OFG Bancorp (NYSE:OFG) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 10:00 am ET


OFG Bancorp (NYSE:OFG) Q3 2019 Earnings Conference Call - Final Transcript


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Jose Rafael Fernandez

decrease in the allowance for loan and lease losses due to improving asset quality trends in Puerto Rico. Second, we had a $3.5 million gain from selling $322 million in low-yielding mortgage-backed securities.

I'd like to point out the tactical as well as the strategic benefits of all these transactions. First, they further strengthened our already strong liquidity and balance sheet as we continue to deploy our growth strategy. Originated non-performing loans are now 40% lower year-over-year. Selling them enables us to free up resources, reduce related expenses and increase operating flexibility. Combined with our MBS sales, we have close to $1 billion in cash to fund our growth plans, including pre-funding our $560 million acquisition of Scotiabank's Puerto Rico and US Virgin Islands operations.

Second, our MBS sale also resulted in another major reduction in higher cost brokered CDs and wholesale borrowings, which are now down a total of 42% year-over-year. From a management point of view all of this gets rid of potential distractions, so we can focus all our attention on our integration plans with Scotiabank and our growth strategies.

Please turn to Slide 5 to review our financial performance. Net revenues totaled more than $99 million. While down slightly year-over-year, they remain up 3% year-to-date. A key factor in the third quarter was an 8.7% increase in originated loan income, which offset declines in income from the run-off of acquired loans and of investment securities during the mortgage-backed securities sales.

Core non-interest income continued at very steady levels. As a result on an adjusted basis, earnings per share came in at $0.48. Return on average asset was 1.65%, return on average tangible common equity was 11.18%. The efficiency ratio was 52.10% and reported tangible book value per common share was $17.11, up 5.4%.

Please turn to Slide 6 to review our operational highlights. Total net loans increased 1.2% to $4.4 billion. Growth of originated loans at 4.8% more than offset the continued paydown of acquired loans and the sale of non-performing loans that we announced earlier. Loan production totaled $291 million compared to $347 million in the year-ago quarter. Auto and consumer lending remained strong at $142 million and $48 million respectively. Commercial lending at $66 million reflected continued growth of small business customers.

Core deposit average balances increased 3.4% to $4.6 billion approximately. This reflects growth in commercial loans, net new customers and our larger core retail funding base. Loan yield declined 7 basis points, reflecting higher returns on originated loans and lower yields on acquired loans. Originated loan yield increased 11 basis points from the net effect of Federal Reserve rate hikes last year and a larger proportion of higher-yielding originated commercial and auto loans in the portfolio. Core deposit costs continued to remain relatively low, up only 18 basis points year-over-year. The end result was a net interest margin of 5.35%.

Please turn to Slide 7 to review credit and capital. The net charge-off rate and provision obviously increased as a result of