OFG Bancorp (OFG) 2011 Q2 法說會逐字稿

(audio in progress) help us not only reduce our cost of funds from an institutional point of view, but also improve our income levels. And certainly our return on assets and return on equity will be achieving the targets that we planned for 2012.

That in addition to what we mentioned earlier in terms of our loan growth and our commercial business continues to expand.

Okay, great. Thank you very much.

You are welcome.

Joe Gladue, B. Riley.

Just another quick one or two. I guess you also had a reduction in compensation expenses from first quarter to second quarter of I guess close to $500,000. Is that -- just wondering what is driving that and if the second-quarter level is sustainable?

I think the reason why the first quarter is higher I think if you look back a couple of years back, you will always see the first-quarter income position higher than the second quarter. It has to do with bonus payments and it has to do with the Social Security taxes at the beginning of the year. The maximum level is attained during that quarter, etc., for the highly compensated so that is kind of what is driving it, Joe, from a comparison basis.

Jose, just to add and following up on [Chris'] question which is similar to Joe's question, we have to keep in mind that we are now comparing June to the June 2010 quarter, which was the first quarter after the Eurobank decision. So in that quarter was the first quarter we really had most of the expenses of Eurobank that we later -- that really saved some.

So there was still -- regarding the other taxes, there were property taxes and municipal license taxes for two months on some of the Eurobank branches that we later decided not to keep. So that affects also some of the compensation expenses that now we see this quarter lower than the June 2010 quarter. So that was really the main explanation for [Chris] question and also related to Joe's question.

Thank you, Norberto.

And just wondering if you could just give us a little bit, I guess, better or more detailed explanation of the tax benefit for the quarter?

I would say that there are always some disputes (inaudible) with the Treasury department or investigation by the Treasury department on certain prior-year tax returns. Depending on the ongoing results of the reviews of the tax returns, we have to set up some reserves or contingencies, if you want to call it that way.

And in this case, of the years that we finally settled at the end of the quarter with the Treasury Department, the amount that we eventually paid to the Treasury Department at settlement was less than what we had, let's say, accrued or reserved for such income tax contingency. So since the -- we achieved the settlement and the contingency reserve was no longer necessary.

All right, thank you. That is it for me.

Michael Sarcone, Sandler O'Neill.

I just wanted to follow up on asset quality. So we saw an increase in commercial loan non-performers this quarter. I know you guys said that was due to mainly one relationship, but can you just give us your thoughts on asset quality going forward in the commercial loan class and then overall asset quality?

I think from an overall the most -- the majority of our non-performing, as you know, are residential mortgage loans. We are seeing three or four quarters in a row where we are keeping a stable level of residential mortgage loans non-performing.

From a commercial lending perspective, we noted the commercial loan that we had entering the non-performing. It's an isolated loan and the trends that we are seeing from early delinquencies are certainly very

Very small, very small.

Yes, very good. (multiple speakers) I would like to turn over to Jose Ramon for him to give details.

The performance of the portfolio right now is excellent. The one loan that we took as non-performer, although it in fact is still in very early stages of non-performing, is a long-standing loan that dates from before the current economic recession.

It is well secured, but if you take that out the performance of the portfolio has very low non-performers and very low early delinquency, i.e., 30- to 60-day delinquencies, at this moment. So it is doing very well and is very high quality.

But we took a conservative approach with respect to this $8.5 million non-performer anticipating a deteriorating situation for the Company and its operations, but in fact it is in very early stages of non-performing.

That loan is really --

In fact that loan is paying.

It's paying but not on a consistent basis, so technically it was not, let's say. 90 days past due. (multiple speakers)

But we believe its operating indicators are such that it is in serious danger of becoming non-performing and we, ourselves, believe that it should be classified as such.

Right.

But it is in fact paying. So we are being very conservative knowing past recent history in Puerto Rico and taking into account this sort of deteriorating situation ahead of time so we can prepare for it and reserve for it adequately. With that qualification in fact, we can pretty unequivocally say the quality of the portfolio is extremely good.

Okay, thanks. And on the reserve levels I know you continue to build a reserve on non-covered loans. Any color on that going forward?

Yes, I think we will continue to do so. Our provisioning is around $3.8 million this quarter and our projected charges remain the same around $10 million for the entire year or maybe a little less than that for the year. So based on that we will be continuing to build our loan-loss reserve.

Okay. And then just last question for me. On the marketing expense for the second half of 2011, can you quantify that?

Not in detail, but if we have right now $1.5 million for this quarter and we went up from $1.2 million, I would say that we would have, let's say, $500,000 more next quarter. And the last quarter I will update it in the next quarter's call.

Okay, thank you.

At this time we have no further questions. I will now turn the floor back over to Mr. Fernandez for any closing remarks.

Thank you everybody for listening in today. We look forward to talking to you again when we report third-quarter results. I appreciate your time and I hope you have a great weekend.

Thank you. This concludes your conference. You may now disconnect.