OFG Bancorp (OFG) 25 Jan 212020 Q4 Earnings call transcript

Good morning. Thank you for joining OFG Bancorp's Conference Call. My name is Christie, and I will be your operator today.

Our speakers for today are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman, and Maritza Arizmendi, Executive Vice President and Chief Financial Officer. A presentation accompanying today's remarks can be found on the redesigned Investor Relations website on the homepage in the "What's New" box or on the quarterly results 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 background All lines prevent have on placed been to mute noise. After remarks, will a be there speakers' the question-and-answer session. like the Mr. call to I over turn would now Fernandez. ahead. go Please

us. Good for morning and thank joining you

safe and to fulfill want a you healthy. that ever you was wish – remain our our customers, we year I First, our our happy a all We XXXX. mas people than all was were and to where ready there listo. If que and new year it more communities, purpose

giving bad so look at all XXXX, dedicated, persevered Our our job as of Puerto Rico, and investors. and the in of managers with proud you. so have high to teams of levels is We're again, have service for and When our XXXX, resilient back once US results. To extremely back our times. to Virgin mainland, been we're through excellent to results on our people delivering challenges good lead who Islands the we our thank our who serve communities the so maintaining the pleased customers, and we while through

loan For our customers, and the deferrals service for influx despite processed rapid stimulus applications swiftly everything, we requests, of checks. their

providing. took digital advantage easy-to-use been for Both and an For processing, technology XXX% and PPP service retail digital we of commercial full implemented we customers customers, loans. forgiving applying, the have commercial disbursing

hecho. at say rápido, we As fácil, OFG,

to We had as health for investments ensure made quickly care work working and teams We remotely. Our spending such safety. stepped testing, remote our COVID-related significant to capabilities. worksite robust items people up adapted

four and more Virgin was in After in the affected Islands. than COVID-related part donations grants for of At We of southern supported Puerto we earthquake securing Rico the ccc our Rico. that, US communities. beginning it the towns the non-profits in XXXX, to part do also worked Puerto $XXX,XXX and

we formats sense internship, continuity times. and addition, seminar converted maintain a challenging during to these financial virtual In of scholarship our program to

in and to conditions. to We COVID to customers, Please to challenging page the continue XXXX people help adapt changing X. communities turn and will our

As loan we higher you through this can adoption in pleased the technologies. our to XX,XXX all slide, payment online see I'm see banking our percentage and solution. continue bill digital with and made online appointments platforms in particularly

all strategic share items. COVID and million merger charges and $X.XX. charges and systems XXXX, our of merger life this quarter the operational earnings goals. customers X Please our easier consolidation In migration to in to spending. and All page Scotiabank achieved conversion should We related results. in It note build the in It on on major in and our three restructuring per of likelihood, during turn for further $X.X XXXX. first to pandemic. $X.X review included that is $X.X helped for this important million we digital our made reported integration, restructuring also million progress in branch

expenses the from million. which that record million, That's Wealth All revenues but to XXXX, were income, revenues management $X are core were wealth higher due the million tax amounts came is business was in of XX% than additional $XX a rate was tax of management similar interest quarter Total back million million lower and quarter from it we being Approximately to third keep included a mortgages conversion. our Banking of were with our that million. the were quarter. sales $XX from Mortgage Also estimated insurance acquisition. $XX annual rate $X revenues to Net also was of of included Non-interest market tax in third the range. greater XX%. higher third Scotia million. in the these pre-tax. banking proportion $XXX XX% held anticipate $X in income commissions. a currently our mind, in because that secondary in insurance record systems

Excluding COVID-related This costs, cost $XX few and discuss non-interest will and which million. merger charge expenses the to in restructuring savings, significant amounted a minutes. Maritza reflects

Regarding with the million, to to anticipated, we as ratio a were balance at production continued CETX total under $XXX sheet, assets $XX to build capital continued solid increasing loan and had billion XX.XX%. be

day-to-day with improved see fees, loan trends, service to reflect credit regular continue production, activity. which we activity, a in numbers, our signs and sequential recovery stable banking payment solid at economic increase Looking of orderly

go detail. Now, in over to here's financials more the Maritza

Thank financial you, our José. Please turn for highlight. to page X

me At close XX%, value increased tangible focus. the $X.XX and and key common year-over-year more our to increased to with basis. improved close of quarter. book and share, average tangible per equity to The a of expenses, by areas was XX%. from merger basis ratio $X start on XX%. When X% Let to sequentially it COVID-XX it for you on third Return than efficiency $XX, adjust respectively, reported about points and assets XXX one

loan $XXX and additional $XXX Average and That COVID renew declined paydowns included Average increased, but declined been mortgage was deposits. million, was million. $XXX from balances yields commercial not our primarily million general with $XXX X.XX%. highlights. higher a loan line due on at due end-of-period X loan basis. balances our two and objectives. merger cost slightly prior page our quarter core million lending generation linked-quarter of million. charge these The to $XX deposit stood in to a certain the to of lending performance operational lending expenses, the turn for Please of more Excluding have solid At José auto methods to would mentioned, decision

two quality. continued credit the The review that previously in I Please to fall reserved basis decision margin balances during and point charge-off commercial was core sequential to Scotiabank cash cover result to X.XX%. at a rate increased reflects loan a of deposits loans time substantially $XXX $XX.X result, acquired interest net million. [indiscernible] turn the The decline was $X.X X cost million basis Average That quarter. acquisition. As the XX Scotiabank Provision points. to just from that the of our to acquire page net mentioned. million the was increased includes to X to to X.XX%. to This charge-off

XXXX non-performing loan to rates X.XX% PCD deferrals total non-PCD decreased remained at X% to First X.X% second of non-performing steady and quarter loans while rate fell fairly quarter of the loan loans for X.XX%, from The from loans for in XX% XXXX. X.XX%. prior in quarter loan

Scotiabank stockholders' quarter common equity increased the capital, ahead year-ago increased when tangible to X% The ratio Please year-over-year. we made the first to equity to savings Turning period of the X% for half of sequentially turn XXXX X% most the we holding X. due acquisition Scotiabank. off quarter. fourth After the completed in page prior the of pandemic, and of and program both cost the to

completion annualized we million of in $XX conversion, or exceeding million $XX the the system original realized our With savings, estimate of about X%.

as Long leverage. from to these our in committed up continuing ahead, in about to expect term, XXXX increasing of reducing two-thirds plan we we investment step we business operating Looking benefit and of savings model. are expenses to the transformation

ratio objective mid-XX Our efficiency the to an in return is to range.

for outlook XXXX. José here is for Now, his

ability to culture, you, team economic approach to Please history, to XX. quickly Thank conditions. our Maritza. as believe to changing turn adapt most as respond our well business, demonstrate and page recent and We our results,

continued good strong in develop loans. and core the pipeline During new quarter, momentum build of fourth our we businesses to a

We and balance sheet, financially strong very have positioned a well strategically.

areas. Our improve grow further agenda performance in all clear – and strategic advance operating XXXX our for is plan to

continue to increase need and enhance we plan future to in that, For to I further as generation the serve loan income. invest our to operations, further operating simplify to And for mentioned, ability increase we growth customers. leverage,

still should and as telecommunication, of short Thank rise challenges Operator, come. up relatively government We're time. of Rico are end reconstruction starting major direction very Puerto their to that and influx than largely customers Islands. Rico, few. period believe as multiple will Q&A. we are With because but on effective economy have from of COVID, important, from the more the people the the amounts are more end production and listening. all formal lives the economy effect we they quarter. government with recovery employees their electricity, we'll Islands last move to the of we We brighter. is pandemic. the vaccines human have the OFG lives the again, lot while new of outlook If in ineffective you proven this, the to our COVID. role and of levels, administration Key been and fulfill future businesses areas of than of infrastructure, Puerto balance in a all high about suffered Puerto name to Washington, that receiving in face effect With the play But here the also is just families, and diversified cusp is the the in and funds expected, approved We A Rico and several elsewhere. Our US small although at the looks US optimistic world, for the let's Virgin on help and see and regards operations, right in federal against vaccines Virgin that's and a significant have a a years the ready stimulus efficiency. for around distribution COVID our on the and successful the hopeful funds I'm presentation. very start talking resilient to improved benefit sheet of not unemployment

is And Instructions]. from Piper first with question your Alex [Operator Sandler. Twerdahl

with your of next and checks over how actually stimulus Rico of Hurricane start the sort that to on some down well both relief of will sort and want money about first I OFG impact quarters. flows to the get at just Maria of comments stimulus flowing deposit additional off as Puerto of couple money those some thoughts as cash

question, tough a Alex. That's

it $X,XXX year first and with the You here and Act, States. in the CARES saw the happened also the checks. Rico, in what last not It Puerto only happened happened PPPs

coming we in stimulus the the intention state packages, and administration of a new have given coming with So, additional pandemic. announcing Washington COVID the as they're of up

I but Rico flow those to certainly funds. through think easier to will stimulus it's that Puerto hard the of deposits, those level programs And of the predict also. predict economic impact to

I from an think I to Rico think United and Puerto also. stands States, the benefit plan also that is telegraphing the administration for infrastructure

the So, amount will addressing about the and significant when I reference will more the it longer that impact have economic Rico, term I'm Puerto and on direct flow really that term. funds remarks the make to short

the and OFG, we best interest the our expect perspective to given we Virgin sheet, Puerto the balance help certainly higher that So, US those liquidity higher balance balances. larger operate. that it's to have deploy a our economy on to in have sheet, Rico from We will areas and Islands, at operating deposit deposits, excess

I the or another do to sheet of have deposit billion of guess of in into where bit just kind digging do as given you more kind XXXX, defaults, manage flows for tools inevitable threshold just outlook way $XX it little in given view being assets that, the is of just, you still the all strong a balance is? that

working We're grow. to

through So, our the assuming in stimulus not, or in to radar. coming It's $XX the very it. they've regardless that go of close We're come, billion. we'll

year well Durbin. as keep do making at we oversight So, we with model mentioned in fees the on business make in That's probably way ourselves where as the in be sure we for work mitigates transform remarks, way the with keep regulatory why a sure We as hard we the that associated it's year that markets our we I a XXXX intensity sure cost where will operate. that we're from to and at that, making that invest, and our need very every a I alternative think good lower do the in And we ourselves it to it. as my customers that. it,

with by we're that the So, XXXX repercussions that also back just sure we on on year to $XX you it term. the will to the a end short planning be of most billion. where want make likely deal the understand we go But

the the term, impact in on from Durbin what $XX And is the billion? short crossing

into the Short term, comes effect. the Durbin the none. at year day, At end end it's of of the where

after So, date. I six billion crossed the $XX of effect believe, this if Durbin will an by end the have months, we that year,

mitigation of So, it's costs billion. not there the further the XXXX. passing probably regulatory of push believe terms standing XXXX It's I that into some $XX the a cost end that will And in of from event XXXX. is orders side

around still maybe for almost whether that of you've with Now at that costs. promotions the to us time give the deposit you could conversion, of you're X.X% just they're costs how off I we balance a just higher or billion about forward? of know got deposits beginning can were roll over sort of thinking how sheet some systems we to those that or XXXX. you not going sheet But should the during some balance sense And the done on quarter. specifically, be the have the $X going roll reprice NIM in ones apply that and fourth

the those higher deposits we mature. of benefit they from years were did couple of And quality Scotia be will the a the of at repriced some point CD to campaigns Most and back ago. CDs those market effect over rolling according acquisition part They're are that that will of at conditions XXXX. that of OFG through and

many or next mature year even? the for Do in this how you a months have six sense

to million. Like $XXX million $XXX

Just me. final for question

guide, Just slide, I branch a number. for the talks expense branch remember is it the helpful right, never this very as were about I consolidation look cost XXXX. saves expense contemplated the and in original for consolidations at If

So, think of we the run including as, sort should branch cost about the as expecting expenses, some said, saves or that investments? well we both closures additional additional is you should how that be rate of

again, the not closes taken branch you're include do the the branch seeing closings numbers yet. have place not because that

seeing yet. So, those not you're savings

branch They're their each other, from So, the closures located very the acquisition. is look way closely at i.e. we more to the redundancy.

also we're other this those going branches, with where keep We need business areas at volume. the to deal the And close need So, redundant we'll looking we those we're additional have resources. some of most but some need resources the way We to relocated to with the personnel. to going to we're deal to activity. add is of

XX% that XXXX. But the precisely So, that branches you million is at we $XX what the do of in yearly expect into not from flow reference XXXX. to the benefit will significant when seeing, seven expenses and will eight the slide we closing in look amount cost of we expenses, a make we're through coming or be

question next KBW. of Manna is Your from Glen

And you to in any wanted securities kind better bit. I equivalents balance out? sheet what be follow-up Do excess any cadence play about how is a liquidity was you you on that the billion books have of now. And with almost and of just Alex idea on comfortable asking cash right have to the going the book? the deposit putting would of into $X.X

XX to hard Puerto the years, in Again, take XX spot rather unforeseen next spread. very moving in the is it's several We for think in a risk. us has event. justify and going long basis nice economy credit with towards any stabilized or duration We'd barring points Rico

because deploy the there in not there three So, Certainly, in is It's we going world everyone we look one in market or quarter banks, I the United that Puerto way liquidity have economies to and where one in think States enough to it's at the significant, into year. for a going is liquidity. take of and island are and the the particularly Rico. flowing in the their happen amount their this to is a only cash while is

and/or it's modeling a the portfolio while. the I were that showing on and end, interest we So, see some assets not future, take going don't us long to rates Glen. the But expecting unless increase, into start deploying into securities

quarter, were million production than sales the had from quarter third in run It had that down the looks banking sale quarter. mentioned mortgage million. fourth see and gain back here on banking third first we $X Are little still in Are about stay held the from for a was You at to going held back you held mortgage that normal $XX that anything better about loans its loan bit? mortgage elevated that's quarter the for was to like drop quarter? to going Is a for next there high we bit rate?

think to to look $X stay it's million, but going I don't think – it's elevated. to it's I going more be going

$XXX as mortgages paper. we in quarter. that and generation close paper, side, the is million agency to Most are think a the you doing I saw production conforming on loan of

again, So, least want we'll have reasons so don't it, I originate embedded risk X.XX% right portfolio, explained now. credit model mortgages up, and sell, the least for add securities a now, little to at for as at that. at same we rates that hold XX our under in go some year bit. rather We earlier and interest Later,

at we're remaining banking which elevated is we see mortgage that that originate having rate, model So, given yeah, in, the we're and the and operating activity an sell. originations

that. see you'll So,

that Well, seasonal was amount the you saw year? and the I think run from three rate have eye you year? would it's next something think And don't first, next insurance down Do prior do or in insurance Scotiabank, drops this special quarters of suggested we there really that kind anything then to do on think pickup that year popping. you it think in similar a was that.

you property Scotiabank, that the significant including and And servicing, When components Glen, us question bought and the seeing and added – of of we business of insurance, one on insurance to that that was scale the because insurance. insurance And me have I'm what's is that did correlated to the mortgage, not you're one title main it. asked we mortgage glad the that other tightly insurance. was scale, the dwelling other benefits insurance. two insurance,

dwelling other and increased servicing that we're those commission insurance our the to our year, portfolio the business used that also steadily we serve that the fourth what part are our insurance only agency from we incremental are oriental side. acquisition, when look that insurance have clients So, quarter, getting commissions. of you prior to not from we from this look we're contingent, get And when at we benefit have but the you getting at

the we're year that and to So, commissions increase in at replicate in of this equally we the insurance with coming end the also. expect happy of quarter the year fourth

starting payoffs two on about you you're expecting what maybe loan We're ex-PPP next just thoughts round PPP two, if growth you're from round if PPP two. year. round just for discuss could one then you your of discuss could and next And the thinking cadence round year? PPP Maybe and

First, the first round you year. last did saw we what

market. we it's we but and books, is on you given XX% here digital you little COVID have I challenges in and all getting our think the we things sheet our round, past that, the balance teams a of did generating be PPP. on I we'll not differentiating the bit And of is all nuts record an last and did are to second what think to the new book, did, what to soup When internally changed reached we generation, high a through and XX% the those significant we the some loan year was a is on PPPs. outstanding the loans, and probably And less think approach, maybe demand on see way which last integration a year. work job the externally, in With all the given see for year, or this excellent north which regards loans. in only I There's team those there the the also loans loans us amounts, going incrementally will got now second have see probably to that rules but round. on the what

I think good very a on momentum right we're now.

a see the Same and them are particularly and close we a those to help we're see I lending trend. is on the very and we'll auto times, get smaller close one out, think clients business mentioned the to we how we're channel teams and with trends business these areas Small and our strategy we and mortgage, during earlier. way as demand, executing help retail that environment. to difficult where difficult continue good I and of how happy good remaining good with at very them professionals our how navigate

larger commercial pipelines I on very think good On the have we lending, all.

ballpark. more banks, lot lot of that I do they ways market We competitive all landscape tickets. think feel with a to we do we The And too. our, a don't here big of that the it we have should appetite the in three is competitive. don't within say, frankly, is that segment want for

we're And at to from we momentum, keeping want see strategy. within get becomes of let's our so, little because We let's of when guardrails side. don't the equation, say, side it of the look that it, undesirable, profitability outside ourselves a we good but our, call it

Thank for questions. no you. there call to over now the closing further turn remarks. back time, At I this management are will

that you, And look in and you listening together. operator. end panic for forward all healthy Thank get the I safe back today. everyone the and of thank stays all hope to can and we

in see next and Looking a call. forward to you Thank healthy year the you.

conclude does This conference you. call. today's Thank

disconnect. now may You