketing beginning have we developed Puerto and we recovery see specific banking

influx with $XX the next expected the federal the For funds. in expand of years, several private to billion is and economy

recently repeatedly world read, there become growth had pace reduce clear, But on potentially more coming have rate basis. to Rico year OFG we to said continue could of rest in I on catch Puerto competitive. And the deposit needs the would region we excellent up said, expected as of funds a to in and and slower generate loan of the top the that we’ve have short-term that, and island XXXX you the XXXX. the to to it having growth has a of been As expect make like to

economic and to economic states need For benefit costs. fiscal call end small this, reduce of electricity the challenges, and the PREPA in the open taxes these formal and island’s of for that businesses long-term our especially to we many regulation, Q&A. and growth and occur, financial engine union a we will fix the problem, on All world. presentation. plan the traditional growth for execute sustainable the and entrepreneurs, With let’s Operator, resolve

Operator

Alex question of Thank O’Neill. comes you. [Operator Our Sandler Instructions] from Twerdahl the line first of

Alex Twerdahl

Hey, morning. good

José Rafael Fernández

Alex. Good morning,

Alex Twerdahl

of your outflows flows remarks, prepared will some that a pretty just off during drill wanted seem release you the companies. the in of And XXXX. you optimistic resume little during the to First attributed press quarter, quarter the deposit the think in deposit José on bit in growth insurance in I it to then

what was of you of and much in bank I quarter deposit So insurance payouts optimism gives how into the were XXXX? quantify first of of if wondering outflows kind then to that going off sort out company the the related could going you

José Rafael Fernández

Alright.

on out. companies remarks, were and So the cash Alex, at accounts and end the have our that year of year we the as claims some regularly much take the we kind insurance because their balances to pretty on typically, also in the institutional for our affected are of deposit end also release they mentioned of pay the deploying at the quarter cash the large

the As insurance expected retail to are for growth. we a the industry, going company we top I And we back, have year, for had we this Alex, deposit case, the certainly, but that that, clients while. our particularly what growth, grow to have deposits seen already expect our bringing also we meaning commercial of loan going replicate coming mean And position that’s of fourth good ourselves the level side. have institutional of that opportunity that we aspire clients. in in a provider the are that continue of are as quarter. of the regards see not continue seen growth some well deposit for, It’s With core terms line our we deposit of the it have on rate the here have outflow deposits and the in of we growth, mentioned. continue certainly deposit we by service in as the we loan that communicate an the growth statement that to replicate not outlook banking to to need at technology as side And to do we of and to and extraordinarily I the – the on those expect loan some end to but am in as feel I in balances to to do beginning we

Alex Twerdahl

Got it.

companies are at this the process the in you specifically mostly of kind out terms insurance those done in the where of claims? money So is are that of or in paying – point

José Rafael Fernández

that there still chunk fourth out, end quarter was some No, some to that are of a be needs paid but at is the still there – money big the out. came there

Alex Twerdahl

it deposits for it customers island? loans And off that institutions is sense going money, is or have you or going any down in sitting is it then do to have pay other that

José Rafael Fernández

outflows, basically but the I the destination inflows don’t I monitor outflows. the the destination mean, the the don’t of of inflows we know. inflow. know but destination not and the of know We we

Alex Twerdahl

will. second pretty to of we originations then still think be now growth, continues new which kind of strong And to to light the and – strong strong, around little as strong. are sort if where of not sort right kind helpful. be on that for depressed bit a seems of to for now all of you that’s are albeit continue you of Okay, quite be continues areas? Mortgage quarter, some kind the as we commercial just auto comment we Are levels be the levels can pretty turning to to you pre-hurricane originations or in sort pretty normal third relative levels loan the maybe loan

José Rafael Fernández

some level the still that on of loan there we in that level, at for kind we think is I feel certainly of not at example in portfolio, year. loans same last but we types like the new were a auto

at side in don’t those levels. higher to it’s rate to regard that to seeing back levels. originations competition the are the and going harder return keep will we pre-Maria auto I of it But So think on be

I we levels residential deepen think industries continue side, our commercial on the we think that and mortgage opportunity and on of in then remain feel there. we has to an And it’s we will traditional can area the an certain that that. have that see there. And take opportunities good to relationships sectors we below side, remained advantage

Alex Twerdahl

I my questions. really taking appreciate

José Rafael Fernández

you. thank Yes,

Operator

Joe next Instructions] [Operator from of Merion Gladue of Capital Your comes question Group. the line

Joe Gladue

morning. good Yes,

José Rafael Fernández

morning, Joe. Good

Joe Gladue

Just I decline BBVA on looks too and on gotten acquired on than that portfolio wondering BBVA on yields yes loans. just the loan guess down yields yields I the the considerably the yields, it on question non-acquired lower Eurobank. acquired loans But some the like from understand of the

sort a to close allowed there yields, they stable do do decline on or you we think to much are – a on more those? was those of have claim So, go

José Rafael Fernández

fashion. expectation think recoveries Joe, quarter. cost I higher portfolio, brings what that’s just out cost down the is of the small net on somewhat a we level than on BBVA quarter, our the amount a in point higher see in yield this had that yield level. of we we the that third had recoveries very And to But

Joe Gladue

you switching on could Okay. in Mae – guess going just the delinquencies there? over color delinquencies, options, rise I little Ginnie bit there noticed give And on what was wondering us I a on significant some just buyback was a guess if to just

José Rafael Fernández

the into gave the looking actually and are for clearly type moratoriums of than moratoriums It’s also. programs that see loans. the longer do federal of a little the We we bit lasted got non-GSA it. We it on that with to end the

flags from and So looking it, doesn’t have that into into but we our deeper a particularly team are red side. dive it is any doing our

Joe Gladue

then know on And notice I a that it’s Okay. the in leasing delinquencies as increase much auto smaller gets everything, there, did increase in and I well. but

José Rafael Fernández

the with volume. has do Part to of it

XXXX. a We portfolio increased bit have quite our in

gone better and it’s directly again, and these perspective, dollar for in opportunities of up. the always some do a And perspective looking higher us we of when than from seeing look we better again, related are to different, credit dice a But slice So on time see levels portfolio we at real from a volumes to the basically originations. at it. we a terms pre-Maria are and

very are we but the particularly again, cognizant So alarmed. increase, not of

Joe Gladue

Alright, you. thank Okay.

José Rafael Fernández

Yes.

You are welcome, Joe.

Operator

next of Rabatin of [Operator Brett question Jaffray. from Instructions] the Your line comes Piper

Brett Rabatin

morning, good everyone. Hey,

José Rafael Fernández

Brett. Good morning,

Brett Rabatin

that Wanted Rafael, José mentioned comments, in hear of on to you ask this PREPA out prepared wanted the and playing year? how your announcement thoughts to week first your you see last I kind

José Rafael Fernández

doing to the government’s when the you or but I actions, – refer PPP, – if will I thing out encouraged tell, will Hard by we figure the not. by right the actions, by are your meaning they government

to they private early is in trust to from deliver sector. tell. jury to order me So there too it’s need out The the and still gain for

Brett Rabatin

I you at some a total can update has actions? happen capital, And give have that, had this risk-based is quite able of possible for bit, now you conversation to that be what an are we us capital on then this know to Okay. use year, you XX.X% to but

José Rafael Fernández

on we not develop gain dialogue successful an dialogue our as longer board opportunity And capital internally a to – have you and that at a at and as the X.X% [ph] seen the that we’re our It’s looking grow team. strategy also that to to necessarily it share with you when as It’s with regulators. I opportunity But the ability we point, far deploy as put our of a best first we’re almost an always have line. into think so returning – look with in the capital here market capital at ROA. have on you’ve ongoing to deploy said XXXX an and have that very double-digit well is venture, term, us investors Having optimizing your way we to capital, though, into have this the ways we – in Brett. we for a and in and levels satisfied that for a ROTCE continuously executive

So we work. have good the places to capital put think to I

Brett Rabatin

one, betas might seeing fair thought just you Okay, probably of and pick and maybe then enough. for competitive less period your eventually now ‘XX And deposits there expectation been talked part this last that for about, just could of you Puerto I’m always Puerto some time talked about lot the curious one is Rico be a deposit that betas you increase. as that Are Rico? that deposit to up from has

José Rafael Fernández

that kind out end I think quarter from the the that saw becoming is deposits Thus, it’s how sophisticated you more given higher as fluctuations terms high-end of good XXXX little core we are for accounts, small flags excess raising less large news the commercial playing some difficult keep we and it’s some pressure clients depend in retail of in we to going of but on basically this the you large some on more to particularly business have we guys, have island. and at feel do raise the have those in see little because be dependency tricky a We deposits rates in the so a day, accounts that rates funds. that. they of on bit States, cost a don’t the

Brett Rabatin

Okay, fair enough. color. for the Thanks

José Rafael Fernández

You’re welcome.

Operator

a O’Neill. Twerdahl of next Your is Alex question [Operator Instructions] follow-up Sandler from

Alex Twerdahl

just with not Hey, had capital be equity first about capital to the in than X, growing capital to should Maybe to that that you internally necessarily line able asked. it you like Tier have. to tangible common year of drill returning [ph] back common just and wanted every that returns any on equity enough more be question but cover generate XX.X% with – that into talk double-digit to seems you Brett growth

know than the more high, fully what’s is place – that obviously, in a is as being So the little missing far ever situation reason so yet a resolved. I dividend from keep meaningful in a But else macro here put something we it’s bit I mean Puerto something near-term? there Rico we’re in on $X.XX capital like going and to

José Rafael Fernández

question with several to decision a dialog that we several and we you having. on will the option the engage market the think keep dynamics need and dialog to day, I any announce on yourself. continuous we course, table the are eliminating at It’s in of No, described you regulatory answered that mean, a but that we it’s the and front. not but due I are come from end as the variables it’s particularly there that

an its by, be though be uncertainties even again, it the as Puerto seem and while. days uncertainties Rico declining remains to take even of focus to going is area So a high past to go

an we perspective looking So from Brett, at the make right all will Investor decision time. and investor/shareholder we’re and everything, Relations from a the

Alex Twerdahl

about guys you relative M&A, of do that how $XX opportunities it how you threshold huge somewhat a out you now at has about but think been to of set do think and that institutions? like do think I How impeder there’s other there, of an M&A, mean, billion M&A to kind about

José Rafael Fernández

Yes.

grow, M&A of have opportunity – we’ve very for and from at a strategic we but an perspective. value to look always we experience us So in focused M&A M&A, we same as I time and bit think been quite at a continue an the to

our M&A perspective. it and conscious that’s is will it a So us and if at we value regarding an at we opportunity look strategy, for view there how looking expand certainly to from also

Alex Twerdahl

taking for follow-up. Thanks my Okay.

José Rafael Fernández

problem. no Yes,

Operator

is of follow-up Brett Jaffray. Piper question Rabatin next Your from a

Brett Rabatin

the still balance for the you reserve few a happen have and have One, sheet? guys would just more on hurricane follow-ups. the to Hey, you do

José Rafael Fernández

That’s Maritza.

Maritza Arizmendi

the the we we still assessment on assessment. include valuation general the did for allowance each hurricane part through have that regular came within and well some the of quarterly risk Yes, assessment, our

Brett Rabatin

Okay. number Can approximation? you give a to close or

Maritza Arizmendi

Brett general that at in allowance stays we the our risk. still it No, during within. end, there risk our is and methodology do – each include valuation the We that we apply some – in We we regular evaluate do what is quarter.

the So with related I don’t share there’s some the now with hurricane. have general, a I figure still of that in can to you, reserve but ballpark right me risk

Brett Rabatin

Okay.

José Rafael Fernández

day, At the end becoming of one. it’s the

Maritza Arizmendi

Yes.

José Rafael Fernández

whole it’s way, becoming se is allowance it Maria you The think of of part that a relevant, And the because review. allowance credit relatively one. specific if per it’s portfolio

Brett Rabatin

early Okay. on And – mortgage, wanted just the to kind ask color to and and auto delinquencies, and trend think especially there? auto maybe stage in about any you then leading then or those of do what’s modest abates that what’s increase the a

José Rafael Fernández

side we’re the or it’s anything on not really particular mortgage flat worries early in us. that first actually from on ‘XX, of the there Well so the relatively delinquency, quarter down seeing

auto, the be to tune fine earlier, or On mentioned has do I mostly volume. it’s a opportunities with has There increased us to our the for it bit little do with to might some but originating means higher eventually underwriting higher loans of a some the delinquencies perspective more Brett, at on that FICO the expect – should charge-off. and and we’re score verticals, end we dollar from day,

So of like. model that’s business part the looks what

Brett Rabatin

as Okay, you’ve forecast year fair a And then well? OFG then end I through continue USA, ‘XX, as the hire strong the really the about commercial in be can the and ‘XX? in Puerto know decline in of about in for auto in made growing you in that about ‘XX? thinking enough XX% talk just more there. I of you sales growth talk think And to can auto Is Rico

José Rafael Fernández

kind are side, on numbers on other [ph] fleet. a – the include – the that auto of So published floaters the

when I from Brett? the that. of to do market was and numbers, sales to for What second market the auto expectation slightly kind the you from new is think don’t the lower perspective. have that’s a equal we exclude So And your XXXX fleet question,

Brett Rabatin

year. want I as was for – more just you’re commercial ‘XX you’re expecting still to – you’re ‘XX you’re much hoping growth did factor I that to growth talked about of be for this a Just as you was for to the flavor thinking grow, about, deposit you in still growth, get expecting – little more you expecting loan grow and but and if not to a

José Rafael Fernández

did think last think I I some bit – commercial little year balance yes, more will growth. so commercial a growth. that our exits hampered have We have

having if the the originations exits we’re in contribution side, have on those XXXX, growth at will commercial a by larger the just not So of think commercial side. terms we in same of I replicating on successful the level

Brett Rabatin

OFG USA you Okay. grew quarter. part outlook this for And know of that? made and million you hire at What’s a just then the last XX the that I plus and there was

José Rafael Fernández

It’s point decimal along. moving – something it’s in the that big picture. It’s a whole

it So go something to from after and set it’s geographic diversification perspective. do a ourselves that we

wet. have in we our said excellent I think and we XXXX job an done as feet getting

of to continue be slowly to anytime will We it’s but and change going strategic soon. thoughtful are Bancorp and build to not the be that, OFG going – we content methodical

Brett Rabatin

Okay. Appreciate all the additional color.

José Rafael Fernández

you’re Yes, welcome.

Operator

next comes Woods. Keefe, [Operator the Your & line Manna Instructions] of Bruyette of question Glen from

Glen Manna

Hi, good morning, Jose.

José Rafael Fernández

Hi, good morning, Glen.

Glen Manna

primed pace that? just a of pump what seen rather short wanted Kind kind of much in just or as where short affect into it island, expected the of is as could potentially expand is on really to lower as if island? I say growth. you’ve color the if give term you And us about that the island on could it how and on has some the it has pace that, slowing you growth does point it coming follow-up recovery the the term, drill reduce and if funds and that just a of, far really on could the come to

José Rafael Fernández

– some don’t that add Yes, visibility. with has much deposit and have relationships don’t published therefore and a we to the we what slowdown beyond the government terms significant been We don’t in above the don’t of in funds. have I have have

in by what in what regarding we internally and shared United we FEMA read the So data other discuss that’s agencies some the and States. we’re the press going by of

economic mean and expect to of you we funds see specific recovery certain to in do going island if industries level not – So to from we’re in rate expect is affected, the to that’s are of seeing into momentum benefiting conveying XXXX we’re is at definitely least forecasts territory and the guys that but growth. and and the well the flow And beginnings now somewhat some of then reduced, in rate deposit at at the that those growth that what slowdown as does from point we economy time a this certainly and we industries some fall emerging negative the mentioned. be

Glen Manna

XX were on the up great. when speaking to and were be the Okay, good occupancies of of And a we up could down lining time lot some pre-hurricane escaping to season, than New island they a Maybe and Rico? Jersey give maybe higher people given in about December, some us that there’s real the we today, is in be it’s in to that observations then saying here hotels levels. Puerto this were degrees people high really

José Rafael Fernández

of increase. mid-sized type there that have of the lot tourists a good businesses on year from from coming staying amount hospitality occupancies boost year, last mentioned, the big end coming got Puerto FEMA in see as we’re the hotels. colder, At mostly Rico to that to workers on and down small the the tourism the the is some think a do island. ground I gets expectation and is continue will you to is weather those the of as information starting clients real industry of the hospitality a and We

Glen Manna

questions. for Thank my Great. taking you

José Rafael Fernández

Yes.

You are welcome.

Operator

be further Instructions] for queue. There I’ll there now At This [Operator final are questions. in questions. call management currently this will call questions over for the the turn are closing back to no no remarks. the time,

José Rafael Fernández

today. you, and stakeholders Thank to operator, who our in thank listened all you

results we’ll Looking reporting Florida the of ahead in be in February will first April. quarter meetings in month and be our sometime

until thank again day. you So have a wonderful then and

Operator

today’s Thank That conclude call. does you. OFG conference Bancorp

and may day. disconnect now wonderful You a have your lines

OFG Bancorp (OFG) 22 Jan 192018 Q4 Earnings call transcript