OFG Bancorp(OFG) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Earnings per share diluted was $0.93, up 11% year-over-year [8] - Core revenues increased 17% to$ 170.5 million [8] - Net interest margin was 5.9% [8] - Provision for credit losses totaled $15 million [8] - Non-interest expenses were$ 89 million, with pre-provision net revenues totaling $80.8 million, up 22% year-over-year [8][17] - Return on average asset was 1.76%, and return on average tangible common equity was 17.67% [19] Business Line Data and Key Metrics Changes - New loan production increased 23% from the first quarter to approximately$ 692 million [9][21] - Banking and wealth management revenues were $31 million, up$ 2 million from the first quarter [15] - Average loan balances increased $136 million from the first quarter [20] - Non-interest expenses are expected to average about$ 90 million to $92 million per quarter for the rest of the year [18] Market Data and Key Metrics Changes - Customer deposits were approximately$ 8.5 billion [9] - Loans held for investment totaled $7.1 billion, up 3.8% from the first quarter [9] - Retail deposits declined$ 136 million, while government deposits increased $130 million [22] - Cumulative deposit beta was 16%, expected to reach about 25% through the cycle [23] Company Strategy and Development Direction - The company is focused on a digital-first strategy, showing excellent progress with higher sales service actions and lower branch visits [6][12] - Investments in technology are aimed at improving customer experience and operational efficiency [12][102] - The company aims to maintain a strong loan-to-deposit ratio while managing deposits effectively [40][44] Management's Comments on Operating Environment and Future Outlook - The economy in Puerto Rico continues to show resilience, with retail sales and wages rising [30][31] - Management is optimistic about the strength of Puerto Rico's economy despite potential risks from interest rate changes and inflation [31] - The company anticipates continued strong loan production and stable core deposit balances [32] Other Important Information - The CET1 ratio was 14.0%, and the company bought back about 565,000 shares during the second quarter [10] - The efficiency ratio improved to 52.13%, reflecting increased operating leverage [17] Q&A Session Summary Question: Loan-to-deposit ratio outlook - Management noted high levels of liquidity and capital, indicating a strong position in the current banking environment [36][37] Question: Commercial loan growth and pipeline - Management confirmed a strong pipeline for commercial loans and expressed confidence in replicating first-half performance in the second half [40] Question: Deposit beta guidance - Management indicated that the deposit beta guidance remains at 25%, which is considered conservative given current levels [45] Question: Credit portfolio specifics - Management clarified that specific issues with three U.S. commercial loans do not affect the overall diversified portfolio [48][49] Question: Efficiency ratio guidance - Management expects non-interest expenses to remain stable, with technology investments driving future efficiency [54][55] Question: Auto loan market outlook - Management expressed surprise at the strength of auto loan growth and noted that consumer confidence is driving purchases [56][59] Question: Capital management and buyback activity - Management is focused on loan growth, dividends, and share repurchase programs, with$ 19 million remaining for buybacks [60][61] Question: Deposit pressure trends - Management observed lower non-interest-bearing deposit balances as consumers deploy liquidity for purchases [68][70] Question: Digital strategy updates - Management emphasized a customer-centric approach in their digital strategy, with ongoing investments in technology [102][103]