OFG Bancorp (OFG) 2016 Q1 法說會逐字稿

Good morning.

My name is Crystal and I will be your conference operator today.

Thank you for joining us for this conference call for OFG Bancorp.

Our speakers are Jose Rafael Fernandez, President and Chief Executive Officer and Vice Chairman; and Ganesh Kumar, Executive Vice President and Chief Financial Officer.

There is a presentation that accompanies today's remarks.

It can be found on the Investor Relations website on the homepage, or on the webcast Presentation and Other Files page.

Please note that this call may feature certain forward-looking statements and management's goals, plans and expectations, which are subject to various risks and uncertainties outlined in the Risk Factors section of OFG Securities and Exchange Commission filings.

Actual results may differ materially from those currently anticipated.

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

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

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

Thank you for joining us this morning and welcome to OFG Bancorp's first-quarter conference call.

As always, I will provide an overview of the results and then Ganesh will review the quarter.

Please turn to slide 3. We are pleased with the results of our first quarter in which we delivered a strong performance.

This is particularly so after a tough 2015 when we terminated our commercial share loss agreement with the FDIC and executed on other derisking efforts.

During the first quarter, net income available to shareholders totaled $10.7 million with an earnings-per-share at $0.24 fully diluted.

This compares to a loss of $4.4 million or $0.10 per share in the prior quarter.

As for our business activity, total customers increased at a more than 4% annualized rate from the end of last year.

We originated $226 million in new loans while maintaining our traditional discipline in credit and pricing.

The Oriental retail franchise continue to grow.

We introduced another innovative feature for our retail clients -- Cardless Cash mobile phone ATM access.

This was another first for Oriental Bank and for Puerto Rico, and adds to our long list of innovations in the Puerto Rico banking market.

Credit quality continued to improve.

Net charge-offs declined 37 basis points with early delinquency trending lower.

The provision for loan losses fell close to 19% from the fourth-quarter 2015 provision adjusted for PREPA.

And our balance of Puerto Rico investment securities declined more than 60%.

As a result of the proactive steps taken to significantly reduce our total Puerto Rico government-related exposure, Standard and Poor's last week raised our outlook to stable from negative.

Looking at some other of our metrics, net interest margin increased to 4.67%.

Last year's rightsizing efforts have reduced our noninterest expense levels.

The efficiency ratio improved to the lowest levels we've seen since the first quarter of 2015, and we ended the quarter with a continued solid capital position.

Tangible book value per common share increased to $14.68, and the tangible common equity ratio at 9.50% increased to the highest it has been in five quarters.

Now here is Ganesh to review the quarter, after which I will make some closing remarks.

Thank you, Jose.

I'll start with page 4. Here we present you a dashboard of our key business trends.

We dealt well with the loan originations to keep it close to the prior quarters.

In addition to having some seasonal effects this quarter, overall the loan demand continues to be soft with competition intense.

The inflows were just enough to compensate for the outflows, resulting in slight increase in originated loan balances.

The loan portfolio yields are holding steady at 6.2%.

Demand deposits and savings account balances grew more than 5%, primarily coming from higher commercial account balances.

Costs of deposits went up 6 basis points.

This was due to primarily temporary high levels of broker CDs held to meet intra-quarter asset liability needs.

Fee revenues declined by $2.2 million to $17 million, partly due to lower management fees.

Efficiency ratio, as Jose mentioned, improved to 59.6%, as we continued to optimize the expense base while investing in customer-facing technology.

Please turn to slide 5. Here are our new loan originations, excluding renewals, for the quarter as compared to the previous quarter.

Residential mortgage originations were down.

Our focus continues to be on conforming mortgages segment.

Despite the increase in market share with the exit of a bank last year, the total originations are down due to downward market trends.

We did well in commercial lending, with originations up roughly 5%.

We continue to make inroads into small and midsized business segments.

We also have a good pipeline for the second quarter.

Consumer originations were down typically coming out of a holiday season.

We saw good growth in this category in 2015.

We expect another year of expansion in 2016, as we continue to refine our business approaches end-to-end.

Auto loans were down a little.

New car sales have dropped around 25% in the last two years.

We are working to offset this trend by expanding the volume with our current dealers.

We hope to stabilize originations at these levels.

Notwithstanding, we remain steadfast in maintaining our credit underwriting and pricing discipline in all the areas of lending.

Let's look at our fee revenues.

Banking revenues were flat but in line with expectations.

While Wealth Management revenues dropped 20% last quarter, we had $1 million in year-end annual insurance commissions.

Nevertheless, we see significantly lower client trading volumes in our broker dealer, as our clients continued to adopt a wait-and-see approach to their investments.

The decline in mortgage banking fees is due to the lower levels of secondary market activity this quarter.

Please turn to slide 6. Let's review the first-quarter results and key differences from prior quarter.

We are presenting our first-quarter as reported because there are no effects from nonrecurring items.

There are three quarter-specific transactions with the net effect of [zero].

First, we exploited temporary market conditions in February to partially unwind $268 million of a $500 million repurchase agreement.

These [at] a cost of 4.78%.

Loss on this transaction was $12 million.

The $230 million remaining balance on repurchase agreement is due March 2017.

Second, we also were able to exit all of $12.8 million of PRIDCO and PBA security positions.

The loss for this was $4.1 million.

These Puerto Rico securities have an average yield of 6.6%.

Lastly, we were able to offset the losses by selling $272 million of mortgage-backed securities.

The MBS positions had an average yield of 3.53%, effectively a negative carry for approximately $3 million a year in relation to the above-mentioned [PRIDCO] funding.

Compared to non-GAAP results of the prior quarter, interest income declined $1.6 million.

As you can see in the Table 5 of our financial supplement, this was due to lower balances in acquired loans and in investment securities.

In turn, this was partially offset by higher balances in originated loans and higher yields on cash equivalents.

The reduction in interest income was more than offset by $1 million reduction in interest expense and a $3.2 million reduction in provision.

The reduction in interest expense reflects the lower balances and repurchase agreements, partially offset by higher costs on broker CDs.

The reduction in prohibition reflects lower net charge-off trends.

This is a function of our proactive management of credit servicing and refinements in our collection efforts.

As I discussed on the previous slides, total banking and financial services revenues declined $2.2 million.

The rightsizing efforts we had implemented also drove down the reduction in G&A expenses over the last few quarters.

Additionally this quarter, we had lower credit-related expenses due to the credit servicing improvements I mentioned earlier.

Separately, FDIC loss share expense increased $1.2 million.

This reflects prior quarter valuation changes in the covered mortgage portfolio.

Please turn to slide 7. These are the underlying trends in our loan balances, net interest income, and net interest margin.

In terms of loans, we are holding loans steady, balancing new originations, and our stringent credit standards.

Regarding the net interest income, as you can see from the trends, the effects of lower cost recoveries and outflows from higher yielding acquired book are quite evident.

Most of these outflows came from our significant reductions in Puerto Rico government exposure, normal paydown of our acquired loans and derisking of our acquired loans as well.

In addition, we also had the sale of securities this quarter.

The total balance sheet is much smaller now compared to two years ago, but with most proactive actions we have taken, we hope to maintain the balance sheet at this level.

As to the NIM, it is slightly larger due to improved yields in our acquired portfolio and for the cash positions we hold.

We are also actively managing the spreads, as evident from the quarter-specific transactions I explained on the last slide.

Yield on acquired loans will be choppy based on forecast revisions and cost recoveries.

If the economy continues as it has been, the credit performance of these originated loans should also continue the current trends.

We are targeting a 4.4% to 4.6% range for the NIM over the next few quarters.

However our focus is on the [owning] asset balances at acquired portfolio models assume faster reductions.

Please turn to slide 8. We continue to reduce our government-related exposure with minimal losses.

Balances have declined more than 51% since 2013.

This quarter, we saw a reduction of 6% with: one, exit of $12.8 million of PRIDCO and PBA securities; two, a $11 million partial prepayment from Housing Finance Authority; and three, $3.6 million from PREPA payments.

Regarding our outstanding PR government exposure, first are our loans to municipalities totaling about $204 million.

They remain approximately level with the end of the last quarter.

These are loans and not securities to five of the largest financially sound municipalities in Puerto Rico.

They are performing and are serviced from the property tax proceeds held in a separate trust account in private banks.

Regarding public corporations, our sole exposure now is our credit to PREPA.

Outstanding is $187 million or down 2% as the cash flows are applied to the principal as the loan is in nonaccrual status.

As of last quarter, we have a specific reserve of [$53.3 million] against this credit.

According to the restructure support agreement between PREPA, the bondholders, the monolines, the banks, and the government, there are few specific milestones to be achieved before this credit is finally restructured.

In the central government category, our loan to Housing Finance Authority is down to $11 million or about 50% from the end of the last year due to the prepayments I mentioned earlier.

This loan has payment guarantees using abandoned deposits in Puerto Rico financial institutions.

Finally, for investment security is down just to one position with the face value of $6.7 million, which is mark-to-market on our books.

This is Highways and Transit Authority (inaudible) bridge revenue bond.

It matures July 2018 and has a 5.5% coupon.

As you might know, the bridge was a PPP project and is currently operated by private companies that have the payment obligation.

Please turn to slide 9. As you can see from all of our metrics, credit quality continues to improve and have generally been improving over the last five quarters.

As we have mentioned before, we believe the positive trend is partly due to the benefit consumers and businesses are experiencing from lower oil prices.

But we also congratulate the stellar performance of our credit servicing teams.

They are continually adapting to ever-changing operating conditions.

Despite these trends, we believe the economy remains very fragile.

In particular, we are keeping a watchful eye on the delinquency levels in residential mortgage loans and consumer credit loans, in particular, credit cards.

Going over to slide 10, we have updated our levels of credit exposure for all originated acquired and covered loans that are 90 days or more delinquent.

Please keep in mind these are ledger balances.

As such, they exclude all allowances, purchase accounting and FDIC loss share.

Our overall outflows continue to exceed inflows.

This has occurred in 10 of the 13 trailing quarters.

This shows our favorable trend in credit quality.

The total has continued to drop.

At the end of the last quarter, it was $470 million.

Out of this, $162 million is in the acquired book.

Remember, this is the ledger balance and not including the purchase accounting.

The remaining $308 million is from the originated portfolio.

Of this, $187 million is PREPA, with a specific allowance of [$53.3 million] I mentioned earlier.

Another $121 million is from other credits, mostly residential mortgages for which the bank has a general and specific allowance amounting to $11.3 million.

Additionally, you can see from our Table 3 in our financial supplement, OREO repo balances have continued to decline as well.

They are now at $61 million compared to $64 million at the end of the last year and $114 million a year ago.

Please turn to slide 11.

Our capital ratios continue to exceed the requirements of a well-capitalized institution.

In addition, our capital levels are up sequentially and continue to be significantly above the levels at the end of the 2012 when we acquired BBVA PR.

On slide 12, you can see our tangible common equity.

We ended the quarter with [$644 million] or $14.68 per share.

The TCE ratio was 9.5% despite the derisking moves that we took in 2015.

With our return to profitability in the first quarter of 2016, we expect further steady growth of capital levels.

On slide 13, we show some -- the key quantitative trends over the last five quarters.

In particular, I want to highlight the adjusted diluted EPS, which eliminates the effect of the nonrecurring items we had in 2015 and shows the core earning power of the institution.

With that, I would like to turn the call back to Jose.

Thank you, Ganesh.

Please turn to slide 14.

To reiterate what Ganesh explained earlier, the proactive actions we took derisking the balance sheet, reducing our expense levels, and repositioning ourselves for the continuing economic hurdles ahead, are now paying off.

In addition, the investments made in training and technology during 2015 to continue our brand differentiation based on service and innovation are today validated by our customers increased service satisfaction level and by our continuing growth in new customers.

Going forward, our focus is to control what we can, remain profitable, and continue to build capital.

This has been our approach during the past decade of economic contraction and will not change until we see clear signals of economic recovery in Puerto Rico.

With regards to the Puerto Rico government's fiscal situation, our first priority remains to closely monitor developments on the PREPA front.

Beyond that, we are encouraged by the fact that some form of US Congressional action is imminent.

This ends our formal presentation.

Operator, please open up the call for questions.

(Operator Instructions) Brian Klock, Keefe, Bruyette & Woods.

Hey, good morning, gentlemen, and nice start to the year.

So, Jose Rafael, with -- I think what was interesting on slide 14, when you guys talk about controlling what you can, I think you've done a lot in the last year that we didn't get to see because of all the noise.

And actually it was nice to see a clean quarter.

and actually see the impact of a lot of the balance sheet changes and things that you guys actively did to improve the core earnings power.

So I guess with all of that, I mean, you guys are still working hard and working on the bank.

I guess everyone reads in the news all these stories about the fiscal situation and the struggling economy, but the fundamentals you guys have put up are pretty good for the quarter.

So maybe you can tell us what's really going on, on The Street?

What are you hearing from your commercial and consumer customers?

And what's the disconnect still between what people outside of Puerto Rico think about what's going on there and what's really going on?

Yes, Brian, I completely agree with you.

We had a very busy 2015, making sure that we derisked the bank from a non-desirable credits deal with the FDIC share loss agreement, and successfully managed that out, especially the really risky loans from Eurobank that were remaining on the balance sheet.

We certainly have done a stellar job bringing down the Puerto Rico government exposure during the last two years.

And it seems to me like only us internally realized not only the effort but the consequences of that effort.

Nobody else kind of believes us.

So it was a frustrating 2015 year here internally because nobody was giving us credit for the things that we were building towards the long-term.

And I'm speaking here about not only the market but all the constituents that banks have in general.

Having said that, though, and giving me the opportunity to vent a little here on what happened last year, we're very happy with the 2016's first-quarter results.

It clearly demonstrates that the efforts and the job that was done last year are paying off now.

They will continue to pay off.

We are very experienced managing the dynamics of the Puerto Rico economy.

We've done it for 11 years.

And we continue to show that we can do that very successfully.

What we're seeing here on the ground is certainly an economy that is stagnant.

It's not falling off a cliff.

It's an economy that is benefiting from lower oil prices.

Certainly that has helped.

It's an economy that continues to benefit from low interest rates; that helps too.

But it's an economy that has also been challenged by the inefficiency and ineffectiveness of local government officials and politicians in general -- here and in the states -- to tackle the issues that need to be tackled.

So there is certainly, from our commercial clients, there's a high level of uncertainty.

They are holding back.

I think after 10 or 11 years of economic contractions, successful business people and successful businesses have managed very well.

And we have very good industries here that are on the sidelines waiting for things to show some clarity before they put money to work.

And that's very frustrating, because we do have a potential here to turn this thing around.

And until we don't get some clarity from the political and governmental entities here and in Washington, that uncertainty will remain.

And it will be certainly a distraction from the important things.

So I just think that what everybody is reading out there is affecting the perception on Puerto Rico.

It goes all the way from the fiscal imbalances and the noise out there, all the way to Zika.

So, to me, it's all an exaggeration.

And it's something that we need to deal with.

In the meantime, our commitment is to continue to generate earnings, continue to build capital, and not do anything crazy, because we are on the wait-and-see attitude as well as all our commercial and individual customers are here in Puerto Rico trying to decipher what's going to happen.

I appreciate that.

And again, like you said, I think that everything you talked about, you guys continue to build up capital and clean up the balance sheet and strengthen the balance sheet.

So, hopefully the fiscal situation gets cleared up soon so you can actually capitalize on that with how you've set yourself up.

Yes.

I agree with you, Brian.

I also think that we continue to do what we've been doing; eventually the market will catch up and realize that it's unwarranted -- the evaluation that we are having.

Okay.

And I just have this one follow-up question, I guess, for Ganesh.

The nice margin expansion -- again, you guys did -- you know, you worked on the funding side and on the earning asset mix.

The guidance seemed to be for the potential for the margin to go down from the first-quarter level, but it seems like the repo benefit could impact -- positively impact the second quarter.

So is there other things that you're thinking that could be a -- that could pressure the NIM from here?

And on a spot basis, at this point in time, the margin expanded, as you observed in your notes, Brian.

We have to keep an eye on the funding side, on the liability side costs, as the interest rate goes up.

So, you know, I think that's why I'm being cautiously optimistic, given that guidance around the [450] range, give or take 10% -- 10 basis points here and there.

Okay.

And then really, I guess if that's the case, even if we drop the margin down a little bit, you still have a pretax pre-provision ROA that's, what, north of 180, 185 basis points?

Correct.

Okay.

All right.

Thanks for your time, guys.

Yes.

Thank you, Brian.

Alex Twerdahl, Sandler O'Neill.

Just to expand on the margin conversation that we were just hearing, the 4.6% -- or 4.4% to 4.6% range, is that inclusive of cost recoveries?

Or is that kind of a core margin range?

It's all-in, Alex.

Okay.

And when in the quarter was that liability restructuring or the borrowing paydown?

Is that kind of mid-quarter?

Or was it early in the quarter, later in the quarter?

Mid-quarter -- exactly mid-quarter.

Okay.

And then can you just remind us what the -- we get so many headlines here and it's hard to keep track of it -- can you just remind us right now what the current milestones are for PREPA as we look out over the next couple of months?

Yes.

PREPA just submitted the rate case for the SPV, so that was submitted to the Regulatory Energy Commission.

In the next week or so, they need to submit the rate case for PREPA itself.

And then in the next -- I think before the first week of May, the revenue bonds need to be issued by the bondholders.

I think $106 million or $107 million.

And lastly, the credit rating agencies need to come up with an investment-grade rating sometime during the month of end of May, beginning of June -- I'm giving you some ballpark figures there.

Those are the remaining hurdles, from the RSA perspective.

Those are what's left on the PREPA side.

Okay.

So potentially, if all goes to plan, which we hope it will, by the end of June, you think there could be a new investment-grade bond, which would replace what you guys have right now, and then that could be marketable?

Well, it could either be marketable --

I'm sorry -- our credit is not going to be replaced by the investment-grade bond.

No -- sure, sure, sure.

No, no.

We are a loan.

We are a line of credit that is now converting to a term loan, a six-year maturity, with amortization from day one at 100% without a haircut -- that's what the banks are going to get.

Your question about June 30 -- that's the plan.

I will consider that the most optimistic scenario, given all the things I mentioned at the beginning of the question session with Brian that asked me.

There are still a lot of noise going on regarding what the government is doing and et cetera.

So, I mean, to me, June 30 is a very optimistic timeline and -- but we will have to wait and see, and see how it all plays out.

Alex, I would also like to add we don't, in our operating assumptions or forecasting, we don't expect that to revert back to the accruing status for 2016.

Yes.

Correct.

Okay.

I thought that -- correct me if I'm wrong, but the banks had a choice to either turn it to a term loan with a six-year duration or to take the 15% haircut and turn it into an investment-grade security, which then could be marketable.

Why wouldn't you?

I mean you've already taken such a big haircut on this thing that it would kind of be a wash to earnings to turn it into that, and then you would just be able to continue to reduce your government exposure.

Why -- I mean, why wouldn't you take that path?

Well, those are decisions that we have an option to make still.

So when I -- when we respond to your questions regarding PREPA is, we are planning on a scenario of extending the line, but we still hold the option to convert into the security side, take the 15% and et cetera, like you explained.

So, it's not something that we have decided on yet, but it is an option that we still hold.

And we will continue to hold that option and make a decision at the appropriate time.

Okay, that's -- thank you for that.

And then you alluded in the answer to the last question about kind of some of the anecdotal things that you're seeing out in Puerto Rico, and how I think you said there's, from some of your commercial customers, maybe some investments that are sort of sitting on the sidelines right now waiting for some more clarity.

And who knows exactly when we're going to get that.

But can you give us an example of a customer who might be -- you know, just give us -- it doesn't have to be specific, but some sort of general example of what kind of customer that you can think of right now that would be waiting for clarity before expanding their business or making additional investments in the island?

It depends on the industry, but there is some small hotels that are being put on hold in the last several months simply because of they're waiting and seeing what's going on.

There's some hospital expansions that are being put on hold also to get some clarity on Medicaid/Medicare and on what the outcome there.

There are some businesses that are seeing opportunities to buy weaker players, and that will expand their share in their business and make sense for them to just do the acquisition.

And they are putting it on hold again, because they want to see how things are going to transpire here in Puerto Rico.

At the end of the day, I think it's pretty logical that they do that.

I think there's also the potential slight increase in electricity costs, given the restructuring that we're discussing on PREPA.

And even if oil prices remain where they are, there is going to be an increase in electricity prices, given the PREPA restructure.

That's part of the logic behind it.

So those are the things that are right now in the mind of business people.

And, to me, it's logical that they behave that way.

We're waiting to see light at the end of the tunnel.

And unfortunately, nobody is cooperating on that front.

Great.

And then just a final question just on the mortgage volumes, which I know have been under pressure in Puerto Rico.

Is that -- I mean, can you just comment a little bit?

Is that a function more of seasonality?

More of the macro uncertainty?

Or is it more of a function of some new regulations that came into mortgages?

And are we kind of now at sort of the level that you expect going forward for overall mortgage originations on the island?

Or do you think it can rebound?

I think it's more regarding the Puerto Rico market itself.

I think -- remember, this is a market where the average loan is around $150,000.

So, the underlying creditor is hurt.

So -- and certainly, the refinancing side of the mortgage equation has been affected by the appraisals.

Those loans have reduced in value significantly.

So I think there is a -- there's going to be -- this is a readjustment in terms of originations in the local mortgage, residential mortgage market, to a lower level.

I don't see this bumping back up until we see some increases in housing values.

And again, this is all connected.

So, until we -- until the markets see some clarity, there's going to be then some capital being invested in the island internally and from outside.

And then we'll see some economic growth.

It's a change -- it's Economy 101, guys.

And unfortunately, the people who are running the island -- politicians and government here in Washington -- they seem not to have taken Economy 101.

I won't quote you on that.

Thank you for taking my questions.

Thank you.

Emlen Harmon, Jefferies.

Just a question -- as we sit here, we are seeing some progress on a fiscal solution from Congress, but hard to put too much faith in the fact that that gets fully realized.

And it seems like it may come down to the line here in July.

I guess could you give us a sense of kind of what steps you're taking or what planning you're making in the event that there isn't some kind of a fiscal resolution in Congress, and the local government there needs to act to preserve liquidity?

Well, you know, the scenarios of -- no short-term solution to the imminent debt payments is where you have a government closure and you have a reduction of services in the island, but at the same time, you default.

So, there's a little bit of a balance there in terms of what the repercussions are from a central government perspective -- [easy palleting], et cetera.

From our perspective, banks have been all along well-prepared to deal with risks, and we look at this as a macro risk and we've been more than ready for the last three or four years as we have expected some of these outcomes to start evolving.

So, Emlen, from our perspective, we do have all the risk management tools at our hands to address this issue.

And we feel confident that, in spite of what the final resolution is -- if it's an orderly one or a disorderly one, we are more than ready to tackle those things.

Ganesh alluded earlier on how we've done with the workouts on the credits on the consumer as well as on the commercial, and those are part of our risk management strategies.

We don't wait for things to happen.

We proactively tackle those issues, and to be nimbler and more efficient for when and if the storm arrives.

Okay.

Thanks.

And then just kind of a two-parter on the expense side of things.

I guess, one, could you just kind of update us on your progress on BSA, AML?

And then also just any other opportunities to reduce expenses as we head through the year?

Yes.

On the expense front, I think we've done a very good job too.

And you see the reduction this quarter.

Going forward, we also want to continue to invest in our franchise, as we've done with innovation, and with training and service, so we can focus on our customers, which is what brings us here and makes us get excited about our business.

So we will not -- and I just can't say we're going to continue to reduce expenses from this levels, because we want to also invest in our franchise.

Regarding BSA and AML, this is a process that we continue to address.

Our examiners and regulators are involved, and we will update you when we have some news.

But at this point in time, we have no news to share with you regarding that.

But I want to add that we have already baked in the expenses on that front already from last year.

Great.

Thank you.

Okay.

Thank you.

Brett Rabatin, Piper Jaffray.

Nice to see some positive trends this quarter.

And I know we are all kind of waiting for action to be taken on the island over the Fiscal Oversight Board, et cetera.

What do you guys have left in terms of derisking?

Obviously, you are still dealing with PREPA to -- in that situation, but what else are you guys have sort of on your plate for derisking in these next few quarters?

We -- apart from PREPA, which we mentioned, we do have some commercial workouts that we are dealing with.

And -- but again, very low levels of nonperforming commercial loans and we proactively work on those.

We need to continue to focus on mortgage -- residential mortgage.

Ganesh mentioned in the call too that it's an area that we keep on focusing on, just to make sure that it doesn't deteriorate further.

But we don't have any big-ticket items going forward except for PREPA.

And as we mentioned, we are basically carrying at $130 million or less right now with all the provisioning and the applying of interest to principle that we've done throughout 2014 and 2015.

So we feel that that's our biggest focus, and the rest is just blocking and tackling.

And maybe there's an opportunity here and there to sell a nonperforming loan, but it's not going to move the needle like a PREPA would.

Okay.

And then just going -- you mentioned -- you talked about auto some and working with the dealers.

Can you give us maybe some color on what you're doing to try and bolster originations in that portfolio?

And I assume that's kind of the opportunity you see at this point in terms of improving originations?

Yes.

Well, new car sales are the ones who are significantly lower -- 20% or so, Ganesh mentioned.

But we are also seeing used car sales going up.

So dealers are doing a little bit of a balancing act now.

They are realizing less new car sales, but they are also generating more used car sales.

So the way we focus this is with the dealers.

We have a group of core floorplan dealers that we talk to and we visit, and we basically try to create some -- a particular marketing strategies with each one of them, given their market and given their brands, and help them to sell more new cars.

We also work with non-floorplan dealers that do business with us, and try to focus on them too.

And that's a strategy.

I mean, it's a matter of focusing on who our customers are, and trying to tailor them in a more targeted way.

And we are starting to see that.

Our auto business certainly is out on The Street trying to make sure that we stabilize our originations.

And I think it's a good asset for us.

It's a good yielding asset.

It's a good business.

And we will continue to focus on that to stabilize this and eventually grow it back to where it was.

Okay.

And then I just want to make sure I understood in the securities portfolio, what actions are you guys going to do from here managing that book as cash flow comes in?

Well, I think if there are market opportunities to invest at a threshold yield levels, we will take advantage of it.

But other than that, our purchases are going to be very minimum.

So I don't see improvements or enhancements in that portfolio unless it's -- market conditions are right, Emlen.

Okay.

Great.

Thanks for all the color.

Sorry -- Brett.

(laughter)

(Operator Instructions) Joe Gladue, Merion Capital.

Just wanted to follow up a couple of questions on the loan originations.

Just given the weak market, particularly in mortgages, but I guess I'll extend it to other loan areas, is anybody in the market stretching rates or terms or anything to try and maintain volumes?

From our perspective, we certainly are not.

But from some of our competitors, I would suggest that you ask them.

I don't actually think that -- especially on the commercial side, it's very competitive.

And everybody is going after the good credit.

So that becomes a -- really difficult from a credit and from a pricing perspective.

But, in general, I think things are stabilizing a little bit on that front, compared to, I would say, the earlier part of last year.

All right.

That's really all I had.

Thanks.

At this time, there are no further questions.

I will now turn the call back to Mr. Fernandez.

Thank you, operator.

Thank you all for listening in today.

Looking ahead, we will be participating on May 4th through the 6th.

Ganesh will be participating on the Piper Jaffray Financial Institutions Conference.

We've scheduled our second-quarter conference call preliminarily for July 22nd.

And we have -- we expect to participate on the KBW Community Banking Investor Conference in New York on August 2nd and 3rd.

So, until then, thank you again and have a great weekend.

This concludes today's conference call.

You may now disconnect.