José Rafael Fernández - President, Chief Executive Officer and Vice Chairman Maritza Arizmendi - Executive Vice President and Chief Financial Officer Ganesh Kumar - Senior Executive Vice President and Chief Operating Officer.

Brett Rabatin - Piper Jaffray Alex Twerdahl - Sandler O’Neill + Partners, L.P. Joe Gladue - Merion Capital Group Glen Manna - Keefe, Bruyette & Woods, Inc..

Good morning. My name is Victoria 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; Ganesh Kumar, Senior Executive Vice President and Chief Operating Officer; and Maritza Arizmendi, Executive Vice President and Chief Financial Officer. The presentation that accompanies today’s remarks. There’s a presentation that accompanies today’s remarks.

It can be found on the Investor Relations website on the homepage in the What’s New Box or on the webcast, presentations, and other files page. This call may feature certain forward-looking statements about management’s goals, plans and expectations.

These statements 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’d now like to turn the call over to Mr. Fernández..

Good morning. Thank you for joining us today. I will review the quarter’s results and Ganesh and Maritza will join us for the question-and-answer session. Because of the hurricanes and the fact that we’re the first financial institution in Puerto Rico to report third quarter results.

We will focus our prepared remarks on a few key quarter highlights, give you a view from the ground and then open the call for questions. Please turn to Slide 3. Before the market opened, we reported a small loss of $146,000, resulting in break-even results on a per share basis.

Core operating results were comparable to the last quarter, not requiring much explanation. However, the third quarter included a $27 million pre-tax additional provision for loan and lease losses related to Hurricanes Irma and Maria.

Even with this provision, our capital metrics remain strong and significantly above regulatory requirements for a well-capitalized institution. Tangible book value per share declined only $0.02 and the tangible common equity ratio was only 11 basis points below year high levels in the second quarter.

Other capital ratios, such as common equity Tier 1, Tier 1 risk-based and total risk-based, all increased for the second quarter. In addition, some of our key performance metrics such as net interest margin increased to 5.64% and the efficiency ratio improved to 51.66%.

On an adjusted basis, excluding the hurricane-related additional provision, operating earnings growth in the third quarter was stellar.

Net income available to shareholders totaled $18.8 million, or $0.40 per share fully diluted, that’s an increase of $0.10 per share, or 33% as compared to the second quarter, and an increase of $0.14 per share, or 54% from the year-ago third quarter.

On an adjusted basis, return on average assets was 1.47% and return on average tangible common equity was 10.98%. Please turn to Slide 4. As you all know, the two hurricanes we experienced Irma and Maria, one at the beginning and the other at the end of September were unprecedented.

Maria’s impact has been especially devastating and recovery has been slow. The hurricanes have clearly exposed the fragility of the island’s infrastructure and its level of unpreparedness towards such events.

There have been continuing challenges in the areas of electricity and telecommunications that have increased everyday difficulties for businesses and households alike. Frankly, progress has been very disappointing. It is now more than a month since Maria hit.

I don’t want to go into a lot of detail, as it has been widely covering the media, but I want to give you a flavor of what is it like on the ground. PREPA is generating electricity at less than a quarter of its capacity. During the initial days, none of our main buildings have power. We relied entirely on generators.

Even now, we’re still relying on generators in our headquarter buildings, where we are today. Power generators and skilled technicians to maintain them are hard to find. Diesel fuel costs two to three times the normal price. Although the supply is somewhat regular, transportation was a major stumbling block in the initial few days.

Even now, there is still instability issues in overall telecom. It would not surprise me if we draw a connection to this call. From the employee standpoint, only a third of cellphone antennas are working even now. Communication to our branch employees after the storm was impossible in the first few days.

Gasoline for cars was unavailable, as gas station has – had closed their doors. The economy has reverted to cash transactions as the credit, debit card infrastructure shutdown due to lack of electricity. As of today, approximately 15% of POS terminals are functional.

While close to 90% of the grocery stores are open, many basic items, such as bottled water are still difficult to find. Please turn to Slide 5. In response from day one after Maria hit, every single member of the OFG oriental team has worked under extremely adverse conditions.

And they continue to do so enabling us to operate the bank, so that we can provide the best service possible for our clients. We are extremely grateful for and also proud of their dedication, commitment and willingness to go the extra mile for the benefit of our customers.

Despite these challenges and with all of the logistical issues involved, our digital channels and back-office systems never went down. Within days after Maria, we started openings strategically located branches on a fully operational basis with no limits on cash withdrawals in teller window – windows.

We focus on reopening branches based on customer traffic, geographic coverage and accessibility. Cognizant of additional costs to keep the branches open and run ATMs 20 hour – 24 hours a day. As of today, we’re operating 20 of our 48 branches and 142 of our 309 ATMs.

The lines at our branches have stabilized, resulting in a customer experience much closer to normal times. Deposit level subsequent to the third quarter have held steady. While demand for lending and other businesses is still tame, commercial pipeline and auto loan productions have begun to pick up somewhat.

One of the major reasons why we were able to get up and running so quickly with full service is the direct result of investments we’ve made in technology. For example, our full-service ATMs are able to both take deposits and issue cash. These investments proved the worth over the last month.

These have made us even more convinced that we should continue on this path. We took this opportunity also to field test our new virtual teller ATMs in our marquee branch in Plaza Las Americas, and it was very well received. In response to the hurricanes, we also put into place our program, alivio cuando mas lo necesita, relief when you need it most.

For all retail loan customers, we’re providing three months automatic moratoriums on payment of principal and interest. For all mortgage and commercial loan customers, we have been similarly accommodating depending on client needs. Please turn to Slide 6. At September 30, we knew there will be an impact on our business from the hurricanes.

As a result, third quarter results included $27 million pre-tax in our additional loan loss provision to cover the impact of the hurricanes. As you can see on this slide, $16.8 million was allocated for originated book of $3 billion, representing approximately 54 basis points of balances. Our total allowance coverage ratio is now 2.83%.

The balance of the additional provision, or $10.2 million was allocated to our acquired book, which is $960 million. From a purchase accounting perspective, this carrying amount represent 89% of the unpaid principal balance. You might have several questions regarding how we came up with this figure for the provisions.

Our allowance methodology has not changed, but as the hurricanes are expected to have an adverse impact on the economy, based on current information available, we model separately what the impact might be on our portfolio.

For the commercial portfolio, we were able to get our commercial loan officers to contact almost all of the borrowers for an assessment of the immediate impact on their businesses. For the homogeneous portfolio, the method is based on various assumptions.

It is possible, the insurance proceeds could play a mitigating role for us, as well as for our borrowers. But today, it is too early to provide a definite estimate. The next few slide show trends that are very similar to the prior few quarters. So let me skip ahead to Slide 10.

This slide explains variances in our income statement in detail compared to the second quarter. The only item that I’d like to point out is an increase of $5.5 million in interest income from originated loans. This was primarily due to an early payoff of the full principal of a commercial loan that was classified as non-accrual.

The next few slides show the strong levels of OFG capital position and core operating trends. So let me skip ahead again to Slide 14 for our outlook. Looking ahead, we believe the island will continue to achieve some level of stabilization, but it will take time.

Even when we get over these initial crisis, the road back will be a long and drawn-out affair. On the upside, there’s a lot of talk of recovery. There are discussions in Washington about providing additional funding for Puerto Rico, and there is talk about a lot of reconstruction work. As an example, between FEMA and U.S.

Army Corps of Engineers, they have disbursed so far $573 million to private contractors, primarily for infrastructure restoration projects. On the downside, people are leaving the island and companies are cutting back their work forces due to their inability to operate at full capacity and because the economy is still paralyzed.

In the short run, the upsides might mitigate somewhat some of the downsides. However, it is yet to be seen how the long-term will play out. One thing is for certain. After years of worrying about it, Puerto Rico has finally hit bottom. It is painful. It is difficult. It is challenging.

But it finally gives us a chance to rebuild the island in a new and different way, una Puerto Rico diferente. The market paradigms will change. This will affect the shape of our business. We will need to look for how we should adapt to the new reality in Puerto Rico and take advantage of the potential opportunities it presents.

We also need to develop new profit centers. Though we did not expect the calamitous hurricanes, we have been preparing for a geographical diversification in our business for the last few quarters. As an initial step, we’re actively exploring partnerships with stateside financial institutions, with proven origination and servicing capabilities.

We’re interested in having flow arrangements for participations in commercial credit, as well as ongoing loan pool purchases. Rest assured, in line with our operating discipline, we will be prudent and methodical in executing these strategies.

Puerto Rico will continue to remain our main market as we gradually add stateside credit to our balance sheet. As we have in the past, we’re proud to be front and center in any effort, helping our communities in this hour of need.

Between direct assistance to the communities we serve and to our own employees who suffered losses, we have donated approximately $2.5 million.

In addition, as part of our volunteer program, manos Oriental, a group of employees and their families donated their personal time and talent to not for profit organizations, helping the needy with basic necessities of life. OFG is truly committed to the recovery efforts of Puerto Rico, playing a constructive role in our economy.

Economy-wide, it is not the first time we’re facing a crisis. Although this is – this one is quite impactful.

At OFG, we pride – proud ourselves – we pride ourselves to be prudent managers of capital deployment, quick in adapting to evolving situations and demonstrating the business agility required to operate under such circumstances for more than a decade. The hurricanes have disrupted our business temporarily.

But I’m confident, that OFG will emerge stronger by making the right moves at appropriate times. We will keep you abreast in our future calls on how we continue along the path of such transformation. With this, we end our formal presentation. Operator, please open the call to questions..

Certainly. [Operator Instructions] Your first question comes from the line of Brett Rabatin with Piper Jaffray..

Hey, good morning, guys..

Good morning..

Good morning..

First, kudos to all your response to the hurricanes and helping people on the island and customers. I’ve got a ton of questions. But let me just start with asking about your view on the biggest fear people have is out migration of the population. And so, I guess, I’m just curious.

One is, kind of what you see from your perspective on the ground there? And then secondly, there’s various thoughts on how soon power could be fully restored to the island.

What will happen with PREPA? And so I was just curious about that as well?.

So let me start first by the question on migration. Certainly, migration has picked up since Maria hit the island. We’ve had net migration on a yearly basis averaging around 70,000 a year, certainly, has picked up in the last month or so. It’s very hard to tell what the number, but it’s significant.

And I believe that we will have – the projections are that from a low of less than 200,000 people who will leave the island in the next two years to a high of around 480,000 people leaving the island. So that is a significant exodus of people in Puerto Rico. To me the biggest question is not how many, but who.

What type of individuals are leaving the island? Professionals or are they more elderlies and younger kids leaving the island for an extended period of time. Also, the level of migration will be directly tied to how quickly energy comes back to the island. And that goes into your second question, Brett.

So far, it’s very hard to tell when Puerto Rico will be electrified again. There are too many conflicting messages and certainly everyone has become an electrical engineer in the island and have their own opinions.

I’m not going to venture here in this call to say when, but it’s really hard to pinpoint exactly how this is going to progress, because we’re getting different signals from the local government, from the Army Corps of Engineers and from the different stakeholders and contractors that have been contracted.

So to me, the faster we get energy back, the faster the mitigation efforts start in terms of not only migration, but also we start restoring businesses. And the business community needs energy to get back on its own feet.

Thankfully, living in island most of our customers, and we mentioned in the call and we met with each one of our commercial customers, most of them they have generators. They are prepared, because we live in our island.

They have invested in their infrastructure, but the challenges that they have are the same challenges that we at OFG have to maintain the generators, to get the fuel, to the service and the whole thing. So the faster we get energy, the faster we get to stabilization.

And once we get to stabilization, I think then it’s real important that the funding that will be coming to Puerto Rico from the federal government and from the insurance companies will be wisely invested in a different Puerto Rico..

Okay. And then secondly, just you discussed the provision how – any visibility into kind of what your ongoing provision might be? And then obviously, delinquencies are higher, especially in mortgage.

I guess, just any thoughts on going provisioning needs and kind of how you see the delinquency trends moving from here?.

Yes, it’s too early to tell. Honestly, it’s too early to tell how it’s going to evolve. And again, it relates to the answer to my – to your first question. But the provision levels that we took for Maria are based on the assessment we’ve made with the information we have as of today.

And going forward, we will continue to monitor the performance of all our portfolios. And we will assess in the future if there’s additional or not a provision regarding Maria..

Okay.

And then just lastly, on the stateside strategy, how much might you be interested in doing in that, and would the goal be to grow the loan base, or maintain it, or can you give us any more color on how much you might see from a magnitude perspective?.

Well, the – Brett, this is Ganesh here. Good Morning. The – obviously, there the originated loan portfolio is going to continue to grow, and that is the objective over here. Since we do not see growth of quality credits at this point in time in Puerto Rico, we are slowly exploring the stateside credit.

So the eventual goal in couple of quarters when we bring ourselves to full speed, the growth should really somewhat be coming from the stateside participations and acquisitions that we are seeking at this point in time..

Okay, great. I appreciate the color..

Thank you..

Your next question comes from the line of Alex Twerdahl with Sandler O’Neill..

Hey, good morning, guys..

Good morning, Alex..

Hi, good morning..

First off, I’ll just mirror what Brett said with respect to the response in Puerto Rico, obviously, very challenging times..

Thank you..

I wanted to just drill down a little bit more on the provisioning, and you kind of hit it a little bit with your methodology.

I’m just wondering if you could give us a sense for how the – I guess, the $16.8 million for originated loans, how that was allocated amongst the various originated buckets?.

So I’ll let Maritza go after that..

Yes, and good morning. For the originated book, we follow the same methodology for both originated book and acquired book.

What we did in the commercial side, we – as José was mentioning, we contact our client, and we did an assessment of the impact of the hurricane in their business operation and in the real estate, and we assess it is high, medium or low. Based on that using our historical loss factors, we stretched them and we applied different loss factors.

For the homogeneous portfolio, we did something similar. We just assessed the level of risk based on industry as people work and the location of where they live. And then we also stretched our loss factors for each portfolio based on our historical data. And that’s how we allocated the – in general, our provision for Maria of $27 million..

Are you able to breakout and say, specifically a dollar’s amount so or percentages of additional that are allocated to like the consumer and the auto portfolio?.

Yes. We will show that in the 10-Q, but we did have that allocation..

Okay. All right. I’ll wait for the 10-Q, I guess, for that one. What – can you just – you sort of alluded to it a little bit with the commercial loan pipelines and some of the auto pipelines picking up a little bit.

I’m not sure if that’s picking up relative to being totally dead following the storm or picking up relative to how they were prior to the storm.

But maybe just comment a little bit on some of the loan demand that you’re seeing, and particularly, in the wake of hurricane, if there has been any additional opportunities or lost opportunities resulting from the storm?.

Well, let me give you some color on that, Alex. On the commercial portfolio, certainly, there are some industries that are going to be very much positively impacted. And there they have needs to build up their resources to be able to serve the need for reconstructing Puerto Rico.

So those are construction businesses, engineers, all kinds of construction and rebuilding-related industries. So those are the ones that are knocking on our doors and we are evaluating those opportunities. On the consumer side, we really are not seeing much demand right now, on the mortgage side or the personal loan side.

On the auto side, there has been some backlog that we have been able to originate so far in the month of October. And it’s not picking up to the levels that it was prior, it’s just starting from zero and building up from zero.

So what we’re seeing is a little bit of a pickup from zero basically, that at the beginning of the month of October we saw just our business was contrived to providing service to our costumers in terms of cash management on the commercial side and a cash disbursement to our consumers when they went to the branches since the economy is practically a cash economy today..

Great. And then I just wanted to ask clearly some of the losses, the Cat losses that were projected are pretty monstrous. And so we expect a fair amount of insurance claim money potentially falling back to the island over the next several weeks, quarters, months whatever it is.

Have you started to see any of that money come in already? Are you seeing checks from insurance companies and people starting to be made whole, or is that still – with the power down very early in the process?.

We have not seen and I can’t give you any specifics on clients receiving insurance checks from insurance companies. But we can tell you that the reinsurance companies have already transferred some cash to the insurance companies that are here in Puerto Rico and they have already made the estimates based on that.

And that’s why we’re seeing significant amounts of dollars being deposited because of that assessment made by the reinsurance companies..

Alex, also from our experience and also that’s anecdotally talking to various folks at this point of time, the process seems to be in the middle of getting the adjuster assess the losses. And after that, the insurance claim period would follow.

And then, we do not expect money so quickly from any of the insurance companies to any of the businesses currently..

Okay.

So it’s still extremely early in that example?.

Exactly..

Yes..

And then as you sit down, just final question for me. As you sit down with your commercial customers and obviously you’ve had a lot of conversations and they talk about their business how it’s impacted and insurance policies and what not.

what I mean, what milestones should we be paying attention to in terms of, okay, today, we expect business to get back to normal in X amount of time, or at least be able to cover our cash flows – cash flow needs, where – if we don’t see something hit by a certain point in time, we say oh the $27 million isn’t sufficient.

We’re going to have to see another one of these next quarter.

And is there anything we can pay attention to from the outside?.

Yes, it’s called electricity. As soon as the electricity comes back, the faster it gets back into to cover the island, and particularly the metropolitan area, where most of the businesses and production is located, the less the effect on our clients.

But right now, as I said earlier, it’s very hard for us to tell some estimates have it for Christmas time. Others say, it’s going to take longer, so we will have to monitor that. So to answer your question, Alex, the information we have as of today is that only 25% of the production or generation of energy from PREPA is what’s happening.

And that doesn’t even relate to the percentage of customers of PREPA that have electricity. So we don’t know that number.

And the faster we have electricity in Puerto Rico not only generation, but actual distribution of energy to the households and businesses, the faster the business sector will move forward and the less the effect on our consumers and our commercial clients..

And also, Alex, I would add, we need to keep an eye on the transportation in and off the island as well. And you might have heard soon after the hurricane, there were 9,600 containers in the port. And even today, the passenger aircraft airline traffic at this point in time operates on the restricted traffic as well.

And I would probably apply the same thing for business cargo. And – because we have very few airports and a couple of ports, and some of them are being fully handling the restoration work at this point in time – or restoration traffic..

Okay. And I mean just a follow-up on the electricity piece again. I mean, obviously, the faster you can get that back on the better. But for companies that are operating with generator like take you guys, for example, you say you have a generator operating in your headquarters right now.

Is that something that’s going to wind up being out of pocket expense for you, or is that one that being covered by insurers? I mean, would – can a lot of these businesses really operate on generators for a long period of time, or is it going to be just killing them?.

So you’re asking us to give you an assessment on how the fine print of every single business interruption policy goes around, and I can’t give you the details. But I assume that we’ll have to pay for some of it and they’ll cover some of it. At the end of the day, it just depends on how long it takes.

These things are not –these are not infinite business interruption, Alex, it’s more for a period of time. So at this point, that – those type of costs we – there’s going to be some sharing. There’s no way they’re going to pay a 100% of that cost in my mind..

Okay. That’s extremely helpful. Thanks for taking my questions, guys..

Yes, no problem..

The next question comes from the line of Joe Gladue with Merion Capital Group..

Yes. Hi, good morning..

Hi, Joe, how are you?.

Al right. I guess, just want to follow-up on that last question from Alex a little bit. Just I know it’s tough to gauge, but yes, I imagine the cleanup from the storm and all the extra hoops you have to jump through to do anything are going to have some effect on costs.

And I imagine whether there’s cost sharing or not, but some of that may not be covered by business interrupting and insurance.

Do you have any sort of rough guess on how much impact on operating expenses this could have?.

Joe, I think, the shock of the hurricanes was extremely devastating for us. We haven’t started thinking about cost. Obviously, if they’re at the back of our minds when we really buy diesel and operate at two to three times the expense – the cost of the energy and other things, but beyond – it goes beyond diesel.

It goes beyond just diesel, because we have extra time for the people and other costs. And so, at this point in time, we know we are going to have some extra operating cost, but we really don’t know what it is going to be for the fourth quarter..

Okay. Yes, that’s understandable. Just on the subject of migration off of the island.

Is that affecting any of your staffing or any employees find and that don’t have electricity or water finding a need to go elsewhere just to…?.

Absolutely. So we have some employees who have decided to move to the stateside and nothing too significant out of almost 1,500 employees not more than a dozen. So from that perspective, we feel that we were not being hurt.

And no, frankly, the most important thing for us was to come for a 100% of our employees and we did and no loss of life, so that was the most important thing first and foremost. And then identify, which employees suffered significant losses to their homes and their infrastructure at their home.

And there were more than a dozen and we were – they’re right to help them out and bring them back up to speed. So that’s from a people perspective, I think, we are very grateful that we didn’t have any loss of life. And that our team is particularly fare well throughout the entire hurricane..

And Joe, if I may also add, we have not really stopped paying for these employees through the hurricanes.

And in the industries and businesses where they have shut their doors, and if the employees don’t have any income, and I suspect those people are more likely to exit the island, which is we are lucky in the sense that we haven’t seen that many in our own business..

Okay. All right. Thank you. I’ll just ask about, you talked about the average diversified geographically. And I guess that – those – you’ve been exploring that since before the storms.

Just wondering what the – there might be some need to deploy some capital in those efforts? And how I guess, the attitude of the regulator is in that regard?.

Before I let Ganesh give you the specific answer, you bring the topic of the regulators, and I just want to just highlight. The regulators have been extremely positive, constructive. And they have been a facilitating all the process for not only for OFG, but for the entire banking industry.

So I’d like to highlight that, because we have been in constant communication with them and they not only the FDIC and the Fed, but are a Commissioner of Financial Institution who was appointed a couple of weeks before the hurricane.

And they all have been very helpful and very constructive and very flexible in us taking care of business, while also complying with the regulatory requirements. So I’ll let Ganesh answer the question regarding U.S..

Correct. So, Joe, the program that we have been sort of evaluating loan categories, we are not trying to – we’re very far from where the loan categories that we have expertise in. We’re not going to participate any esoteric financing and business models.

So we are clearly looking for the type of activities that we do in Puerto Rico, but in a different geographical footprint for obvious reasons. Before the storm, we thought this would provide the net new growth coming from the – coming from – stepping up of production or acquisitions of loan pools from stateside.

But, however, right now, I think, our expectations are a lot more modest in terms of the growth that it might bring primarily because of the shrinkage in Puerto Rico production capabilities, at least, for the next two quarters. So in coming quarters, let’s talk about what we have done and things like that when it’s such a significant level.

But just want it to assure you and rest of the people on the call that we are just looking at the loan categories that we are already familiar with at this point in time from a loan servicing perspective..

And you guys have been around us for a while. So we’re methodical, we’re prudent, and we’re going to go at it, because it’s the right thing to do, and we’ve been working on it for a whole year almost. But more to come in the next couple of quarters, as Ganesh mentioned..

Okay. All right. Thank you..

Yes..

[Operator Instructions] Your next question comes from the line of Glen Manna with KBW..

Hi, good morning. Thank you for hosting this call with everything that’s going on down there. And how [Multiple Speakers], so it’s great to hear the positive tone that you have in attacking this challenge in your voice.

I think, that anybody that that knows you wouldn’t expect anything less from you?.

Well, Glen, thank you for bringing that up. I want to make two points here.

One is the fact that we’re the first financial institution to come up – come out with the results publicly is a testament of the leadership of Maritza and her team in finance, they’ve done a great job working with our KPMG team from our external auditors, our audit committee, and it is part of our culture.

We work on being everyday more agile, more proactive, and faster and doing things right. So and we certainly are not perfect, but we strive to achieve perfection every day. And what we have today is the result of long hours and hard work from the whole bank.

And I don’t even have to mention the long hours and hard work that I already alluded to in terms of our operating teams and the leadership that Ganesh put in place to restore the banks operations. So my tone is just a tone of being proud of the team that we have and the leadership that we have at these bank, I’m just a messenger..

Great. Just a question, you had mentioned that some of your bankers had been out and you had reached all of your commercial customers.

And I was just wondering, what was the feedback that you were hearing from them? And when you kind of segment that commercial customer base, do you have any concerns that that smaller commercial borrowers might have a little bit more trouble in the coming environment than some of your larger ones?.

Yes. So we went to all the clients, as we mentioned, and we had – we reached out to them. We assessed how we saw each one of them. And as you can imagine and you alluded correctly, the smaller business has more risk than the larger business, because they’re better prepared for these type of circumstances and they have larger critical mass.

So, yes, that’s on the commercial side, that’s how we view it. We think that the small business portfolio probably has larger risk than the larger mid-market and corporate clients that have been with us for a while are better prepared and they have certainly a lot of more critical mass.

And – but having said that though, we felt that the damages to their structures were very small compared to the size of the event. So that also helped us to assess what the potential risk going forward might be..

Yes.

And to that vein maybe could you talk about the amount of business that goes on in the San Juan area relative to the rest of the island? And kind of what percentage of power is up in that area and how that will be important in getting business activity up?.

Yes. Well as I said, generation is 25%. There’s a – the pockets in the southwest and south part of the island that have electricity, remember, the most of generation of energy comes from the south. So there they have probably a larger proportion of that 25%.

The metropolitan area is still – it’s improving somewhat in some areas, but there’s some pockets of the metropolitan area that have power. But it’s still far, far from a level that is reasonable a month and a week after the hurricane.

So I think, as I said earlier, Glen, the energy, electricity is coming back to our clients, customers households in Puerto Rico is critical. And I’m sure they’re doing a great job on working hard, putting all of those lines back together, but it’s certainly taking quite a bit of time..

And when you look at the loan portfolio, and auto has become a big part of the portfolio since the BBVA deal.

Could you describe the insurance that you require borrowers to carry? And have adjusters been out on the island yet to survey some of the damage on the auto side?.

Unless there is a clone – claim by the borrower, the adjusters are not going to go check the collateral. And we – quite frankly, there’s so much in this portfolio. We haven’t taken a look at the collateral as such unless they are in the process of repossession or collections and those kinds of things.

So our approach has been to attack it by the – our interest – level of interest on the collateral at this point in time. So first, we take a look at the loans that are – the collateral that’s repossessed and we looked at our own locks to check whether we have any issues with the cars. We did not suffer a whole lot of damage in our repo lot.

We are turning our attention slowly towards the repossessed homes, which we would be doing that in this quarter. So at this point in time, we are just taking those steps..

And I guess, with regard to another section of a loan book, you have about $141 million left in loans to the municipalities. And my understanding is that, they’re not collecting any taxes right now, given the state on the island.

What’s your outlook in that book?.

Well, as you know, we have basically a municipal loan portfolio for municipalities, they’re the largest. The way we look at this is, first, they have two years worth of debt service on a private bank in a trust. So regardless of what the short-term looks like, the debt service is there for two years, that’s number one.

Number two, the austerity measures that were put in place by the fiscal board and with the fiscal plan by the government of Puerto Rico, where they were basically taking away in two years $500 million from the central government payments to the municipalities. This is most likely going to be replaced by federal funds.

FEMA and the risk construction of all these municipalities will be affected positively by the – all the federal funds and insurance claims that are going to be coming into Puerto Rico. So from a municipality loan risk perspective, we are a somewhat a bit more constructive about the risk that we have right now versus prior to the hurricane.

And that’s why prior to the hurricane, we sold one participation or one loan that we had of $38 million..

Great. I appreciate you taking my questions..

Thank you, Glen..

At this time, there are no further questions. I will now turn the call back over to management for closing remarks..

Thank you, operator, and thank you, everyone, for listening in today. We are very grateful for being able to have this conversation with all our stakeholders.

And again, a very proud of the work that our team has done to get back on our feet and face the new reality and certainly, take advantage of the opportunities that, that new reality brings to us. Looking ahead on December 11, we will host KBW on a Puerto Rico field trip here at our corporate offices. Hopefully by then, we’ll have PREPA.

And preliminarily, our fourth quarter conference call is scheduled for Monday, January 22. So until then, thank you all again for listening in, and have a great day..