OFG Bancorp (OFG) 24 Jan 242023 Q4 Earnings call transcript

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

Our speakers are José Rafael Fernández, Chief Executive Officer and Vice Chair of the Board of Directors; and Maritza Arizmendi, Chief Financial Officer. A presentation accompanies today's remarks. on Quarter of XXXX found under OFG be Fourth the section. can the the homepage website It

This now the call to currently may of materially goals, outlined plans from feature the disclaim any occur OFG's certain in over forward-looking expectations. in results statements a as statements SEC These call those filings. developments are may Factors Fernández. anticipated. subject ahead. obligation Risk that risks Actual uncertainties and disclosed and section about Please differ turn We result [Operator afterwards. like to Mr. would Instructions] I this call to update to of go information management's

Good morning, joining us. thank for you and

of quarter We year-end year was results. loans, are assets, XXXX levels outstanding customer stockholders' and to pleased deposits, our equity. fourth and an record report with

commercial time, $X than balances loan was billion exceeded billion. equity common and first the For tangible more $X

strategy First through to all on Digital attract of customers existing XX% development focus deposits Our take ones. for transactions to new our opportunities. teams continues more business channels, enabling now retail and routine more empower and self-service place

begun credit liquidity solid. While and has continue to consumer postpandemic, be normalize employment to levels consumer

are in economy. a Our very commercial strong doing clients well

Oriental accomplishments proud team very the year We are for record and thank this of our making entire possible.

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

million, million. million note. items income $XX.X revenues totaled to earnings due were $XXX.X margin included pre-provision the Quarterly net net and $X.XX, Noninterest was primarily performance X were per volume. statement, revenues interest $XX.X at X.XX%. total and Looking share diluted $XX.X increased of core was million expenses was loan Provision

planned a last loans. nonperforming pretax of $X.X quarter. We sale This the mentioned Rico Puerto on in closing small was gain. million resulted business sale the First

as lease This This part workforce resulted was certain in result and investments. from noninterest million a of and expense areas, technology stemmed increased for in severance a in our rightsizing. $X.X productivity cancellations. retirement Second early

billion $XXX a billion new up of last third Cash million, with up giving -- $X.X to or total from quarter. quarter. loan deposits. totaled bills billion from increased from increased for billion sheet. funds This to third and X% government loan mid-December, to public to of $X.X billion of to billion. in from increased due Customer Total $X.X million billion $X.X billion, balance $XX.X from increased deposit the the This assets investment held a the $X.X quarter. Loans production primarily to quarter, the $XXX government third of deposits from origination $XX.X us mortgage-backed billion in purchases million. to XX% Turning due Investments $X.X securities. was short-term of long-term treasury $X.X $XXX was

for half of our into higher-than-normal positions in expected well rate second position the environment During OFG's mortgage-backed moves the we balance treasury levels sheet These interest of and securities. lower second the longer-term half redeployed cash XXXX, maturing XXXX.

Looking of was CETX interest margin Net at $X.XX, X.X%, million from per year million, expense Page $XXX year-over-year. revenues noninterest for was million. revenues up XX.XX% $XXX net in X was XXXX year-over-year. up ratio a our diluted pre-provision core was XX.XX%, $XXX share to Total million, was the provision totaled were results. Earnings quarter. Please third XX% XX% $XX summary for capital, turn up the the and

XXXX in of million actions capital completing buyback. quarterly $X.XX share Our XX% $XX.X included and the dividend by increasing to

authorization. We have approximately $XX million of remaining

strategy. X our Digital First for update Page to turn an Please on

as driven Oriental continued of is virtual which customer and XX% success in well the retail and enrollment, are in in December As our payments all of mid-XXXX. transactions was utilization self-service channels. XX% XX% through in XX% by Portal, digital digital Servicing loan introduced teller as deposit XX% That being retail being made December, digital growth year-over-year of and transactions now of of

strategy. all loans, open Customers automatic applying checking, self-service new For and loans It them of originate deposit accessing bank accounts. and listeners, CD, portal documents. and can for the and managing enables and cornerstone payments manage savings, loan our is tax to letters downloading a and

to new basis. features continue regular on We a add will

continue technology. our Our validate strategy and to investments performance XXXX in

they help us more mentioned, our and activities. increase development new staff service, efficiency for more I As provide value-added business assign

welcome Now in the I detail. Maritza over would more like call to to go to the financials

benefited financial Key a million, a X $X Thank million to turn you, million up increase $X was the interest from securities yields. to due $XXX from fourth $XX a Loans securities decline factors work funds Please affected and and Starting quarter. both from third $X with purchased quarters. Average we million the José. yielding securities. and investment from declined balances million to average highlights. and a in income factors Page were The review Total revenues. more from loans, increase investment fixed-rate put to our higher mainly third same as cash volumes investment loans in higher cash. securities, late

commission of revenues banking of Wealth were a $X.X revenues financial increase million, third $X increase up drivers million from million, Key higher deposits increase of recognition and at average a $XX an $XX service the management a million million third quarter. interest $X the higher million quarter. balances $X core to higher were to million. Total a wholesale due was $X reflected and Total funding of annual from rate. due insurance level expense short-term

banking to valuation, during rates due and activity, declined quarter. the increased fall revenues long-term higher lower the levels reflecting revenues mortgage interest of to economic due in service MSR Bank

the $X the factors, million, of all third This Rico totaled million nonperforming of loans. from quarter. the $XXX gain revenues from million these core As the quarter. a sale result from due million, Puerto income were business $X Other to noninterest third up total small was $X up

$X average noninterest rightsizing. the million of workforce from savings between and to mid-XX was was million from the of of to million, ratio third percentage range. Most at with XXXX, $XX in the continuing to in the totaled continue up to enable up and invest quarter. quarter $XX results and about in expenses, continue quarter. $XX efficiency should the million retirement per This third use the they quarter The third the noninterest the to Looking to plan fourth ratios slightly low technology. We to XX.XX%, efficiency early difference facilities cost expense us

quarter. remain same in performance average from Other high. retail the was value up tangible the equity quarter. in Return was metrics the as nice on AOCI. from more earnings third the third quarter. increase average Return book X.XX%, Tangible $XX.XX, from increase a than and benefited was both on the asset per share equity XX.XX%, Tangible common $X third

and in from increase sale loans. commercial X increases basis Residential up of growth same. on highlights. were yield in operational Loan loans conforming securitization This commercial higher to third our entry in from turn loan downs $X.X of new X% from commercial mortgages mortgage proportion balances points XX End-of-period and balances residential U.S. loans, smaller the the consumer XX variable quarter. and balances loans pay X% book. loans of loan loans. was the in X%, regular the Page the auto X% reflected Please X% reflected loans, reflected Average in were rate December yields about review Rico loans, continued declined X.XX%, and of billion, quarter. third to a an Puerto X% sequential

deposits. billion XX% X% increase funds increase reflected the billion, from $X.X the third XXX XX. $X.X of time points balances Core were in $X.X deposit This billion, compared End-of-period basis third quarter. from September relates XX was were XX increase cost to rates the mid-December. and of an basis in deposits to quarter. deposits public deposit points mainly core in of points due basis Average XX government higher to This points an basis on

of quarter, As our cumulative the and interest-building deposits. for beta was deposits XX% XX% total only fourth for

to fourth in mature first the in million quarterly strategies wholesale points brokered third the balance the XX $XXX deposits, funding funding government XX fell were liquidity. reflected December increase was $XXX will in Most balances The wholesale paid deposit quarter. liability million assets balance it brokered on that The deposits $XXX of Excluding increased quarter. borrowings short-term and million basis to for million. December early and management quarter. to current XX%. Average X.XX% this in the a $XXX rate compared interim increased of need involve The XX

We reduce to excess deposits third X.XX% in the expect Net quarter. That funding. X.XX%. was margin wholesale compares interest to to use

catch-up over the points as we well cost, cost NIM rate a XX deposit of about the believe some potential XXXX. basis as ] course in [ Assuming we'll see

U.S. X was turn The level fourth review reflected in a net the XX were higher totaled XX recovery Please million related rate to charge-offs of in points, basis our loans. The to third due net from strength. fourth the quarter Page auto to in X the loans, credit charge-off to and the Net the third in residential $X rate declines due in down and mainly an $X points of quality quarter. due basis $XX charge-off charge-off third net quarter. commercial down and charge-off capital from the to to quarter mortgages loans absence consumer Included rates increases delinquencies. quarter million improvement million,

X.XX%, charge-off most in Provision X.XX% million, nonperforming and Looking relates were third volume. The rate at $XX to early other the and loan quarter losses rates a consumer. total and of good. we at lowest which credit employment X.XX% stimulus respectively. totaled increased last credit metrics. But for the quarter Fourth net growing charge-offs line delinquency be prepandemic expect of was with X away, Overall, levels. cash quarters. increased the delinquency should COVID Rico increased and be economy, than fading auto Puerto to of and net continues With in lower with

stockholders' and equity other X.XX%. capital of some at Looking metrics, was billion ratio $X.X tangible was common equity total

line costs growth To of origination higher sum expected quarter, to that Digital auto and deposit from revenue end-of-period condition lending. higher higher betas both noninterest core First core core saw investment continuing consumer loans in mainly up, our strategy. our by but funding, deposits, includes benefit below higher the wholesale higher, peers. loan and expense Significantly Good securities. retail, and commercial, Increased continue continued with during short-term normalization to in credit remain driven fourth and we well yields balances range,

José. Now here's

Page Maritza. Please you, turn X. Thank to

positive consumer and interest infrastructure the island. continues. about forward mainland economic both possible doing and of all to as inflation, Private well is still flow Rico investments changes, continued OFG. continues employment. conflicts, growth Puerto look levels expanding. to remain to and Rico in the Local ongoing as Our we strong global but optimistic have funds for as outlook watch federal Puerto capital make The big for We well. uncertainties, the to business rate recession The remains are the rebuild businesses of as out well island

OFG. quality higher our and portal self-service XXXX adoption other were interest low beta. good and rate and to build by with driven traction are as We saw innovations loan results environment Oriental deposit digital to strong and acquisition credit growth, Turning client businesses. helping

earnings. As a in we a result, had record year

stockholders' and at new highly ended have deposits effective. customer loans, proven assets, earlier, equity the mentioned our strategies I As highs. Overall, year

Looking This significantly XXXX ahead, rates momentum, a by will this interest as and interest partially course loans by we're continues to due growth. strong credit the and anticipate a of starting as client loan both we larger balance with With higher starting point, normalize. Fed the year continued net lower provision for be consumer easing offset and strategic positioning over to excellent investments. by expected margin the sheet and

plan As look we Maritza forward All XXXX. deploy technology. in to in to continue and strong in a to we more invest mentioned, year all, customer-friendly

want been all our not work dedication team our have members. I without results of the closing, to and could In emphasize hard that achieved

in New our Exchange. With our York the come thankful to are mark year our and them, this, we for please trading formal business Q&A. we're as call open on end year excited to we presentation. We Stock Operator, the XXXX up what's the XXth XXth and in for

come Alex will Sandler. Piper with Instructions] [Operator question from first Twerdahl Our

it's José, $X.X from, off, can bit or us on hoping to your First whether billion was period something sheet balance government going where I time. for around color and it on stick a prolonged not a that's the of little deposit, give you more came

Yes.

client So bank. certainly, honored of onetime their we're and they liquidity, of it's a ours, be inflow and to long-standing had a

at we don't point, uses the the funds. of visibility again, full So have on this

a it a servicing customer again, within in modeling full we relationship short-term are, sheet we're them. our So the meantime, with banking balance for have we now, deposit. as But a that long-standing

figure more get to will customer, we weeks out. us it's but to more a it of for from couple going We definitely guys the update you as take color

Okay.

we guidance, So NIM I XX thinking throughout when that points I excluding on guess, that compression mean, should the basis NIM $X.X year, the think I billion? balance sheet of about assume you're the just the

was a it José basis Well, that yes. it the in that was from will scenario mentioning period, -- short-term be for

better the deposit, that -- onetime deposit of part that that excludes excludes our it so modeling XXXX. Yes, for

Okay. And interest quarter? is in impact the in going is that that's it government expenses deposit noninterest-bearing now? first Or just to sitting something

these index-based, on it's deposits government formula government it's that the as deposit days, are based established. all So the that now so government on earning a right -- interest is has

Understood. something suggests you I it larger a size the capital that the And have expected. then guess It's are a you building billion as that where where you your about guys than of now. much levels we could are think over level And obviously balance are balance projected, you I sheet, today. sheet to $XX something

Now how next, strategy you're all sheet just billion And $XX about years? does firmly you I balance above are coming the the thinking shift the guess, managing mark? the year, now overall at over that

the book in here We States, for So but see Puerto great to Rico. the mostly to opportunities and in loan grow here too, Rico continue our game much somewhat our in Puerto plan us remains same. pretty

a And that's excess primarily with that good to we us game we in that here deposits, are in into basically the economic and operate, and have. that We environment plan them, jurisdictions, We're effort. the Rico. seeing first Puerto in that foremost, liquidity locations want the we good supports now levels, deploy

mentioned -- funding let really remarks, go her on of seeing what on took the kind wholesale it, to just balance mention just of back it's the for that's Maritza she question just on Alex. to we as event to gives forward. And extraordinary -- you November, some flexibility kind the the that or on want we providing planning will mature because canceled agenda in government we're really, need or sheet have -- to having any December keep We're the I us deposit, us of months. going on not simply our in So us. deposit, the to how that We

it us. of that, also benefits differential us. cost Slight the benefits but So a that there's differential,

be it's our -- it's something flexible more also nimble So short to is and to going with that sheet. term, help us balance

you And then of is? impact on me, it. and some the guess for and just tell what what just us just final Can workforce actions. question Got rightsizing did the you I the

Yes.

starts first, our for several we've First years. with been in strategy Digital So it investing

us And generating of is investing part we're and thesis improve to investments. the to incrementally seen start You've some customer for that efficiency. and the in the experience and hypothesis also technology generate

efficiencies, seeing First you're to as starting fourth as quarter efficiencies So of talked way is invest pointed with using our on towards intention technology the some forward of we strategy, the those what the in about. effort and extract some in Digital our we've

reduction have workforce nimble more operational some some on how of we to the mostly And seeing seen we're also of in areas were side. cancel mostly, And we've we the and it is able of our we had. but on branches So one facilities. invested in been terms that some the be can that of leases terminate and

of the efficiencies about investments, starting do that advantage second all it's get you get investments is take out part we to presented ago, to made to guys again, years So the thesis how which the some of several of we we too. the that

being And that's expenses at So the intentional million the of $XX as $XX quarterly can we very Maritza mentioned. level, with million, we're why that. kind keep

I guess, maybe I play mean end the that towards further out presumption year? as forward through strategy year then efficiencies rightsizing of next digital is further the or next be going found, to there'd continues the the that

But to can't look opportunities tell, certainly looking This closely, anything, though. we it Alex. look at what quarter-to-quarter a that it. It's, very to for I see me, on promise too early basis are really and something at is we we surface.

from Group. Rabatin Brett Our with next comes Hovde question

pretty XQ of continues I everyone trend color to lower consumer I give seeing And be as maybe Was we've to with to us the would the versus And guess normalization are on be XQ? seen net going Wanted but and some expectations and just a comment forward missed charge-offs we the forward comment Maritza's this, and kind -- book? charge-offs you normalization. for that your expected, obviously, auto going credit. in that can Or on good, credit relative start consumer auto. on

the look Maritza And auto you're in when her So to consumer in this they mentioned It's is consumer the alluding obviously way prepandemic at from Rico it remarks. better macro to referring economy than and that The I a well. more had has prepandemic. perspective, charge-offs solid. Brett. economy you're the is The was Puerto liquidity is much doing it much also. The charges, than

operating auto in. To you I'll bit Ortiz, auto you the ask you underlying bit give Officer, Cesar see understand on book So environment a on specifically so our little we this. guys the we're that more that's book, to the a on Chief of color color little loan give -- Risk of kind how

José. you, Thank

of in and the in the I during opportunity took One that increase of to auto underwriting the our terms improve the highlight we XXXX tighten of taking standards. and 'XX context, in loans, to opportunity things want [indiscernible] loan,

So XXXX, terms if in look prime during compared quarter composition back composition an XXXX. we the as price prime of composition of December composition of have fourth XX% you in portfolio at XX% -- to

So be that prepandemic levels. giving to basically will levels returning better comfort normalcy is us of our that than

in, them midyear expect standards quarter but prepandemic potentially continue about to the next as generating as And on the several book the fourth than to lower better level start to to charge-offs tighter still we of auto to we see around XXXX, similar your sometime for we normalize, point quarters, levels increase slightly charges. we the in But charge-offs, levels. Brett, the of XXXX that expect or we and put credit

hit about you out talk this Can was growth Okay. on on you and maybe but obviously commercial It double-digit do every production growth obviously Rico XX% forward, a expect that What loan mark then maybe I And -- José, year? year, think growth, That's production the for year? about play you growth then just the commercial loan loan obviously in Puerto bit 'XX. little in expect side. how you the going helpful. to strong don't

you hard type us. I lower. originations this year, and so auto fact and still probably of midsize XX% appreciate to was First, strong We pipelines. we see see larger in every trending economy in small, loan good side, demand. We highlighting of being it's that We you're of And that's opportunities the Rico. thank and we in see us it deployed of area Consumer see as is we terms bone commercial the replicate the see the at good, on loan But way for here growth slightly Puerto flat a strong private see little bit originations. for opportunity a Rico, kind normalizing that in good in XXXX. loan relatively that Puerto loan opportunity throwing capital an

So X.X%, we kind growth. demand the this seeing we're in of between If it's that's down the go book for to X%, X% X% and line as Note economy as how less less year of looking to that mortgage we're and still grow residential terms been expect of loan our we grows loan at during predicted, expect in business. book. that us

could one... If sneak Okay. in I

yes. of as -- those I'm conforming And loans, some as And sorry. sell we

income. income X on fee relative around back bucket Obviously, to items I a last from, sneak XQ. guess the that any to one, it Is sorry. assume lower? Okay, those unusual fair wealth Maybe If line in the fourth numbers fee I outlook it benefited little go management/insurance call quarter? could you'd in just

insurance fourth that quarter year. every by get Remember, commissions impacted the we Yes. is contingent

more levels. down think normal trend it So yes, back I to the will

Around $XX million.

quarter. Around as yes, Maritza mentioned, a $XX million,

Kelly question [Operator Instructions] Our next from with KBW. comes Motta

about deal ] additional compares you loan commercial closed. growth as on that to that the if know share could contributed off was how well quarter, color of your it's much lower. this originations, question QX. normal piggybacking [indiscernible] how the Metropistas you could I [ any growth probably I loan hoping as Maybe the to offer pricing

question, So Kelly. for thank your you

the commercial the $XX privatization, Metropistas we We -- participate So the grew privatization Rico $XXX million participation. on from fourth Puerto -- the grew did around by loans quarter a we highway third with to commercial quarter, million.

grew by So commercial book excluding our $XXX million. that, we approximately

you So still third from a Metropistas, seeing ex X.X% are growth fourth to quarter.

It's small of financing job generating great we medical from and hospitality. So professional of looking again, business I kind business origination type good services. It's that And of doing a manufacturing construction are the and offices, companies ex from side do business also that the is Metropistas coming office the midsized into coming coming -- but of with. think like from small most equipment. is and we

we is pretty we job the and Rico that book, So pipelines and paying the Puerto that doing have think that on have we a the off. are approach good we commercial

past, XX, the basis on to team Metropistas as small rely the doing loan does butter, our maybe great other commercial of other XX -- bread business large small it's compare are too do dissimilar we've but and it's terms is rate large how those lower the from it that, We our not But And pretty loans, said on which and nothing really In loans. we job. points, both a team the similar, focus larger again, teams, in slightly and commercial loans. and type of transactions. midsized by

maybe basis [ guidance. the really, for compression. margin XX about around ] getting clarification helpful. That's outlook I point really some appreciate And just the

that assumptions And the kind starts what in wondering your remind can of you either when any Just indexed on us, balance Fed or how floating just of this sheet, rate side to thinking the for year. should cut? about embedded there rates be are we

we the So I'll Maritza high action But at start cuts. let the rate way reducing of some is Fed XX-basis-point to look Kelly, X will specifics. second XXXX for the environment, Fed X seeing the rates, -- start some for the year, taking level I'll more interest the half where seeing give you my you and of and we give

about interest the our So rate to that's you a margin from talk net underpinnings modeling macro we're the interest I'll perspective. margin. Maritza how of let

the in the loan variable is half asset you this question. is book, with your is now we right we Thank commercial about have our balance something that fact rate. side, sheet book of composition have the you, for in commercial before, and shared Kelly, The a

when to we treasuries. treasuries had in maturity rates that And that a we is And position have the $XXX go that we will about XXXX treasury $XXX other fourth start variability of million short-term quarter, mature have exposure down. million we longer the that took in notes. So the in May is in short-term the

So that reprice will at level. current

last variability million that's side. But an And adding on deposits side continue, So structure. the the quarters that during the add doing asset into have AMBS. X is the been of that higher we that ] and at yielding is [ the variable what extension the idea government position finance $XXX of in the balance we at the asset sheet the recently have rate to structure deposits with

a adding into ourselves liability side it to coming. are when variability lower rate starts we to So the environment position

remind Awesome. covered timing us Maybe you billion you, me $XX the kind one, of in a of know calls. impact last size. Durbin? multipart is the previous asset it question and just for Can on I the on

Just wanted get to there. update. an confirm Maybe start we'll and

So half XXXX. will it to seen so and the start be the year it's July we effect, triggering going be should full Durbin impact that have a impact on in a

recall I about... think it's I roughly maybe

$X Yes, million.

annually? million $XX

Yes, million and then million the in $XX million XXXX annually, $X XXXX. $XX

put elsewhere. it you've believe managing in I billion customers talked funds prior it. Got and it. year-ends, about $XX under took And strategically that Got in assets. excess maybe then Maybe

anything like under kind not managing it the do $XX to is large deposit previous of government have that with seems to customer billion. Just idiosyncratic

clearly there's Just back more that. wanted related also deposits to recruit who excess to bring of lead that to you're customers be if you their now confirm potential that. And may inflows bank as wondering who of over may OFG funds have just that crossed --

Yes.

your of part as manage kind deposits we I below had to are quarter first question, no, we we think, billion the and did on try year ex third engage not of call. not this the did the commented, So -- government $XX

as sense we're can conscientiously we in reinvest made mark towards So deposits managing us yield into than really for $XX higher because years. we total and previous those managing breaking a it were billion the

So that's the first part.

we And and customer we take working yes, as year. to play advantage that part, will positioning should we our grow Rico we in that Puerto very us again, the and the market. deployed customer actually be second the active that On of very strategies our are have deposit diligently during continue good base, strategic in are for

call further for [Operator to questions the now remarks. at turn Fernández have I'll time. Instructions] back Mr. no this And closing we

operator. again, Thank our Have a who all our listened day. have you, in. and you, all Thank members to team stakeholders to thanks great

We This does conclude call. you for your today's participation. thank

disconnect may at any You time.