OFG Bancorp(US:OFG)2025-10-22 15:00Financial Data and Key Metrics Changes - The company reported diluted EPS of $1.16, a 16% increase year over year, with total core revenue rising by 5.6% [3] - Total interest income reached $200 million, up $6 million, while total interest expense increased to $45 million, reflecting higher average balances of core deposits and wholesale funding [7][9] - Net interest margin was 5.24%, down from 5.31%, influenced by increased interest income from the securities portfolio and a slightly higher cost of deposits [12][14] Business Line Data and Key Metrics Changes - Core revenues totaled $184 million, driven by solid performance across key areas, with banking and financial services revenues at $29 million, a decrease of $1 million [7][8] - Average loan balances were $8 billion, up nearly 2% from the second quarter, while end-of-period loans held for investment totaled $8.1 billion, reflecting a year-over-year increase of 5% [10][11] - Core deposit balances were $9.9 billion, up close to 1% year over year, with a cost of deposits at 1.47%, up five basis points [11][12] Market Data and Key Metrics Changes - The Puerto Rico economy is performing well, with historically high levels of wages and employment, and a boost from increased tourism [16] - The company is experiencing strong business activity in Puerto Rico, with a solid commercial pipeline and credit trends [16] Company Strategy and Development Direction - The company is focusing on a digital-first strategy, enhancing its position as a leader in banking innovation in Puerto Rico [4][6] - The introduction of innovative product offerings, such as the Libre and Elite accounts, is aimed at attracting new deposits and deepening customer relationships [5][16] - The company is leveraging AI to provide tailored insights to customers, enhancing customer engagement and operational efficiency [5][47] Management's Comments on Operating Environment and Future Outlook - Management remains watchful of global macroeconomic and geopolitical uncertainties but is optimistic about the company's growth prospects [17] - The company anticipates annual loan growth in the range of 5% to 6%, supported by a solid commercial pipeline [14][16] - The effective tax rate for the year is now expected to be 23.06%, down from a previous estimate of 24.9% [15] Other Important Information - The company repurchased $20.4 million of common shares during the quarter, reflecting strong capital growth [3][14] - Credit quality remains stable, with a non-performing loan rate of 1.22% and a CET1 ratio of 14.13% [14] Q&A Session Summary Question: Dynamics impacting deposit costs - Management indicated that higher deposit costs are driven by a strategy to attract mass affluent clients through competitive rates on the Libre and Elite accounts [20][21] Question: Outlook for commercial loan growth - Management expressed confidence in the commercial pipeline, noting solid business activity in Puerto Rico and expectations for continued growth [22][23] Question: Competitive rates for savings account deposits - The average cost for the Elite account is around 1% to 1.5%, targeting mass affluent clients while focusing on deepening customer relationships [28] Question: Credit quality and charge-offs - Management noted that recent charge-offs in the commercial portfolio are idiosyncratic and not indicative of broader market issues, with a focus on managing risk [29][30] Question: Q4 margin guidance and Fed funds assumptions - The company expects a net interest margin of 5.10% to 5.20% for Q4, factoring in anticipated Fed rate cuts [40][41] Question: Investments in AI and operational efficiencies - Management highlighted ongoing investments in AI to enhance customer value and operational efficiencies, with a focus on delivering unique insights [46][47] Question: Capital management and buyback outlook - The company plans to be more active in share buybacks, prioritizing loan growth and capital management in a favorable economic environment [49][50]