OFG - Earnings call transcript Q2 2024

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Operator

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

Our speakers are José Rafael Fernández, Chief Executive Officer and Chairman of Board of Directors; Maritza Arizmendi, Chief Financial Officer; and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks and it can be found on the home page of the OFG website under the Second Quarter 2024 section.

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 OFG's Factors the outlined SEC filings. section the in anticipated. differ from may results Actual those currently materially this We disclaim any afterward. a to update occur of that call disclosed developments the result as information obligation in

like would [Operator the over Instructions] now I to call turn to Mr. Fernandez.

José Fernández

you Good us. morning, for and joining thank

line which to and We demonstrate increased our quarter XXXX our in the franchise, . income noninterest of pleased second the report deposits stable are loans, long-term results, We generated and credit strategies strength our both for through plans. quality. with short-term quarter and and consistent Performance growth exceptional. was

want relationships, million Puerto deployed our the and economic half of Our and grow our purpose, to continued make shares buyback their which of the share and commitment our employees, the to is same we time, Rico's serve. team progress expand mission shareholders strategy I steadily the digital-first to we communities to business help close $XX continues purchasing and customers, to market. from At mainland in entire OFG us for OFG economy $XX.X for possible uncertainties. to program open million and our decoupled thank retail

summary to our turn for second a Page of Please X quarter results.

XX% were net in more to million. was Looking on more margin per increase totaled was and at $XX $XX.X Earnings the Net X% year-over-year million. million pre-provision revenues core total Noninterest to $X.XX than to statement. Provision diluted $XX increased close share a than $XXX.X X.XX%. interest expenses revenues income on million.

for deposits up last quarter. assets a Total sheet. X% ago $X.X commercial Loans including from balance and XX% was with and quarter. were loan from strong Customer billion, at less production $XXX down held investment growth. year cash at million, than deposit the million. first were billion $XX.X totaled and the to billion, a last billion were Turning solid level $XXX slightly $X.X was quarter new Investments $X.X

was ratio Looking at the CETX XX.XX%. capital,

Page X Digital turn our Let's an for on update strategy. to First

the through retail of quarter, This being of virtual and and of made and retail loan were our second payments, growth As driven of transactions, by loan all channels. in XX% in digital XX% in customer utilization XX% of deposit payments is XX% self-service in digital X% year-over-year XX% XX% retail teller customer transactions digital routine growth. enrollment,

Elite This their customers, in loan During digital the that and funding. savings in back exclusive represents second of Oriental. account for benefits, ELiTE launched and payments combined customers retail offers particular, unique cash relationship a the with value a expanding combination opening and on an deposit quarter, checking for we market. proposition account account full rewards our

platform devices cash Oriental a set commercial For management small upgraded complete with a Small clients, of business remote accessible manage to Biz, to through mobile finances now anywhere, check have complete their anytime. tools deposit. access we easily businesses

excited with reception the far We products. are both of very so customer

agile technology investments, to to Rico us. unique our that focus this We and provide services approach. that customers with incentivizes doing it All deepen in fast, entrepreneurial them This advantage our a in products their position continue our to the is includes relationship on is to and easy, value. with delivers way added and challenger Puerto strategy Our culture market. client-centric take our leveraging of

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

Maritza Arizmendi

recovery and average of paid million more million, X more million highlights. from in review the Jose. commercial from $X.X balances to U.S. and quarter. loans the nonaccrual full. from to income was than our $X revenues. than Starting due Please $XXX income higher of first a Page up higher core you, loan Total or reflected X% turn interest That with yields mainly components Thank to financial

million, ] Total point $X offset first $XX [ and in lower million increase This $X from from management basis by deposits higher with service, Banking quarter, included loans. revenues rates, was an expense wholesale and first of an mortgage a quarter. average banking million average financial X interest $XX the higher $XXX,XXX prepayment increase banking core and rate. banking fees increase the service million, service partially and reflected revenues. of in on Total and U.S. funding revenues wealth were

in $XXX,XXX fees. included certain Management Wealth of insurance recognition commercial annual

quarter. million in interest due to totaled higher a than Oriental is expenses, service to higher $XX assets. to electronic due business insurer they FDIC in banking different from business Expenses at categories up first of increased activity. processes. net $X.X in million million, $X.X services million professional Looking improved improve now $XX more billion in the fees $XXX,XXX included $X.X And that

This offset gain by due to on expenses. sale preprocessed expenses properties $X.X of lower was partially higher and to payroll reduced million related [indiscernible] compensation

quarter. quarter XX.XX% efficiency basis was from The -- ratio second improvement second a for XX point first the the

first expand, digital by adding technology to incrementally people. investing are in strategy investing in continues revenues As we our and new

We $XX $XX rest million of efficiency this with quarter, lever expense per year, second of expect ratio the million quarter. to the remaining average to noninterest with the

to to operational from Return the metrics Return $X.XX our assets from balances and to climb first loan was to X.XX%. Average high. quarter. performance XX.XX% billion, highlights. were was on X on book review per tangible common equity Page increasing Please value average share $X.X the $XX.XX, first quarter. Other average turn remained tangible continued up X%

prepayment held mortgages Rico $XX This for Puerto End-of-period reflected pay or held loans of than X%. growth second loans. consumer X.X% investment U.S. of offset million sequential increased commercial Year-over-year, loans quarter loans, $XXX in investment for approximately regular auto more million. and increased partially by of commercial, residential of and balances downs

points from first [indiscernible] U.S. XX the mentioned [indiscernible], included This recovery XX basis was previously points. up basis yield the quarter. represented loan

increased increased from strong origination led all million for across New quarter first the a Production $XX categories, by loan quarter. sequentially Auto.

million reflected End-of-period commercial Average increased core production X.X%. were in deposits billion, of the million moderate. This increase million line decline in strong government up a deposits. will first continue or pack $XX anticipate a and have deposits to decline million in $XX We million in commercial partially $X.X $XXX a balances quarter. [indiscernible] by deposits, and offset a $XX retail $XX from

deposits basis up smallest Core from the first X increase That's basis X over the points, the quarters. last were sequential points quarter. XXX

Excluding the quarter. million. compared basis cost first on June of was points The was in public basis broker wholesale XX the points. deposit $XXX funds, XX funding rate were and basis million decreased borrowings million balances second points X.XX% in paid quarter. Average period $XXX The to compared $XXX XX to deposits to

the at held securities quarter steady first Investment from billion. $X.X

[indiscernible] May yielding lower of million matured securities at we $XXX with in With million insured $XXX our X.X% to this, that extended was notes sensitivity. replaced During the second a quarter, a government mortgage-backed asset duration X.X%. treasury asset higher yielding

Net X.XX%. margin interest was

continues U.S. capital the net credit quality strength. rate interest The Credit points, from to were Net rates our $XX first loan basis be was margin consumer sequentially. net both review points. million charge-offs charge-off Page and X quality basis XX down the Excluding was $X charge-off totaled down million, and net recovery, stable. Please X.XX%. turn to quarter. Auto to down XX

rate charge-off quarters. below auto The is X net the last now

up well managed. $XX.X are quarter. delays first some million, $XXX,XXX business Provision for for the time there losses credit the payments, While is in totaled

mainly reflected quarter volumes. Second provision loan

we over respectively. up credit last the last from at seen the X.XX% quarters. of and other with -- X.XX% X.XX%, X trends line Looking rates first X early the nonperforming quarter delinquency The of the have quarters. In metrics, were last and loan at the was rate total lowest over

common equity increased total stockholders at XX.XX%. other last some ratio equity of end the about the metrics, tangible capital and Looking million to from increased $XX quarter

XX.X% second effective Our in to tax quarter quarter. compared the rate XX.X% was first

We full XXXX. a expect XX% continue in ETR to of year

a from a and discrete tax included The second from a the first million [indiscernible]. benefit credit quarter quarter $X.X benefit included stock $XXX,XXX

mainly deposit assets positive, To trends offset reflected The from on up, higher the higher core income to second continued and remain costs. strong. loans sum by increased of growth. continue This partially up balances margin to interest deposit deposit core based by sum year-over-year. to of moderating volume interest-earning quarter, commercial interest net be net lower during partially grow Loans benefiting yields offset

continue We growth X% be this to year. X% track for to on

that Credit to quality remains continue stable and is way. expected

margin a interest be net Our to to continues X.XX%. X.XX% range of outlook

full our investment most portfolio the quarter. benefit from in in the the third recent expect change We

[indiscernible] expect Bank rate to Federal continue Reserve of We cost each. XX points basis

to million $XX Our $XX in anticipated to continued expense be as we invest noninterest technology. of range million

While continued share we to capital bought loan back regarding remain ranging shares Puerto during growth and U.S. Rico the second from opportunistic quarter, we dividends buybacks. capital from and allocation,

Now Jose. here is

José Fernández

turn Please to Maritza. you, Page Thank X.

outlook OFG and both for is Puerto Our positive. Rico

the and of projects to is As economy from seeing and levels I ongoing decouple island's economic investments We're mentioned mainland steadily employment. and grow strong earlier, expansion infrastructure of uncertainties. business continuing

interest geopolitical big its and future. possible vigilant So about we changes, rate very we to the said Rico conflicts. uncertainties, continue regarding be optimistic recession mainland Puerto are and ongoing . Having that, inflation, macro

continue We're OFG. deposits growth well benefit of loans, should the to current and customer continue trends Consumer base. Turning at credit our to positioned from levels. to

strategy digital-first working. Our is

innovations continue we forward out our customer So we deploy model. invest to of second look in strong business build and a Overall, will differentiated to to half XXXX.

XXth I want we'll including and of not of on anniversary the In members, our dedication been OFG celebrating business Stock could addition, have closing, team and trading our hard our shares Board to achieved that be Directors. of the in year our without newer In XXth our Exchange. results emphasize work all

excited we're and what's come. our we formal for please With them, end start to to thankful are Q&A. presentation. the We this, Operator,

Operator

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

Timur Braziler

during maturities. I the cadence year, guess, on opportunity. Maybe for the loan $XXX on repricing like the bond the comments planned what's asset X for starting fixed reinvested the quarter. of treasury remainder I the remaining the and million maturities both of out look maturities appreciate

José Fernández

investment mortgage-backed We not our book to second million a of of portfolio, mortgage terms $XX book, million have really Timur, securities specific the month. do any do our So immediate year half $XX maturities. around our in of repayments we have of

I have approach. liability mean our our book management at maintaining this of when we is treasury, of our of of it asset looking we -- as treasury book I the -- management So part way opportunity investment asset call kind and

In really up. any have loans, we loan say, coming terms fixed maturity not rate I do ones, should of large the

be from how good side, been generate good decided we we amounts to very long So second duration. origination to go or of and we of loan in investment lots not our treasury it's opportunistic the have half at had when the continue the perspective, side, cash, as on we origination about year, yield. And levels the and past a

benefiting less and last we've asset year, a doing years we're sensitivity significantly now and last months made been are those -- we -- investing we longer duration decisions it less. ago. had So having we several And that from couple the than in of

Timur Braziler

is in the then just the Got quarter. large maybe it. Or fund And now? Is that the in, come that there slug expectation maybe fourth that rate at base, base run deposit that it's going just been you came to is the public like deposit initially out? still Because in in looking longer an expected. than seems larger a of that embedded it

José Fernández

That's bringing a great it up. you thank and Timur, for point,

the out of probably would We mostly have year. that deposit guiding flow second this the half been in

we government from have been at September. updated the until least that Now account

the as in be will already some cost that's and terms of having her funds. comments guidance we the So September, included books our Maritza margin interest of well until net deposit as gave in throughout that of at in least

deposit, it's collateralized. that So

the little -- to has first a second a a question has also bit of a it second -- question of question. a little your relationship the So bit

of terms a Part securities. collateralized to the investment deposit with investment of do that in is pretty cautiousness billion book much with our the $X lot has

So updated of and that is things in good kind managing we'll months, parable. of kind plays next are thing the that that, everyone is out. bit deposit on little indexed. those the of X how deposit a that or It's keep X we're The

that that a the of the X So in half next the if on they Fed delivers interest deposit what the of will do rate months, the [indiscernible] market that is in X they're would have X the year. we and lower forecasting the second expecting cuts cost

with a we're now, basically for long everyone ours a we'll the that. of time. relationship updated keep managing with for great So customer But

Timur Braziler

just you feel with back Really over me results nice for consumer X has that Puerto this then now? to what's And seasoning now system. and year. saw quarters, in higher of COVID-related much we the maybe the of us some abated credit Great. the last worked last is spend the the do the on has of update Maybe as its the of of way X, Or through volatility like quarter, question some happening good just the commentary the Rico end front. expectations an give for

give Puerto a in us happening on update Just an as to standpoint. from the what's ground credit Rico

José Fernández

Sure.

Timur, some some about flushed Rico macro our Cesar you in, the kind give the picture that what is books. cash of through. you here. picture, calls, is benefiting And also from consumer give From Puerto and the big to and is perspective, loan wage from that seeing being of states. of all the in ask and consumer incentives the came the economy in most -- than I'll increase the I'll percentage-wise So magnitude specifics big COVID it's a other the that larger mentioned I significantly higher Rico consumer increased minimum in wages is Puerto where I

impact the also is larger. So

So lower we see see levels. unemployment higher wages. We

finances. kind of that of all consumer in terms their what's the So is keeping healthy

I'll consumer give let our So and auto in loan details. now kind of terms perspective book, some you Cesar of for the

Cesar Ortiz-Marcano

start let's the with with Auto, but So auto bigger portfolio. for

stabilizing rates nonperforming on auto. to We continue loan see

better the this year rest of tax than is discussed quarter last usually First the of a We quarter. the season because season. quarter

holidays So tends quarter collections, and the with customer be the nonperforming to the stable. slow in place, second terms what positive continue to down the in loans of

portfolio, those consumer auto. For and

for the outlook So positive credit. we remain on

superprime we converted too. the years X the charge a and during from [indiscernible] subprime -- portfolio, improving also that levels, of it's XX% and ago portfolio portfolio prime is now which Remember auto prime

and So stabilizing we are too. charge-off improving seeing levels

are the retail we the again, So outlook positive portfolio for on side.

from On also are other hand, macroeconomics portfolios the Rico. Puerto of commercial benefiting the

businesses of and behavior in the continue the but We small portfolio, opportunities in pipeline, portfolios. commercial see both good also to corporate in credit the terms good

Operator

question next from Brett come Rabatin Hovde with Group. will Our

Brett Rabatin

the the just wanted And outlook half on half the the specifically of to in the might see just a on for I outlook hear back has growth I be commercial couldn't past driver year, stronger the wanted loan just for I and and Rico, in here year. the start of quite specifically hear the missed, off numerical that what wanted you the been back to commercial activity obviously if Auto year just I guys the about I to think was guidance side. how but strong Puerto portfolio?

José Fernández

Yes.

for question, the expect the So of to first loan X% full X% the year. we part growth

will impacted positively So the our second half be of the year by commercial pipelines.

June them still quarter, September some delays in that of but quarter. pipeline seen be very in we some the closing loans have of a We in in the pipeline. had closings expect we in some June to -- we have the strong the and

in account the fixed row. and and our growing mentioned small relationships. And with relationships a seeing those Rico activity loans clients in are Puerto these in commercial their as that business that I small. rate the really I lot type levels mostly, business origination a consecutive well and We larger the to in of of deepen X credits. small origination in small We're levels. say, side, would expand are encouraged had record as biz mid- and small through the us quarters We're giving We've those my are it's comments, opportunity

a On the going of in to quarter. is do growth year. the rest drive whole expect from the we to We we of the commercial a of strong we have type sectors second think the we pipeline, bit that as do very is taper great second saw quarter. that loan for the down half had and larger levels a have, our that a the year auto little We

Brett Rabatin

on from way helpful. Okay. here Puerto capital on any and of them robust, And but I buyback in are kind That's keep you thoughts then the capital, obviously just know Rico. levels the that

José Fernández

Yes.

at look we we loans. to way goes first the capital, So

a that of in downwards. given market on the seeing that's you're little here say, in seeing let's that why the kind Rico. and the timid XX months, bit steadily in opportunity We've are We uncertainties kind of last, stay portfolio U.S., Puerto a great stay

the us, Rico But first, advantage helping growing capital goes situation deployment for the of and in customers and Puerto communities. the to loans economic relationships our and taking and

at the capital pretty results we then you about are a take are OFG. And of a one, overall we perspective. number perspective pretty strong, our and dividend saw, and that's look So as from confident

the continue that shares of past that our the cost And as -- we as program buyback. XX% dividend we to sure. the the us quarter. am to can that you imagine, the -- executed executed as We -- was buyback well to of the the I for average say of will we at happy accretive look bought at So in cost extremely

And we have so we're capital. really we've way happy with that managed and we capital recognize the excess

returned significantly to to earnings are going basis. shareholders So on our a be back consistent

Brett Rabatin

the but other expenses Okay. it the point platform I that. 'XX heard that have on lead don't think essentially it's of a wanted to I If you then initiatives things for too million I confirm 'XX need back $XX know path 'XX? in one you If in to new way could I correctly, And might guidance. one where last to quarter maybe sneak to the about relative invested to it guidance, on just was has in do half. the to expense lift a been the or technology early that

José Fernández

it's give and [indiscernible] stakes say picture, is for stakes the of in The don't big can and/or -- I'll I So stable because we're to you think Maritza investing everyone. technology a details. big we it's stop let going kind that picture

strategy in the branches, in part it's us -- right? at and our in front of that the investments to We Puerto have technology. sure the end have that different at making also of -- So strategy, market our a but less business requires Rico here we're

So not because need and good that is we to so technology. in invest size size good it's a

led I decades And think is do last that I people more entrepreneurial bank culture the the that an is how thing, way one culture to sure dynamic, make add -- and of with our its the a of culture. we to are agile what kind have business not we in going continue proud have the and banking. have But couple and we're the guard to and far, to we in that but of the approach lower we out to look to really and opportunities, the have we so for do transform also require technology. And to to us will way accomplished invest is

give It's her us I'll [indiscernible] agree bit XXXX. a take for guidance. early you. for I little you XXXX, that, with too on said give And of let Having a to little Maritza in you

Maritza Arizmendi

with range you -- is million $XX the guidance, shared in expenses. expecting we million prepared remarks on to So the we in that $XX are we're

bit we was quarter in of little investing because higher than a This particularly that improving [indiscernible] processes. particularly, continue

have did we we some X we will of be but that the So that quarters as the $XX this for share over million higher if expect okay? it to range, but timing expenses with investment define will that $XX of million, next is you, average this range wanted

José Fernández

And if more add net could retail checking Brett, investments now, I capability interest we XX% thing realize around in right know if to open retail digitally you this, customers accounts I expenses. technology of from of their digitally. And one nuts. and to don't commercial soup and have the our but opened terms and accounts

XX% XX% That's view small how So this. differentiator we or commercial that's market. commercial, around in clients And this do so. a

This is differentiator technologies in investing it's have because been the are the we required. a is steadily reason why that

I'm it's nicely, forward to to played this I think emphasizing the we this it. expenses continue not going emphasizing I'm point and that out we just very strategy. have to make And expand So look differentiated a hedge to forward.

Operator

with Kelly come KBW. from will Motta And our next question

Kelly Motta

is strong, and buyback guys you really well time on and Capital the such.

opportunities outlook as business to loan given of utilize portfolio. there's Wondering capital if growth to some maybe any your Just you organically, mid-single-digit low of ahead, look or your kind bolt-on wondering,

something we update get around that if Just on any wondering nature. of an could thoughts

José Fernández

inorganically. a have what time, not in looking of anything of this at we that terms business. At Yes. or you're do to referring a a book or loans Kelly, That's we're portfolio

existing growing because deploying much and relationships our and great from customers relationships deepen more a customers deepen clip are extract organically, pretty opportunity have the we're business a to we and X% more We them. of those strategy there to our of and our

do deploy the, have not So anything capital. dry it, do let's no, excess have powder. to call But we we

and advantage that the we presents of will be have So capital take we to will opportunistic any opportunity immediately to excess ourselves.

Kelly Motta

guys. Awesome. it And another great was from quarter you Clearly,

very guys to nicely. execute You continue

where look high excited like Jose wondering and the from do a greatest share just [indiscernible], Just see level, year, a to what or you most as beyond build I'm makes business. this opportunities at ahead the you gain you out OFG maybe

wondering a Just any you if high could us insight into that give from level.

José Fernández

the me for years it. and Kelly. next working. We're strategy, Sure. team seeing gets our X To me, excited the and It's to is what excited outlook deploying the X

steadily working Our not but net quarter, it's customer approach, and growing executing strategy customers, we our one our building. business steadily to month development going in our and on -- one and is happen are on it's or it's executing

strategy has us. we So was that is Rico, X when The and the happy because really boring, very but with are right really now, not exciting -- they strategy as for that's acquisitions, Puerto were they and bad. And great banking did those we us, for in X, past, acquisitions. good we're become macros our as in the were

Now, keeps on blocking going keeps and bank differentiated our whole that team and a me really tackling about executive and and and the it's strategy, executing going.

years. really for to excited we're about the X prospects next X so And the

Kelly Motta

margin. Maybe we I so well. Great. working question appreciate boring the color Well, for when Maritza, it's around last me. love Maybe for

XXX could trying it function at new deposit on that just top I of top that, greatest of think stabilizing? do you you ballpark both the end kind range, on think end variance Is higher range. a drivers ] the costs to between ends Just than rates bottom growth to the Is of putting it that of versus the within get are to wondering, you reiterated XXX. that end? the what [ biggest

Maritza Arizmendi

the I growth is the and what quarter driver reflects think yield. loan this question. higher the And for the Thanks is

Our about excluding loan recovery is the book, X%.

total inch every growing an in the balance on sheet. and book of we're -- So the quarter, proportion loan that

at upper of prior funds that as market to [indiscernible] move not the -- so make -- quarter. same the that growing the They So cost are the that different and the with and us are range we looking expecting X stabilizing But at, cuts. we're will one combining are as we money. of make pace managing fact that is

And factor. think will I another range is driver. be loan main you, But provided that within growth that I the that

José Fernández

XX longer of And fixed we kind duration to investment has gone have or securities, Kelly, also asset and -- in rate months, the sensitivity. us last investment fixed significantly mortgage-backed allowed reduce our X which

you'll I an going interest a But and to XX-Q has think to get be quite manage and think the where sensitivity bit, the Fed our positioned that. reduced of going asset get update. as are you'll on the signaling, it's less well is environment down of we're kind rates also I

Operator

further Instructions] at no time, call the management back questions. will are for [Operator closing this turn I to And there remarks.

José Fernández

our today. to our to operator. team again stakeholders members you, Thanks and for Thank listening all all

to forward catching end at the Have up you of Looking with guys quarter. great the day. third a

Operator

now disconnect. will you may conference. and your you this today's for conclude participation, Thank And

OFG Bancorp (OFG) 18 Jul 242024 Q2 Earnings call transcript