OFG - Earnings call transcript Q2 2019

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Operator

Thank you for joining OFG Bancorp's conference call. My name is Maria and I'll be your conference operator today.

Our speakers are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman; and Maritza Arizmendi, Executive Vice President and Chief Financial Officer.

A presentation accompanies today's remarks. It can be found on the Investor Relations website on the home page in the What's New box, or on the Webcast, Presentations & Other Files page. certain about feature and goals, may expectations. call forward-looking management's statements plans This subject uncertainties risks Risk statements to These are and of SEC Factors OFG's outlined filings. section the in differ those materially Actual results currently may anticipated. from

a to obligation afterwards. disclosed call, that any disclaim result update developments We of in information this as occur

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

I Mr. would now over like to turn Fernández. the call to

José Rafael Fernández

Good to continued fronts. morning. our to extremely Thank second you X. with all on for joining us. Please pleased has deliver slide turn quarter OFG results. We're

capital; auto consumer net deposit small of production; confirm of new customer business, levels growth, Our effectiveness strategy. and the differentiation and of all our number quality loan and the core growth, credit

result, As interest peer continuing or X% similar top-performing than mainland a we XX% per return to at earnings banks. assets, a net our share a ratios increase the are more and And efficiency on in generated increase levels in revenue. margin net

acquisition Thanks Looking commercial Scotiabank's U.S., team ahead, for consolidate its announced bank on and customers and all Rico position Puerto further loyalty. for to operations. their dedication the our island commitment Oriental entire Virgin retail the their recently a Islands premier and with support to our as will retail of OFG and and

improvement productivity a Net A our is The our review income. increase point enabling to highlights. key was net X.X% non-interest to expense our to revenues levels. a $XX ratio X.X% was operations in continue X slide efficiency invest basis us financial year-over-year. to affecting and turn overall in XX.XX% driver year-over-year increased increasing Let's to this without million. We're XXX interest

came increased basis basis return book more X.XX%; share average points to points $X.XX increased and assets return of year ahead a per tangible earnings diluted, at XX common value on to XX.XX%. than XXX ago; As a $XX; expanded tangible on fully average XX% per share in result, X.X% to equity

X. that turn items other slide second to results. Please There quarter three were affected

low-yielding CDs First, May, sale repurchase brokered The million mortgage-backed in also securities million gain. high-cost and we $X.X agreements resulted sold million $XX $XXX respectively. and of million $XXX reducing in in a

selling provision. The in loans. in principal of the we're sale Second, $XX unpaid an conditions acquired advantage balance the market decision net residential million in so taking do of quarter, to to expected loan resulted increase Puerto distressed $X.X acquired improving Rico. occur third in mortgage is The million

incurred we and announced acquisition. in to related million Island previously expenses Third, $X our Scotiabank U.S., Rico Puerto Virgin

acquired Please the loans of turn increased operational Compared slide pay-down of $X.XX than originated billion, loans our offsetting loans the X.X%. more preceding the net to Total continued X quarter, originated highlights. with growth to X.X%, review X.X% at to increased to loans.

Loan production has been picking up.

totaled and and Auto lending production $XXX remain million. respectively, $XX consumer lending quarter $XXX Second mortgage residential $XX at million totaled while million. high million

primarily mainland continued Commercial USA in loans. business another customers Puerto small of in business $XX million Rico. $XX OFG reflected lending at commercial added growth million small

Core build to deposit our growth funding a base. and billion. larger to retail well increased in as $X.XX reflects loans of the average customers, X% success efforts as That core balances commercial

also Reserve increased higher and commercial higher basis low, result a originated of the year, continued The basis XX in year-over-year. from part net points XX only -- X.XX%, margin remain yield The stem was effect but higher end loans year-over-year. to XX loans. cost the loan interest up last originated a in rate deposit auto basis of Core This points portfolio. relatively proportion X hikes larger reflecting returns Federal on points commercial of yielding

seeing We're favorable year-over-year improve slide and with quality customers Credit first capital. review and to to to turn quarter. finances. and continued improving liquidity showing increased clear stronger credit a from trend seven Please the

the charge-off net rates showed and Non-performing quarters. seven steady delinquency rate and/or loan was lowest in at X.XX% The declining trends.

the conditions distressed trends mentioned Puerto mortgages the million $X.X to provisioning and fell due better $X.X million credit to transfer acquired improving year-over-year in earlier, Excluding held-for-sale related of to economic Rico.

to continued Capital build.

Our new across for multi-year the ratios well-capitalized regulatory a highs, above board institution. remaining increased to significantly requirements

Please turn to slide eight for our outlook.

strategic excited shape taking position we current very market are how We our the path future. about and in view our

growing are deposits and strategies in and effective proving improving productivity. loans, clearly customers, Our

that the demonstrate and technology to both performance With our operations, deployment momentum. ongoing strong and customers benefits team of continues bankers of excellent our

our As fast, the deploying position with for Irma recognize Maria excess hurricanes our economy began our importance and and show after of the capital effectively building the recovery we capital of investors. strong benefit signs to of

done have mortgage Scotiabank to in our servicing to Upon Puerto Islands. with addition Rico; Puerto the We neighboring core in and U.S. machines, acquisition. Virgin Rico Bank announced categories will recently expanding in and that just become branches, bank we believe teller Oriental closing, our several U.S. second-largest interactive insurance ATMs Virgin and Island important deposits,

position This addition our will an Rico's businesses team providing bank. enhanced improved strengthen and Puerto premier the Scotiabank's as competitive talented retail scale by of

As strong capital be we increasing accretive, tangible have our significantly said before thus equity. generating further the average acquisition is expected common return to on

now seeing growth Puerto momentum future. the To excellent up, more capturing sum economic for in we're we're Rico, shift the positive it and so in that building

for presentation. With this, questions. the listening. our Thank you for we open please call Operator, formal end

Operator

[Operator Instructions] you. Thank

Brett Our of first from Piper question the comes Jaffray. line Rabatin of

Brett Rabatin

good Hey, everyone. morning

José Rafael Fernández

Good morning, Brett.

Brett Rabatin

this - and Governor's Puerto the José the Wanted CIO, about I And funds? the on the resigns the the on run -- just what's is events? Can Rico? Portela current wanted of going with ask recovery implications broader for saw and Rafael maybe impacting talk going thoughts that to some reelection. we And not macro first how to this,

José Rafael Fernández

Sure.

we’re since developing. It's So it's as going speak. – a latest we been and and have events been fluid the have process to

the last Governor reelection party for resigning heard not his running own You night, is and presidency. to

is. economic what So right the early impact to it's too now tell

seeing impact not so far. are any We

seeing. from perspective what So we're that's that

and leadership Puerto will Rico in confident that legislature Longer term, have of that it by if economic the confident make addressed will and could assume let's the I the how term. longer on in terms see this Puerto and prevail on kind situation legislature it. here the their proactively Rico the I to in with decisions of situation situation is stabilize get consequences business. levelheaded of the right political role not That's am minds

provides opportunities term. the what's Rico growth. of it this is achieve Certainly, levels And people governance, to higher on which and the focus view levels to of important Puerto economic short uncertain going forward transparency for continue on I higher really albeit -- of

for focusing on having also to on Rico. Washington governance Puerto credibility again economic the and as this see alike. execute end and is to going bring on And from of and an which I opportunity at future what's total true development the from investors transparency right having the path focusing

Brett Rabatin

that market Okay. talk mixed. is improve other see That's summary about a were while and continuing auto good actually and about I conditions activity. year-over-year the kind up of And of to sales lot talking data you June economic a

maybe notable on point side? you of Is are market elaborate further other would a that that purely to credit Can conditions? little in that terms things you improvement? there Or on are the

José Rafael Fernández

commercial one side. We're And seeing and client Consumer improving the steady being last Certainly or the They're aspect. liquidity spending strength consumer build. So so. year slightly you continues That's more on seen clearly mentioned significantly. our therefore is and finances in that growing is auto. are growing. stronger to and

in federal our back-winds ground as from see base place. that and put well from funds of from perspective the continues seeing funds, being So what we client and that the insurance here our the economy we're what the on efforts benefit as rebuilding is to are

Brett Rabatin

And maybe can Okay. sneak just I one last one if in.

perspective? about see recent color how from us continues? to you the Just what you the half unfold a growth from the that Or assume is you year pipeline improvement and can thinking give expect on back it to fair of any the just growth

José Rafael Fernández

referring Brett oriental may growth Are -- I question? clarify So you economic growth? or your growth to

Brett Rabatin

loan growth, Oriental the portfolio.

José Rafael Fernández

yes, it. see Got encouraged pipelines Yes, what commercial we're side. on good the with We're honestly. seeing yes. We

in take that year occurred opportunities seeing We the the going disruption we're last continue auto advantage and with consolidation there. of auto portfolio to the market or on the good

We're good and we're good businesses. very focused credits. retail commercial the a What small seeing good is pipeline and on with particularly the on opportunities we're side seeing

encouraged we're by that. So

Brett Rabatin

Appreciate Great. the Okay. all color.

José Rafael Fernández

Brett. you, Thank

Operator

comes of Alex line O'Neill. of Our the next Sandler Twerdahl from question

Alex Twerdahl

morning. good Hey,

Maritza Arizmendi

Good morning.

José Rafael Fernández

Hi, Alex.

Alex Twerdahl

wanted into to the drill first provision Just a little bit.

a loan charge-offs pretty declined, kind are been you rate to line, that million specific the bit loan came in If the provisioning is down during that guys much much decline. the while NPLs of of down that you is quite quarter at pretty a and of huge it a sale, solid than which sort growth was run exclude wasn't running yet, have $X.X $X.X million lower to

of or considering? this level kind the of is level sort little So, specific in be Or not conditions underneath the of to working this million something the can you a of as I cited talk new improved provisioning that bit a provisioning the a that that relates about else et economic measures surface should mean, it new per of cetera, seeing $X.X is you've -- might there is quarter? we're we kind past be of some

José Rafael Fernández

Yes.

economy of That So and a little the that balance stronger strength seeing economic of stronger provisioning. is on the sheets a is certainly perspective, regarding commercial reflection It I clients' to and bit of the our have conditions a consumers. finances. adding mentioned Alex, the what the stronger reflection from and you're already reduced

we continues terms we continue that's improving As what -- provisioning. we that as go looking the of at will trends we grow in forward, continue and to to be see to we feel will and economy

look We the will at environment.

the But We at give and we will provisioning guidance provision terms a going performance look forward. in of don't accordingly. current we'll credit

Alex Twerdahl

Okay.

if should the some what quarter it prior? continues quarter So provisioning we has saw more of your been, second path than words be the as probably everything in into of mean first kind levels mouth, I kind along similar the putting to

José Rafael Fernández

we're environment a the commercial strengths don't credit forward, going provision me a to but portfolio We're just don't very as and clients whatever -- performs. the to -- give with we continue portfolio guidance, the bit. We directly that the is little And well what's the related yes, and to the XX as repeat will provision. of last how our and to on. that give it growth So going let economy on years build. guidance really how the want We're the prospects excited about opposed reflect to a behaving seeing is encouraged

Alex Twerdahl

just the specifically little the you prompting loan that? bit island? Understood. Is just appetite about look at a said for that improved purely market talking on metrics Okay. -- purchases conditions loan What you sale. And then, for distressed do

José Rafael Fernández

of of demand two of couple are one for residential is a is let's type it -- variables, we have There monitor mortgage remember months. share we way with stabilized The And of you we this distressed sold residential a but it prices started BBVA. assets them which loans. show These of from them a that So, has is, acquired couple recent higher is them to and some home upticks. certainly the demand. in just

sell kind to So for put gave closing us of that's should those -- the give and moment or a we be to what in third good us sale quarter. them

Alex Twerdahl

Okay.

required So sort or internally any of loan of the were or by regulators you the before sale with that to announce Scotiabank deal? reduction NPLs, able was

José Rafael Fernández

the This No, and plan are something on our no, every is business day. lookout that this something no. of we is

want of our sheet. we don't to you assets think balance it, have nonperforming in If

is we'll that that it if do work will feel loans us, opportunity more analysis an to for opportunity is we It's for work no and So, an opportunistic us there and sense makes for them us do. those out. we is we NPV makes out, it it. If there sense

acquisition. anything announced So previously it related has to do with nothing to the

Alex Twerdahl

seen quarters. Great. of quarter were for just looks the reflective costs deposit we more average last deposit And of in costs? in second like promotions whole Rico increases the it that the question than the It Or potentially some related to quarter first categories offered the in of then and least is of higher the in at higher in some maybe OFG of kind had quarter? the me. of couple several Puerto deposit increased final over Is for kind to specific moving that market second

José Rafael Fernández

couple A think -- above. I all the of

CD term the market the a there's bit on a more competition. think -- of little I kind

on past two-year, institutional also more a the saw Some have somewhat aggressive to the in one, for of us reduce opportunity And great term. our competitors we three-year funding. our been

growing us the might lower brokered funding of see CDs, cost when CDs other So, type is or because is CDs the you use. than of it the that those institutional we

retail addressing a market CD the to core market. -- increase little it to kind kind of base market the It's through Alex. of spirit bit to sense So that's it our of makes the price, the also funding behind us become but

Alex Twerdahl

for Thanks Okay, great. questions. taking my

José Rafael Fernández

welcome. You're

Operator

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

Glen Manna

good Hi, morning.

José Rafael Fernández

Glen. morning Good

Maritza Arizmendi

Good morning.

Glen Manna

to wanted out, of better the deposits, pay-downs the NIM. just handle and kind when of I timing bit average get balance with pencil Obviously, sheet the of I I sales a the it brokered than average the third get the I on about an probably higher and little about securities thinking I right? the end-of-quarter was am quarter quarter. would heading that points Maritza, NIM guess basis the into second NIM XX for that

José Rafael Fernández

to guidance. try here our don't We forecast

in far NIM of at look terms from seeing we -- stable it's you're Glen. we're we quarter not the what saying In relatively as too it again, NIM this but

Let's it just put way. that

Glen Manna

excess that and the about going that you be to kind sell or in that think kind ahead brokered deposits holding happened Okay. of pay some you're of cash of ready like acquisition? we looks And repos? a the Or buildup cash. or more down see could in could you getting possibility some Is the when quarter, the sales down

Maritza Arizmendi

Glen, to reducing our cash -- continue main source and excess the brokered, CDs, be repurchase on or wholesale using funding fund. agreement, of on reliance that dependency use our our will -- just deposit core we our

Glen Manna

of What the the were on can a over percentage of second it like couple the half expect here. tax in lower we year? And than Okay. we maybe looks rate, points expecting

Maritza Arizmendi

the will rate in tax the for effective that something at at two next end, Well, effective quarters. tax the came we as see the and rate XX-point

Glen Manna

for super. Thanks taking Okay my questions.

José Rafael Fernández

welcome. You're

Operator

line of Our Gladue next the comes Alden Joe from question of Securities.

Joe Gladue

morning. good Hey,

Maritza Arizmendi

morning. Good

Joe Gladue

the I'll end at you ask, first there mentioned just of quarter, that the were had some…

Maritza Arizmendi

Hello?

José Rafael Fernández

Hello, Joe?

Joe Gladue

Yeah.

José Rafael Fernández

Joe?

Joe Gladue

me? you Can hear Yeah.

José Rafael Fernández

No.

Maritza Arizmendi

No.

José Rafael Fernández

your not could hear We question.

Joe Gladue

the But potential there that guess about fruition. at that seen we've talked being And for you on Okay. to some of Puerto mentioned Rico. first growth Yeah. opportunities quarter the there I in end you clearly, come opportunities also mainland. were

things you're at of Just those are on there? if some wondering hold or if any potential still looking

José Rafael Fernández

We're -- U.S. what on to our we're the deliver strategies. loan on is seeing continuing U.S.

in regulatory it investor of Scotiabank the approval too, think side on I this regulatory earlier, acquisition focused call point for approvals mentioned the and we are for the As previous USVI participations At at business then moving the we getting remains time on originating to quarterly and doing in the point process. conversion and a strategy the is or merger same, basis. the small this which U.S. into lending few and

Joe Gladue

All right. Thank you.

José Rafael Fernández

Yeah.

You’re welcome.

Operator

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

Brett Rabatin

can Hey, follow-up color follow-up two to on part some on items. USA $XX strategy. color Any the you One many USA that on what that strategy booked just OFG this one. wanted on us how give the million, And OFG the is loans? that industries, loans you quarter

José Rafael Fernández

less. some mean, million small of the are I over States And $X the in that These they're these are $X -- million also a Yeah. SBA smaller in range are mostly to variety business and there commercial loans. we're or of from they lending loans industries.

description of the the quarter. this loans U.S. in over kind in the done So of that's that we've

Brett Rabatin

are back you million half? can And thinking expenses, continue on the able to us back related of that? you on some you like terms are little How And for related in you've then being able What to $X And bit you look where that back the just does expenses? versus expenses color flattish the mean, had even year the that will do then down half pull give them held year-over-year. to being a secondly I in I deal? Okay. of about investing know XQ. expenses,

Maritza Arizmendi

sense in that we Brett the this keep in If it exclude related general, we performance than quarter only was expected down. $X expenses the acquisition. million the better going that in have the Well, to

controlled. new able while We keeping have well our to deploy technology been cost

And -- come anticipate as some going will the do with but cannot be forward we see being additional will keep expenses expenses. acquisition will this regarding costs there will level we quarter. that we the we see we the quarter-by-quarter, know what And

go see expenses we as coming the So ratio. that efficiency we into by, will

don't in at However, see item ongoing ticket basis. least big the we

José Rafael Fernández

did transactions that expenses. recall expenses the and become of merger of Also the that related -- Scotiabank modeling we most a the part with the one-time also will acquisition

Brett Rabatin

up Okay. experience you're Scotia the your their since to opportunities expenses, just what's that the then about franchise that announced following in the on book? from been just terms of And been grow acquiring, thinking deal's

José Rafael Fernández

important, focusing have far year. we now speak we're right regulatory is speak is. that so as approval. regulatory process But collaborating in modeled team we really really bringing which we we're on everything before as So Scotia in as what's been it’s and extensive the had with discussions we've later team we're and we that's -- validated. the as can And Certainly Brett excited Scotia focus our already been the much about approval the what from

Brett Rabatin

great. the Okay, additional Appreciate color.

José Rafael Fernández

Yeah.

Operator

O'Neill. the next Our question Instructions] Alex of Twerdahl line of comes from [Operator Sandler

Alex Twerdahl

Hey guys any on to expectations preliminary get you CECL? for the if just wanted see wanted to record with

Maritza Arizmendi

are point, able we for the of CECL year. they're and you Well, -- we've probably next provide that what more process at is be or this seen specific impact to advancing specific some will next Alex possible quarter, regarding the we

Alex Twerdahl

Fantastic.

will be taking to that. you follow-up. forward looking We Thank hearing my for

Maritza Arizmendi

Great.

Operator

There back to further to Fernández time. no the for at I be would additional questions remarks. or over any like to Instructions] closing [Operator floor turn Mr. this appears

José Rafael Fernández

on then for operator, We'll you, everyone when for conference late call in again a at great a quarter on we Until have results. KBW be to thank day. York. in you, third you coming and back Thank earnings our July New report listening October conference We'll today. thank and in you XXth the be

Operator

Thank today's you, conference does conclude gentlemen. ladies call. This and

now may disconnect. You

OFG Bancorp (OFG) 22 Jul 192019 Q2 Earnings call transcript