OFG - Earnings call transcript Q3 2019

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Operator

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

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

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

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

José Rafael Fernández

X. Good morning. And you joining thank Slide for us. to turn Please

reported increase also common in average peer earnings return margin similar continued Before mainland. result, several assets on at today, to quarter a the and of level impact Adjusted tangible reported market which performing adjusted XX% strategic equity the opened transactions. generated return banks improved. interest on non-core top And we third net per in share. We reflected the average

credit consumer core production, are auto effectiveness the pleased strategies. business, levels core differentiation the and of capital and We of customers, extremely deposit small our performance, all confirm and our with growth, number quality new loan net of our

significantly the bank will have another and in retail market. integration extensive Island, a acquisition extremely our a engaged about announcement, been foothold we establish made our how we in the Scotiabank Since planning. We're position Caribbean on excited strong premier enhance as

for all for retail loyalty be who the and dedication, and commercial and team support. joining to OFG members our our to and thanks us and Scotiabank from commitment always, will their their customers As new

Slide to X. turn Please

sell charged-off at the During the our to and advantage here a from Rico, fully to our sell to in both took securities. Puerto we of positive fixed loans almost and in of decided good remaining third NPLs a portion sell XX% markets conditions, income U.S. and of market quarter, profit investment

and our other these Here items is results. affected how

$XX million $X.X reflected balance the million of $XX First, was in was of due primarily consumer offset quality in by by also sale offset proceeds of increased million deciding asset by net fully lease Puerto sell provision charged-off $XX It to from from and million. $XX the was improving losses partially unpaid and million Rico. million principle NPLs. to loans. for auto This This $X.X loan trends partially allowance in increase, decrease

million low Second, we had $XXX in selling securities. yielding mortgage-backed $X.X million from gain

strategic as to out point tactical transactions. benefits like the as these well I'd the of all

First, deploy sales, our and they already non-performing plan, operating to continue up sheet MBS lower and $XXX growth flexibility. liquidity our year-over-year. increase in fund with to loans further to million now our close we we including our Rico expenses reduce related operations. growth of Scotiabank's resources, are enables $X acquisition strong strengthen as are to Virgin Islands free US Puerto billion Combined cash pre-funding XX% balance and Selling them strategy. Originated us our

borrowings, potential resulted attention with a this and our of view, point now also in can our strategies. management year-over-year. of on in sale another MBS of and reduction cost growth plans rid broker From CDs all so our our XX% which Second, wholesale major gets all higher total focus Scotiabank we of a down are distractions integration

review revenues financial than Slide our performance. Please totaled million. turn X to more $XX to Net

and the quarter of in due While acquired in X.X% the in year-to-date. A sales. investment originated income year-over-year, mortgage-backed income, was third key securities runoff from they factor up of down loan to remain declines X% which loans an increase slightly offset securities the

at continued levels. income very steady non-interest Core

X.XX%. was average common in share at an XX.XX%. per reported a on tangible came value equity adjusted The book X.X%. efficiency was earnings common basis, up was And As average per tangible ratio assets Return XX.XX%. on share $XX.XX, Return result, on was $X.XX.

Please billion. Growth turn acquired earlier. originated paid compared X to highlights. more of offset and quarter. that at $XXX loans loans, we totaled non-performing Total increased million in X.X% continued than $X.X sale Slide to to the operational $XXX net ago production X.X% year loans of down to loans review of Loan the announced our million the

growth million, core of Auto Commercial base. and $XXX and million reflected funding and commercial customers million strong loans, to $XX customers. net increased growth at This remain deposit billion $X.X at average X.X% Core larger our retail respectively. in balances new small $XX consumer lending business approximately. reflects lending continued

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

provision economic the NPL capital. turn $X.X million, of rates sales. charge as quality non-performing Slide XXX asset Please our conditions. X obviously excluding credit better points and as net loan improving basis of review and The however, sales, provision to use increased well The to total and reduce of $XX.X result a the million delinquency as rate. reflecting rates year-over-year, items, And declined

Capital stockholders' across continues Once to to again, billion. new X.X% the our $X.XX board equity multiyear increased Total build. highs. increased to ratios

in allowance our XX% an equity of a the no XX% common book, the originated book. acquired range the In to climbed We're news will provided the how XX.XX%. tangible indication for release, Our formal and we of to on in estimating implementation us. current CECL effect ratio increase affect

outlook. sum our Slide USVI we on operations. Puerto as turn Scotiabank's we're Rico building Please to of eight To to momentum acquisition our for excellent up, close prepare and

retail expect bank what premier of the in year. the our by end future excited will Rico. regulatory receive approval we as Puerto to We become We're holds, the for

let's presentation. listening. With everyone session. question-and-answer this, start our formal end we Thanks the Operator, for to

Operator

instructions] Rabatin [Operator comes from Brett Jaffray. first Our you. Piper question of Thank

Brett Rabatin

and wanted macro to Rico, Rafael, been picture the can bit, and week at you you down of a color what few $XX you're I HUD. of potential be FEMA other referenced along get stats about if XXX, Puerto the have Puerto a sales little I from seeing [ph] report $XX for a about are There some flattish, give Cruise and Rico what look Puerto was tend ask, economically last first to heard you've in at [GII] Index the for talk visitors ship funds Rico you decline about to only in just that a on bumping auto things, of When the potential was talking coming billion billion us José just been the has curious to second. Bloomberg then funds Rico? on okay. could the Puerto

José Rafael Fernández

Island economy So of but in Maria transitioning the only from transitioning, XX for what economic I also reconstruction an contraction. now think not aftermath the we're the is here years living right of XX, last

So to Island. coming federal of a uncertainty in than is coming going are how to slower magnitude funds [indiscernible] still There anticipated. little are regarding the of many come They're in. funds the bit there

of to are and rebuilding the little still the new is terms being of the actually coming the services [ph]. hoops those allocated, But building for housing electric terms homes. there's specifics, to yet dollars funds clients awarded on go the and [infrastructure] through. homes. trickling, have very on build they've But bridges. awarded. And in of work in. those in lot the there's of some when projects some and is is There the progress construction seeing knowledge to roads funds of for a funds power rebuilding certainly in have that And Brett, are coming of They primarily truth already rebuild been our still lot in terms still they in There's there and disbursed, authority the in and expectations because the be we a are been roads on and ground larger

I So, monies we this in, will much so end of of as [ph] in, continue have come portrays of [Board] how come lots these there's things But fiscal of noise year there the with that moving we and lots have how in on and of in Washington, on that how will the the parts be my the funds. are how expectation a the much come there when lots including out terms bondholders, plan fiscal listeners and seen is believe would far do year particularly vested will federal out. on, that interest

noise So quite that bit and create continue to a relatively keeping funds that of somewhat would be flat. results. My the certainty the in we impact will expectation next economy is will I the start from year consistent think are will local projecting, we see and in economy and basis a the of most as economists the flowing Island the non-political have more

in what encouraged. position I I seeing and much customers, and we're and are a show with far our So certainly were it. sheets better commercial their that a ago, they couple years am balance financial encouraged am consumer

Brett Rabatin

lower give for I pieces, sheet of was how net quarter, how securities, loans, obviously the interest on an affects XQ with this all originated you out that curious also us play changes and Could income with acquired rate the here. idea is the interest balance which run might income? the cash four

José Rafael Fernández

record securities very me lows would rates just are, or let quarter. first, were decade income this lows. here. We fixed a I opportunistic things couple Interest So say multi say again in again,

that it are to sense broker wholesale pending to of Scotia on acquisition a and a lot have low is make on that just that CDs billion yielding funding deposits, rely low $X.X us approvals a we the of expensive. transaction the lot more of the are to get given the that cost not heck for core and of value So from fact our

that have So expensive need we don't funding. to

So thing. the that. of first that's took advantage We

it's term, a to But fourth to expected the a little the not necessarily And and in quarter. for short-term we're fourth going managing the for bank quarter Brett, we close the impact. have bit the longer of transaction know really

quarter So of if the securities, the we a value the a acquisition. in reduction it the of because we the forward, we added in with into had income fourth because move bit of interest comes and take sale little

the we're a were getting sale residential those operating And Secondly, to the buying not at alone quite work that the these transactions small NPL sales, up out quarter island seeing of interested was to into seeing pretty expenses get to million well we we a coming few $X.X of in commercial $X tune able from loans. simply have to we be because and we're what the the assets. reduce capital in on of won't rid and interest again, rid capital at we're excited U.S. that on firmed getting We'll bid. is million, better good this, And look used. are

basically And were what up they those non income are this unnecessary generating gives for new are take here and were it is for Puerto not been acquisition is impacted with phase advantage what us to again, us interest because work Rico. clearly Puerto So tremendous a how resources they've economy acquisition -- to we lot But USVI, here our and grow dedicate for, cleans us. grow. and any tremendous transitioning potential of in and the to -- of of the to momentum interest income, Rico here we for and Scotiabank

Brett Rabatin

Can I transaction? And of us on Scotia regulatory on if is update timing any the that could approval. for going. give just you're last in review looking know sneak and one one I the process how you

José Rafael Fernández

them, us through by with should have with and we approvals. There We're sharing of positive to the add. engaged not of conscious And confident are I is the information and level a we're process. they'll that go we're the end real year, the engaged much response on active is can time. their and that Regulators have

Operator

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

Alex Twerdahl

to there. last clarify Just the on question

you that the confident You of close the get reasonably will deal by you'll the of Are regulatory also confident end said year? approval by the end you've that year.

José Rafael Fernández

yes. Both,

Alex Twerdahl

little sales. We wanted on impacted little And ask saw a loans saw by growth quarter. loan a more go loan think but then down we probably I the just this to bit that bit, that the numbers

some So the kind growth sort what on and and your then bit also just little color are of look can give just more XXXX? turn into a looking you help maybe the us organic pipelines core end like us the quarter year how of the during into of loan and

José Rafael Fernández

book down, absolutely going are though by runoff see importantly, they're areas. the correct. the NPLs. you acquired So, the of impacted two is the balances primarily Even One loan more you of but sale

loan So if at ex the look loan sales you growth. have it, NPLs -- our we

market see, We pipeline So and we into what commercial good commercial fourth we're pipeline. middle seeing small still. business, we quarter, on see a the the good see

seeing lending encouraged be to had slight continue on was on the in Consumer We We $XX seeing originations third good in this a remains quarter We're again improvement steady. we're also. side. quarter lending with million mortgage a auto-lending. what consumer

So we are our the into Scotiabank. quarter. what the we seeing as we're right is closing of momentum working fourth now and good work integration many on And planning are again, streams the

So have and be But full. focused executing hands the teams on on business that, very on we our continue the said generating to having our our on fourth quarter. plan

Alex Twerdahl

and then just And I think to the and How little CECL, given a about on you've XXXX the the really bit reserve should should year, kind factors well reserves. our color CECL Rico next off, provisioning starting the provision sort into impacted the as for point for appreciate CECL? thinking provision talking to the in day-one to of going the into of with of first this next about impact reserve good How we starting beginning a and that when quarter? due year two, adjustment or is how having by as the going the actually Puerto this, about macro we

José Rafael Fernández

I'll So Maritza. to it pass

asked big a because next to of when want And color on mentioned earlier in hard little for question. simply Brett It's little us to provisioning a the I the picture. able more midst we're acquisition. us Just say be to you the closing an year, give it

somewhat its move impact that macro color expectation of has to own that right from have have share... throughout our unless perspective, additional And credit will the an But that So the Maritza therefore, intricacies. will a continue should direction. year, trends to any in is

Maritza Arizmendi

We early moment, for focusing share this some for day-one we're more to the the color And it's have us ready having been in you day-one, on and at add with too impact. some the working soon we we will it provisioning. will will levels as information, day-two as as do of have But with you. that José how and impact with share mentioned, we

Alex Twerdahl

you jive million sales, mark of XX question. to then How sold. the Can of just and help back what of that we kind And me million saw I sort NPLs were was in the balance? loans? there's the final just of can the mortgages commercial NPL unpaid on $XX get million $X that that principal

Maritza Arizmendi

get at pre-hurricane far Alex, of won't the point, share pricing reasons. But and general, these levels are than we saw pricing In better figures thought that competitive we any there for we this we -- levels. are what before

José Rafael Fernández

for the as But saw than the pricing in and Maritza don't mentioned, XX in specifics there the what pricing. we want and really we happy pre we've got sharing terms we've better much with again, were But Maria to months too got we better sure. of than last be

Alex Twerdahl

made characteristics or you Can loan worth a about that third subsequent you further expect which them. share NPLs of between quarters? them you determine there kind us we sales told how of should with common any Is whether And in them that selling? particularly not

José Rafael Fernández

at per on more because residential, on way focus of work the than they was, XXX,XXX, small you it operating XXX,XXX are two give loan, The let's ones commercial small Okay, let's in two are because looked we again the to you those side. questions. answers. asked out I'll costly terms bigger focus

Many what we them that's all kind was cash of we it. non-performing, in some having to loans non-accrual, on that challenges their driving looked and and So of it. of businesses. at own first lot are how of a were of were them behind non-accrual time spend flow them, that's many in force just They had bankruptcy, were the them

came we that's kind So where from. of

that you more of Number the if sales? but NPLs low. I realize is don't have we expect quite level two, Well, should we know

We any we've additional that these sales. all we And feel do and from we're expect not do NPLs legacy cleansed particularly, and to commercial residential small good go. have so to

additional in So liquidity happy the and again, with into the get market. to opportunistic quarter coming it done

Operator

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

Joe Gladue

back going well level sort of the about assets. the going XX% lower or balance Let me Do securities total It's that guess the XX% plan I little think of forward. do the maybe on bit now. you running you of start securities level Scotia typically with drifting below after level with are of to it talked you've with But run toward be a you'll sheet about they and with you acquisition forward?

José Rafael Fernández

going a on planning are Joe. level having We lower of forward, securities

focus be first loans to to and the ability is to and deploying able planning make but most on expectation Our is also to our the deploy for and close cash the into important transaction have markets. the finalize payment, our forward

The auto on lot a small side. residential Scotiabank have of with scale the middle commercial and more will acquisition the market commercial

little be bit able a there we'll to more do So too.

immediately won't fixed income planning loan our the in to duration and market imagine, it on but can extend bucket. intention happen So it the is better on as higher-yielding not securities you deploy the

Joe Gladue

the that and And give if did looks level on on you're a originations. reached wondering lowest because loan this again, program U.S. quarter for discuss started you you little outlook pipeline was some It there? comfortable since of with going and of everything, the that Is or just the there more the else kind originations. like anything you is color you've could

José Rafael Fernández

conservative. others an depends we've And mean on will we'll $XX It do very flows, what I past, in so of quarters this has being forward. million. do to we and program It are the million part some loan the continues our very or its No, see. ebbs $XX we $XX again, important like be going strategies quarter, million and just US mentioned prudent,

after but come things necessarily not it. we're of up, going lots So can

why basis. So ups that being a will very quarter-to-quarter and methodical downs and you see we're that's on

Joe Gladue

deposit you them expecting the on if to island in and ask could pricing just the some And you're trends go? give I guess, where I'll color

José Rafael Fernández

this costs, more funds the in it's liquidity two here expectation cost increase excess pressure Rico. year Bank certainly the market of the We or past, Reserve still potential bringing one I funds to Federal with Puerto down and Well, think any twice in of Fed have subsided. in

been the So helpful rate throughout very ending to this that end higher cycle. has the --

of the back have base with solid funding lower cycle, low-cost that almost really a of with us clients. strategic rate acquisition Scotiabank, into a tremendous course, core XXX,XXX Now we because we're gives and benefits, it

focus we don't the local too. defense any terms forward on how So be might we significant in play some know us, or in we trying which of foresee There pressures the pressure competitive But cost funds. to of going to again, are seeing. market

to expect don't forward, that us affect we Joe. So going

Operator

question next KBW. Our Glen line the Manna comes from of of

Glen Manna

at to up I to just question. trying and said but follow loans I wanted that organic up, of into what on was loan period How you know growth $XX held kind Alex's I'm to end -- get rate, for much was it like Jose, down held when look looks they the were $XX were loans of the that quarter, investment for that drop at sale? second the was million. million I due loans moving versus

José Rafael Fernández

So, of giving reason Glen number in with pricing cautious being the terms not sales. very is, of part because that why the we're we're

are $XXX to growth metric end, you So the from disclose $XX see, was organic when originations, the the have million primarily and as which sales, But again, using loans. originated we auto loan the balance principal was unpaid million. which acquired in we between

every million We month. of repayments around have $XX

because residential we And all with along. a down, an trending mortgage we been quarter. So same very And of repayments idea then good have consumer, the there. has had

growing us So consumer remain this our core book in small loan numbers to are for business, drivers for the again, commercial, the quarter. auto, and

Glen Manna

at on Program, thing, good, because and you this like so is USA, originations, up US island what's masking for the third all out quarter you Loan actually and a of which loans think pretty the were a the X.X% guys. soft back is quarter quarter-over-quarter, that's originated kind is, you look OFG seasonally usually of when Well, I

José Rafael Fernández

So those are good numbers for us too.

it when X% at organic run the seeing look to the to of this average around X% at you are loan NPLs, we growth the an quarter sales X% in from and when remains excluding perspective, it X%. the you look rate annual So was, for portfolio it,

Glen Manna

of cash you sold brokered maybe little and NIM And the level? of deposits. now you trajectory out going securities. increase of hold you a here? this the What's what's some maybe Right impact rate kind bit in paid mainland color, of lower-yielding it's just the Do in environment? terms some Do on in you the

Maritza Diaz

something Fed quarter seeing that what is July. moved what us So rates third we're similar to during happened this

X a are in have we So only NIM. would basis we the reduction next seeing quarter points very something What for be of this similar.

slight we a loans, reduction the GI We through in wholesale compensate will will see reduction funding. term the the probably in but,

going how X going going as stable basis point, we we forward, the NIM So probably see this down X quarter. or basis that's did

Glen Manna

going that amounts my post were Scotiabank is refresh the sales to it deal, you you And securities of $X still billion closing? in or billion quarter, we of $X were sell securities or post or announced million $XXX that inclusive memory, the should post expect closing, sold when closing this sales that is in

José Rafael Fernández

No, quarter no. rates saw when we Glen, in We the dropping. interest opportunistic, were

deal. So we the we pre-empted Scotia we kind announced transaction of announced that that when

the done our that are take closing, Once we've Scotia, at in will securities the So from we'll a them, carried the carry into they but investment look sheet. balance we do sale.

your market question, we we pre-deal answer a because to of conditions. post deal, did announced but So

Glen Manna

$XXX then announced was a When it pretty when difference amount, and the in think, announced... you million right? you $X But significant quarter there it, this is right? I billion

José Rafael Fernández

remember, last We yeah. securities. quarter yeah, we also Yeah, sold

So that bit a little adds more.

much we not a maybe is building there and So are difference, that cash. difference of $XXX million

don't to we sell, to need need don't we sell. So

Glen Manna

know the things you kinds lot. I of can tax and a have And rate around, around quarter flip where adjustments in these moving a

you do that had Maritza a you last said half go? expected around expect XX%. think second rate this tax quarter, quarter was you of It XX% to I where

Maritza Diaz

original tax versus of Well, we transaction, this it's why of that's have And income expectations. XX.XX% from rate exempt changes, get for and the year estimated income. the basically is it proportion higher the because the effective taxable at reduced mix the

José Rafael Fernández

forward. more So going XX% or less

Operator

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

Brett Rabatin

One, understood to sheet? pro want the we want you the the things. having on -- to sure anticipating are deal, just when close make up or forma I liquidity follow much two the how I liquidity just on balance

José Rafael Fernández

this So the It's that transactions previous to that pre-empted quarter. securities just sale given we in that the did liquidity expect and quarter have the same level we of quarter, the past around announced. we we of this the

there. no So there different expectations are

Brett Rabatin

So I'm and you the function activity to you're curious on any give color or you SME market to Puerto I from I was you heightened lender second, of And kind if us commercial? that. trended. on for clear commercial Can production. talk peers. competition your I moved just a just choice if the want the be become give last of to the year, seeing of I XQ you Rafael, past in numbers wanted Jose a could then in quarter, a just know that's color year trends the can but little kind at over kind down of mean Obviously, any look when about that's loan of Rico. a production of bit the different have kind

José Rafael Fernández

pushed that's ones. Yes, actually we and we're are XXXX. in live competition a kind comparisons and small quarter, negative they we with there fourth close this of items are. the somewhat where are lending have this small year. in they maybe postponement the a lot in have way year production the seen better last and ticket close pipeline Maybe are the What's the also commercial is expected year. business into the more very Actually quarter. the larger happy pushing business, there the that that, of the than to transactions significant some Having of still is commercial But you we do first of trends and quarter this in transactions said

way on XXXX. think and we acquisition to the performance do it more have consistent pay transformed forward small focused sector once that we're build in I to basis with extremely on looking off we and commercial way a have client into on channel all-in-all, happy and we the retail starting is the the and So the the

Operator

any there this no the And would questions closing at [Operator like Instructions] Fernandez, Mr. I over additional are to further remarks. call time. for or to back turn

José Rafael Fernández

all wish great you, Thank and to today, good week. listening in and you Monday a Thank I operator. a for you

Operator

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

You wonderful may and a day. disconnect now have

OFG Bancorp (OFG) 21 Oct 192019 Q3 Earnings call transcript