OFG - Earnings call 3 2023

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Operator

Good morning. Thank you for joining OFG Bancorp's conference call. My name is James, I will be your operator today.

Our speakers 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. goals, on Third page may Quarter forward-looking about found website the feature be statements the expectations. under XXXX management's can the of home OFG certain It and plans section. This call statements Factors of Risk subject in filings. section risks uncertainties OFG's and These outlined are the SEC to Actual results from anticipated. differ currently materially may those result like obligation occur afterward. [Operator that any disclosed to disclaim to developments the update We over in this I'd now of information to call turn call as a Instructions] Mr. Fernandez.

José Fernández

for you thank and us. morning, Good joining

We to very our earnings quarter year-over-year credit are cumulative loan to pleased third low increased well, and with increased beta, results. report strong performed and businesses operating balances, performance and All deposits and stable growth. revenue generate metrics. our Highlights include we core continue steady leverage

continues and attract of is in and to This liquidity economy makes engage doing speed the strategy Puerto Rico, the from to to digital-first well. is customers for development more banking for consumer sound business and to do digital and transition in-branch customers their us it platforms. activities. transactions In routine efficiency Our increase easier

summary results. As to serve communities X our goals. Please achieve financial helping to turn team quarter of a customers we and their for third our always, our thanks the Page for

XX% revenues looking $XX.X up million. year-over-year. totaled $XX.X was of compared was statement. noninterest Provision to X% interest net First, at year. was were Earnings and up increase X.X%. million, income last $XX.X diluted $X.XX, XX% expenses year-over-year. revenues Pre-provision an the per share $XXX.X Total margin million core million, were Net

$X.X growth will deposits $X.X up above stable X% last the billion quarter. assets Total next $XX billion. totaled held year, Now from approximately billion, quarter. we balance increased remain turning sheet. for the Based at Loans investment our on outlook $XX.X for second from and billion. were Customer to to

line and million, was declined to production loan $XXX $X.X million. billion X $XXX approximately cash increased Investments last to with in the New quarters.

turn XX.XX%, was update quarter. our level about for shares ratio bought back CETX OFG The capital. Page XX,XXX digital-first We quarter. Please second an with to Moving to the X third the strategy. on in

strategy. period of now and branches Looking compared portal and can all XX% by digital Portal. The deposit one self-service of been channels. deposit XX% applying portal digital and at has place. CDs, loan data year all transactions the for account growth in and kiosk loans, a routine September tax for and loan Servicing loan by growth our ago, wide checking, Rico made self-service usage in driven and documents of payments, retail of in Customers frequently customer bank or retail is manage payments, Puerto This request our digital our managing savings automatic through transactions enrollment, and all in digital Oriental that XX% a are accounts of The variety phone. cornerstone a now to enables recently in opening success XX% letters and being year-to-date in the same customers deployed growth accessing downloading X%

basis. regular technology. the portal to investments to continue New be a this on our All in and strategy features to will continues added validate

As be business I continue service new us development for activities. Having and increase that, have sales more assign provide our mentioned staff before, branches our efficiency of more island-wide network. to value-added important and they said service, component help an

commercial new opportunities. branch in third and with an the During quarter, a good retail Dorado, area we opened

developments, have better Mainland. customers continue both physical, communities Dorado our We already residents high-net-worth already from and and San is further. know, a many the you share digital us suburb that As grow can our probably and there, and of grow to market think to X% businesses. attracted has we position growing Juan we new a These serve

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

Maritza Arizmendi

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

of Let was and point partial Net with of second quarter, totaled reflected new XX higher loans. sales loss rate, yield revenues total XX were a points $XXX,XXX. the $XX.X to revenues. about treasury full continuous ratio income the compared of in yield expenses. particular $X basis Noninterest XX.XX%, lower quarter, of earn loan million the The second sale quarter quarter. about increase offset second with one approximately investment me balances due the noninterest quarter. of wealth effect level increase $XXX,XXX million, to $XXX million, higher million, effect This by This in first higher of estate, variable X.X% the rates the second management and year-ago G&A $XX from loans, on on in reflected $X income the around start million balances, totaled expense securities on third reflected the the the added which $XXX and totaled This the Other second interest early real than an extra leverage. core and the efficiency million. Banking growth, quarters. lower basis gains operating increase closed partially in strong higher

to value average on on expect quarter The was will was XX.XX% continue ratio year. to to X.XX%. about to performance range. efficiency Other the per common mid-XX% in continue million remained high. $XX.XX. book tangible average next tangible noninterest average $XX share and Return equity We expenses asset metrics low Return and next $XX was million

loans. turn the highlights. residential increases continued to and in paydowns mortgages. $XXX continued to loans was X regular end-of-period the by Please to increased on Growth Rico partially increased The Average review Puerto the balance loan retail second $XXX commercial and quarter. reflect auto million. from Page consumer million offset This operational U.S. balances and our

$XX and from quarter, auto, basis from million balance second Average reflected XX. rate quarter. $XX increased yields points million. increased $XXX end-of-period approximately the second This on yield Loan increased while variable up loans with was government June core X.XX%, higher declined deposits Retail $XX commercial the level increases consumer commercial for loans. the deposits million, and million commercial was X and new

basis of shift management. Core relates see in compared a and deposit points wealth points mainly to increase This second XX rates higher XX X basis continue now cost now time to basis commercial government X on savings XX deposit quarter. retail sales in was points X basis and deposits, points points and points We in the accounts. basis deposits, and X time due accounts to to basis in to

As of our beta deposit been has the third quarter, cumulative XX%.

during a to increase compares quarter. million. reflected at was were government the X.XX% margin Excluding we quarter. end interest Net XX% $XXX the this was our expect XX%. about to borrowings deposits, strategies while asset X.XX%. liability deposit of it beta cycle, this The was Through of year. Average the $XXX That million, continue balance in end-of-period cumulative the management second

for which tax was the effective for Our XX%, year. rate be the next our -- rate should

Please review credit million quarter. in and the turn $X.X our second Net to X to strength. totaled charge-offs quality to compares capital $XX.X That Page million.

credit of mainly ], ranges for quarters. to $X sale small The and the delinquency $XX.X increased the and in The credit specific recovery $X million -- X.XX% charged-off million X loans than third more old continues of small at which related adjustment be of rates auto auto last [ rate over sale reserved. were the about nonperforming for due for total loan $XX portfolio Early loan a the U.S. portfolio to a to $XXX,XXX a and loans. X.XX% X.XX%, $X included business Rico and substantially from included in This million Puerto compares quantitative to million. totaled volume, losses lower million strong. and quarter was consumer the quarter, respectively. for loan fully Overall, This commercial the previously included second seen nonperforming loans. Provision X

from commercial increased with balances were U.S. below expenses to other Looking by were period we during our net level Deposit line higher and originations during Good growth quarter costs in a at and on loan the was and and End third quarter, loan benign, the expected auto, remained remained commercial quarter, of due stockholders' metrics, security saw credit consumer steady some core peers. ratio higher balances range. revenue To sum X.XX%. approximately billion, and second but of higher balances. capital the average total loans equity $X.X our deposit rates, with well charge-offs higher from was driven betas conditions were yields the lending. up, higher TCE

Jose. Now is here

José Fernández

Please Thank Page to Maritza. you, X. turn

not ramifications impact private to flow grow of continue changed that, the second their supported deploy quarter funds on the the Federal rebuild continue Our incursions funding and U.S. investing a to mounting and are and of operations liquidity, expand, backdrop, and changes, possible to it's us local Israel decoupling we affect early all, as federal Rico Reduction eye said while unlikely peace. potential Act. but from island. Having outlook acquire, the The on has the its Middle heart, businesses capital call. be remain and All Also, rate to and concerned an recent economic the for help we from We and heavy about and fighting Puerto uncertainties. with events our can in leave in East global region Rico's mainland inflation well. possible for island's by With interest well, this our wishes their Puerto do end keep infrastructure a to strength as a the the economy consumers Inflation and from recession. optimistic the and the to as continued economic CHIPS to mainland additional in continues the the well directly, as about

to lending of use economic hard capabilities, from all purposeful our from Results result Oriental to the and performance and the been quarter OFG and on innovations from to increase want and more of service the business strategies. needs financial development translates us XXXX, to end, which are the core over Against in and closing, to commercial new could increased continued and we growth quarter consumer another benefited resilient Servicing deposit not our share the to grow financial environment our in into from base; to which this had to customers. first we have have that market deploy turning activities. Externally, helping customer of our confirming investments, technology and should Rico. and next a teams Now and third, benefited and our strong of spend business members. base, year. In efforts time into more stable, self-service other better banking Portal my commitment our reemphasize I for us our without on new capital; continue this higher most ability second, and work Puerto our allowing team into up gain low-cost years channels, the positive our sum and fourth possible our a operational our commercial pipeline excellent businesses across All foremost,

executing them corporate our to for thankful vision. are We

presentation. our Q&A. Operator, ends the This formal let's start

Operator

Securities. first will with today from Instructions] [Operator question Fargo Our Timur come Braziler Wells

Timur Braziler

expectation is beta a such XX% sounds still mean, expectation and deposit to pretty around comment final starting abatement that some environment, just longer a given that quarter base Maritza's maybe and migrate calling But on, rate year-end, and I in there you low do for deposit the we a longer starting starting the then see continue deposit Maybe conservative. betas to term, beta at base? a as by higher for Or get thinking pass maybe a just higher such still a low hike? costs

José Fernández

Thank The is look question, corresponding deposit way this Yes. for of you terms the your in Timur. data. costs, at and we

operate one. market very a look the strategy kind to and certainly First, in is it and different market, our the and customer operating -- perspective of let's at us perspective. positive business number we're we U.S. our in, also look relationship our from at a two, gives from landscape Number very that that's different market

be relationship So good to to have room wiggle want to the we also retain customers, able to additional commercial also and side. some customers particularly attract on some

for the we year the the a with feel end now, including we XX% at longer for take cumulative the how as year and So end it look the keeping way the and beta are And end the -- would impact remain prudent year. do sticking the deposits, see probably the beta of see a the it we'll at for higher with rates -- beta, interest go. what we would to as of But our of that that government XX% market. in have is XX% of

Timur Braziler

of balance end? quarter the Okay. at is deposits What government

José Fernández

The government is in $XXX range. the deposit balance million of

Timur Braziler

Okay.

more that profile still challenging pretty and the with XQ that environment? in guess seems lag, next to expectation it's betas quarter, maybe it's I next they the be or growth if NII go we're to XQ, if thinking Or is that deposit current offset able up year, not So about go next do to you're NIM maybe in the do strong. XX%, growth to as continues this higher? Is year, going compression XQ

José Fernández

Yes.

year. and so you good you've that So loan and pretty to quarter to next we year, build expect have seen this continue growth saw throughout far this as we the

scenario our loan net So our interest year, think need looking is next at about this we'll deposits, of to of we that where with cost plays higher way growth if perspective. the income from a mitigate out

might NIM, lower not yes, now, mean net So expect we to trending we a a necessarily interest right trending have, be but will does that income compensate for that. lower it loan growth because

Timur Braziler

Okay. Great. lastly And from then me. just

good credit hard the the On loans, But it's charge-offs? still reserves Maritza would flat a for. goes explained kind and hand-in-hand Rico a continues kind may bump-up you answer there pretty should the broader and as we is as this Or how to credit about be ratio then that the to normalizing and those And a release ability some allowance allowance saw X% charge-offs? net improve? and is to I know of over decline about think Puerto be we an with environment, in charge-offs, of of well of front, thinking that ratio. get history corresponding net really question

Maritza Arizmendi

your thank you, Timur, question. for Well,

about quarter were restructuring in completed call, about we charge-off charge-offs. million [indiscernible]. were the about in second of last that we them the the the talked it loans $X during that And quarter, during in of reserved one million and discussed included we quarter, and This loans of X these our $X.X requires previously

held the on XX. end about at it for requires million October was the loan to one charge-offs. That sale of in was and transferred other quarter, already The $X.X sold

So prior that reserves quarters. in were already established

the look normalized to think more X.XX% So starting good are charge-offs that for compares level about with a if I loans, really X we which forward, you as net the exclude But how we is our prior monitoring quarters. to quarter, normal trend. the it. charge-off see we of in continue the Puerto XXXX, need be to benign trend We levels, to credit to XXXX. that's we to pre-pandemic see keep think compared be would and that what compared Rico see And conditions

Operator

question with Sandler. come next Piper Twerdahl Alex from will Our

Alexander Roberts Twerdahl

think sounds me, above growth Jose, fairly curious thinking no like First you're committed $XX to being just you're overall billion. the the quarters off, might just strategy. excess overall about how an the it about balance the on assets, upper you next level to over of how longer sort you capital continue now to that's that deploy strategy, I'm the And of you sheet have? how as transition If couple

José Fernández

Yes.

So, and in balance very $XX mark. yes, of below $XX look, the managed are the with we at the the it the And it's Puerto year it of where years the to playing to that how way side sheet right us rates committed the billion growth has the how advantage particularly the cross here deposit kind interest for loan now that mark to everything we from take how grow to the loan And this also different X of do balance out. opportunities sense we make where makes sheet what just -- look from do. from is the side, side and in we're Rico. it billion feel prior that's loan terms and We sure

well We the see side. commercial on the as side retail opportunities as on good

the you I've exactly next mean not we my it tell of and year, will loan growth what on impacted our by be sheet guided into year, in how it -- that to the billion, sure original managing can will will manage be next you remarks. that it to $XX have balance into question expected I'm I So the by north but

because feel if please sure your understood question. free follow-up, not I'm a is there I if So

Alexander Roberts Twerdahl

like mean grow I high you leverage guess, you right that guys the a it sort thinking are if I it's securities. balance added on maybe Yes. just how borrowings, as I some funding some of the about looks it sheet to timing. But level sort is in there... know there of or term look you added complexities just mismatch loans, the don't

José Fernández

I it. get it. I get

get I it. Now

The the good our this for rate Fed way to we remain X.X, at levels, a very that of and is and we is interest rates ticking are we interest that's expect we look interest valid X.XX, and side down the question, using Alex. interest the scenario So also XXXX of on rates fund these the start expect into at kind plateauing of half to rate second forecast year.

it north of we us X.X, bank, X was start it that to duration, look yielding that when So being and short environment and in X.XX in prudent we prudent to protect down. put ourselves us felt duration, where years MBS that will now scenario rates moving at be some asset-sensitive with with an -- for as an interest

Just recall, thing long we duration on X.X years right the dollars prudent we cash and did go that was not and do. ago, kept to

higher yields. might it it -- on interest a It rates the advantage life optimal prudent interest and on resulting take today, mitigate way environment in lower the certainly go is because of is might recessionary thing longer and right we that not right? us duration, the the States think be the perfect, to to I look and in But helps do rates potential not Fed. scenario at our the

to of second with and our Federal that are repos. loan today, also be significant. will scenario. that and -- home cost our in advances not financing the borrowings that our we have based And expectations go on starting interest short-term year, But of next down, spread We again, half declining is would of forecast rates

that in loan growth capital and of kind and clearly Because fashion. looked continue looking earlier opportunities question first that's deployed, will And a also foremost, we deposit banking much how at sheet so this. this. again, that balance retaining that's very So I manage kind we're focused being on picture on how that's we're side. is the for the we to and having, the answered deposits. relationships of good the We're our at and

Alexander Roberts Twerdahl

That's Okay. good.

loan your Just on and expanding growth XXXX. the fourth on strong in into comments quarter the pipeline

you earlier was some that about some of be in been about appetite participating and willing us talk the bank big have of on? a Metropistas piece that you might Can to are how talking announced you like your this think that would guys deal be potentially take financing. of a as bit I of something and a the for listed sort week,

José Fernández

way pretty of much. are it the are at of we market And the much part a we is So X-bank community. we look very part

no to an So of we in type in But a be participant. terms need yes, where not Certainly, depends on important who, and are it's opportunity. of what, We in privatization. participant those and certainly a it right, Puerto also are we size the appetite. of significant by our and of We're of our stretch our how, infrastructure for but imagination, way to we Rico. participant solid the think contributing participant reconstruction the improvement a

Alexander Roberts Twerdahl

Okay. quarters I the of as of expect that bit the And mix mix of commercial? do little past that. and shift to in component year year, over guess to you years, about more been we'll this going couple auto Do you think then a into big next very a loan we has next think see continue? Or a

José Fernández

yes, -- So yes.

think ask quarter. loan And to continues see I remain, that's me right? So -- happily loan auto plateauing. you to question we're growth starting that I every quarter, a that well, say, I'm every surprised guys

we see to third In a bit of quarter, the parts little of the latter started a of slowdown. terms

significant into forces not at and business auto but lending else. way starting going drop, the down That's it's think now. plateau we're and anything of it's these at it to kind right more XXXX. I we look the than from we're probably a to But trickle see levels monitoring competitive

Operator

KBW. hear Instructions] [Operator Kelly with now We'll Motta from

Kelly Motta

I seems nice the really detail on digital-first So penetration Slide all here. like It X. this love is strategy

you're wondering, about gain And reallocating with opportunities some you're with to may thinking having the potentially relative other personnel? to Just and making? is that success branch be there, investments you efficiencies how there greater

José Fernández

serve up on investing only -- -- providing more towards lending. I portal Kelly, starting right? kind years, adoption for starting we've you're going technology. see you, commercial side X consumer only X been lending the on and Thank our We've last capabilities and We're this off. be to of deploying a the we're commercial to not also in innovations And into or the not it's the adding similar dollars and going the consolidation as certainly, at to Yes. to vehicle levels working and of retail come. types them the And customers, of pay

that some technology. reduction of all at to than today, will way we guidance the In trickle the efficiencies are in operate it States. we're it's that those continue and same because here, as next extract help minds, innovate year, us utilize bring our to expenses beginning. to will this to saw which from Not dollars the of of we've them investing. keeping customers level. down is the the than to for the And behave you also Maritza those And starting So continue in market mentioned some we're beginning made want noninterest the investments in in our the we is expenses, a significantly different to technology that efficiencies

what add working our seeing. additional our happy we we're into the efficiencies. the you're some in and competitors is continue seeing the and general, efficiencies to about going we're do XXXX the and excited of the that very some we're because in team them, customers in can to so, But are And into that differentiate XXXX we're of adopting island. us, already bringing includes again, from innovations way to how So that's

Kelly Motta

strong. capital the Rafael. very Switching remains levels Thanks to for all color, Jose

half Can just return with quarter. you and with here, back away how the comfort bit seeing buybacks capital nice the us towards trading buyback remind loan you -- looking and think of stock your we're little You're the and you I really are growth, at and towards picked a appetite of this beyond?

José Fernández

Yes.

of discussion we're are the ourselves, to one, growth the that question there. alluded and on capital how number be opportunities focused on to we've I is January where we and MBSs. the for as It's But going capital in manage if loan we that to there We're going past, we're Kelly, the Alex's update. to done that us part earlier are in Board, be going growth capital for expectation for investment that our in deploy here market and we we buyback. loan and time has, much in But the to also, for Puerto deploy So then I are present growth Rico, our we seeing, the will on capital and dividend look that which at capital. very and buybacks. having at managing is -- will growth, same made opportunities our dividend used us

So has the quarters the from prior not script management and the on changed front. capital plan

Kelly Motta

color I margin. Lastly, purchases. MBS the the on appreciate the on

terms be loan rates new to can the helpful at? are in loans what In how would remind where originations, on yields, and you loan terms of us coming That of of think margin.

José Fernández

Yes.

that the net slightly income, trending we're at simply expecting in So on way But quarter additional I these update might we'll you loan of -- the levels. the at term looking terms necessarily not be growth. in interest we XXXX. just on this is fourth look mentioned call this way lower as and from because short short the we're term, the But NIM

XXXX. out going So we in But fourth indicators XXXX be a the seeing a the on in that shape with call we NIM quarter plateau for we'll we're good slight still the in to see is are in the are how near pretty are we look early XXXX. so NIM. term, NIM to regards downturn at there, and

Operator

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

José Fernández

our who Thanks and all to team our listened to stakeholders have in. all Thank you, members operator. again

you update in Looking forward great a Have to weekend. January.

Operator

conference today's conclude for call. does you Thank participation. This your

You may disconnect. now

OFG Bancorp (OFG) 20 Oct 232023 Q3 Earnings call transcript