OFG - Earnings call transcript Q3 2021

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Operator

Good morning. Thank you for joining OFG Bancorp's Conference Call. My name is Ashley, and I will be your operator today.

Our speakers today are Jose Rafael Fernandez, Chief Executive Officer and Vice Chair of the Board of Directors and Maritza Arizmendi, Chief Financial Officer. A presentation accompanies today's remarks that can be found on our Investor Relations website on the homepage in the What's New box or on the Quarterly Results page. certain about feature and goals, may expectations. call forward-looking management's statements plans This subject uncertainties risks Risk statements to These are and of SEC Factors OFG's outlined filings. section the in differ those materially Actual results currently may anticipated. from a to obligation afterwards. disclosed call that any disclaim result update developments We of in information this as occur background All lines prevent have on placed been to mute noise. After remarks, will a be there speakers' the question-and-answer session. given that time. Instructions at will be Mr. now turn over to the I like to would call Fernandez.

Jose Fernandez

conference All our to and presentation. customer optimism our continues thank Puerto recurring net joining Puerto Page This share. to Rico's economic you another Our X and performance We call on turn growing scale, factors: future. consistently outstanding OFG's economy quarter increasing recovery. our digital morning, had nascent focus service larger Good earning this third differentiation, utilization and income, us. validate for reflects for Rico's the several our and Please post-pandemic on per in $X.XX and

in $XX $X increased second the reduced X%. closer revenues to reflecting $XX as trend expenses credit-related Provision to Non-interest all million, net million Banking third businesses. second to interest Our expenses, from pre-provision to this $XXX funds. revenues income XX% to that from U.S. was services decline increased for of part credit asset million X% rose million, losses quarter. X%, revenues quarter. a increase a were cost a in the fell levels benefit and Net benefited to net financial quality quarter compared core continued Total part million annualized in and results confirm peer across in $XXX banks.

balance of reflecting greater million and customers. both XX liquidity September on customer sheet, the $XXX billion, part deposits even to commercial consumer the $X.X at increased Looking

assets As both $XX cash million. investment and declined grew. Loans a for held result,

increased million. they loan PPP forgiven, Excluding $X

and last billion to of remained is same XXXX origination in period XX% $XXX more same the nine compared up at compared totaled the as to months, XX% the loan period than now year ex-PPP pre-COVID. strong million, originations $X.X that New

in and our third the capital second of completed the During and of program. all in on achieve million our stock. people $XX communities wellbeing. $XX.X acquired our $X.XX OFG, $X.XX our million believe executed $X.XX Page shares their and our better financial the our dividend turn We helping quarter, part million upon increased purpose, stock We banking X. built of actions. year-ago from we share $XX first per our to is redemption we buyback current quarters, successfully quarter, we our common to also preferred Please mainly At fulfilling and customers, as

third quarter, the residential get click in and one for place. agility access a and about letter, to During Puerto digital process mortgage in a apply online continue we in first customer by Rico. our With process our information prequalification the launching valuable minutes, the mortgage can one demonstrate just customers, all

We process forgiveness customers. quickly also PPP for our

business its and with digital levels customers growing market in pre-pandemic and customers system. solutions have XX% round the forgiveness better show We value commercial retail acceptance banking our continues and continue general. our loans the second This XX utilization of above and XX% believe longstanding using first doing processed faster, these validate of all-digital Oriental. our levels. proprietary like mobile our now strategy and to XX-day by of for We PPP Online in well

people, policy to people our decided and our COVID mandatory customers on vaccination a have keep For we safe.

the as increased work staff. a flexibility we also model mentioned people. We base hourly rate for have our slide, on have previous we pay for implemented to non-salaried increase the hybrid And

solar solar Energy. PASH Puerto panels stations for project a of PUMA to consume a is Rico on is island. gas scale energy. and the joint venture Global in our and on PUMA PASH communities, and XXX $XX its the For This and This install financing between closed enabling to Oriental kind first produce million

responsibility the launched several corporate achieve also Trust new on Rico programs. One several to developing program program with Puerto We sustainability. in communities working is Conservation economic the been help have social a third farming quarter

proud of these At extremely the that there of of purpose. part than more end day, rewarding nothing are a We achievements. the team on its delivers being is

This aspire quarter's and overall to work to more. performance energizes us harder at OFG for

over more is in the here Now, Maritza to financials detail. go

Maritza Arizmendi

$XXX,XXX Thank that That X financial about funds, of quarter. million in This as volume, than X% expenses from core million from day. Page of additional offset million mortgage from annualized securities paydowns is increase million non-interest Non-interest to from lower in and $X.X is as of cash and $XX decline $X That and decline combination PCD rates. our highlights. one lower decline cost in a Please result $X.X a review million. million. fee loan revenues of were prepayment decrease turn benefited a loans income $X.X result investment of or second increase totaled This was PCD $XXX,XXX increase The a the is a quarter. and second second impact mainly core $X from you, quarter. to about of positive and a Total due of Jose. an million a $XXX,XXX to more income the $XXX the

owned. benefit gains in real sales The was driven mainly credit-related on expenses. by included a million quarter third estate of $X.X This

The included a technology project million second quarter $X.X write-down.

quarter. and quarter operating on Overall, in higher a line ratio announced second the hourly for non-interest to improved we also in leverage. staff see This combination increased our expenses operating expenses to our with XX% The recurring in increased from cost efficiency year. previously plans XX.X%. The of compensation The savings. compares previously revenues included lower resulted to announced continue the third

X.X%, to Our continue common Return equity on mid-to-lower XX.X%. the goal average ratio to on is our return improve was to was range. efficiency average assets XX% tangible

turn, turn operational totaled is loan to billion. to is Page Please our Average build quarter. value forgiveness. was an million X per mix increased share the This from increase residential by loans. loan quarter. $XX.XX. That in decline to paydowns decline In breakdowns the We mortgage point was due in of commercial Tangible on PPP reflected the of second book from $X.X yields. review to X% resulted in balances offset on basis of was auto this primarily change levels Higher a a second $XXX and continue The of capital. liquidity X consumers. This residential loan highlights. partially mortgage part new

down Our million to We BBVA year-over-year. and are strong residential generally second acquisition. portfolio origination and up mortgage, Total loans consists from $XXX quarter, is the but see legacy million from we loans $XXX commercial was and Oriental continuing mortgage the mortgage believe that in is mortgage million, $XX it ex-PPP a Scotiabank new of auto. trends

business two from to Average loans buying deposits We in continued in totaled increase has consecutive and is $XXX inventory see core of the $X.X acquisitions. X.X% Commercial making ex-PPP second an warehouses, non-interest operations, and from third accounts, quarter. is X maturity stores accounts basis of quarter. CDs. new Core continued were demand the Increases offset billion. increase quarters. by decline balance basis XX That building older, reduction That non-accounts to increased This higher CDs. fall. bearing in points portfolio continue the points and or commercial million partially expand [indiscernible] of deposit price reductions to the the second savings were costs from general quarter. They rate a reflects in or customer

the in quarter. the totaled that of cash deposits, from billion. As increased basis increase second million margin the the basis reduced second amount was million the million of from a average of result includes X% The taking market was by XX% balances million partial of of Net That of from second investment $XXX average the decline an impact cash or of purchases or end increased increase NIM portfolio conditions. $XXX a $X.X $XXX is of quarter, XX at the advantage X.XX%, The That quarter. quarter. X points. $XXX MBS interest points

Our to to lending, look quality review credit for Page to continue X opportunities and liquidity deploy capital capital to investments. turn our excess through current for is to strength. Please actions strategy

metrics quality trend Asset to positively. continue

were XX net Our basis points. charge-offs

and $X.X nonperforming last for The included loan rate previously level it's the portfolio loan net total lowest non-PCD X.XX%, Third was levels $X loans. were quarters. five and reserved the X.XX% our yearly respectively, quarters. of the quarter lowest amount million The delinquency on X.XX%, rates our on of in last charge-off five commercial in billion some the

of of provision million of credit result a of a $X these, all was benefit reflects for that As releases. net net losses $X.X million, reserve

The ratio billion, a reported high portion remains offset tangible stock of equity Preferred the second Stock Series U.S. by decline was allowance D increase in CETX equity Our XX.XX%. the compared This retainer. A excluding reflected from the basis was PPP and loans. of X.XX% our to peers buyback. and $XX ratio of was this good Stockholders' $X.XX coverage million was X.XX%. quarter. common The at the on common X.XX% redemption a

Jose. Now, here's

Jose Fernandez

turn our Maritza. Page you, to Please for Thank conclusion. X

As I quarter had mentioned all a earlier, strong performance we levels. at this

Our better of performance and preferred stock or dividend program in buyback our equal continue to peers. common most to executed redeeming credit addition metrics We than stock. share Mainland our to be and our increasing

But Looking at economic is from economy the the COVID of jurisdictions, U.S. impact the benefit more than our to here and big picture, federal incomes. meaningful given average relative other Puerto reconstruction size in and Rico stimulus. continues

Puerto Rico's we incremental optimism, to continuing confirming a result, see As are sector revival. business economic

intend of our deploy momentum to this continue liquidity to growth economic capital for to is We excess and/or plan return advantage in Our loan environment. take initiatives. improved

better, financial the to further We faster are to operations and our their We all to of at their and efficiencies, question-and-answer begin continued simplify than presentation. our and you wellbeing. please while ends Thank serve formal our also OFG improve transformation, Operation, resilient commitment. session. the listening. of them helping more achieve members dedication team effort intend part for ready. accelerate speed customers Thanks for our This all

Operator

Alex Sandler. And Piper take from Twerdahl first go question [Operator with Instructions] we'll ahead. our Please

Alexander Twerdahl

Hey, good morning.

Jose Fernandez

Alex. morning, Good

Maritza Arizmendi

Good morning.

Alexander Twerdahl

categories, happened, you're could off, things first some us interested of like during bit line months in growth, like terms the a was sort guess I'm be on really color give three you hoping commercial, there? most into year? I what more what utilizations? little terms construction the seeing in I heading in do but interested loan in of of pipelines of look would the of what Jose, component happened but and this in also The And Is quarter last any other there the what

Jose Fernandez

Yes.

Alex, the growth. about I So off, on to need think commercial you look we when side first particularly, think loan at

production several what year them. certainly Number and continue in you some so strong, vis-a-vis we've alluded with we last our of levels and of one components, have far optimistic we grown at Looking XXXX. accomplished so is portfolio how and our terms feel production commercial vis-a-vis to remain that to

for us scale the So have end and clearly XXXX our higher adding we capabilities production. to that at did the additional of is acquisition

paydowns, of some may and that that terms progress we'll the excess still to are In seeing years – maybe expect market we of rest higher hopefully see year. in and on at than we've the are seen paydowns changes we seeing of year and liquidity passed we certainly the and next for levels level this in we

very high In line utilization, to the terms now levels right are of in remains low liquidity the again market. that due it

normal So the on seeing. then of right the pipelines. we now, we And are what lines. are lastly, probably the That's to XX% close utilization

pipeline. paydowns on positive production, to at see ready I production, so but see it you today, loan and paydowns, expect loan utilization, went when putting continued sometime on side, all, for commercial and positive we now, continue I growth. growth. we and in through positive getting businesses then that And think you paydowns right, can at on with line are production, positive our pipelines look growth. pipeline utilization I XXXX to strong utilization a pipeline, pipeline, strong the the when on what on economic see I look trends pressure four see on see Right components, we

So I'm optimistic.

we next think what to going are in economy as more today, the I several in pay its becomes growth. the years building it's off sustainable

Alexander Twerdahl

this terms to some the quarter, on but appetite on balance You changed mortgage keeping any some of sheet? is process gain anything there on pretty thought in the around strong mortgage change portfolio? the sale And had Great. in your has

Jose Fernandez

So what slower was a of we refi's. quarter level saw this

million, year, instead right? the this slowing the having But So a sales give of asset in our servicing the good mortgage fee are quarters the refinancing on slower seeing the and positively So servicing as banking steady are there. repayments only we of also are so also because plays generating had activity. production the on valuation mortgage in our came then take. well on as of activities, portfolio portfolio, that $XX in getting And good we on lower than $XXX of we side, and remains book, originations our prior million we from that around where particularly gains

going So change on I see don't a side. forward that

Alexander Twerdahl

little capital. a about to talk Okay. Switching gears bit

million by You since when guys great, the you lower call, announced the expected. But some payoff talk for target capital XXX% $XX the of than this the $XX sort maybe can readdressed million the here a your year pretty are $XX million the potentially we dividend, at XX.X% from is Tier go which pretty levels the of Board? bit little that expect appetite conference earlier expect elevated what considering terms about year sort headway combine earnings. X? little a and when that return this buybacks, have gets common what we share Can You're investors when or should in total with for of the through made it capital above be and out last the for bit of is preferreds and you then the equity to or above still repurchase what would you've it good

Jose Fernandez

Yes.

off, Board year the our across this first you returned earnings. correct. of XXX% capital So We are above

a the that So and actions in XXXX, January activity actions at pretty in When capital take XXXX. look potential capital – Board. you side aggressively we at are on capital our we'll executing look

now clear the that's be we of doing finished feel on levels be peers in and XXX% budget then at that So have longer in which not middle state U.S. States, in of the during we are of But through should inch levels executing we of have the given year in to from the credit operating our the the the what right kind earnings right different levels high trends what's the in and we're our now term, XXXX. size we of of and or not as our XX%. in peers continue peers capital Longer should should CETX process, term a it have one. the that beginning closer we much again, in to capital the operating the picture the above

going level have XX% that's good target So of to closer forward. so, a kind CET to or

our and based economic And want actions. and each with wanted so our I the quarter, island, on capital But are we we incrementally think the continue confirmed. comfortable that revival that And We actions stock back to and clear that have feel we'll we are earnings. be that, good execute quarter in like capital seeing Xx between to momentum on seeing more did more we're optimism that the we improve. on we this Xx buying where at we're to

stock. to from is the to that very And me in return of that's good be buying peers significant our it States. the So discounts I shareholders still think for some

Alexander Twerdahl

below your prior Totally to from running that agree. well Switching day gears still CECL now yet it they where are how net CECL ACL, charge-offs guys implementation. to by we above think the should X my calculation, about You are here? were

point at to milestones the kind reserve of that ACL to drop of expect kind up what's lower? holding and this So the where

Jose Fernandez

Yes.

give picture, and will correct you methodology. based Maritza me the me But into picture and the miss I let is how look big a get our So we if big at ACL on is details. anything,

in embedded book Rico have Our kind Those methodology projections. the has components, macroeconomic particularly. balance it of risk and scenarios macros Puerto for charges-offs, still and several and

still the got stuff. all a and issues COVID the coming of out got the You've and lot bankruptcy it's of referring

serve preventing also have. some it I have we think a So charges. that that us that auto that the loans have we we Also, that scenarios of – of from proportion I macroeconomic we still mentioned in and embedded from do our higher some risk releasing have side, are coverage

longer from having are I where now right sustainable we and be term. we ACL looking not the recoveries at and net We recoveries current going will should – think that state seeing net we're don't project That's don't that forward. our

some time don't certainly a our back Will what consumer portfolios. have So they at prior we of that. were we point to to be will charges expect they level COVID, on in

– and more portfolios some or start than of XXXX. charges levels point also be to We expect consistently we positive trends saw that COVID, in some showing think better at XXXX what we the those but before stabilize in completely will

Did kind So that's I picture. miss big of Maritza? our anything,

Maritza Arizmendi

what doing think I we're the right essence of No, now.

So…

Alexander Twerdahl

close it equation quarter? the least at It sounds on that, you we in that the favorably we see pretty seems we're could that getting like from that what the if do the bankruptcy this year me said that next get macro that I'm and if piece to side by of change of correct end to resolution like wrong,

Jose Fernandez

Yes, one uncertain. ground. noisy of regarding here a is I components, are it's also processes I pretty And that. know on noise the political There of mean the that's the lot

of I but good kind that's problem end at of think it. we So a how Alex, the day, see the to it's have.

Alexander Twerdahl

the for remarks in I sure had PPP then And Maritza, of then NIM recognized? remains you bit, third in also PPP you that Agreed. a if what was and have be to the prepared yet hoping not if I'm talking your of said quarter fees the impact little fees about

Maritza Arizmendi

because net at will $X.X for about I million, of quarter. for PPP of about Well, that the because the but yes, did end, have It this was the quarter, fees higher talk we volume was impact factor. offset

the the above We balances be have there [debt $XXX,XXX. will PPP of net lower within impact and repaid] NII and

but first a unamortized the of XX% here with I mitigates the increase been has PPP portion with portion So volume don't And already the factor paid in me, program mentioned, as fees. round big a little have bit off. Jose

on round the the remaining significant than the books should second So it was lower be one. is that because that first not among mostly

Alexander Twerdahl

did towards quarter. miss talk the I did $XXX you said then the little Could security Do million more say you about of you end mortgage-backed you the what of the you mortgage-backed securities And its purchases during quarter? about Okay. that? bit

Maritza Arizmendi

of mostly advantage September was the that We of during market and it acquisition. the we By end we million Yes. – acquired $XXX MBS. take higher rates did the in

Alexander Twerdahl

look And call like are when I of you next the Okay. for what's still how much XX the months? the terms And cash. ladder then to at MBS your willing appetite that to XX% sheet, – are in – is, in willing of six balance over I it out how see

Jose Fernandez

the cash, fluctuate throughout kind time, rates about have It's want mortgage-backed go interest same that at the but next with and excess we here all don't rate. being we opportunistic low recognize We several how on quarters. long of from to securities

we see of an we buy when the So rates, in up some. market inching go and into

more As we be we'll in interest upwards, going our see MBSs rates purchases forward. of consistent trending

We to going of also COVID is year We more use we businesses make on for flow to feel that the good starts how out increase deposits what to and think us, had good also out want next to play – we quarter, cash. to comfortable sure is kind in will as stabilize. again is this on stimulus which that need deposits a that but need

But just put too. to cash agree we careful significant with be balance to rather So want later. of I and we portion have of kind there sheet to sooner you, work in we it than need a our

Alexander Twerdahl

you we could maturing sort quarter in year time us time what's same some guess of deposits, lower? the flow on in out. – see and I reprice deposits, the terms Can into next fourth then just saw And remind you some of so Yes. deposits, lines of

Maritza Arizmendi

Yes.

last quarter, will it's $XXX that year, million. is next mature there this $XXX about about and For million

runoff the that's of portfolio. the So

Jose Fernandez

biggest... The

Alexander Twerdahl

you the do And rates... have

Maritza Arizmendi

ahead. go Okay,

Jose Fernandez

you to when I started Alex. was speak. Sorry, speaking

So to question. repeat the you need

Alexander Twerdahl

what in were going million to million year. and $XXX quarter the that $XXX the I fourth for next was rates just ask the on

Maritza Arizmendi

now. it's is being points it's XX points average at the that quarter, cost year For next see basis XX, year, is replaced points, about basis CDs it average maturity; XX in about fourth we the that and we for XX have lower, those right basis the

Alexander Twerdahl

Okay.

Scotia. don't like just modeling of $XX more a little terms stabilized million. clean the Just a really have service post quarter have fee over looks banking I that questions a We in revenues. had It fee couple bit revenues and

that to use? is level is million, So the that right $XX

Jose Fernandez

certainly after Rico's vaccination. activity Yes, more we positive and COVID having and see turn Puerto extremely after businesses the consumers situation and COVID has

are seeing do quarters is $XX of what activity the is we're terms and seasonality are good fees throughout in some have but banking of of the that number. up million opening the seeing million So more but activity, kind we some of therefore feel We at the in a we a leveling economy, year, $XX quarter.

Alexander Twerdahl

expenses, it you the in finally talk just then Can expense guidance, And remind about previous that expected says? being with you the of on you levels. us – exactly, line what sort recurring talked Okay. expense Maritza, what when about

Maritza Arizmendi

Can you sorry. the question again, repeat

Alexander Twerdahl

levels your something you prepared consistent expected with run that How terms rate I remind thinking from hoping think those for the just are you I in was expenses. lines. about levels in remarks, expense here? could or the said And us rate you of along were expense previous run guys

Maritza Arizmendi

keep recurring million invest yes, technology Well, the absorb quarter, Yes. to a we but mind in still think million, able be see expenses, $XX we to digital developing and the we but those in incremental. continue between would transformation, operating that will we them that $XX

right okay. rate in almost be run million $XX the now is baseline, to So

Alexander Twerdahl

for the think taking questions. Thanks Perfect, all time. that's my I

Jose Fernandez

Thank day. you, Have good a Alex.

Operator

we ahead. Martin Slater. with will And our from Instructions] take [Operator Steven Please question next go

Steven Martin

have of are but Most and been answered, you a Thanks they want somewhat to lot. my related. three give questions

about and plenty accelerating acquisitions that? to talked changes, what talk mentioned it? have your And And excess I before catch? You you've that, very play is a to in related customer know that working would speed. on you, how facing what and some well Can you they you the capital given transformation is to of little which and important is your technology, and the about

Jose Fernandez

you Well, thank for your question.

remarks. on I that mentioned transformation our Regarding my

and and we're value them faster how sure their serve achieve customer we added of make to the goals, basically right. achieve customers help focus more agile trying what them terms on our is to certainly trying on In to experience, we trying bring that be to

general, ourselves transformation in how at to that terms very that in of of only that it to everything the but is our also and and actually against the and the of can you a serve data back-end the be requires doing differentiate digital we end to and analyze and the front. push that the that's our customers transformation as competitors. terms we the make not we're local end have be back people, in agile, That's of do that our day, terms strategy speedy, better of able it's difference So of the front on the the understand, requires and kind of harder too, equation fast probably to the speed our,

And So me individual we're in experience pushing also and business how add model we well the model that side. to biggest see to to different challenge the on our transform we be on value side our and customers and commercial that's terms business we and again, the do to as as the have our continue of hard. customer

of and to. And branch kind that's referring what also the not changing traditional we the I'm our a model. in distribution process, is not a approach – it's transforming So will be and

integral include several how that So that of model got other seeing we've that. and of we're distribution that's as components technology kind an part

investments what referring that's to I'm mentioned we're the why that that's So making. about Maritza and

well how of keeping as make the and too in we're do here what lower. in under we're efficiency is we investments the achieve, control trying So expenses to right of achieve as transformation trending to kind terms trying that

first answer the question. the So that's for

you me. exactly I don't what asked recall question. second The

of the third you looking consolidated. an And been and of on question and deposit asked on we is something can already well I'll that. acquisition the repeat. Puerto know, side Scotia now here book loan as acquisitions part finished Rico while of as important it. if the then side. So appreciate And market acquisitions, scale the the into already We production and that have you future integration showing were has as Scotia about we and you the the in on

be our understand growth scale and our our is larger and in positive competitors. to differentiate economic going So our ability Puerto we do the coming to from momentum Rico coming from that

because for me I don't question forgive So the recall. second

Steven Martin

you've I No, was the – think And you because I together them and the second think answered same second time. in it question got the both technology. at first transformation

Jose Fernandez

Okay. Perfect.

Steven Martin

I much. Thank appreciate very you the answers.

Jose Fernandez

Thank Okay. very you much.

Operator

does further it the appear no questions turn this I And to closing remarks. are for there call back at Instructions] any will [Operator that management over time.

Jose Fernandez

team all Thanks members, have who pandemic our worked have to in. operator. you, our the hard. through and stakeholders, Thank so customers helped again our Thanks to who listened

Looking forward to our great Have next a day. call.

Operator

And does for your Thank participation. conclude today's program. this you

You may disconnect at any time.

OFG Bancorp (OFG) 20 Oct 212021 Q3 Earnings call transcript