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 Jose Rafael Fernandez, 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 on the Investor Relations website on the homepage or on the webcast, presentations and other files page. Please note this call may feature certain forward-looking statements about management's goals, plans and expectations, which are subject to various risks and uncertainties outlined in the Risk Factors 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 call over to Mr. Fernandez. José Rafael Fernández: Thank you for joining us this morning. We are changing our format slightly for today's call. I want to address the big picture here in Puerto Rico, as it affects OFG, and then we will open it up for question-and-answers. We have all our user quarterly slides in the appendix of today's presentation, and Ganesh and I will be happy to answer any questions on them. To start, please turn to slide 3; there are three major points that we'd like to communicate today. One, there is a lot more anxiety outside of Puerto Rico than the situation warrants here. Yes, given the liquidity levels, the Puerto Rican Central Government faces a fair probability of shutdown. But there also is a…

[Operator Instructions]. Your first question comes from the line of Brian Klock of Keefe, Bruyette & Woods.

Good morning gentlemen. José Rafael Fernández: Hi Brian. Good morning.

So I guess -- and maybe, I can walk through some of the numbers with Ganesh first, its just -- I know there is a lot of noise in the quarter with some of the actions you took to sort of clean up the loss share and get those things behind you. So I think there is a lot of things this quarter that we would not expect to recur. So I think, if you move towards the loss/share drag and to what normally going forward would be what -- maybe normally about a $3 million drag versus a $23 million hit in the first quarter? Is that the way to think about the first part of that normalization, if you will, Ganesh?

It should be plus or minus $2 million per quarter, Brian. Remaining is the $24 million indemnification asset.

Got it. Then I guess I was normalizing at first, kind of coming up to a $0.20 positive operating recurring number going forward, but just suggesting for that move in the loss/share to a more normal going forward end, to get the OREO loss, to see if that wouldn't be something that would recur? But there is [ph] also the restitution charge and branch closing costs we wouldn't expect to recur, and not even the impact of the preferred and the share count, because it was anti-dilutive with the loss. So is it right to think that maybe we should think about a normal recurring quarter, like a third quarter EPS number that's closer to $0.26 to $0.27, does that sound in the ballpark?

Sure. If you pare back the earnings -- drop in earnings from PREPA and PRASA and then add back all those non-recurring items that you saw in the FDIC amortization and the non-interest expenses, that should give you the recurring run-rate that you can come to.

Okay. And just a follow-up, and I will get back in the queue; it sounds like on the PREPA and from the news that we have seen, there has been some positive things that have been put out with some of the different proposals, and even PREPA's response to those bondholder proposals. And it seems like in a lot of those proposals, the bank's syndicate is in a pretty positive position versus where they were and where you guys were last quarter. So could it be conceivable that if things get resolved with the banks not having to take a haircut, you guys could potentially put this PREPA loan back on non-accrual and even reverse the reserve? Is that something we could think about? Maybe let us know what you think about that? José Rafael Fernández: Let me just step back a second -- to the several comments that you mentioned on PREPA. One, certainly we are cautiously optimistic with the recent developments since the last quarter, and that's why we didn't have to take any provision this quarter. Recently, PREPA publicly announced what proposals they offered to everyone, bondholders, mono-lines [ph] and banks, and so its pretty obvious that the proposal that they are making to the banks is something that is moving in the right direction. So that's what I would say. And then lastly on, what -- you mentioned on the scenario, on how it would play, I would say that it is possible and is considerable that at the end of the day, we end up having a new loan with a turnout, at five or six or seven years and start earning principal on interest, and that is a possibility.

And then I guess what, would there be a period of time that that new term loan came in? Would it have to -- I guess, perform for a certain number of quarters, or because it’s a new loan, it would not have to be part of it -- sort of TDR --? José Rafael Fernández: I think we need to cross that bridge when we get there, but its accounting and we need to kind of follow the --

Sure, we have our accounting policies based on -- for exits of TDRs [indiscernible] tax to confirm to that after a certain period of performance, things like that, Brian.

Okay. Fair enough. I mean there is a lot of work to be done, and obviously, but it feels like the things are a lot better with that negotiation process than they were, just three months ago? José Rafael Fernández: Yes. And certainly, we have always recognized that this is a very large exposure for us. Its part of what we acquired from BBVA, and we have proactively dealt with it since day one. And as I said earlier, we are cautiously optimistic.

Okay. Thanks for your time guys. I will get back in the queue.

Your next question comes from the line of Emlen Harmon of Jefferies.

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

Just a question on slide 12; could you walk us through the left hand side of that chart that kind of walks through your cumulative loss analysis? So just on the purchase portion of the portfolio, just kind of -- can you kind of point out to us, what the loan balances are, kind of what the remaining market is against those, and maybe just kind of walk us through that? That will be helpful. Thanks.

I think you're referring to slide 7, Emlen.

Yeah, 7. Did I say 12?

Yes.

Sorry about that.

So I think the idea of presenting the slide, two aspects. One is, on one side -- the left side, it shows the existing allowances, and what's under purchase accounting. If you recall from our conversations when we acquired BBVA. The initial credit market assumptions where they acquired portions, were roughly around 7.5% to 8% credit marked. The reason why we are showing the non-accretable discount larger than that number is, primarily because non-accretable discount also includes the loss of interest income, because of our loss assumptions in our modeling purposes. So to answer your question its about 7.5% credit marked, that's what's inside the non-accretable discount. Related to the loans and the rates, [indiscernible]. So the right side of the chart is basically what we are layering as not considering the allowances, not considering the credit mark. What additional losses we would incur if the situation led to deteriorate into the couple of scenarios that we talk about over here. So the additional losses are what we are estimating as 4.13% and 6.05% additional, over and above what protection that we have in terms of credit mark, and as well as the allowances in case of non-SOP.

Got it. That's helpful. Thank you.

I think José also mentioned that, these are pre-tax numbers, so that we apply using the effective tax rate of 33%, that's just an assumption primarily because, at that point in time, clearly when it happens, there are other things in the mix like what happens to DTA and all those kinds of things. But just applying the 33% tax rate and if you apply the post tax, and this is how we calculate the ratios that we present. José Rafael Fernández: Capital ratios.

Capital ratios, and as well as the tangible book value.

Got it. Okay, perfect, thank you. And I am going to go to slide 12 now; the margin guide going forward calls for margin around 5%. Just because you are a little lower than that currently, does the 5% margin assume that PREPA returns to accrual status, or are there other effects that you think could potentially get the margin up a little bit?

No, we did not assume PREPA returning to the -- this is sort of a scenario where it stays in the non-accrual. If PREPA comes back as, both explained, based on our negotiations, that would be incremental to the margin.

Okay. So the margin guidance around 5%, that kind of like 4.9% that you guys were this quarter would fall into the range you were guiding to?

Exactly.

Okay, perfect. Thank you.

Yep.

[Operator Instructions]. Your next question comes from the line of Taylor Brodarick of Guggenheim Securities.

Great. Thank you. I was just curious if you could add more color about maybe the discussions with the PREPA syndicate and just the fact that another bank sounds like they moved their exposure to held for sale, and sort of how that impacts your thinking? José Rafael Fernández: We view our PREPA exposure based on our own factors, and we are certainly, we have a large participation in that syndicate. So at the end of the day, we look at this on how we maximize return to shareholders. We are not in a for-sale scenario, where we want to just look at any pricing and get out. So at the end of the day, when we look at the PREPA exposure, as I said earlier, its something that we have been very cognizant of since the acquisition of BBVA. We have to deal with it, and we have been proactively dealing with it. And at the end of the day, we will make the decision that is best for shareholders in this case, and other banks can -- they make their own decisions and they have their own reasons for making those decisions.

Great. Thank you for your candor. And then -- so it sounds like on the margin, just one more question on that. The $4.2 million out, so then core NIM is sort of 5.17 or so, is that about right, Ganesh? And is that sort of online with where you were thinking the NIM could move towards, the trajectory it has towards 5%?

Correct. So the 4.9% and then we layered in future loan origination profiles and yield rates and securities income, things like that. And that's what bumps it up to 5%.

Okay, great. Thank you very much. Appreciate it.

Welcome.

[Operator Instructions]. We have a question from the line of Brian Klock of Keefe, Bruyette & Woods.

Hey guys, just wanted to follow-up. And I know you said this, and I just wanted to make sure that, I guess, it was clear. But the credit shock scenario that you gave in 7 and on 8, that tangible book per share number you gave, as the burn down if you will; again, that doesn't include internal capital that's generated, right? So I mean, this would be a significant -- you didn't make any money, which again is, even in the DFAST, that's not an assumption?

Brian, very good point. I think you're doing the job that I should have been doing in the first place to explain this. This is not a stress test, this is a credit shock. One time, very conservative treatment; that's why we put, its an immediate impact of the projected two year cumulative losses one time, with no consideration to future earnings and a static balance sheet. It is not DFAST exactly, it’s a little bit more. So we are -- just to illustrate what impact it would have on our tangible book value at the end of the day, even after considering the acute scenario and give you an idea of what it would be.

Exactly. Okay, great. And I think if I just look at it, pre-tax, pre-provision or your PPNR using DFAST, because probably there was something close to the $25 million, $26 million something like that for the quarter? Does that sound right?

As you know, that we haven't disclosed the DFAST, because we are not required to. But I think if you layer in these provisions and things like that, all I can tell you at this point in time is, by doing that exercise, we are not even planning internally to release the allowances and boost our earnings. So we are in fact increasing the allowances in the context of the economy. So I would ask you to kind of look at it from that perspective, and verify our numbers. But at this point in time, what we are disclosing is, purely an analysis of what the shock results would be. José Rafael Fernández: I also think, Brian, that the analysis reflects also the effect of us having 33% of our portfolio under purchase accounting and the benefit of that. So we are trying to make sure that everybody understands that we have a good excess capital cushion. Given our credit risk profile and given the dynamics here in the Puerto Rican economy.

I think that was nicely done, and I just wanted to make sure people understood that. Maybe it could have been bold on the slide about the future earnings piece. But I mean -- I think that's important what you guys did, and I guess I think what I'd also say is -- the thing about the government exposure, I think what you did on slide 6 was very helpful and informative too about the municipal exposure. I think that's an interesting point to make sure people understand it is a lot different? José Rafael Fernández: And as I mentioned earlier, we feel the municipal exposure, we feel very confident about that exposure. We know the loans and we manage them as we have done in the past. So we just don't feel that that should be coming with the rest of the central government and public corporation exposures. So if you exclude that, really, the Puerto Rico government exposures to OFG is predicated basically on PREPA.

Right, okay. And I guess, one last question if I can; you didn't repurchase some shares during the quarter. I guess, maybe you can just update us on your thoughts? I know it is a lot of headlines and some things that are going on in the next couple of months. But let us know where you stand with the authorization, and I guess what you thoughts are on the buyback? José Rafael Fernández: You know what, I will say a couple of things, and then I will let Ganesh add. From our perspective, we look at repurchase as part of a capital management strategy. We also recognize things here in Puerto Rico and the market we participate in, things have become a lot more uncertain. So we are cautious at looking at all the repurchase. Certainly, the pricing also is very attractive. We are just, from that perspective, continuing to look at repurchase as part of a capital return to shareholders and capital management, and we'd like to evaluate them as opportunities occur.

All right. Again, thank you for your time.

Your next question comes from the line of Jon McCullough of WHV Investment Management.

Thanks for taking my question. And I just wanted to reiterate thanks for all the extra details in the slides, its very helpful. Just going back to the loans to the municipalities; is there anything that the central government can do that would adversely affect your positioning? Or sort of where you guys sit with these loans? José Rafael Fernández: Not to our knowledge. It’s a complete separate jurisdiction. They are called autonomous. So it is municipal autonomous and they are separate.

Sorry. No go ahead. José Rafael Fernández: The loans that we have, they are secure. They are secure with a lien on property taxes and they are secure with escrow monies that are escrowed out for those loans that are outside of the reach of the central government and the municipalities, both. It is worth their money.

Okay. And then just going back to the buyback, I am just going to ask it in a different way. I know in the past, you guys discussed or have mentioned opportunities in M&A, and then balancing that out with buybacks to capital allocation. Given what the share price has done in the recent months, how does that change in terms of your thinking of M&A versus buybacks? José Rafael Fernández: When the stock is trading so deep below the value, there is really no currency to do anything strategic. So certainly that's not out of the table, but its certainly a move into the more longer term scenario. So that's how we view it.

Okay. And then just going back up to the macro, you mentioned what some politicians have said have caused some uncertainty, more uncertainty in the economy. But I guess given what oil prices have done, have you seen any positive flow-through to just sort of the overall economy of Puerto Rico, because of the lower energy prices? José Rafael Fernández: Yeah, at the beginning, back in 2014 when lower prices came down, it did have an impact and we saw it late in the year, and maybe early part of this year. But remember also that, there have been two gas tax increases in the last 12 months. So some of that reduction in oil prices has been absorbed by increases in the gas tax, to be able to -- government was trying to get a bond issue out, that never occurred. So that's -- I think the reduction in oil prices have taken its toll or taking its effect in the Puerto Rican economy, and I am not sure there is going to be any additional benefit from that.

Okay. I appreciate. Thanks so much. José Rafael Fernández: You're welcome.

[Operator Instructions]. We have a question from the line of Taylor Brodarick of Guggenheim Securities.

Sorry, one more for me. Tax guidance, anything new there that we need to be aware of?

No Taylor. I think we would stick to the 32% with the low side of the range is 29% to 34%.

Okay, great. Thank you very much.

At this time, there are no further questions. I will now turn the call back over to José Rafael Fernández for closing remarks. José Rafael Fernández: Thank you all for being in the call today. We will be in New York next week, on the KBW and Community Conference, and looking forward to continuing the discussions and dialog regarding Oriental's results and our outlook. In Mid-September we are scheduled to be at a Credit Suisse conference, also in New York City. Our preliminary date for reporting third quarter results is Friday, October 23rd. So thank you again and have a great day and a great weekend.

Thank you. This concludes today's conference. We thank you for your participation, and ask that you please disconnect at this time.