FBP - Earnings call transcript Q3 2019

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Operator

Good morning, and welcome to the First BanCorp Third Quarter 2019 Results and Acquisition of Banco Santander Puerto Rico Discussion. [Operator Instructions]

I'd now like to turn the conference over to John Pelling, Investor Relations. Please go ahead.

John Pelling

Thank you, Nick. well thank to joining results yesterday. discuss third XXXX, and call Bancorp's for everyone, transaction quarter webcast strategic and the as morning, you the First for conference the announced Good after the close as company's financial

today Officer. Aurelio President Executive Bancorp and Vice President are Berges, and Orlando Executive First and from Chief Joining Alemán, Officer; Chief Financial

latest of this statements any it and assumes obligation begin my webcast business. responsibility or does of on projections them that today's such at SEC forward-looking Xfirstbank.com. could you results release, forward-looking filings. due presentation, statements certain important forward-looking call, not statements our copy is company's you presentation website materially can earnings to The structure call. the The to call already no we company's factors If objectives capital involve statements update from Before inform the may during as company's transaction the and as described the the revenue, made as a to made anyone differ actual at press of have company well the the access plans the in

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

Aurelio Alemán

and Thank joining you, thank morning, John, and us good everyone, for you today.

It's an important call.

discussing and be we transaction yesterday. will the results, will third quarter exciting We announced be disclosing we the

session the results. but a call. a We're night, the very for Q&A strategic definitely reported this part in be we excited that of will call. Then would different the it both have will last second be one joint So transaction we we discussing about

of quarter of this what to line with of the we $X.XX third consider income X the We deck. reported strong move morning representing share. net Please bottom results per another XX.X, quarter highlights, let's Page

right quarter-to-quarter the year. $X.X Net to $XX $XX core million income that increased million when income Pre-tax be and positive will to importantly metrics by the in interest it the prior million in think franchise level. quarter continue we direction. compared is the preparation I highlight at and same

declined say was - loan off another two reduction this actually view approximately of by positive quarter, loans it because million. large $XXX used will loan. case, we've this pay criticized, have we the to Our of one, in driven portfolio as that repayment large this I and were nonperforming a that off

composed risk improved spite it So X% the profile portfolio of portfolio, the increase consumer, in we while commercial loan our having continued construction, in the the In increase reduced X%, to really year-over-year, mortgage reduce this, and of portfolio. on has strategically grown X.X%. commercial year-over-year, XX% almost the been which,

renewals. renewals and the the and were strong originations not one, with third usually this $X.X one one quarter, billion a in in was quarter, a Originations stronger good really for it's but

that path On a the reduction NPA with to pleased side, say or organic of we're million $XX improvement continued the and reduction very quarter XX%. this

assets the we X.XX% many, NPA that which lowest the is Now years. many only in book, represent had of

then brokered by a you core the capital, are tangible calls. is to excellent capital in $X.X I million, obviously, and decrease, which which intent side, the all, On And think, has north, slightly to giving funding our we're private with driven all continue. million, government deposits now obviously, continues been grow, decreased, $X.XX certificates book question

the Orlando, going summary, later. I'm and to be that presentation with the to to deal turn cover So back call we'll over

Orlando Berges

everyone. Good morning,

to components that third quarter assets led slightly this mentioned quarter provision some in good driven improvements to very Aurelio in improvements net and income. related reductions was interest by extent some a

million $X.XX which last was a million, or to net is compares $XX.X on was which $X.XX income last $X.XX Net $XX.X million income, as share million a to basis, a he quarter. or said, Adjusted about share, $XX.X quarter. non-GAAP share, $XX.X compared a

than see the pre-tax $XX.X on achieved pre-provision of slightly breakdown detail strong quarter. remained this lower the out was million at can million, morning earnings release that You $XX the sent in the second

provision million $X.X of by historical quarter. mostly historical in upgrades the the some low of portfolios, is Aurelio $X.X the early loss in in the $X.X quarter. - quarter rates million reserve to The had much large as It was was mentioned, down million million and loans. in better. for Provision releases commercial criticized in two payoff credit $XXX loans, we Combination driven the

declining In on $X.X hand, would the net income balance to terms $X.X accretion $XX income grew loans. off the interest saw of of rate due saw impact consumer from we to income, additional point see the like million of to acquired the growing discount average million, increase in $X however, variable-rate the that we And scenario of million the in are interest loan accelerated starting the net loans. growth million I that an paid an one was an quarter. interest out of interest we On

reduction other the the of commercial downs. related saw hand, portfolio we repricing these of from reduction to the commercial rate the with pay more large associated On $XXX,XXX in a of $XXX,XXX downward variable and loans, a some

just margin quarter, interest by about points was mentioned, basis from in improved about X.XX%, X.XX% quarter for quarter. very with last but the the discount accretion, XX the accelerated Net close the I margin

we that reprice. it believe important the if in decrease consumer growth pressure, we've further, projected in see be the portfolios. the trends as could margin by one That compensated thing happens partially some variable-rate will with The had to LIBOR, prime loans

no assuming except the few accretion be excluding quarters. slightly the amount deposits, lower than on after discount for a number in that in pressure do quarter and the of or to might that we changes margin, adjusted But little expect bit close the

some OTTI have charges increase did saw income transactions. Other to have private last we we and $XXX,XXX We books. service we income, to quarter, on in $XXX,XXX insurance that, insurance quarter. charges claims, this last quarter fee-based on the it proceeds - MBS see had fairly recovery the and comparable non-interest label the from was to related gain on than On remember did a we related

The is, OREO $X.X $XX.X occupancy we items million, we properties, just quarter. costs. expenses expenses, OREO decrease and in have down mostly had The in quarter for the main right to lower million the decrease $XXX,XXX $XX.X did we of last were under value the had million

had some recall, technology a of last project was quarter, costs you changed, changed, the If capitalized that some we project eliminated components. was write-down of and the we that of

in I about - quarter. $XXX,XXX quarter. higher quarter, with - did we increases was both have assessment increases took in salary what to technology-related that were on legal we July, related as day And last of associated service we transaction in professional fees, We compensation fees know, the and projects, for the mostly night. some the see $XXX,XXX effect Also in took projects we had extra merit the increases that employee in the one had effect disclosed

very able million too. was Regarding portfolio. asset had largest collections also We made sell, $XX.X region, or but really which the a was was sell good. that good quality, Florida non-performing quarter. quarter. mortgage or were reference We repaid, million the it pretty had of not $X.X We I a non-accrual the commercial to It think, the non-accrual was loan in in

some a $XX.X million had time. sold OREO we for also now we And property,

by million As quarter. to primarily a loans $XXX million leases. $X.X the increase decrease of result, finance $XXX auto we million compared are The non-accrual came non-performing million last $XX to the partially and quarter in had in down offset was

mention continued good, non-accruals as down to see little to in non-performing a continued to higher going inflows overall, to good have important happening, a we're with it's pretty so much portfolio, go up it's of But, bit which trends assets. in to good of the have results for and very quarter. to ended some delinquency terms the additional And obviously, continued but that, portfolios be trends charge-off have be that movement

Charge-offs quarter. - this in the or were were down taken - basis - $XX which did $XX.X We was that charge-off $XX million a million - off compares quarter net non-performing XX loan loan the $XX.X was have charge-offs quarter, million last in the quarter. paid million was points to second on is were

for commercial down slightly they now allowance are in X.XX% at on the from can on and portfolios $X.XX basically books. ratio dollar, of last that come at loans at NPL you but down X.XX% significantly, they quarter, the held see investment, are slide carried the is million, the $XX the also have The to coverage

Before and you. Thank presentation we our we'll then have - calls this to go questions. - mentioned, the we're as going to for and all the transaction, Aurelio address

Aurelio Alemán

Thank you, Orland.

titled as I Yes, please which market. for important of give It is really the expanding move co to excited strategic Puerto announcement. competing say, to this the and X Definitely, It Ban Rico. is we're scale, us continue about second on Santana this transformational will Slide in presentation company. Acquisition

towards see one we - one I by achieving want want and to clients, plus to We And clients grow fact see the which this more serve with very an we would the network to we're that more the the like work We plus presentation, one - be we presence, driven to are grow market in the so clients get some acquisition. become one like to opportunity bigger. half, of going conservative, it three, and retain to no, to better. communities could the and assumptions would on one branch that more expand clear, have become our think,

is go of the It's signed can of should application, those to and customary signing approval, definitive We're the to type the these agreement, of you go the to see the which we in agreement. we through through process type As yesterday. announcement, transactions, the of the approval, a is on. the announcement the so move filing going of process agreement - going

to considering estimate regulatory the that of a its hand and so would hand this market months process in views we is market work in mailing with the information. we the that required next And in filing things the somewhere and how application, the this over mid-XXXX regulators operate

And premium tangible we million - said, to paid try walk Orland Altman of to the to equity. deal. and structure you through details I'm highlights. again cover of $XX And terms the going As the the the will core

that very capital is we feel excited a very efficient We're deployment.

stream. talent management combined our and with definitely joins very pleased over expanded that we strategy. Santana our bench, see gross strong bench to our and We how and to stable talent team business team expand are comes us an acquiring risk the banking the retail earnings for a so also continue commercial We're function,

a be when this and support company investment you our as are revenues believe together, additional strategy. a Puerto in us technology, we recovery, component critical larger are to give it's to further of economic and will running redevelopment to Definitely, transaction we competitor Rico. Puerto Rico a stronger this growth parallel in going all that expanding continue which in the the is Also, with

Santana today. what moment. Slide a is the the an Yes, just are for is This of let's assets what move X what to - overview composition - is

XX, As on definitely $X.X us June $X.X The to and deposits, and locations billion - provide allow complementary expanded are $X in will in better assets, X,XXX of loans, footprint, in branch XXXX, approximately to billion services. employees. billion and XX our

Moving X, and deposits Rico, as all combined $XX basis, in we a to becoming Page form $XX.X are one Puerto deposits have billion again, the areas. - June in using, $XX.X the on entity in in in will and XXXX, the billion billion loans, XX, pro number today

The XX% loan-to-deposit deposit. be we as will and pro mix achieve improve form ratio of

As the agreement, be non-performing will note not in assets. you could acquiring we any

as So NPL and reduce X.X%. ratios we to NPA June of NPA loan again, by the both - perform, would if XX,

as also all that, highlight we an it's I said, to transaction. cash want

well-capitalized well still of regulatory at Our based form rate leverage projected XX%. are of pro total pro ratios of in guidelines XX.X%, risk the and with CETX form excess ratio close, the ratio capital form approximately XX%, of pro capital

activity have Rico, can form the be X, would We portfolio loan Slide form segments the combined mix, participation at grow in specifically definitely deposit some segment fourth so in you like the it's we core to deposits. opportunity that we the are share an when of institution. move look every growing form that the business - Puerto brings the the pro today, on business commercial see and in on then, that larger more the in Let's products dissipate market healthy we pro granularity small in core pro in to you and those banking, small And segments.

composition, the the that had pro lending, profile, customer So a we of card credit funding have remain the personal the of is within loan definitely the the auto similar to the terms one at and in our of consumer, deposit when Santana, our scale in Definitely, enhance look with cost it's loan at base. profile they in business. transaction, but we will offers business funds mix, ours you and which still obviously, our

look you in - has can of time, some you deposits island, total definitely, reached for the when almost our been and the Moving we form deposits, to Slide at of X, goal which and pro asset. branch XX% network, XX% see XX%

is some the As south which side giving you to the footprint west need. our the in complementary can see, in the island, branch additional part island, we and presses of definitely

goes and the complementary helps the it transaction, it definitely So franchise. grow

I'm summary, on that call hand he Orland, can with going So so the expand this structure. to to

the Bank with and forward the to family, Santana that We brings. team potential transaction very the the welcoming to customers optimistic First definitely future look we're growth this and

Orlando Berges

is transaction, So are able try has all-cash as to But Aurelio transaction, of any Aurelio to some stuff. extremely announcing an walk it components this and you the to mentioned, mentioned, so through of been - later address questions. this also I'm The the we about excited on as reach having transactions. deal, going key

in price significant as structure. in balance well premium, is $XXX which to, built-in which liquidity about of of cash achieving sheet, total in sheet and There it's Santana's for made securities million as helps of tangible million, and he the The our of base million. a both a of in balance terms June $XX is equity XX.X% the as reference common Santana's core over $XXX

earnings In will we PAR. - The acquiring this the and reduction addition, a performing made capital $XXX represents it's to that million price approximately times any will capital. non months in be of also X.X excess that has highlight not to Santana paid too, effect XX in excess last purchase reference be in important He transaction. given adjusted at

And to obviously, on we date, at which, expect based as to pending sheet we mid-XXXX closing subject adjustments balance the receivable it's sometime said, regulatory Santana's be approvals. necessary

consensus and transaction for because information, share. earnings availability we to be cost $X.XX a use full-year estimate XX% this and equity about would of XXXX savings the of a XXXX, Assuming of consensus

tangible obviously, been share beginning using XXXX, with X%, crossover per the institutions. have transaction would of on dilution estimated of would That assume of book earnings [indiscernible] months the to both completed approximately the year the The an XX transaction throughout and includes X.X full closing method. at value be

of transaction. could approximately modeling assumptions in transaction, which that about of the that the XX% the million done have we in we achieve have transaction, cost XX estimated achieve we of is we the Some savings, $XX - in can after diligence components This no as have an is to common months some gone just non-interest made to. we trying the expenses, OREO Aurelio of excluding OREO, different the and objectives extensive is process, reference that through achieve last

applicable $XX institution due non-interest assets, Amendment, than pre-tax, will anticipate obviously we XX% Durban savings - achieved applicable those closing will and XXXX. mid-XXXX of modeled which that Rico. are was of Assuming will by with a be more in of million in we've us line income XXX% $X the Puerto Also to as an XXXX, about to Santana savings billion in limitations in reduction approximately not which to be a in be the

on and analysis estimate same an estimated it's marks that X% deposit the the some we've And fair card, the those value, at about core the value bottom credit residential of preliminary We made approximately we components about loan the conduct portfolios value, the intangible, of it's looking and X.X%. which marks. the did been X.X% model. in We is assigned are other the commercial, consumer a thing

excluded the to it's transaction years to it's seven Santana from included which over using That out part of institution, portfolio, the JetBlue. transaction tied another I the seen would the are year intangibles have amortized has from being with point to of These analysis. not the been - I card now digits. also so transferred co-branded like portfolio, is a some that

million, being Lastly, XXXX restructuring achieve estimated and costs that in charges of XX% the approximately thereafter integrations. transaction and at closely will $XX be we with or have once that incurred conversions and all close we XX% other

also a like would I CECL. touch to bit

the for for the done still As way know, effective combination value. the beginning accounting at for changes One of co-institutions all loans years includes, assets XXXX is business calendar to which fair you obviously, are marketing accounting CECL mark-to-market, we like the where with follow us. loans. acquired rules adoption CECL all have of for part, And is at the

CECL additional requires call as back of marks duplicating income what PCD value the loans, be will loans are specific we the the in will are have to addition, net or Deteriorated future considered, of some compensated loan the that or loans loan of in but accordance standard allowance Purchase impact. Credit portfolios However, accredited for portfolios. The that the in established new not an to the be in essence over with estimated these life fair impact recovered

CECL assessment at range the given that we CECL done pre-tax. is need So of the we've we establish so allowance of to closing non-PCD anticipate expected did the million the for closing value estimate what mid-XX, million to fair $XX using to a the loans of in $XX portfolios

So it approximately after tax. million to would million $XX $XX be

per This book to mentioned. closing that additional share by just an the will I dilution X.X% at dilution value and increase intangible X.X% X% X% over

analysis. So part in accretion be future year. as impact mentioned, the the been the Clearly, that's of I there some coming of will of some back

the call that, the presentations, With the transaction. would on like earnings for to both and questions I open

Operator

Our Lynch. from America question Poonawala, Go Ebrahim of Bank comes [Operator first Instructions] Merrill ahead.

Ebrahim Poonawala

tied I question, savings think, expense So I the to the around deal. you the how you've mentioned guess either out however, accretion assumptions some just made you that of first laid conservative earnings

of from we is could would I which to the potential similar than better part that of if Santander earnings talk will One, investors accretion. running be everything? as has think, you there global, the have terms overnight could on XX% any appreciate I made see feedback And of sense that deal, address been of also about don't, if expectation some loans, of also can lines in that, but you you following for the as part off deposits may happening. tied that where

Aurelio Alemán

Okay.

let me, the let cover yes, me, me Let two areas.

we I First, all, operating first of still Rico on obviously, economy. the think, Puerto

that not task. know economy, it's an we predicting easy So the

we took but us obviously, to a going going economic assuming, So that growth is we approach opportunity. there certain are conservative give growth, of yes, be is to

works ways. So this two

the additional to, is achieving we we growth. after start combined can goal some Our institutions, two

retain you need for the network as larger, definitely clients task retain you to front-end branch much and servicing need also that to as continue to personnel franchise, of client continue of part and delivering So the larger the to much increasing to significant base.

go the we all we approval as process, the - months, take moving. So planning, how through us over and six the will will view continue integration that things learn more next is will the economy to we -

We as portfolio have strategy adjusting increasing so will sectors of conforming, example, that, are those side, we for in decrease estimates. our in know, but origination strategically, the we'd the you all mortgage be

original first balanced we we approach, stronger resources maximize around, as opportunities and balancing guys to a be there before like So presented balancing to the we and number be a to but see going that go make we balanced way are being the would is transaction we in to think is estimates sure a higher that your we as the it's up opportunity and could it's a act, are we - Yes, you a maximize how the growth an competitor. approach.

this banking, and competitors certain small this we business segments competitor larger business the be sector. us are to today small are that in a There opportunity give like

service, cash segments. better portfolios loans by in going there both cards, of card clients, too, larger - scale having and management number personal Some of in is credit be an there's scale there the the to credit expansion

progressing transaction. goal yes, So that's as could And strategic you one, we'll but approach main guys we we that, numbers the the our with of continue think update quarter-by-quarter, evolve. right the is

will deposits, And some XX% - and government of of - happening then deposits, and stay conservative assuming deposits, been model government but assuming in Rico deposit will that's yes, we over inter-company there the we a in not them time. accretion stay, are the of are accumulation some are is a conservative a them Puerto there some

- Rico, is and is government Puerto in institutions restructured we'll the all not but approved, that will believe some us, Rico debt see we utilized. Puerto once only of the be agreement the of these So liquidity

also we're taking that consideration. So into

very that we loan form pro a are really core considers - XX deposit. to a really our base, improve already today on is So where ratio of strong it's which in from deposit terms

that is your that So hope answered - I the question.

Ebrahim Poonawala

on how you would be should terms be of $XXX cash in the of where of talk you could us gets at of sheet deal in end coming this of deal, just the quarter, terms if million about Orland, of to the just to funding, that just remind cash was And the terms there if much funded the could the balance cash helpful. that in balance of out

Aurelio Alemán

one balance the liquidity is assume cash when have obviously, also, that of a that Santana's see we does that in Well, definitely sheet. cash you of And it's FHLB have, or model $XXX that modeling $X of reports the we the interest it's billion needed. - using reports the $XXX combination if goes built-in way that add the in associated or assumes the and drawing so using significant million coming and securities But mentioned, available flexibility lines we liquidity did we there - cash it's income have reduction out. I million, It's - up we with as out. lines that it, the in

it's So liquidity a be combined. to on once that complemented going bunch of - institutions both

We transaction, very a feel it's as why mentioned that's investment you way. billion was some out this income. structured does of affect $X deal and clearly, the the about all but comes So doable

on impact you the numbers At earnings the it's chunk, income a it's assuming large into the as been so that this XXX, at incorporated kind that we was - saw, but sitting statement, are the fed point accretion. in of account for

Ebrahim Poonawala

specific credit last a where what conservative terms being on last one just mark little Nap's. high obviously X% question few through are the assumed on Rico has marks there the over there? credit you in you anything the seems higher or just portfolio the given taking the years, in of deal Is And Puerto gone and

Aurelio Alemán

It's we there. a not in a $X The about - as card - which mortgage portfolio value if credit they a you to what remember losses - have lifetime you good portfolio, portfolio that assume in nothing still in is fair you the marks billion new made reference there non-performing, getting is there, have mortgages. term, are to, but a have portfolio longer

So kind with it's that lifetime that of the loss led those combination of marks. scenarios components to

will We marks internal as of and the marks, all those we models it's that, and that for obviously we well a CECL use and update parties we combination external been for the - the DFAST the assessment as for use components. of using

was we've reasonable done of this updated at of has So on lot point. a information all anyway be date, it Well that the based as transaction but we estimate work. to most have

Operator

from Twerdahl question comes next Sandler O'Neill. ahead. Alex with Our Go

Alex Twerdahl

announced. of number, Couple there number? cost questions. Agreement contemplated branch In is clarification that in finally savings the the are consolidations XX%,

Aurelio Alemán

part, but marketing, legal, going technology There lot of components, determined. final a overhead small yes, on initiative expenses. that is. to is been you're the Primarily, see assumption a There hasn't number

Alex Twerdahl

So it to like as and a potential the of close deal could bit things a little potentially XX% assessed higher about gets there closer get little is seems thereafter. bit as move

Aurelio Alemán

together the goes deal. could part it with think best growth obviously of That opportunities. I the are

expenses. do reduction you If have you less on want to then to grow

Orlando Berges

for well key they is Aurelio going the We future. strategic as this Remember that a to transaction. us is very extremely think mentioned view position it's

immediate the not transaction it. - see financial financial So way a we long-term financial but it's transaction, a

to the able entities. capacities be to want the maximize we So of combined

Alex Twerdahl

clarify realized realized XXXX to And assumes then $XX in the million XX% $XX the in just that Not is XXXX. million of XX% Right? XX%? of

Orlando Berges

million. XX It's No.

Aurelio Alemán

Correct.

Alex Twerdahl

pricing think there pricing then, in at there was comment night on potential release to would that time balance sheet Santana's trigger What is the adjustment adjustment the of transaction? of last a of press closing. And the I based an the

Orlando Berges

transaction the published, The the size and the way deal it's institution. but the documents deal on of is based is tangible calculation - common a will equity, you basically of a base is - the of which the structure see

do obviously, base execute basis. So we to will And institution X%. that using, the expect capital continue it's we're the

do the So institution business to continue grow. will and

it that might go a size come if down up any the bit. it So in price a down reason, comes happens, bit. might If by

So could of point is we're just the balance out date. a change as the trying on on premium the size transaction capital, which of that base based to sheet

Aurelio Alemán

And then will capital the apart. paid be at closing excess that remains

Alex Twerdahl

balance I obviously terms some just this you sheet that a had have think, confidence get preparing light quite sort guys your been are the is preliminary you've little Right. thing able that in time. something And on, and where you then, for in in Can maybe question and conversations a regulatory balance sort I of, delay? of but get a of gives, of shed quick closed think, like this good just do to capacity you being thing in I which feel things pretty know, standpoint, I to you from a need sheet closed of a spot room, mean, do, wiggle of obviously, lot levels, - terms terms capital said mid-XXXX, you in you this just to are you

Orlando Berges

deals much Puerto for committing is number. compared strong, a And think, Rico profile capital even capital it's form, you when is the if at the think to that asset and consider excess normal how if compare you in I - a the look XX% quality strong market. the leverage, pro I to we you think

Aurelio Alemán

Obviously pro XX% estimated at form closing the again leverage.

Orlando Berges

Leverage.

through only matter proposal. forum and of application the practice a will the a transaction anything view regulators process as if on the is is formal provide So

those are definitely likely our key in and they're the say today have information the formal been is any our see not supervisory to of with discussions address process. very that of regulators points I can content configuration what allowed aspect formal discussion considering preparing application share, an relationship important disclosure but helpful the for us supervisory bank's confidential However, in we're banks arise can to that in most that

the we have that together metrics the all make actually healthy are an because structure that is transaction So put was we this think in more institution the strong structured. cover way

Aurelio Alemán

institution in Santana non-performing with we reductions classified a way with having transaction. assets, think the much us and have achieved for keeping the and any better I And positions non-performing in achieved that

Orlando Berges

profile. funding improved an Plus Yes.

Operator

Piper next comes question from Jeffrey. Brett Rabatin, Go ahead. Our

Brett Rabatin

that back guess, missed first the was go card not the about be - portfolio, - to, or much that pulling big I income Wanted us just you're gave be having the to how give I thinking on could over Durban you lower, and it, just going it deal, how from to the you're if you it numbers institution?

Orlando Berges

did fee be million a $X $X we fee million the possibility, of take to base some after income. charge. we other able on won't that give compensation estimates tax Well, is based pre-tax If of approximately or there

we for So an institution. income Santana income excluding our fee-based other as the modeling are that that of amount purposes from that

Obviously to went the at we ourselves the a the detail what on could go when impact. was was similar this the reasonable very but through end, - see to it's information, based feel be what estimate on Based through we remember for much adopted impact. a of we similar need analysis

So to impact we numbers. the could use on estimate approach kind what of same be the their

Brett Rabatin

the or that And confused? the that's million, Durban that both. card I'm portfolio is or is $X on

Orlando Berges

Durban to related limitation. everything Durban, It's

Brett Rabatin

Okay.

Aurelio Alemán

card asked the He about also.

Orlando Berges

you that’s card, mean or… kept being the The portfolio the JetBlue card,

Brett Rabatin

Right, the card portfolio.

Orlando Berges

on coming It's Interest XX%. that over. $XX million portfolio income is that's not about

Orlando Berges

mostly the out. the taken was been Durbin. Yes, that's fee also base $X But - million

Brett Rabatin

lower benefit would been how us down And in your much margin a color about going fed points pressure then talk know maybe margin how then Can balance how I comes about margin have here both basis rates? you forward, XX accretion of are with cuts thinking you're down Or quarter. and discount exclude said if the from - on you cuts? with sheet their some if your the bit your the fed little give you

Aurelio Alemán

built had our down, a on repayments some and We few some components. there mean repayments. liquidity - the with also. rates coming I portfolio some in more a on we that commercial If large on did we of investment remember, the the have margins were portfolio repayments

we little of So that with the bit come more. accumulate on more to And We mentioned, there market way looking a impact. margin. it's exactly. seek, than continued estimate I our a down, of affects a moves forward like bit going coming margin to to to It's rates where the a put would bit $XXX,XXX we've so catch difficult think pressure to as a bit was down

the remember, - are still combination highly well, moving there consumer there so yielding. are a portfolios are is Obviously, of those

hand, been in to have the than market On to originations what be the of we reduce of our it mortgage sold keep other in on continued the size with rather have paper would the portfolio books.

So those little bit pressure. a put combined will of

So keep but would say with I'm Normal balance rates XXX. pay they moving. bit transaction amount, a - of amount go sheet a down have out. to and similar with the difficult the billion been bit would large will obviously liquidity, I have it's assuming coming normal that way would behavior, that downs from to deposit is the and the behavior good have a Their say $X help from a going

income, not some is impact that obviously investment. interest necessarily because be on there a would kind So of margin $X billion low those - yielding

we're in So the mostly it margin interest perspective than at income that rather sense. from looking perspective the

Brett Rabatin

Okay.

Aurelio Alemán

seeing a in are little it's from of margin. what think bit pressure don't different other But was that there you places on I

Aurelio Alemán

Yes the a card ours amount actually fixed mortgage, target having and a loans mostly has fixed than having proportion , fixed. variable-rate lower of of a are loans credit which rate rate portfolio portfolio, but personal

loans and then the tied that to - So LIBOR [indiscernible]. really

Brett Rabatin

then portfolio I correctly, estimate the million, an for portfolio? have your for $XX to that's million $XX CECL, And the on you understand if acquired do

Aurelio Alemán

that - I Brett. we're - do I'm have it. don't we've queue, because disclosing Well, the yet, not on going to it I include

of different through the gone gone full through have CECL. the We we the have exercise, iterations

those portfolio. we're we're our seeing what's estimated numbers, impact CECL the share for So going on to

The on the portfolio their it range coming where felt obviously, their impact loans, on to was was on understand. share of some you value the non-PCD we see in important idea estimated we number the give all that are dilution, important for portfolio we book on per on that

within a So, once a Q, - of impact of but disclosures publish estimated you the little institution. will bit our the have the on we weeks on see couple will

Brett Rabatin

Okay.

Aurelio Alemán

that have matter no At going it's what. the end to we're -

think the the we don't new would be be what So would acquired transaction. impact on

Brett Rabatin

one And more just I on if then I wonder, if can could credit.

are quarter. higher migration Nap's you but lower, charge-offs lower, Nap's net Your had into this

an provisioning talk you from quarter just provisioning in sustainable. what inflow seeing in improve? that would seem to be your XQ, level third could you Given like credit are increase here to Can that about continue the with credits absent and decline it we're trends expecting

Aurelio Alemán

also core changing. credit conforming to balance our auto, of I we a both have three personal is portfolio Consumer is increasing, how expectation, is for cards increasing is the is loans, the the will all the see yes, products. think, mortgage portfolio continue I portfolio, are that originators mix little the loan think, changing sheet one to down. though that The reducing going we are grow, it's even and

grow, And is than of proportion, but at the provision you also look component the consumer commercial will when higher commercial.

very perspective, by that makes migration. be Definitely, going from predicting we driven how the portfolio provision us stable to this see more. So is

On we daily delinquencies, on see very good is credit which really primary indicator. early the early trends, our indications leading

there's add are inside but lot when see very all trend parts formulas So of from you perspective, within. to aware, continue a moving those a you we that as components positive the

Aurelio Alemán

quarter that, Keep had the $XXX this releases some large reserve in they reserve repayments. so on in releases have criticized were repayments some did mind there. loans, obviously, million we The

don't charge-offs, same every will yielding as that income some grow you're the you portfolio, higher some fact to going you we the on consumer it, have balance the have associated have a that asset You more have provision to statement. the but with much at And quarter. time

than the million, we had on ask think, not side million, being $X So it's the quarter. me, I more about $XX if low you talked stands, mean, that I of

million, never say, get $XX the the to scenario I will of in current We based on portfolio. would behavior this

Operator

comes Alden Joe from Go of Securities. ahead. question Gladue Our next

Joe Gladue

see points interest little just questions that basis lower Santana's at up this of if XXX follow about And that of changes that are accomplish acquiring? what able started in the might just margin you'll between structural shortly changes that wondering is if be or after difference there margin. net me a you the let on narrow any bit Firestone's. acquisition Just about, I'm correctly, to margins on I Brett's any looking mix one than

Aurelio Alemán

mind, to and mortgages. Number one, balance sheet. are two, their have have you keep and of they portfolio are on large Yes, a composition. little bit their cash think of commercial the balance a sheet components Number amount investments about in higher proportionately

would rates. interest kind So items yield of by slow those lower themselves -

which On their not by the balance other that non-performing the it's help hand, we having sheet, get improve. in that and would up should

look you their If at consumer portfolio, it's card. credit mostly

consumer components our improve we So other do margin. have portfolios of that the

of asset we you mind the current through can what's the improve keep in mix. more, So their would develop of those network but have that some margin, as branch to composition businesses

Operator

question from of next KBW. Glen Our comes Manna ahead. Go

Glen Manna

deal. on Congratulations the

been is whether from interested in Just a consolidation to the and we've on on half seen be of I'd island. do picture get, all portfolio the in the over a the bigger perspective, year long-time banks' the And of our you've a lot whole bank. you it's really banking island environment of bankers Puerto from the changing future your see roles perspective, Rico? How on island last

Aurelio Alemán

like is Puerto have in [indiscernible], credit is very in we're seen it popular other I to thing be players also we in are years. And the we've competitors also, CT in think card doing that Rico we the how market, Banesco, active in Well, growing and been Puerto recent going they're the There are growing, the invested active years. is active being very through last they're and local the one is loan market, in would which channels, are digital how how deposits. be very for other the personnel it. - definitely doing capital Rico it, Oriental see

So the networks. the just landscape not branch is

as the and to, the which unions, continued technology co-ops, divide we're local then have unions, the And union to doing, credit them investing are in we sector, federal and are trade also which have of component. then grow. we all digital add unions, credit a you will both We channels into the credit

as largest largest the you are island. all if lender XX% Puerto co-ops, branches they all have have the physically the add of and the that - altogether. credit the of share market Rico, personal the in loans, unions The you in the they largest also are add of They branches

barriers continue then of there definitely and Puerto fed are them no very deposits. branches, open they see you of some the entry the in active unions have they offering grow expanding, fed the a And competitive for And some like they been tax Rico, side. continued to - of unions to have in of in like advantage continue other

that we the help be competitive. We business it the successfully think think, us have - improve in sectors haven't able continues small like some to of to it going been to to commercial scale we competition and So to be sectors. to banking that we're do certain

also banking expand the department. we the and will So larger having network, to by branch compete

Glen Manna

continue kind where of does maybe the And the the mortgage pay are growing the down X% at quarter-over-quarter rise also like that the on of when the loans book, at? mortgages book, to in about with And it's of respect run kind you and on this alter plans? Santana's kind those of your see in plans you some island rise to annualized look for the it planned normalized downs island run-off or to looks bringing growth, and run-offs book, is

Aurelio Alemán

the X% reach our significant taken that down think, we'll of next calculate book we point mortgage you Naples. I remember Yes, year-over-year, stabilization. year in When the have

and history - see, of don't the years, it's the been see last - coming in finish in we our for we quarters. So risking that the part XX - we

as once than which a So projects even and at than slowly. to going the the from and though are that are more obviously more funds can to X%, we loan see there we aspects. it. coming recovery to perspective, will see which the we pipeline, sector see probably of They're not last are wanted more over you volume Puerto been can we the on all the construction the last, that that their is all were is component we new which into we funds moving period, Rico And it's achieve construction end, bring all have a at sector, pace some coming as this delayed the the participating aware, starting

some of and - some $X this our how also. to de-risking of actually portfolio of then also say, we borrowers, last important billion concentration certain the participations, our been loan some originations, that moved achieve of years migration quarter was in actually it's achieved cells, NPL So that of and sale XX has with which our let's over part we reduce also also OREOs,

we the capable end of is of I is, think, be that. So I it than the should better number think, X% low doing

Glen Manna

And Did you that of the versus wanted the cap. breakout not? non-PCD acquiring the you're CECL percentage disclose I get to just in number or the loans whole

Aurelio Alemán

kind higher it's lot not. from or a did ample because much PCD the estimate were that PCD more than But ample bit they CECL area loans are gray performing. requires they non it are of more and We non-PCD, PCI kind analysis. for definitions. under of old pretty rules obviously, thing a the the percentage We more of definitions did Remember CECL, non-PCD are how keeping

we So the definition could institution, come we a showed to up through as million and did iron PCD to and will any all those of some estimates that that. you $XX then get with space of obviously some I million, specific is amounts. But - there delinquency typical things think process, will a can go of that on the integration out numbers $XX which to to for kind like

difficult a number. bit say specific to So it's why that's a little

Operator

Poonawala question a America is Lynch. Go Bank from follow-up ahead. of Merrill Ebrahim Next from

Ebrahim Poonawala

use if Just initiated think actions, should I TCE I you TCE And the wondering dividend forma sorry deal, that? I right big on see for on still But beyond I'm the of your we that? talk and where terms if in now. just that of to last you just the capital expectations if you that. somewhere levels year, additional forma is forma think of pro can missed the priority assuming be in pro capital. plans the quarter deal movement capital pro shakes how to last of in your outlook in deal year? know terms that out about we initiated anticipate probably a you the the question the But kind between quick that, XX% XX% the some just fourth and for of would

Aurelio Alemán

we we are as also how we is are number other priority have the deal where actions you continue earnings Definitely the quality on could the the economy the moving they at at But have. to on continue moving much achieving, room pace actions opportunities deal. a external until trends for on close pace be the after close and Rico form should right. look deal there it The for wait larger some have dividend you the asset and, close basis will Puerto it you assuming deal. pro final and and and but will when are Yes, the be ready see the to payout the is be the we

Operator

Rabatin, follow-up Go a Piper is Jeffrey. Brett from question ahead. next Up

Brett Rabatin

guess just I go just the I the assumptions And expense percentage wanted that deal. And the in expense back saves. first, just facilities to the go XX% have? you the assumption saving is at back you Can on look to everyone might of you what locations talk talking super-focused much about might be branch think to how and I you XX said about assumption? of small of

Aurelio Alemán

facilities, facility definitely a facilities number be which of together. that that where, computer life are their office giving institutions not would as the specific embedded centers model We're in are are and there occupying also put technology components Brett, this. branches and back Most

disclose growth comfortable that. So we're that detailed to that you very to that not we strategies number. and but disclosing, is link make feel at go the when end the a number we more can with a want at we look view make or XX%, that sure with we sure But

Brett Rabatin

and balance earlier of maybe sure to I once talk deal then with sheet will are balance I got you'll our be about form, could drag kind the that do things opportunities that you of is things guiding down about see make understood, comment mean, terms pro with just but there sheet what fee higher you've synergistic. income you you be going wanted few be obviously things a to conservative? net that the closed, in the And some Can your

Aurelio Alemán

institutional that small and one, Aurelio We market business opportunities is help the think number - develop that The see middle business. we made combined to business. the would reference that further develop

Aurelio Alemán

have share. we period time would in that but the of for projections in the our that frame Yes, - you

glad period a asked it's time. no we think to for highlight, in I'm of loan growth portfolio important are target question, the of that I you assuming

Okay? So it is the a no-growth in assumptions. scenario

- that continue our a As once is but link the little we to that you we period is But growth we want the the Orland the a to in to projections assumption with through go no and into in areas we that in new process sharing portfolios. we in economy. that have that trends say detailed are believe, again, see projected more presentations, we put that the

Brett Rabatin

size to of better platform it does in ability change island? of And on - terms the does the compete larger increased your credits the

Aurelio Alemán

ability the out reach to change It clients. to

clients if I larger a you you it get also more think banking to. have to - team, corporate can

So ability our levels. own the it changes at

the - expanded the cards the is of credit the We which to of direct, channels, either that be sales personal is an branches same, in so are group. of are digital expanded. their rest on most the the they products, loans we're products addition to and network to mortgage team, use doing but order In branch the going

Brett Rabatin

mortgage just seasonal the And from then to piece portfolio. last book one more treatment? the curious much given you of de-emphasize want just me on the how that I'm one other

Aurelio Alemán

to and expect - should focus next year that close end of going you that. income the because that the Well, repayment through we see our on year the see level really want decrease It's with portfolio, probably which you one comes their when on that leveling we see are to the to - mix the other. next the end we of be originators don't then our the the should year, mortgage basically to of conforming. by non-interest We well, - probably start similar

Brett Rabatin

one, last but I could. said I one more if actually

given few the portfolio the capital flattish deploy those the close about might in with quarters? assume before be thinking of loan that all the that you're to portfolio the it, fair would to going deal be Just it next

Orlando Berges

ours? mean You

Brett Rabatin

corporately very tell in this prepayments. this, border, depends quarter, I and we and get middle, and on origination it's that continue good also in received growing, were Correct. was the expect the you the strong commercial and to I the mortgage, a offset. consumer it prepayments quarter call there closed good is expect that can but $XXX Obviously, million we in small we what to which grow it to deal-driven we in prepayments, leaders

is grow close goal the Yes. now and fast pipelines So make net to growth. will the the difference It's the deals that in pipeline opportunities how can portfolio, on we how our these the appreciable positive. obviously, an having are

Aurelio Alemán

business. continue that to We don't normal intend We'll income back. we Remember, our to builds hold revenues after all, generate and capital. continue and net

the sheet. on balance the for allows So growth component

Operator

is Twerdahl, O'Neill. a ahead. Next question from Go Sandler follow-up Alex

Alex Twerdahl

Just follow-ups of me. a from couple

you cost on deposits do the book? have of off, Santander's deposit First

Aurelio Alemán

It's of interest deposits. slightly our than cost bearing lower

Alex Twerdahl

- that deposits for or that total your just And is interest-bearing ...

Aurelio Alemán

Total interest brokerage. bearing, including

Alex Twerdahl

came What, money another $XXX happened or million into quarter, you paid little mortgages they that or just the during paid off a do of it in was the if they there buying? them? then commercial large and re-fi criticized was there outside And to so, that Rico, could Puerto down maybe what they were bit bank with on elaborate

Aurelio Alemán

refi them Banco Puerto of Rico type funding of in both Actually back other sources.

Alex Twerdahl

Okay.

Aurelio Alemán

Attractions those related to acquisitions assets. of

Alex Twerdahl

concentrations assume I'm or that an there JetBlue that was close fair assume if it is are you it you then to that anything or But the the like all this is want take not of you credit divestitures took the following to loans be will any of sure and that transaction? that And didn't loans that card not since fair not. option portfolio,

Aurelio Alemán

Yes. It fair. is

Aurelio Alemán

Q&A about is good Santander definitely we mention, pleased Alex. know are want you, session has just just Rico we Thank want franchise that over, I I extremely to Puerto an and really the excited very that banking in combination. the been to mention

next you today. forward progress months, continue So we for process thank and as look all attention over your you this updating to the

John Pelling

Just real on the quick investor front.

X, Conference We have of XX. in coming, up a number Conference X Sandler November Naples on of November York America conferences in and Bank New

We also Tour Puerto December Bank on Rico of America have Investor XX. to

conclude And to ongoing So with with will you. that, at we you upcoming your that, forward and appreciate we seeing look these of Thank call. the conferences. many we support, greatly

Operator

now is attending presentation. you for today's Thank concluded. Conference

may disconnect. now You

First BanCorp. (FBP) 22 Oct 192019 Q3 Earnings call transcript