OFG Bancorp
NYSE:OFG
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
33.26
46.84
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
OFG Bancorp
You don't have any saved screeners yet
Good morning. Thank you for joining OFG Bancorp’s Conference Call. My name is Maria, and I will be your operator today. Our speakers are, Jose Rafael Fernandez, President, Chief Executive Officer and Vice Chairman; and Maritza Arizmendi, Executive Vice President and Chief Financial Officer.
A presentation accompanying today’s remarks can be found on our redesigned Investor Relations website on the homepage and in the "What’s New box," or on the quarterly results page.
This call may feature certain forward-looking statements about management’s goals, plans and expectations. These statements are subject to risks and uncertainties outlined in the risk factor section of OFG's SEC 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 that occur afterwards. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session.
I would now like turn the call over to Mr. Fernandez.
Good morning to all, and thank you for joining us. Before I begin, I want to thank all our team members for their dedication and commitment during these very challenging times. They’ve done an excellent job and our results show it.
I'd like to start off on the big picture. Once we got past [Indiscernible] January, the economy and OFG performed well. Overall, we started to see the benefits of the Scotiabank acquisition. Then the COVID-19 pandemic hit. And by mid-March, the Puerto Rico governor had shut down the island. These tough measures however, enabled Puerto Rico to begin to relax restrictions on economic activity by the end of the second quarter and beginning of the third with a noticeable rebound in the economy.
At the same time, we began to see an increase flow of federal funds for stimulus on the construction related to Hurricane Maria, the earthquakes and the COVID-19 pandemic.
In addition, to the benefits provided by the bank loan deferrals, all this added to the third quarter's economic rebound and resulted in increased liquidity on the part of businesses and consumers. Altogether, the impact has been much more beneficial on a relative basis than what's happened on the mainland.
As it relates to the local banking industry, consolidation, the natural rebounding economic activity and the growing amount of stimulus, combined with the Federal Reserve Bank significant rate cuts in March, created a number of banking crosscurrents in the third quarter. By acting with agility and speed, OFG has been able to take advantage of them to the benefit of our customers, communities and people.
The increasing liquidity resulted in continued growth in deposits and cash. This cost virtually all our net interest margin dilution compared to the second quarter. It also encouraged consumers and business customers to step up their loan repayments. Taking advantage of the situation, we continue to expand our customer base and digital migration. There was a large increase in new auto sales, which we translated into a noticeable increase in our own auto loan generation. Mortgage production quadrupled, fee income grew across the board and deferrals dropped to 2% of loans from 30% in the second quarter.
Our commitment and preparation enable us to manage these changes Facil, Rapido, Hencho as we say at OFG. Branches continue to operate safely, enhanced by our technology. Full service, ATMs and ITMs, our mobile app and online bill paying tools continue to facilitate routine transactions in a contactless manner. Online and mobile appointment scheduling continue to make COVID safe customer meetings possible at branches.
In addition, the Scotiabank integration continues on track, and we're starting to see improved operating leverage.
In the end, we generated strong momentum in our core businesses as we continue to help our customers, communities and people build better and stronger financial futures for themselves.
Let's turn to Page 4. We have continued to see strong digital migration trends among both our retail and business customers. More customers are becoming online and mobile users, but they are also using an increasing number of digital features. Here are some new highlights comparing September to January of this year.
P2P volume is up 40%. Digital money transfers have increased 55%. Online loan payments are up 87%. Retail and commercial photo deposits have doubled. And we scheduled more than 34,000 COVID safe appointments with customers through our online mobile through, almost all of them in the second and third quarters.
Clearly, customers are using these features to avoid contact during COVID, but as they experience the ease and convenience of banking like this, they have it virtualistic. More and more customers in Puerto Rico are asking themselves, why would you drive to the branch to deposit a check, when you can take a photograph. Why would you even write a paycheck these days? These are positive trends that have accelerated due to the pandemic, and play nicely to our retail banking strategy.
We continue to look for new and innovative ways to help our customers interact with us in an agile and easy way. Earlier this week, we became the first financial institution in Puerto Rico and the U.S. Virgin Islands to launch a digital portal to make it fast and easy for our commercial clients to apply for PPP loan forgiveness.
Let's start on Page 5, to talk about our financial results. Earnings increased significantly. We reported earnings per share of $0.50, a 28% increase from the second quarter and more than four times the year ago quarter. The effective tax rate was 19%, compared to 25% in the second quarter.
Total core revenues were $127 million, excluding onetime interest recoveries from acquired Scotiabank loans, net interest income of $99 million was level with the second quarter, while fee income rose 19% to $27 million.
Net interest margin was 4.3%, when exclude interest recoveries in both quarters, net interest margin was 4.28% versus 4.5% in the second quarter. Virtually, all the difference was attributable to the increase in cash balances.
Non-interest expenses of $83 million fell more than $2 million compared to the second quarter, and that number includes merger and COVID-related costs. Excluding those in both periods, the efficiency ratio improved 369 basis points compared to the second quarter, as increased operating leverage from the Scotiabank acquisition began to kick in.
Customers’ deposits grew more than $212 million from June 30, to $8.5 billion, due to the increased deposits as well as repayment of loans and securities, cash increased $383 million to $2.3 billion. As a result, total assets grew $84 million to $10 billion. We do not anticipate exceeding this total asset level from December 31, 2020.
Loan production was strong totaling $458 million. Excluding Paycheck Protection Program loans in the second quarter and third quarter, production increased $228 million. The allowance coverage increased to 3.64% excluding PPP loans.
Capital continued to build, shareholders’ equity increased to $1.06 billion. All regulatory capital ratios remain significantly above requirements for a well-capitalized institution. The CET1 ratio was 12.55% on September 30, 2020.
Please turn to Page 6. The effects of all this is that we are building tangible book value per share is increased $0.50 in the third quarter to $16.51. In addition, all three of the key performance ratio we track improved sequentially. The efficiency ratio improved to 65.69% on a reported basis. On an adjusted basis it was 62. 17%.
Return on average assets was 1.11%, and return on average tangible common stockholder equity was 12.23%, and 12.10% on adjusted basis. Return on average tangible common equity is now exceeding our performance as compared to the year ago second quarter, before all the transactions related to the Scotiabank acquisition and increased provisioning affected the business.
Please turn to Page 7, for our operational highlights. Average loan balances declined $54 million from the second quarter, reflecting net loan repayment in mortgage, commercial and consumer, overall increased. Average core deposits excluding brokered grew $524 million from the second quarter. End of period core deposits are now up more than $1 billion from the end of last year. That is on top of the $2.8 billion that came with the Scotiabank acquisition.
Loan generation excluding PPP loans, by order of magnitude was driven by $174 million in commercial lending, $156 million in auto, $94 million in residential mortgage and $24 million in consumer.
Loan yield at 6.57%, declined 40 basis points from the second quarter, this was mainly driven by PCD loans due to lower interest recoveries. Non-PCD loan yield declined only 16 basis points. The cost of core deposits declined 5 basis points to 56 basis points.
Please turn to Page 8, to review credit quality. Credit quality continued to be under control, the net charge-off rate declined 30 basis points from the second quarter, mainly due to declines in auto. Provision declined $4 million, largely due to the declining COVID-related provisioning, otherwise provision was approximately level.
The non-performing loan rate increased 52 basis points quarter-over-quarter, mainly mortgage and auto. We believe this is more about getting customers back in the payment cycle now that most deferrals are over, but we surely are keeping a close watch on it.
As for our customer relief program, if you recall as of June 30, we have processed relief for more than 44,000 retail customers for $1.4 billion, or 32% of our retail loans. For our commercial customers, we have processed relief on $685 million in loans, or about 27% of our commercial portfolio.
As I mentioned earlier, our deferrals are now down to 2% of total loans, most of that relates to about $112 million of commercial loans, mostly longstanding, solid customer relationships in the hospitality industry.
Please turn to Page 9. The allowance for loan and lease losses increased $2.6 million from the second quarter and is now equal to 3.48% of total loans. Excluding SBA guaranteed PPP loans, the allowance was 16 basis points higher than in the second quarter.
Please turn to Page 10. We're in a very strong capital position. Our CET1 capital ratio is now up 164 basis points this last year after the Scotiabank acquisition.
Please turn to Page 11.To conclude, we believe our history, culture, team and approach to business, as well as our most recent results demonstrate our ability to quickly respond and adapt to changing economic environments. During the second and third quarters, we have built momentum in our core businesses and developed a strong pipeline of new loans.
Looking at our liquidity, capital and balance sheet, we are well-positioned financially and strategically. We have $8.5 billion of sticky core deposits with an excess of more than $1 billion, giving us significant amount of dry powder.
Our agenda remains the same. Finish integrating the former Scotiabank operations by yearend, achieve the full benefits of the acquisition by the end of next year, continue to invest for the future to further simplify operations and enhance our ability to serve customers, and continue to play a significant role in the economic rebound of Puerto Rico and the U.S. Virgin Islands.
From a macro perspective, the increased liquidity from ongoing stimulus should continue to benefit the economy. This favorable environment should be further enhanced by the fiscal board, finally working towards a resolution with Puerto Rico creditors and by pharmaceutical companies, as they on-shore more production back to Puerto Rico.
We are now incrementally more confident that the economy will improve further. Let's be clear, we still face tremendous challenges from COVID-19, the elections in Puerto Rico and the U.S.A., and completing our Scotiabank conversion and integration. But, we believe the economy is starting to move in the right direction and the future is beginning to look brighter.
By staying close to our customers and communities, we should be able to continue to deepen our relationships and grow the financial services we provide to them, as we enter what appears to be a nascent and potentially expanding recovery.
Again, I want to thank all our team members for our excellent results and for their dedication and commitment this year. Crisis bring out the best in people to help others. Our team demonstrates that every single day.
With this, we end our formal presentation. Thank you all for listening. Operator, let's start the Q&A.
Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Alex Twerdahl of Piper Sandler.
Hey. Good morning.
Good morning, Alex.
First off, I just want to ask you a couple questions on the margin. Specifically, you guys are now sitting around $2.3 billion of cash, earning 13 basis points. When I looked at your CD book at almost the same amount, paying 154. It just seems like a tremendous opportunity to really get aggressive on deposit costs over the next couple quarters. Is that the case? And how quickly could we see the cost of deposits continue to come down, just based on maturities that are coming on? And what new product is coming on the book set?
Thank you for your question, Alex. I think that's a good point. And the way we look at this is, first, we need to make sure we extract the full benefits of the acquisition from Scotiabank. And as you know, we've been at it for the whole year so far in terms of the integration and now the conversion coming in later in this quarter. So, we are being very strategic in terms of how we address the cost of funds from our customers, because we want to make sure that we extract also the efficiencies from the operations first.
Customers come first for us, and we try to focus first on how do we make our operation more efficient. And certainly, with the acquisition of Scotiabank, we had to delay it, given COVID-19. We're starting to get back on track and we should see the full effects of the operating efficiencies by the end of next year.
But as you know, we keep a close look at the market and how deposits are being priced, and we act accordingly. But it is not our intention to be tactical about this. And we want to not only retain our customers, but we want to also expand relationship with our customers. We feel that our retail strategy and our commercial strategy are playing wonderfully, given the new normal that we will have to operate in the foreseeable future, and probably on the longer-term.
So, looking long-term, we think that we're in very good shape, and we're not in any hurry to play a tactical game here.
Okay, understood. And then just switching over looking at the reserve increase this quarter. It seems like it was mostly driven by the auto portfolio. Can you talk a little bit about what drove a higher reserve level for autos this quarter, specifically, was it sort of collection trends? Or is there something else in some of the macro data that got adjusted?
And what drove the increase? And what factors you look forward to eventually drive that to go lower?
Yes, I'll let Maritza give you some color.
Hi, Alex. Well, and I want to say it's always a variable of volume, and auto loan was -- our portfolio during this quarter increased significantly, due to the higher level of production is one of the factor for the increase. Also, there was a temporary increase in the NPLs as we see it. So, we provided us the methodology required to do so. And I think that's the main two drivers for the increase during this quarter.
Okay. And then just talking a little bit about the NPLs, and you sort of alluded to in your prepared remarks, Jose. But do you attribute the increase in NPLs to just re-turning on collection efforts that maybe then offer a couple months? And can you just remind us sort of what you saw after Hurricane Maria, with the same sort of thing and how that eventually played out?
So, I think the script is playing out, similar to Maria. And what we're seeing was the pickup in an NPLs. We feel it's a little bit of two things. One is the deferrals were over and people need to get back into the payment cycle. But also the fact that we're in COVID-19, this has a different dynamic than Hurricane Maria, and that is going out there and into the streets and doing the canvassing that requires, particularly on the consumer side, it's harder.
So again, we use all methods and I think COVID-19 kind of threw a curve at everyone with some of the tools that we utilized to kind of get people into the payment cycle. And that's how we see it. We are keeping a close eye to it. And we'll give you an update in the next quarter's results call. But we're not at this point seeing any deteriorating trends or anything that tells us that we're having incremental NPLs.
Great. Thanks for taking my questions.
You're welcome. Thank you for your questions.
Our next question comes from the line of Joe Gladue of Alden Securities.
Good morning.
Good morning, Joe.
I guess, first wanted to ask about the loan originations, very impressed with the growth there. And wondering if you could give us a little color on some of the drivers. But particularly with the mortgage portfolio, it looks like production in the third quarter was more than you did in all of 2019. And just wondering if there's some -- that that's market share gains? Is the market growing that much great, you're the first ones to report here in Puerto Rico? Just a little color on the drivers?
Yes. So I would say, Joe, on the origination side mortgage was a great performer in the quarter. As you recall, before the acquisition of Scotia, we were originating $20 million to $30 million. I would say $15 million to $20 million a month. So it's like more closer to like $50 million. And this quarter, we almost reached $100 million in mortgage origination. And that is part of the benefit that we're getting from the Scotiabank acquisition where we have a larger platform to originate.
Certainly, lower interest rates and refi, and we're seeing also pent up demand to buy homes, and starting to see good pricing bids for homes also. So all that has put into play the increasing originations on the mortgage side.
In terms of market share, I suspect we have increased our market share, but we don't have enough data at this point in time to confirm. But it seems to me that with that origination level in the quarter, it looks like we've gained some market share there.
On the auto side, also we saw in the quarter, and as I mentioned in my initial remarks, the third quarter really benefited from the pent up demand that was created from the shutdown and the reopening. So auto sales, new auto sales and used car sales also went up. And we have great relationship with the dealers that we serve. And we moved fast and serve them as fast and agile as we could to gain that origination level. So, I think those two are the key contributors to the origination increase.
And I would just like to add on the commercial side, while we're seeing steady, strong production from the small commercial side of the business, we're also seeing steady and strong production on the larger commercial type of loans, and we're seeing good pipelines on both.
And I again, you guys know me, I am a reluctant to be overly optimistic about Puerto Rico and the world, but I can't deny the facts. And we're seeing certainly the benefits of all the stimulus and it's translating into greater opportunities for us to originate loans. And we're out there. We got to be out there for our customers and make sure that we serve them and provide them the ability to grow their relationships with us.
Okay. And just in regards to how that production is affecting the margins, just where are average yields on new production versus what the averages are for the quarter?
Yes. So on the consumer side, I'll just give you some color on the auto and consumer, because on the mortgage, most of it we originate on sale if it's conforming, and most of it is conforming. But on the auto and consumer, average yield between the two portfolios is probably close to the 9.5% to 10% among both.
And on the commercial side, with lower interest rates by the Federal Reserve Bank, we're seeing certainly lower use there, but we are also seeing a much discipline on providing floors to the variable commercial loans that we’re originating.
On the small commercial, it's more fixed and variable, and we're seeing 6%, 5.5%, 5.75%, 6% double use.
Alright. Thank you. That's all I had.
Thank you, Joe. Have a great weekend.
You too.
[Operator instructions] Our next question comes from the line of Glen Manna of Keefe, Bruyette & Woods.
Hi, good morning, Jose, good morning, Maritza.
Hi. Glen.
I just wanted to dig into the fee income a little bit on the banking service fees. And I think, given the merger happened just before COVID, we really probably never got a really good run rate on what that would be on the combined company.
But the current quarters is $16.3 in the current quarter, does that have any lingering effects of customer activity or is that kind of the run rate that we would have expected after the merger?
So, on the fee income, we have several factors there. As you know, we have a longstanding legacy financial services business, that business did incrementally better this quarter. We also have a larger mortgage business from servicing and all, and we're starting to see the full benefits of that business, as we start to stabilize and normalize on the COVID environment.
And then on the banking services, what we're seeing is again, a reflection of the economy and a reflection of the business activity going back. And customers going out and doing their own activities, business activities and personal purchasing activity.
So, when you look at the results this quarter, probably we're starting to see the full effects of the acquisition in terms of fee income. And we're very much on the lookout, now that we're going to do the conversion, and we're going to do the systems integration, we'll have better visibility. Because remember, we're running two systems right now. And life is a little bit more complicated than what you would imagine on a daily basis, given the two systems plus given the COVID-19 pandemic scenario.
So, that's why I keep on going back to our team. And I keep on saying that what we have done and what we have accomplished this year, it just fills me with pride. And I can't stop repeating it, because this is not normal standard operating conditions and add to that, that we're in the process of integrating two banks. So again, really proud of our team.
Okay. And then to that point in kind of on the expenses, if you take out the merger charges and COVID expenses in the second quarter and the third quarter, it looks like expenses decreased $1.8 million. Annualized, that would suggest about 20% of the $35 million in cost saves that you had guided to when you annexed Scotiabank deal. Is that right internally? And are those really cost saves from the deal? And are we at the 20% range?
So, I'll let Maritza give you the color. But I just want to make sure that everybody understands that we are working hard towards extracting all the benefits of the Scotiabank acquisition, but very much being cognizant of the COVID-19 environment we're operating in. So, Maritza, why don't you give Glen some color on that.
Yes. As Jose was mentioning the consolidation process has started later than we planned it. And during this third quarter we started to see the initial step that we have taken so far to take full advantage of the consolidation. However, this simple version, it's a big deal for us to continue realizing these expected savings.
So, when we completed this process that is scheduled to be completed by the end of this year, we will have a better visibility on what could be the run rate in the long-term. We are looking forward for the operating leverage that the Scotiabank position is the potential of that operating leverage we are expecting.
So, I think at the end, last quarter would be key for us to have the full visibility of the long-term savings, and I would be in a better shape to share with you any long-term run rate.
Having said that, Glen, the trends are positive as you can appreciate. So we're happy with the lower expense trend. We just want to make sure that we go by and go through the fourth quarter to have a better idea of how faster we extract the benefits.
Okay. And then, you had touched on it, Jose. The non-acquired book yields were down 16 basis points quarter-over-quarter. They were down 59 basis points a quarter before that. Given where LIBOR is now, how much of that back book repricing would you expect? Or given that LIBOR flatten out where we kind of all in on some of that back book repricing?
Yes, I would say as we mentioned throughout this call today, the lower rate environment is here to stay and here to stay for longer. So I think there's still some remnants of lower yields on our loan portfolio. But I think we have pretty much all of it already baked in given the lower rate environment we operate in.
So I would suspect that we still have a couple more quarters, where we still see loan yields trending downwards, but not in a significant way.
Okay. And then just a question on the tax rate, when we kind of go through all of the adjustments to get to an operating number. It looks like, the effective tax rate was in the 18%, the operating number probably about 22% versus the 25% where you ran. Where can we expect the tax rate to go to in '21, '22 going forward?
Well, that's a good question, Glen, I'm glad that you asked. This year, we did have higher proportions of exempt income that I can anticipate won't be repeated during the next two years. So, we're looking at a range of 30% to 32% as a normalized type of ETR for the next two years.
Okay. And then just the last question on reserving. You guys, with PPP, ex-PPP, you're in that mid to high 3% range. Could you maybe talk about your economic outlook? And if there's no change in kind of the basis of the outlooks that you're using from outside services, are you well reserved here? Do you expect at some point, we could start to see max charge-offs or maybe even a little reserve release?
So, to answer your first question, are we well reserved, the answer is yes. To talk about the macro. For sure, we see the beginnings of an economic rebound, and we are encouraged and we see a brighter kind of future for Puerto Rico. As I said, there are tremendous uncertainties and there's tremendous challenges. And there are still several things that need to settle in the near future and beyond for the Puerto Rico economy to have safe sailings into the future.
So, when we look at our credit allowance and how we look at credit risk, the macro -- the outlook is improving, but we really have to live with the present. And the present still poses tremendous challenges that we want to make sure they play out in one way or the other, so that we can bring the ship to sure safely.
But again, I feel that this is the beginning of a brighter future for the macro in Puerto Rico in the next several years, as we benefit from the stimulus and the reconstruction funds that are starting to flow. And particularly, longer-term with the pharmaceuticals that we have in Puerto Rico. We have around 30% to 35% of our gross domestic products onshore more medical devices and more pharmaceutical production to Puerto Rico.
I think, we're at a point where it's too early to tell, but it's certainly a good position to be in. And if you add to that the credit, I think you can get the answer to it.
Okay, thank you. I just want to bring up one point on the taxes, Maritza, thank you for that guidance. And I just wanted to confirm, if there's a change in administrations on the mainland here and we see an increasing corporate tax rate, OFG would be relatively not impacted at all by an increase in mainland corporate tax rates. Am I correct in still assuming that?
Yes, because at the end, the U.S. income that we have is proportionately lower than anybody, so it's really small. So we won't be significantly impacted.
Most of our business is in Puerto Rico.
Lots of the business is in Puerto Rico. Yes.
Thank you for confirming that. And thank you for taking my questions.
You’re welcome. Have a great weekend.
You too.
Our next question comes from the line of Alex Twerdahl of Piper Sandler.
Hey, thanks for taking my follow-up. So, Jose, a couple of times during this call, you kind of seemed a little bit more positive and constructive on some of the economic and banking trends that you're seeing at the island. You've sort of alluded to housing markets showing some signs of recovery and some bidding wars and things like that.
But maybe you could just talk a little bit more about what you're seeing. You kind of talk about the cash flow following Maria, actually starting to make some impact on the island. Maybe you can give us some sort of a little bit more color from on the ground there in terms of is there been increased hiring? Is it been increased spending? What is it really that you're looking at when you make those comments?
No, we're seeing the flow of funds starting to put into play. And we're seeing reconstruction efforts across the entire island and roads and bridges. And we're starting to see the deployment of all the benefits from the CARES Act also in play the last couple of quarters.
And we also expect additional let's call it CARES Act four or five or however a number you want to call it, before or after the elections next year. And Puerto Rico will be benefiting from those also.
So, what we're seeing on the ground is constructive. What we're seeing into the future is more of those stimulus funds coming in and reconstruction funds flowing in, not additional, just simply they're spending there for them to be utilized.
And having a change in government in coming January will certainly help, because they will have a vested interest on getting the economy moving. So, I think that's kind of where we come from. And the statistics in specific in terms of the federal funds flowing into the island have remained the same. It's just a matter of them starting to put them to play.
Great. And then in terms of the pharmaceutical thesis, which you've alluded to as well. Has there been any updates to anything? We've all seen the bills in Congress and the executive order from Trump in August? And anything on the ground there that shows increased activity in terms of that repatriation thesis.
No, nothing on the ground that would confirm the actual on-shoring. But very few times you see bipartisan agreement and less time you see bipartisan agreement on Puerto Rico. So here you do. And that's encouraging and that's certainly encouraging.
And I think it's a matter of also the federal government starting to realize that the end game in Puerto Rico is not about sending federal funds all the time, it's also to assist in creating economic development longer-term and in a recurring way. And again, it hasn't been played out yet, but it looks like it's moving in that direction. And certainly that is a lot better than just waiting for a hurricane to receive federal funds.
Right. Have you been seeing any additional -- I mean, we've seen the federal money flowing to the island. What about private equity or other money looking for opportunities in Puerto Rico as a result of the increased economic activity?
Several of private equity firms are in play in Puerto Rico, and also looking into Puerto Rico, to looking at opportunities, because they're seeing the same thing that we're seeing.
Interesting. And then final question for me. I know we're going to get -- it's not just a new administration, or potentially a new administration in mainland, but there's also going to be a change of governor in Puerto Rico, I believe, next year.
Are there any proposals or things that are kind of circulating around a change in administration down there that we as an investment committee should be aware of?
So, not really. Politics in Puerto Rico are really -- I will use a word that you guys use in the States, politicians and politics in Puerto Rico are now lame ducks, because everything has to go through the fiscal board. So it's just a political event that we go through.
But in reality, at the end of the day, they're going to have to realize that if they want to get reelected, they're going to have to sit down and play with the fiscal board in a more constructive way than they have done in the past. And I expect that will happen, whoever wins, because it's in their own best interest also.
But there are no specific proposals here. It's all the same old talk. But at the end of the day, the budget and the strategies are pretty much designed and instructed by the fiscal board. And I think that's kind of what's going to play out.
Great. And then actually, I just have one other follow-up. And I think, sort of got to ask the question on additional capital returns and capital actions. Obviously, you're still digesting a pretty major acquisition, but sitting with 12.5% common equity Tier 1 and a lot of liquidity on the balance sheet and a huge reserve. Is a share buyback something or dividend increase something that could be potentially on the table in the next call it six to 12 months?
Well, how you describe it is our reality. We do our sitting in a very strong, solid balance sheet. And that gives us options for capital management. And we look at all the options and we put them on a table. We keep a continuous dialogue with regulators, being cognizant and now we're closer to a $10 billion bank. And that requires us to make some investments in achieving or at least be able to manage a larger bank. And that's another benefit that we get from the Scotiabank acquisition and some of the team members that have joined us.
So, all those things are -- as I said in the prepared remarks, we are sitting in a good financial and strategic position and we look at capital. And we will make the capital decisions that are rational and constructive for us to grow our bank and move in the strategic path that we have defined.
Perfect. Thank you for taking my follow-ups.
Thank you. Have a great weekend.
You too.
[Operator Instructions] I'm showing no further questions at this time. I'd like to turn the floor back over to Mr. Fernandez for any additional or closing remarks.
Thank you, operator, and thank you all to all our stakeholders who are listening. I wish you a great weekend. Our concern goes out to those who have suffered from this pandemic. Our hope is that it ends soon and as possible and everybody stay safe and healthy. So, thank you and have a great day.
Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.