Earnings call transcript Q4 2022

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Operator

Good morning. Thank you for joining OFG Bancorp Conference Call. My name is Shelby. I will be your operator today.

Our speakers are Jose Fernandez, Chief Executive Officer and Vice Chair of the Board of Directors and Maritza Arizmendi, Chief Financial Officer. remarks. today's accompanies presentation A It can the on Relations on our quarterly found in the on homepage or page. Investor What's results website be New the box, goals, forward This feature looking plans and statements call expectations. certain about may management's These in risk statements filings. factors outlined SEC the OFG's are risks of uncertainties to subject and section from differ Actual anticipated. results materially may currently those We obligation to call of result a occur disclaim update afterwards. this any developments as information disclosed that in Instructions] [Operator

would like Mr. turn Fernandez. call the to now over I to

Jose Fernandez

joining us. for Good morning you and thank

We report fiscal to are XXXX year and pleased quarter fourth our results.

our major our we technology, We deploying in reflects are the transformation, progress the our of improving achieved extremely first business for as steps executing position customers, our competitors. digital our differentiating expanding We and proud We forward in network and our did benefit work us last our solidifying investing of challenger people a strategies year and that. great bank, and from took talent. performance

we self All this of to now and network. our banking In part addition strong financial service our have enhanced as kiosks to service and has interactive machines seven ATMs, sales teller XX results. banking contributed

are metrics The Rico Businesses highest economic financial year good is eye always they've at ever cautious as Puerto shape. well. in uncertainties. been on and and forward also to-date. doing good remain another to the economy consumers financial performance look Our We with a

call our and presentation. Now quarter-over-quarter of please quarter was XX% than growth conference total year. page than year-over-year. This driven more our to more by It revenue core turn of X this strongest was X%

was Provision Capital expenses million. $X.XX. $X.X statement, cash remains customer diluted was Net $X.X income at million remain share look investment million. interest sheet, pre-provision Loans million. were billion was Investments at was we balance new the revenues and origination $XXX.X strong and $XX.X deposits was at CETX XX.XX%. Non-interest net ratio Core loan totaled totaled When totaled at billion revenues Looking per million. totaled $XXX.X $X $XXX $X.X X.XX%. held and $XX.X strong for with margin million. billion. earnings our

look primarily $XXX.X Please turn to driven core X.XX%. was the page results by revenue was for $XXX.X $X.XX When million earnings Net of share XX%. Provision total up X. interest This million. margin and of year, interest per $XX.X million. at of net of expenses our we

year total with We of the billion. ended $X.X assets

result, we a threshold. under As remain Durbin the

the this business. an efforts sell As advantage part of scale leveraging at decision year, service behind ongoing and player business take to our U.S. the development this larger segment. of of a The to decided rationale opportunity focus in is strategic the administration while plan retirement of to XXXK reviews our end we our on

impact XXXX $XX.X financial other of per dividend buyback to $X.XX stock we've the $XXX completing increased Then $X.XX dividend per from we million plan, authorization transaction. previously our this actions included minimal from was share. XX% reported And, increase of quarterly There in yesterday, $X.XX increasing an to capital XX.X%. as and million common share our

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

Maritza Arizmendi

financial our review to X highlights. page to turn Please Jose. you Thank

million start revenues, me and quarter-over-quarter core Let increased total $XX year-over-year. with million $XX they

$X offset assets, compared Of year came on quarter. in from to $XX million higher ago the compared $XX income balances Looking that yields at than million of higher and the of the reflects earning interest quarter benefit $XX on of the the third $X.X quarter. third partially to $X investment for interest the quarter of key interest of income increased components was higher higher million million, about higher Net securities. That costs million by higher million average rates the loans was and funds.

to the gain on third revenues. This quarter at banking was compared Looking to reflected higher electronic from insurance The of Fiona activity of and management commission increased third the Hurricane quarter. $X annual They when banking interrupted and business. lower wealth Year-over-year reflected mortgages equity million recommendation ago valuation. $X.X due $X sale than year a management aided the financial to million. lower insurance claims. reflected wealth This also This banking market million revenues revenue lower It and million. commissions. lower was due annual declined wealth $X management

Looking was periods, efficiency to third operating That's it leverage. quarters. It positive improvement our year ratio. reflects ago another and last from fourth the XX.XX% at few nice the in Similar quarter. the the

the also in It reflects the technology new hourly salary interest per projects compensation should That As to million expenses higher staffing. million, due increases implemented million per $XX million average quarter in to higher that's in expenses yearend increases expense Non-interest in digital net $X totaled third related Fiona bonuses, $XX performance $XX third quarter related and than to quarter. reflects expenses. increased and XXXX. amortization other Hurricane [views] about the

ratio As XXs. mid we our previously range mentioned, efficiency in the target is

wealth we revenues management retirement mentioned be administration will non-interest which $X our will in Jose by equal This sold quarter. an in fully about As by amount and savings the plan business offset expenses. our of million, reduce fourth

quarter. quarter-over-quarter average XXX that at They points XX.XX%. performance was from our to equity common This up XX the is target basis third basis assets exceed metrics. They also improved X.XX% is ranges. continue the year-over-year. Looking quarter. tangible was and our on points third nicely Return up from Return on

increase other This of book quarter. $XX.XX, third an That to retained increase income. $X.XX Looking comprehensive at reflects the earnings compared value tangible was per share. and

operational turn to to highlights. X review our Please page

growth X.X% from balances from loans. period End third loan $XX loans loans average X.X% reflected year-over-year. third at with of the increased $XXX They balances. performance Compared increased our period pleased increased commercial, for investment We're extremely End the increased consumer XXXX the of and held and previous quarter year. million this of to million. auto quarter. Looking quarter loan

from also rate X.XX%. residential loan a commercial due new at That's Fed the That is It XX Looking increase mortgages. loans higher the variable in proportion third on consumer versus is yield. quarter. auto, loans commercial of our basis to and loan portfolio. largely rate It points increases effect and was of

core reflects $XXX of at They funds. $XXX million retail included average million period $XXX also $XX operation. third $XX wealth million Oriental which the transferred to of decreased included quarter. government withdrawals million of from End which commercial It deposits. million. million management reflects withdrawal in deposits declined Looking $XXX That

into government costs. parameters to X at the It basis quarter. was core XX Looking deposits. third from specified XX from That a increase deal accounts and basis points. savings was deposit is point an due with deposits. points came from basis Of basis XX mainly the of points migration increase, accounts time That government

deposit been rate this in has our [data] far So cycle, X%.

given speed the recent increase through below will increases. and the cycle, Fed believe of We they expect continue But deposits and magnitude cost from mainland expected to we that be interest the to level. this

$XXX It high compared to third This auto totaled at also in They reflected origination. continued loan million. Rico new loans quarter. $XXX and the strong reflected record production the at Puerto the in million million levels loans mainland. of Looking a commercial $XXX of of

was margin. and higher the an by Looking at at from basis X.XX% offset points loan and That higher at the of interest yield basis higher the growth XXX margin higher increasing portfolio quarter of the also XX portfolio net of This the yield, partially investment points reflected growth of last increase on cost net funds. This cash. was yield a interest year-over-year.

credit Please and capital to strength. quality our turn to page X review

in loans, million They at the fourth Looking $X previously off. totaled auto and for reflected we million loans, a for million quarter. $XX charges million That's commercial $X served. $X for loan net consumer

Looking at for losses. provision credit

in adjustments the volume. due higher macroeconomic loan due It also So third coverage was points qualitative X.XX%. net in quarter. million to the environment improved the trends. a that as $X.X increased to Puerto $XXX,XXX down was in provision X reduction reflected provision $X.X That's delinquency quarter release of million allowance related from a that Rico, includes as to well stable basis Fourth mainly ex-PPP

down total Looking from was loan quarter last basis from XX at non-performing ago. rebound effects was a third without credit from the That's a points quarter year of loans. stable and non-performing the basis Fiona. points XX rate The Overall, X.XX%.

third common X.XX%. other was Total XX.XX% XX.XX%. some from ratio at $X the quarter. to ratio Looking tangible equity third million up equity CETX stockholders’ billion our The of That's up in $XX The was increased quarter. the metrics.

Jose. Now is here

Jose Fernandez

entered X our company. Maritza. momentum you, penetration; loan we acquisition page growth, outlook. to and our customer When turn entered transform strong in market XXXX, with to helping XXXX we Thank Please are all for which of

rates should While the continue mainland All pace, to possible peers. should benefit eye us a our than grow, given of to we from as in a a keep uncertainties compared we that strategy. recession we in a need data people the macro the of On and full digital a as at to low with basis, first full of a watchful mainland federal Puerto mainland, this economy relatively from in also made combined continue but technology XXXX. technology Fed investments a Rico from towards here. start invest to to higher spending year should rate our part balances We and loan people inflation, and benefit continued year of slower deposit should perhaps better the hikes, level enable and to

communities their Thanks customers the and commitment members team to our we again dedicated the for to serve.

the ends we formal our This Q&A. can start presentation. Operator

Operator

[Operator Twerdahl Piper our from Alex Sandler. take Instructions] We'll first question with

Unidentified Analyst

is This today. guys Today, how for Alex are filling Twerdahl morning. doing? in [indiscernible] Good you I'm

Jose Fernandez

doing? you how Good,

Unidentified Analyst

to guys be see mentioned island. I that just than any the deposit lower I cycle. you off. given segment of in last Thanks. rate increased in deposits you expect But Good. wanted pressure the to deposit do costs, you year specific rising the the start know

Jose Fernandez

to cycle, as origins, a in at betas, the past when betas we was around when somewhere it at look kind So it look of at last reference. use XX%. deposit look the And we our we

of the hikes. the XX% our we than the that speed expect cycle higher rate the betas seen and we last XXXX that to So see be we in had size in that we've given increases

Now, that? adjustment from the where Puerto with have do lag we government. Rico an a We definitely see

look is across think a very ones deposits board, but the that. core, have have we it We will to And higher is, on in but commercial have some accounts. then particularly that when I little the in the be beta going will whatever the higher at balances impact

Unidentified Analyst

to And rates of forward? now coming I'm just on books it. you new had right know loan quarter guys I are moving Got Thanks. know or another yield asset curious what great from production the growth.

Jose Fernandez

seeing small less, larger we're the or book, to about commercial the loans. And the of X% then on more closer commercial handle, type north talking of on rates X%, X.X, X.XX. on I'm more So the

Unidentified Analyst

I moving around throughout curious see lastly, you target forward know had going ratio where and your the to Okay, know efficiency you've XX%. year. Also

Jose Fernandez

So efficiency the in terms ratio? of

Unidentified Analyst

Yes.

Jose Fernandez

Yes.

mid We are targeting XXs.

X% We expect this opportunity see take of the is you levels. XXXX. our around in X% cycle around growth should efficiency little as process you mentioned of to those growth in about is down way and XX%. to last higher slightly slow our rates the the And this year island. loan start bit we loan beta think to this here the than So give ratio thought we for I interest for had the a what

these our interest at Maritzamentioned. given trend slight So XXXX current start should that the levels. effect also, margin XXXX. higher stabilize curve, realize There's and net Remember full in a yield the balances we we rates, to as interest will of during loan positive

So net keep recruitment are technology, $XX service our additional talent improvement members. million on We to interest on per investing self $XX and on expenses and and people network team of process quarter. optimization, million

mid puts that for the around ratio. efficiency XXs range So it the

Unidentified Analyst

it. Got

That's Okay. for questions. Thanks all my me. answering for

Jose Fernandez

questions. your for you thank Yes,

Operator

our next take question Braziler. We'll Timur from

Timur Braziler

Maybe expectation quarters, year. to going and trends X% I on a side in morning. now been to to commentary of on much growth currently we loan that especially direction. on for what circling calling Or next X% a the are opposite X% seem the Hi, an delta big versus slowing there? for you've And of couple the demand? good between there auto seeing? auto, then still is supply the and close here be X% wishful equilibrium mean, to increased the more up thinking and for How growth you're is specifically loan

Jose Fernandez

of kind side new a and the the that down up are of starting level bring you're out. And in the slowdown. to been the auto slowing And that stabilize. But also. on think you hasn't of level good slowdown and should rates So inventories have island, the the towards XXXX, the feel we on correct fact loan a see during guiding played originations, interest we particularly continue are to cars point. very sales I that a effect economy going auto might in We've

equation couple of We've the we wrong quarters. want here. been on wrong side be the a for to of But not wrong

side. the So we'll prudent auto be on also lending

commercial loans. the on buckets, side, terms other interest of the rates demand game commercial On a in also the here for play

strong also not So but pipelines last were year. as good seeing as they we're

to strong confident loans of on none generation will we of and the but levels have auto continue we that the of of were So XXXX. origination good commercial same

Timur Braziler

Okay, of a are auto that I I market actually their seeing your in competitive yesterday, a kind island? standpoint changing is the what auto reported you think little on in and guard a the there I'm guess the asset just bit. balance, from competitor shrunk class? Or wondering, of

Jose Fernandez

speak largest I guard certainly our can that very not is happening near see for term. competitive a formidable of the can't But And see competition the and I tell in is very competitors. competitor. market. We I you a strong any do competitor change

Timur Braziler

used should being about continue then as love deposit loan growth in you source to then see And I as your growth, of on both that looking deposit Fed bond think guess for it. balances funds we're think type and a maybe the thoughts the funding is would longer book loan for to we that I you Got do environment? a base, if higher the expectation hear what at

Jose Fernandez

of first well, management, either see so second the of some of question. the we balances, deposit first in wealth part terms could I think deposits of those your question part will of seen which your not I we hear transition have far. to a But

deposits unit wealth bucks. I think transferred XXX was to the for around full XXXX, our million year management

That's balances, one with one saw. the putting that that's that shift treasuries whatnot. already we're investment we So or thing deposit in clients money seeing high

think I to to a term XX, also XX, CDs longer CDs XX shift we savings from to months seeing

deposits. continue someone that. I will we the I see asked to mentioned, So And as earlier think me about

deposits deposits, look large returns. commercial also at think were ways -- their I commercial to different balance optimize

kind I terms see of of So what in balances. that's

little customers of on a will internally, And our look have have higher to cost customer and we'll then we with into deal think there. relationship as I we retain them a shift perspective deposits.

Timur Braziler

the where Got funding continue Or asset this to are that part envisioning you the grow the over then And book the growth you to $XX it. question loan stay an tying in even loans my the should actually expect together, 'XX. base we of environment X% and assets flat first above all meaning billion though X%? bond grow

Jose Fernandez

deposit origination loan from optimized So these we're with levels. not seeing in to portfolio We the see our investment bond grow investment our balances efforts.

think the we everything X% very So of the environment and at of rate part cash. patient this point throughout I except interest kind were last kept the liquidity in

we've slowly are they in in book. to comfortable months not very the We're current grow opportunistic some yields. will And XX the but to been probably have we invest investing that investment come we and surely repayments higher XX be as position the but very last expecting with in,

Timur Braziler

actually fourth on we that banks on how consecutive be you the release XX the credit how color net to Okay. we one offs the for second me see And normalizing, the then quality. mid quarter. and the last forward? in that about close in of you reserves for going few ratio charge are guys point are quarter. should where Net then are Maybe range And charge offs point allowance some thinking basis just

Jose Fernandez

but forward. still to Net and for a are starting more significantly we us way consumer by saw the quarter charges below rate more fourth and offs normal the post-pandemic realistic more driven pre-pandemic book show auto book of going the

book fourth given year. on we'll variables utilize our the a loan of good quarter be of the charges of and replenishing mostly guiding forward going different and depending and offs the CECL charge post macro the So kind to on consumer the be the the updating growth by from it's scenarios, throughout should driven provision the depending and auto

Timur Braziler

Great, for caller the quarter. and thanks nice

Jose Fernandez

welcome. You

Operator

Instructions] next with [Operator We'll KBW. take Kelly our question Motta from

Kelly Motta

Maritza, Jose, good morning. Hi,

Jose Fernandez

Good morning, Kelly.

Kelly Motta

the that, into year of you of in noticed exiting implies what I go of have it Can fees assets remind XX implementation of the does sort timing guys that what ended will terms Durbin us impact you billion of the under once also up that in and at again. effect.

Jose Fernandez

Yes.

of cross did by year. we billion again, end So, XX the the the not

effect apply us XXXX, is does annual the Durbin $XX pointed for estimated Durbin for the Durbin, of as cost out, and you not So for million.

it So after billion we XX. usually December six months crossing and the start are on XX

would this around yearly million. been it So million, will for year, but XX have $X be

Kelly Motta

around And if kind that's year build of talked the funds some But was of I for we've there is decline into the in and helpful. sheet customers you with know going any look of into higher super end that? we wondering decline, Great, rate. the length should perhaps at was if down to kinds and balance search also back as of that a of their size and about XQ deposits coming factor Durbin anticipate as all, sort at use

Jose Fernandez

That a point. at was Yes, level a the end more XXXX. XXXX. at started good of so the the that's case than quarter we XXXX lower asset fourth

So it end was all below the end utilizing have of at their year, of natural the the not and did $XX year, clients press be utilizing, funds commercial mostly clients to more we billion. at to

of that higher higher their to investments. part natural we're clients attrition reallocating the rates seeing cash it's So from and yielding interest

Kelly Motta

of off me like on I of pre-COVID. sense have risk kind Got to so client of has wane the off? I'm we are overall there Or could I if think a for deposit would run accounts to mentioned bit? average run wrong, is that of that likely that it. level far, please way the there Do of running think that deposits of and been on say, helpful. you occurred still any were running ballpark should but still any balance at pressure off, can That's I start obviously, each a than most rates, overall account and search more had higher you And that but where has really taste but correct of they in the

Jose Fernandez

your I it but Can sorry, am understand you not repeat again? I Kelly, question. could

Kelly Motta

I been correct account pre-COVID. for higher they Obviously, sorry. presentation, me are higher I'm in had just, as pressure as your they than but generally risen, deposits look still please rate. I client balances rates been on if excess I'm think wrong, have there's where

terms pressure still occurred? in or of the potentially much heads of there's and of Just accessed wondering, for checking how be if accounts, core any a has you risk whether if sense of not to higher way could bulk at the search being ballpark have Or for rate yield? yield maybe

Jose Fernandez

understood. Understood,

So pandemic, is the how or the way dollars impacted. customer around we look this a billion during additional at And the was balance after build we that's kind of up sheet deposits. of

think we've far, seen So same I as had our that of at early I kind the cannot here Puerto I've state. in in in in we're behavior peers Rico stages. the market say the the

CDs and out cycle rate hope out play So the markets it's having as of going think and the to a it and Still will beta premise a think. from think least of Puerto playing think or its is But first to Fed continue savings I having that, at hikes said the still the move half year I the this play slower out. I accounts I everyone Rico also commercial towards as expects.

Kelly Motta

color, the That's Got the Appreciate color it. helpful. there. all

capital. to nice to It was see dividend the announcement. turning Next

and you [stock] your would Just circumstances what's that be out of kind in would buyback? market wondering again. you buying are And viewing the what back get the keeping of how the you guys on

Jose Fernandez

investors feel longer higher think our buyback. us better are dividend increasing and towards couple We us of and certainly So increasing yield. a move throughout higher the years perspective than you a doing a the from have by term I last dividend payout a served the that having seen dividend more

reason. one that's So

if prudent buy back we into Kelly. that make execute deploy an opportunistic rates just interest and macros have that going soon. environment accordingly. our to the is be reason also don't operate the up. cognizant Having too go opportunity in said will in, we authorization uncertain, want shares, or there's want other that, The to cash And somewhat are And for to and being us we the buybacks and we of be we and are we sure

Kelly Motta

Thinking gave. Got range it. the Understood. expenses, through I appreciate your you

that of feel minimum look that in confident I how think XX of you you've to it back that raised do technology terms there's was, are hereby know still XX. What I captured? the my at notes, How initiatives some And of, you're working inflationary know incorporate I I like builds pressures you confident wage. feel on. sort maybe do

Jose Fernandez

consider A think, and Number of per comes couple significantly market lower of I factors rate different that hourly in the Rico employee market. in versus one, from on than here hour that a I compensation the want to U.S. are, the Puerto U.S. the terms you the

sure we seen you've been rate increasing we reduce from that the employees as hourly and that customers our us, gradually the that we to the or simply we So hourly well we've attrition serve were because for need turnover seeing. make

goes the Puerto market that in I entire think across Rico.

So in the significantly level and than of Puerto up. level in Rico hourly this lower catching pay a at cycle it's the starts in U.S.

non-interest expenses So of why that's seeing you're higher the one compensation side. on component

Number also talent to has need need digital compete need us division. we we and that two, our skills our to realized that transformation help first investments we our and continue a in to that recruit we've

that the more analytical we can with technology and technology background leverage We So we skills. investments with so need need we're the making. talent people that

of another component is expenses. increases non-interest that a So in

to U.S. branch networks and the leverage self technology our certainly look technology, provide making doing network, we as market in behind service the we've we market. years, the for the Rico significantly very been Puerto look solutions we methodical come last curve you that branch being And those in back at lastly, for And five we how at is on how digital this. transactionality do customers for do investments opposed if look and are to in how we

better us you've making us very our and why that, we higher about investments. leverage and the sure the vis-à-vis XXs operating like of maintain them, said Rico Puerto a higher investments would cognizant rationale positive ratio kind interest behind we're making that the for efficiency thoughtful years. Having in economy that's these as rates these had we're making seen to last about to the we've and mid and So several the strategy leverage reason range that's

Kelly Motta

Thank you for there. much so all color I'll step you. Thank the back.

Jose Fernandez

helpful. that I Kelly. hope you, Thank was

Operator

[Operator Alex Twerdahl next Instructions] our take We'll with Piper from question Sandler.

Alex Twerdahl

guys. investments the I you you mentioned and have technology guys know I Hi efforts in just up. follow a XXXX. have

Just year reveal technology what and wondering technology if you're you and could are? like other the is what specifically whether it the efforts making direction the there for initiatives like investments

Jose Fernandez

as mentioned leverage and So in XXXX. investments and do in we for process We we're making solutions investments we've technology of interactive customers. processes. at those teller machines. to digital digital be looking simplify We're some We've our should platforms launching improvement in how making upgrading been

So efficiencies more become we of look we underwriting terms looking We should efficient see at consumer our in how and we're at processes. also underwriting there. do

things are those look for investing to looked them. in years. at all the being So of and we last continue at couple And

also -- that two measure deepen One to with relationships the is offer. and improving that And ourselves. how that this feel is to by reasons. main we or services market for done customers. again, two, also that products is something number experience the by And our in growing we all share our Right. And we customer the

continues encouraged to we've So, look far, I are and made that the that progress. XXXX we with optimistic confirm so forward very and to progress

Alex Twerdahl

Got Thank you. it.

Jose Fernandez

You're welcome.

Operator

to over this remarks. [Operator will no are questions. further back Jose there for Instructions] closing call Fernandez time, the now At I turn

Jose Fernandez

members accomplished. We're work you our what extremely again dedication. their operator. to and all proud team hard thanks for we Thank have And of

have to We deliver. our stakeholders listening who to Thanks today. all more have

call. forward our Looking to next

Operator

today's for teleconference. participation. concludes Thank That you your

You may now disconnect.

OFG Bancorp (OFG) 26 Jan 232022 Q4 Earnings call transcript