Good morning. My name is Paula, and I will be your conference operator today. Thank you for joining us for this conference call for OFG Bancorp. Our speakers are José Rafael Fernández, President, 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 in the Investor Relations Web site on the homepage in the What's New Box or on the webcast, presentations, and other files page. Please note this call may feature forward-looking statements about management's goals, plans and expectations, which are subject to various risks and uncertainties outlined in the risks factor section of OFG's 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 conference call over to Mr. Fernández. José Rafael Fernández: Thank you for joining us this morning, and please turn to slide three. We had another quarter of strong steady performance, earnings per share of $0.26 was slightly better than the prior two quarters. Our Oriental franchise continue to do well. New loan origination totaled $227 million in the third quarter, in line with our target of about a billion dollars a year. We saw a nice expansion of net interest margin, excluding recovery, and retail and commercial deposits grew more than 2% due in part to continued growth of net new customer accounts at an annualized rate of 4%. Most credit quality metrics remained stable, but there was a major decline in net charges,…

Thank you, José. I'll start from slide six, covering the loan generation volumes for the quarter. We closed $227 million in new loans in addition to renewals. While lower than the last quarter, it is within the range we have seen over the past few periods. Mortgage production was lower. The overall market is down 18% year-to-date and our loan originations are in line with this trend as well. Commercial originations were within the range; nothing unusual to mention here. Consumer lending was robust. We continue to refine our direct marketing techniques and the origination to disbursement processes. Auto lending was a little off considering car buying activity is highly sensitive to events like the September blackout, we did not have a meaningful impact. Moving on to non-interest revenues, banking fees were up a little, caused by usual fluctuations in the transaction volumes. Wealth management fees were down. In second quarter, we recognized certain annual broker dealer and insurance fees. Excluding this, third quarter results were similar. Mortgage banking revenues were up strongly reflecting better margins on secondary market sales and from higher MSR evaluations. We continue to be an originate-to-sell operation, focusing on high-cycle confirming loans. This quarter we successfully completed our efforts to bring mortgage servicing in-house. Previously we had used another bank locally to service these loans. Please turn to slide seven. Trends in this quarter's income statement are somewhat similar to last quarter's. Interest income from loans increased approximately $3 million. It included a $2.2 million cost recovery on an acquired former Eurobank loan. Originated loan balances and yields grew and the acquired portfolio run outs were as expected. Excluding the cost recovery loan income increased slightly over the prior period. Securities income fell slightly due to variations in premium amortization in our MBS portfolio. Interest…

The floor is now open for your questions [Operator Instructions]. Your first question comes from Brian Klock of Keefe Bruyette & Woods.

Hey, good morning guys. José Rafael Fernández: Good morning, Brian. How are you?

Good. Thank you. Good, thank you. So you know, it's interesting, José Rafael, when you say -- again, we read the headlines and all the negative things going on, but there has obviously been a lot of positive things in the past quarter that you highlighted. When I think about your capital ratios, you did de-risk the balance sheet this quarter, you have got a nice 13% plus ET1 ratio and you are above 10 in the TCE ratio. So, maybe if you talk about what you think about buyback and what would get you more comfortable, not thinking about buying back your stock with it below tangible bucks? José Rafael Fernández: Yes. You know, Brian, we don't fail to recognize the environment we operate in, and that's something that we are very cognizant of. We've been living in it for -- and operating it for the last 10 or 11 years. So when you look at us from a management perspective, we have consistently and prudently deployed capital either for acquisitions, strategic moves, like we have done, and we have also returned capital to shareholders when we feel that the level of capital that we have and the environment we operate in is one where -- it allows us to return that capital to shareholders. And that's kind of the way we have operated in for the last 12 years that I have been CEO and we have run the bank and H&I [ph] here in Puerto Rico. That hasn't changed. We still see some uncertainties in Puerto Rico's economy. We also are a regulated institution like any other bank in the United States, and we continue to have a very fluid dialog with our shareholders, with our Board, with our regulators, and when we all feel that this is the right moment to do some capital deployment we will certainly execute in it, but at this point we have not reached that point.

Okay. And just a quick follow-up on the capital deployment side, I know you have talked about some of the origination data and trends that you have seen. You know, with everything kind of like I said with PROMESA in place and maybe there are some -- maybe you can talk about what you are seeing down on the ground with the commercial customer? You did see some consumer growth. So maybe just talk about what you're seeing now in real-time down on the ground? José Rafael Fernández: So, on what we are seeing on the commercial side, Brian, is a business community that is hoping for some stability and some level of certainty in terms of the prospects, the economic prospects. I think they are encouraged as I am, and we are with the recent enactment of PROMESA, and the Board been put in place and a lot of that stuff, but the business community also recognizes that there are few more innings to go, and those innings are going to be challenging. It's going to take a quite a bit of effort to make sure that Puerto Rico gets back on track from a fiscal perspective and from a budget -- balance budget perspective. So, I think everyone here in Puerto Rico that runs a business is tiptoeing into slightly more optimistic, little bit more certainty, but not necessarily a completely -- liberated in terms of what the prospects are. Let me also add, we are in the middle of an election here in Puerto Rico, and gubernatorial, legislative, and municipal elections, it should take place in three weeks or so like the one in the States for President. And that adds another level of uncertainty, Brian. It really does. We have politicians in Puerto Rico still going out and being a populist and making promises that are clearly unattainable. So, that also for prudent business managers creates another layer of uncertainty. We are hopeful that once the elections are over and once the Board gets more traction on the issues at hand in Puerto Rico that we will have more clarity, and we are hopeful that next year we will see a clear path towards economic growth.

I appreciate that. And so, it just sounds like we have got some uncertainties and maybe there are some positives here past the election and get the fiscal situation down, further down the road. And just there are some uncertainties right now, but maybe that could just be pent-up demand and we will see how that takes out. José Rafael Fernández: I think that is accurate.

All right. Thanks for your time, guys. José Rafael Fernández: Yes, you are welcome.

Your next question comes from Brett Rabatin of Piper Jaffray.

Hey, guys. Good morning. José Rafael Fernández: Hi, Brett.

I wanted to -- first to say congrats on getting the PREPA situation taking care of. I was curious on a little bit of slippage maybe in the early stage delinquencies, is there anything to read into that, or can you give us any color on -- I know it's tough when you have one-off items happen, but is there any out for charge-offs maybe continuing to abate over the next few quarters despite the environment?

No. Brett, this is Ganesh here. Good morning. Early stage delinquency, as you speak, yes, it is up little bit this quarter, but one quarter doesn't make a trend. So we don't see anything concerning at this point in time. Obviously we do have data unlike what we have shown for what has happened subsequent to the quarter. So, we don't see any foreseeable trend over here yet, and keep in mind, we also had a September blackout and you know, even though it was only for couple of days for us, for us personally over here, the whole island sort of suffered through that for around week. And there were some disruptions in our business activities concerning collections and other such activity. So, let's watch and see next quarter and hopefully we will be able to give you a better color on that one. José Rafael Fernández: Also Brett, as Ganesh mentioning his remarks, we had a mortgage servicing conversion during the quarter, and as you can imagine, it always has a little bit of a disruption in terms of what the conversion. It was seamless, it was a great job that our team did, and we are pretty -- very happy and proud of what we accomplished, but still it has a little bit of a noise. We are seeing already into the fourth quarter and we are confident that this is not a trend, it's just a…

One thing that we can catch up. José Rafael Fernández: Yes.

Okay. And then, can you remind us on FHLB and kind of other borrowings, what you might be able to have roll-off here in the next two quarters if the deposit trends continue to be favorable, and does the margin outlook look a little better kind of net-net with the deposit flows you are having?

We continue to be opportunistic, Brett, as you know, the maturities come, and we assess the liquidity position, and remember, we don't do FHLB primarily for our funding purposes. It's purely for asset liability management purposes. So at this point in time we need to kind of look into the cash position and all of those kind of things. But to give you an idea of what comes tangibly for -- and gives us an opportunity for reducing the interest expenses, we do have a REPO borrowing that's maturing in March, and I think that is a significant item at this point in time because it does carry 4.2% cost, and we don't plan to start off you know, or look at it from that time perspective, maybe we might get shorter term funding, which will be much cheaper than that.

Okay. And then just last question, and sort of [ph] brought it back on the capital levels, is there a roundabout way of deploying capital, you know, perhaps using liquidity to increase the size of the balance sheet and maybe buy more securities, or is there other ways that you might think about using some of this capital besides strictly buying back stock? José Rafael Fernández: Yes. Brett, we are looking at everything from an organic perspective. We are looking at different opportunities. From a investment portfolio, we are not keen on that. We feel that it adds too much on duration risk and not -- really not much of a spread there for the risk that we are taking. So we are looking organically how come we deploy some of the capital that we have in high ROA type of activities, and we are in the main part of our planning for 2017; so, more to come when we speak next time in 2017.

Okay, fair enough. Thanks for the color. José Rafael Fernández: Thank you.

[Operator Instructions] Your next question comes from Joe Gladue of Merion Capital Group.

Good morning. Congratulations on the third quarter. José Rafael Fernández: Hi, Joe. I can barely hear you, can you speak up?

Yes, sure. I guess my question was -- regards to the average loan yields, they have been enlarging in recent quarters, and just [technical difficulty] mix -- yes, what's driving that, and I guess can we expect any of that to continue going? José Rafael Fernández: So, from a loan kind of distribution, we are having good success on our consumer lending part, and got lending business on the auto side as well as on the installment loan side, which has higher yield. So there is a little bit of a shift there in terms of how the production is coming in. So that's one. And I think that's something that you should see into the future, where we are trying to cater to the retail market in Puerto Rico at the right price for the risk that we are taking, and that's what you were seeing this year so far. I don't know if you want to add anything additionally, Ganesh, regarding the…

No, you have covered it. I think José is right in saying if you look at the acquired -- oh, sorry, the originated book, he mentioned that we are focusing and we have been successful on the retail side, and the commercial side it's been little difficult because of the environment and the uncertainties still. So at this point in time, the mix is favorably shifting towards a higher-yielding retail portfolio, and you know, quite frankly, because there is no opportunities to originate commercial loans at a right pricing that we expect and credit quality we expect. So that's why you are seeing yield higher than normal at this point in time. I cannot say it would continue, but right now that's what we're looking into for next two quarters.

And just expand on that a little bit, if you -- just in terms of the competitive environment in the consumer side, is anybody sort of backing out of that market a little bit, or just as competitive as always?

No, on the contrary, I think after I said this is higher-yielding and this is where we're making money, I'm sure everybody wants to get into that, but it is the reality of the market that I think primarily Puerto Rico what it offers is a retail market. And I think the commercial businesses are as José Rafael said, they -- the market -- we hope it will come back once the cloud lifts over the Puerto Rico economic uncertainties that we have.

All right, thank you.

[Operator Instructions] Your next question comes from Alex Twerdahl of Sandler O'Neill.

Hey, good morning guys. José Rafael Fernández: Hi. Good morning.

Several questions; first of, Ganesh, why did the tax rate declined in the third quarter? The effective tax rate…

We had a high proportion of the non-exempt income, Alex, and that's quite simply that. So, you know, keep in mind the tax rates are an estimate for the whole year. So every quarter we take a look at the component [ph] of our income, taxable income versus the tax exempt income and we tweak it, and that's what we are expecting at this point in time. So it will be closer to this, if not exactly this. So we had a higher tax exempt income, yes.

Okay. So, 26% is what we should be borrowing for 2017?

At about; this quarter it is 26%, and next quarter probably it will be close to that. It depends on what happens next quarter.

Okay, good. And then the 900 million of G&A expenses related to the mortgage servicing, that's an ongoing G&A expense, correct? That wasn't a one-time thing?

Correct.

Okay. And then, did you say the sale of PREPA, that closed early in the fourth quarter, so even though it closed in the fourth quarter, all the capital numbers and everything, tangible book value, all those things are reflective of PREPA, because the position and et cetera was taken in the third quarter. So, there was no -- other than that held-for-sale loan moving off balance sheet in the fourth quarter, there should be really no other impact, is that right?

It's correct. José Rafael Fernández: Correct.

Okay. And then, did you say the 124 million of cash that you are getting in exchange for the PREPA note, have you decided what the use of proceeds for that will be? Is it Group A borrowings or what?

We don't know. We will look at it from -- again, as I said, this is same answer as when I replied to Brett, regarding the opportunity to reducing borrowings. There is going to be an opportunity in couple of quarters to shed some REPOs that is coming to maturity. So we are -- as we said during the call, first announcement of the PREPA at this point in time, the proceeds we are purely looking for optimizing or making the lability side of the balance sheet better than anything else.

Okay. And then can you just clarify when you said, I think on page four, the anticipated result is similar to 2016 quarterly performances, what that means? I mean are we looking to extrapolate for the third quarter results? And if so, are you excluding the additional provision from PREPA and the 5 million Bear Stearns claim and the tax rate? Or, are you just saying $0.26 is the right number for the next couple of quarters? José Rafael Fernández: The latter, $0.26 is the right sense. Whatever happens between the line items, that's what we are saying at this point.

That's roughly $0.26. And is that good for all of 2017 the way you are looking at it right now? Or is that just…

I would say the next quarter and the following quarter. And then, probably we can add a little bit more color as we go. José Rafael Fernández: Remember, Alex, that really looking forward, it's hard to do given the uncertainties in the economy. So, we're really trying to help you guys look at our situation but also from a perspective of a reality in Puerto Rico. So, that's what we are doing.

I think to add little bit more José Rafael, we would feel lot more comfortable if we know what the Puerto Rico budget is going to be and where the impact is going to be and those kind of things. So, at this point in time, we are operating -- we don't take it that we just know what's going to happen in front -- two quarters in front of us. We always look at six quarter horizon. But the operating assumptions that we have for projecting for the next few quarters, we believe that's going to change. José Rafael Fernández: And really what we are seeing on the ground here from our operations is that we are gaining market share. We are growing our client base. Deposit flows are coming in nicely. So, all the operating levers are moving in the right direction for us. It's us ourselves as managers that are looking into the short future and there is too much uncertainty. But we are very happy with, with the operating results. We're very happy with the trends that we have in terms of the businesses. And we are very happy on how strategically we have been able in the last three years after the acquisition with BBVA, we have be able to position the bank as a challenging -- a challenger brand and challenging bank with innovation and changes in how service is provided for bank clients. So, we have great momentum and we look forward to leap the bank forward with additional transformation in that area. I mean we just wish that the economy will come to stronger footing and be able to add another level of speed to what we are doing.

Yes, I hear you all that. Is there anything on the P&L going forward in the next couple of quarters that we as analysts may not be fully thinking about? For example, the mortgage servicing thing that you moved on this quarter. I don't think it's something that I certainly do not expect that or had in my model. I don't know if anyone else did. But is there anything else that could be like that? Anything strategic in that nature that would impact the P&L or the balance in the next several quarters, or through 2017? José Rafael Fernández: No. We are basically blocking and tackling as we have done this year. We look at our performance for this, Alex, it's pretty consistent and recurring. And that's what we expect to do in the next several quarters.

Great. Thank you for taking my question. José Rafael Fernández: Great. Thank you.

Your next question comes from Nick Adams of Wellington Management.

Hi, José and Ganesh. José Rafael Fernández: How are you?

How are you, Nick? José Rafael Fernández: Good morning.

Good morning.

Excellent, thank you. You've significantly de-risked the balance sheet with a PREPA sale. Assets are shrinking here. And all your capital ratios are significantly higher than your peers. For what's it worth, it just seems like it's a shame not to be buying back stock here, notwithstanding the uncertainties. If there weren't uncertainties, then your stock wouldn't be at 65% book value. José Rafael Fernández: Absolutely.

You can't really have it both ways, either have to believe that your balance sheet is far better than your peers, which is by the numbers it is that you just create a significant amount of liquidity of $120 million that also now yield attached to it. It just seems like it's a really opportunistic time now to take that excess liquidity and that excess capital and put it back into the shares of the stock here because again you're not going to have this opportunity if Puerto Rico stabilizes. And even if doesn't, again your capital ratios and your risk profile is so much lower than your peers, that the buyback is just really I think screaming out for shareholders. And the fact that you don't even have one in place and have that opportunity, makes everybody scratch their heads and wonder well what is it that we're missing. There must be something horrific that management sees that they are not telling us about because the very least at least they did have that buyback as an alternative of use of capital and liquidity. José Rafael Fernández: Nick, we agree with 100% and that's how we view it too. Unfortunately, we are in the island as our peers are too a well above capital levels. We have higher capital levels from a historical perspective that have never been seen. Having said that too, we also have additional constituent meaning the regulators and keep a dialog with them, but their perspective is one of a even more concern than ours. And we just want to make sure that that dialog continues with them as well as continues with you guys. And that we reach a moment where everybody feels comfortable that this is the right thing to do, but we hear you. We sympathize with you. And, we just need to continue to move forward with on how to achieve that optimal level of capital management.

Right. Understood. Thank you for the great job. José Rafael Fernández: Yes, thank you. Thank you.

Your next question comes from Brett Rabatin of Piper Jaffray.

Hi, just a follow-up on thinking about the discount accretion going forward. Could you guys maybe give us any color on what you might expect the run rate to be at least in the fourth quarter on that, obviously given the higher number in 3Q?

I think one of the -- I assuming you are excluding the cost recoveries and looking at it. We try to call out the cost recoveries and there are major cost recoveries, but there are small loans. And this quarter we did have a pick up accretable earnings. And the rate at which the cash flows are accreting or we are receiving on the acquired loan, we think it's going to be at the same flat level for the next quarter as [indiscernible] yield level wise.

Yield level wise, okay. Thank you.

[Operator Instructions] At this time, there are no further questions. I'll now turn the call back over to Mr. Fernández for any closing remarks. José Rafael Fernández: Thank you, Operator. Thank you to all our stakeholders for listening in today. Looking ahead, we'll be in November 7th. The week of November 7th, we will be visiting investors in Pennsylvania with Merion Capital. December 12th, we will be hosting the Annual KBW Puerto Rico Bank tour in our corporate headquarters. And we preliminarily schedule our fourth quarter conference call for January 31st. So until then, I wish you a great weekend, and thank you again for listening to us today.

Thank you for your participation in today's conference. This does conclude today's call. You may now disconnect.