Q2 2023 OFG Bancorp Earnings Call
Okay.
Good morning, Thank you for joining O S. Keybanc Corp Conference call.
My name is Chelsea and I will be your operator today.
Our speakers are Jose Rafael Fernandez, Chief Executive Officer, and Vice Chair of the board of Directors and Maritsa, Eddish Monday, Chief Financial Officer.
A presentation accompanies today's remarks, it can be found in our Investor relations website on the homepage in the what's new box or on the quarterly results page.
This call May feature certain forward looking statements about management's goals plans and expectations.
These statements are subject to risks and uncertainties outlined in the risk factors section of our web chief SEC filings.
Actual results may differ materially from those currently anticipated.
We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards.
All lines have been placed on mute to prevent background noise after.
After the Speakers' remarks, there will be a question and answer session and.
Instructions will be given at that time.
I would now like to turn the call over to Mr. Fernandez.
Yeah.
Good morning, and thank you for joining us.
We are pleased to report our second quarter results.
All of our businesses performed well and contributed to another strong quarterly performance.
Highlights included excellent loan production stable core deposits with low cumulative beta increased operating leverage and capital continues to build.
Our digital first strategy continues to show excellent progress with higher self service transactions and lower branch visits. The result has been an overall increase in customer transaction activity Keith.
Key performance metrics continue at strong levels.
On the people front, we announced several executive leadership promotions and recruited a new executive to lead our retail channel business development efforts.
So Puerto Rico consumer liquidity is good and the economy continues to do well.
Thanks to our team for their commitment to helping customers and the communities we serve to achieve their financial goals.
Please let's turn to page three of our conference call presentation.
Looking at the income statement.
Earnings per share diluted was <unk> 93 up 11% year over year.
Core revenues increased 17% to $175 million net interest margin was five 9% provision was $15 million noninterest expenses were $89 million in pre provision net revenues totaled $88 million up 20.
2% year over year.
Looking at our balance sheet total assets remained steady at approximately $10 billion a car.
Some of our deposits were approximately $8 $5 billion loan held for investment totaled $7 1 billion up three 8% from the first quarter.
New loan production increased 23% from the first quarter to approximately $692 million.
Investments totaled $1 $7 billion in cash was $799 million.
Looking at capital the CET, one ratio was 14.0% during the second quarter, we bought back about 565000 OSD shares.
This leaves us with a remaining authorization of about $19 million.
Please turn to page four to look at our progress so far on our digital first strategy.
Looking at data from June this year compared to last year did you tell enrollment is up 10% self service transactions increased 6% that includes 14% growth in kiosk usage and 17% growth in digital loan payments.
Her all transactions increased 5%.
And to provide additional detail on our customer adoption levels.
80, 878% of our customers are registered on our retail digital banking banking platform.
80% of total customer transactions are now being made using digital and self service channels and 90% of our customer deposit transactions are through digital and self service channels.
All of this continues to validate that our investments in technology are key.
Key to our operating businesses ultimately, providing more value added quality service to our customers increased opportunities for business development and higher efficiency.
As part of our continued improvement to our retail and digital banking platform in April we launched the Oriental servicing portal.
This portal allows customers to easily manage all their deposits and loan accounts in one place, including full digital deposit account opening capabilities. So far the early adoption levels are well above our initial expectations.
Looking ahead, we will continue to enhance this portal with additional products and services to drive higher customer engagement and adoption, while producing operating leverage.
Now I'd like to pass the call to Matt eats up to go over the financials in more detail.
Thank you Jose Please turn to page five to review our financial highlights.
Let me start with Florida.
Net interest income was $140 million that is a 2.8% increase over the first quarter.
This mainly reflected the full effect.
That's 50 basis point increase in the first quarter.
The actual effect of the 25 basis points increase in the second quarter.
Higher geos on higher average balances of Florida commercial and consumer.
Higher geos on higher average balances of cash.
And why are you single day. These increased net interest income by $1 $1 million.
Banking and wealth management revenues were $31 million, that's up $2 million from the first quarter. This mainly reflected higher wealth management and mortgage servicing revenues.
Looking at non interest income that included a loss of $141 million from the sale of our 205 million dollar Treasury notes.
The efficiency ratio was 62 point, 13%, that's an improvement of 274 basis points from the first quarter, a more than 600 basis points from a year ago.
This reflects increased operating leverage not even finish expensive. So that's $89 million. This compares to $90 million in the first quarter operating expenses increased one 1.8 million these were more than offset by $3 million from lower credit expenses.
Okay on the shelf a foreclosed real estate.
Non interest expenses to continue to average about $90 million to $92 million per quarter for the rest of the year.
Our efficiency ratio should continue in the low to mid 60% range.
Looking at our performance metrics return on average asset was 176%.
On the other side you won't come on I could do was 70, 567%.
We continue to raise capital.
<unk> per share was 21, 6% that's up two 4% from the first quarter and up.
Two 1% year over year.
So that's starting to work on when everything was $991 million, that's up 1.2% from the first quarter, and then 25% year over year.
Please turn to page six to review our operational highlights.
Oh, it actually I'm going on says they increased $136 million from the first quarter <unk> loans were up $263 million.
Sequential growth reflect the increased balances of commercial auto and consumer loss.
Looking at last year, it was 776% up 18 basis points from the first Florida.
That reflects increases from variable rate commercial loans.
Larger proportion of higher Geely auto consumer and commercial.
Looking at new loan origination they went up to any of your birth center was the first quarter with increases in all of them they've got their own. It seems like this was partially offset by a small decline in commercial U S production.
Moving our core deposit base.
Balances declined 63 million Saar restaurant in the first quarter and update on deposits declined $27 million.
The Boston declined $136 million commercial declined $21 million.
When he bought it increased $130 million, we continue to see a shift to time deposits and wealth management.
Looking at core deposit growth that was 69 basis points.
16 basis points from the first quarter.
Excluding government deposit it was too I suppose.
Yes.
Through these cycles, we continue to expect communities deposit beta of about 25%.
Moving about Oleds.
These balances were $226 million compared to $64 million in the first quarter.
Their rates increased to $4 30 per cent from three point 70, 474%.
This quarter reflects the full effect of the March advanced from the food at home.
You'll get that gosh.
As Dinos was $693 million.
$140 million from the first quarter yeah.
Yeah, It was 522% compared to $4 73 per cent.
And those failures gosh declined $49 million.
Look at our net.
Instead, it's Martin.
That was 590%, 90% flat from the first quarter and up 130 basis points year over year.
We now expect NIM to remain level with the second quarter for the rest of the year.
Looking at our effective tax rate was 32.
3% for the quarter, we anticipate it to be that level for the year.
Please turn to page seven to review, our credit quality and capital stress.
And I checked us they totaled $6 6 million and that compares to standpoint 1 million doors in the first quarter. The second quarter included a recovery of $3.7 million.
Delinquency rates rose slightly from various labor in the first quarter.
Looking at our provision for credit losses.
That's all about $15 million that reflects two major items 949 $941 million.
Specifically, therefore, three U S commercial launch with aggregates matters.
$18 million.
$6 $3 million due to increased loan volume.
Looking at another four minutes that the rate was 145% up 13 basis points from the first quarter and down 36 basis points year over year.
We anticipate delinquency and NPL rates to generally continue through the.
The second quarter levels for the rest of the year.
Well they don't play continues to be strong.
Looking at some of our capital metrics, So Dallas Stockholders' equity was $141 billion up slightly from the first quarter.
TCE ratio increased to 10%.
Now here's east Hoss.
Thank you Marty.
Let's turn to page eight for our outlook.
Turning first to Puerto Rico, the economy continues to demonstrate resiliency and growth in the private sector continues to expand.
Economic activity index. He may increased one 8% year over year retail sales in April increased two 6% compared to last year.
Wages are rising labor participation is increasing and the flow of federal funds to rebuild the infrastructure.
Continues.
Having said that we're keeping our eye on the potential impact of interest rate changes inflation and a possible mainland recession.
Nonetheless, we remain optimistic all Puerto Rico strengths and its continued decoupling from mainland economic uncertainties.
Has two O F G I.
As I mentioned earlier loan production was excellent core deposit balances are stable with a low cumulative beta operating leverage increased and capital continues to build.
Retail customers are sending down some of their excess liquidity for home improvement auto purchases seasonal tax payments and higher yielding products commercial customers are investing in expanding their businesses high levels of liquidity and capital to provide <unk> with a strong position.
Todays banking environment, we're encouraged by an increasing adoption levels of our self service channels as it validates our investments in technology.
And I want to thank all our dedicated team members for their commitment to the customers and the communities we serve.
With this we end our formal presentation operator, please start the question and answer session.
At this time, if you would like to ask a question. Please press star one.
To remove yourself from the queue. Please press star Q.
Our first question will come from generic Brasilia with Wells Fargo. Your line is open.
Hi, good morning.
Good morning.
Maybe starting off on us on the loan outlook are pretty phenomenal quarter kind of across the board, maybe looking specifically at commercial loan growth.
Any color around the pipeline.
Heightened growth this quarter was some of that kind of timing from from first quarter, they've got pulled into the second quarter.
And then any kind of outlook you can provide on just general loan growth for the remainder of the year.
Sure sure. Thank you for your question.
As you mentioned it was a pretty strong loan originating.
Warner for us, particularly on the commercial side here in Puerto Rico, we still have a pretty strong pipeline.
And and.
And we think that the second half of the year it will be Oh.
We're going to try to replicate the first half, but we feel very confident that we have a pretty good strong pipeline and we continue to see commercial customers investing in expanding their businesses and looking for ways to grow their businesses. So so you know what we're seeing is.
A good constructive commercial market for us and again, focusing on the small and mid size commercial businesses in particular.
Okay, and then you know if we look at the loan to deposit ratio.
It's been picking up a little bit still well below the mid ninety's of pre pandemic levels.
What are your renewed thoughts around the funding base and where we can ultimately see that loan to deposit ratio by great.
Yeah. So we still have some some space there on the loan to deposit ratio and as you point out we have moved the needle from you know the mid Seventeens to the Eighty's in terms of the ratio. So I I I I think.
The environment, we're operating in right now, where we are seeing good loan growth will require us to.
Continue to look at our our deposits and our clients and the way we've managed it and so far it's it's we're very happy with with the performance.
On the commercial side, we look at it from a primary relationship perspective, and we've talked to our customers our clients.
We currently and repetitive leaves me to make sure that that we serve them well and we kind of capture as much of their deposits as possible on the on the retail side.
Most of what's going on is really as I mentioned on the call investor and retail customers.
Deploying their excess liquidity I'm not sure if all of your Guy I don't know where but.
Puerto Rico's excess liquidity as a percentage of GDP still stands around 10% versus the U S, which is around 6%. So there's still a lot of liquidity in the system.
And the individuals and consumers are using it to kind of improve their life and that's that's the right way of looking at this because of wages have increased animal so so within that landscape and within that backdrop I think.
We need we need to make sure that we grow our consumer deposits into the future just to make sure that we manage that loan to deposit ratio around the mid eighties.
Okay, Great and then one for Maritza.
You know that the deposit beta guidance hasn't changed that sort of 25% still.
Still things.
Quite conservative thing as they were kind of half that level at the moment, but the guide on margin seems to have gone a little bit.
Better with a flat expectation versus kind of moderation lower is this your way of saying that the beta guidance is probably a conservative one I'm just wondering what would be needed. If theres only one rate hike kind of assumption left what's kind of what's the lag look like after that last one.
Rate hikes, that's going to get us to a 25% beta.
Yeah, well, what we're seeing is as you have seen the first two quarter.
We have we have moved to debate up from 11 two.
15% during the quarter as we see the mix and the change in the in their funding and we have frequent we're continuing to see cost of funds, increasing but we will continue to have the yield on the loan book growing as well at the mix in the balance sheet, while improving the earning asset side.
So that's why we continue to see cost of content creation.
The deal on the loan book also increases I mean, Vienna stable for the next two quarters.
Okay, Great and then just last for me on the credit front.
I missed the aggregate amount of the three mainland credits and then just more broadly as you look at your credit portfolio any color you can provide on if there is any similarities in the borrower on those three credits and then just in the mainland kind of the areas that you're putting more attention and focus.
No. These were really very specific situations to these three loans that.
Not related or not contaminate their vessels the portfolio actually we have a very well diversified portfolio. We have we don't have any concentration in any industry is in that portfolio and he's very well diversified through US These are really very specific situation related to the supply chain and we don't see any anything.
That relates.
It relates to the whole portfolio, that's the way.
We've seen these cases and as I mentioned, there were really a specific on where you were optimistic on those three cases also because management has continued to to them.
The restructuring in a very efficient way.
And the perspective on those three loans are I continue to be good and.
And just to add the.
The aggregate amount is $18 million on the three loans.
Okay.
Great.
Thanks for the questions nice quarter.
Thank you.
Thank you.
Our next question will come from Brett Robinson with hub group. Your line is open.
Hey, good morning, Thanks for taking the questions wanted to start with.
Hi, Good morning, I wanted to start with the efficiency ratio guidance and Maritza.
It had been in the mid fifties and it sounds like you've tweaked that down to low fifties to mid fifties and so I know there was a recapture of ori or there was a gain in the quarter.
Minimize the expenses this quarter, but would it be fair to assume the expense trajectory is still higher from here can you give us some additional color.
On your expectations for the back half in terms of spending and what might what might impact the expense levels. Thanks.
And thanks for the question and Yeah, if we take out the gain in the process the expenses increased $1.8 million during the quarter, mostly because of technology.
We have been disclosing.
We disclosed in prior calls.
We can disclose you didn't disclose particularities, how this technology is playing for us.
That will continue to be an element going forward and that's why we continue to as I mentioned in my prepared remarks talking about $90 million to $92 million and ongoing.
<unk> expense for the for the next quarter, we know that in the long term. This technology will bring some efficiencies, but the timing is.
It will it will evolve so so not not not I cannot tell you when it will happen, but we wanted to we know that in the long term. This will bring some efficiency to us and we will continue to invest and that's why we're giving you. This guidance update 90 to 92 million and that as we continue executing on that.
On our digital first study.
Okay.
And then wanted to talk about auto for a second you know I was a little surprised I thought we would see a little bit of normalization.
This year as it relates to gross auto charge offs and you obviously had a recovery that made than that.
Really like this quarter.
But was just curious what's your what you were seeing with the consumer their ability to absorb inflation.
And just any thoughts on where auto.
That perspective might go from here.
So Brett.
First we are equally surprised with the strength of the auto.
Loan growth.
So equally surprised was the continuing.
Strong auto purchase demand new sales.
Auto sales are still at very high levels.
We're seeing dealers with higher levels of inventory so maybe that's the the.
The starting point.
The slowdown in terms of all the new auto sales.
But in general I think it's a couple of things one is we are coming from a.
From an environment, where.
Yeah.
Clients or customers were not changing their cars too often and are they the kind of push.
Push that decision for a later time and is there.
Ill make situation has improved and we seemed are there.
Liquidity levels under FICO scores have all increased and improved so they they feel more confident in there they're going out there and I'm doing making goes big.
Ticket.
Purchases so.
Where we're really focusing on our auto portfolio is really high FICO score of 720 plus.
We continue to increase the.
The loan yields now we're booking loans are loans that are being booked in this quarter average I think around nine 5%. So again my name is I mentioned it earlier, it's helping us on our net interest margin.
It also is.
Giving us the ability to to.
To get a.
Higher FICO customer for us to do business in other areas with the bank. So.
It's actually.
I I call. It a good problem to have.
Okay.
That's helpful.
And then if you're if you've mentioned it I missed it but I know you bought back over half a million shares this quarter.
We still have a high level of capital any any thought on the buyback activity in the back half on the air.
So you know with this loan growth levels that we're having and that's where we that's our main priority how do we deploy our capital for the for our customers and for the communities. We serve soon so and now with the higher yields and.
We certainly have a higher return on our capital, but we look at the dividends also and we look at the repurchase program, we still have $19 million left.
So we will kind of continue to be in the market and and as we've done this quarter and even in the first quarter.
We feel that.
The levels of capital that we have around 14% CET one.
And the way were generating earnings.
Retaining earnings had a pretty good clip it gives us confidence. So so we're we're looking at the three the three.
Areas loan growth dividends and repurchase program as well.
Yeah.
Okay, great. Thanks, I appreciate that thank you for your question, yes. Thank you for your questions right.
Thank you.
Our next question will come from Alex <unk> with Piper Sandler Your line is open.
Hey, good morning.
Good morning, Alex.
First off I was hoping you could just give us an update on what youre seeing in terms of deposit pressure trends on the island I know you saw some inflows of public fund deposits that offset some outflow in retail and presumably there's a lot of seasonality around that but maybe you can just give us a little bit more color on sort of the competitive environment and you.
You know if there's been any change in customer mentality over the last couple of months with respect to.
What they need on their deposits.
Yep.
So let's split the answer in two let's start with the retail side on the consumer side, what we're seeing is lower noninterest bearing.
Deposit balances on the retail side and that's a direct relation to what I mentioned in my prepared remarks in terms of.
Hey.
Customers using their money to improvements at home buying furniture, and et cetera, so they're deploying that liquidity and.
And that's item number one right on also what we're also seeing is a moving some funds to our higher yielding.
E vehicles and some of it is coming through to our wealth management unit. This quarter, we had close to $30 million now were customer deposits that were moving their monies to our broker dealer and so that's good but we're really not seeing much from the competitive side, we definitely see a competitive environment.
But we don't see any rational environment and <unk>.
Given given the Puerto Rico market right yeah.
He might be called a.
Yeah.
That way, because Puerto Rico has a different dynamic.
Dynamic in terms of the banking competitive landscape versus the mainland. So so given who we are in Puerto Rico and in the banking industry and the island I think.
The competitive forces are really.
Yeah.
But at the same time not not irrational. So that's that's kind of how it's playing out on the consumer side on the on the commercial side, where we have a higher beta and it's really driven by relationships and we have very strong relationship with this segment of our commercial clients and our team is working.
Very closely with them and we just make sure that we.
Take care of them and I think we.
Yeah.
Well positioned to not only take care of our customers, but also be able to attract new customers on the commercial side small and mid sized companies.
That is kind of the areas, where we are most focused on the commercial side. So that's a little bit of an overall on our deposit.
Land scape and how we're seeing it into the next second half of the year I think we're starting to see a slow down on the.
On the outflows on the retail side.
And we see the same kind of.
A behavior on the commercial side are pretty steady and and managing our primary relationships.
Great. That's good color and then just as you kind of think about level of deposits and overall balance sheet management and obviously the strong loan growth you've had this quarter in that you sort of alluded to hoping to have in the second half of this year.
Is it fair to assume that maybe we see stable deposits, but that most of the balance sheet growth or the loan growth actually will be funded with.
With the securities portfolio like you did in the second quarter or how should we think about the overall.
Balance sheet management.
There are a couple of levers there right yeah disagree with this portfolio. We have some short term maturities early next year and that's one way.
We also.
We do have excess excess.
Wiggle room with with the loan to deposit ratio as I alluded earlier. So we can still kind of grow our loan book and funded with our deposits are so so those are those are the two main drivers, but if we need to go on in and it grows as you know it is.
Really hard to sustain the level of loan growth that we had this quarter.
So.
Our expectation is that we will be able to manage it with our current deposit.
Yeah.
Okay.
And then I wanted to ask.
The new loan production you gave us the average new production yield for the auto during the quarter I was wondering if you had that for the commercial as well.
On the origination side, yes.
Yes, yes on the commercial Puerto Rico is you know I would say seven.
Almost 8% between seven and have an 8% I don't have the exact number but maritza can provide it to you later.
Okay very good and then just a final question you know you talked about the avenues of capital management and it seems like given the earnings generated and you can grow loans and continue to buy back stock and the dividend.
You guys had been on a nice track record of increasing the dividend at a fairly regular pace and that payout ratio.
Can you just talk maybe about sort of the long term goal for the dividend payout ratio for earnings.
What are your expectations for the dividend over the next.
Yeah, I guess over the next couple of quarters.
Yeah. So so.
We look at a payout ratio in total not only dividends. So we look at dividend plus buyback. So right now we're at 41% kind of payout ratio halfway through the year.
So we netted.
Net income of $90 million and we've deployed out there.
$21 million in dividends and $60 million and you repurchased so $37 million or so so.
Our goal is to continue to inch up our common dividend to get closer to.
To a payout ratio.
North of the 25% and then complement that with our buyback.
And that's kind of the approach of island.
Okay, and if I remember correctly you guys look at that generally around this time each year and then again in the January time frame is that correct.
Can you repeat the question again.
In terms of the timeframe for the capital changes to the capital management outlook is generally around July right right right around this time of year, and then January am I remembering that correctly.
Yes, that's correct, we take a look at it twice a year in July and and.
January .
Okay, great. Thank you for taking my questions Yeah, Alex have a great day.
Thank you.
Our next question will come from Kelly Motta with <unk>. Your line is open.
Hi, good morning, Thanks for the questions.
I guess, starting out going going back to the margin I. Appreciate the color you just gave about new origination yields.
Also the color around your expectation for deposit just wondering.
It looks like a lot of the growth this quarter came from Cds can you provide what.
You are pricing new Cds at currently and how that compares to roll off rates right now.
Can you tell me all the time deposits correct, yes, okay. Okay.
The enterprise right now is around two 9% and then you see these wells the ones maturing is about 60% to 65 basis points.
That's one of the drivers on the beta that we're showing you. These last two quarters and I think the additional one is on the commercial side, Yes, <unk> is a commercial site when we manage.
Managed relationships and we want to make sure that we are.
We're constructing for that.
Got it.
And then.
In terms of the balance sheet management, and just kind of closing the loop there.
The past few years do you kind of skirted buy below the 10 billion in asset Mark It seems like.
Loan growth has been really strong and deposits may be stabilizing do you have any updated commentary on on crossing 10 billion and the timing of that and the input.
<unk> of Durbin.
Yeah.
So you pointed out.
And the reality right so.
The opportunities to continue to grow our loan book.
And.
And also.
Stabilizing deposits I think 2023 will probably be a safe year not to pass the $10 billion Mark.
But I can't guarantee that.
What are you starting to look now with higher higher yielding loans and higher yielding cash. It makes less is less it's easier to manage the durbin in terms of loan assets or asset levels. So so from our side, we were probably going to not cross the 10.
Before the end of the year.
But we're not going to be.
A concern about breaking the $10 billion barrier in 2024 given.
The higher yields on our loans as well as on.
On the other.
Assets like cash and securities. So so Kelly.
Thank you.
On the $10 billion Mark where.
We're coming to a close on that one.
I appreciate the color just kind of stepping zooming out and taking a more high level view.
It does look like the macro backdrop in Puerto Rico, it's holding up quite nicely.
Can you give us an update on the.
The pace of federal funds and how those have been flowing and kind of what you've been seeing on the ground.
The island.
Sure.
Specific dollar numbers.
I really tried to stay away from that because it flows all over the place, but I can tell you my view from the ground in terms of the federal funds and that is.
We're seeing.
Significant amount of construction going on in the island on the public side from the roads and bridges and Oh.
Broadband that it's been kind of redone hearing the island. We're also seeing a lot of construction on the private sector, we're seeing as I mentioned in my comments earlier.
<unk> businesses are.
Really investing in their own businesses. So so all that is kind of adding to the two.
To the equation I also wanted to point out that the recently passed federal loss on one of <unk>.
Infrastructure, that's going to represent I think a $1 billion to Puerto Rico in terms of.
Federal funds additional federal funds coming down so I think what's going to happen Kelly is that the federal funds flowing into the island, probably will we will continue to.
To flow in port for a longer period of time than anticipated and that is also good for really getting Puerto rico's economy to be resilient and be able to build the.
Competitiveness for our small and.
Mid size.
Businesses and.
And be able to have recurrent economic growth not so dependent on federal funds. So in general that's that's my outlook on the federal funds and and how how are things playing out down in.
In the island.
Thank you so much maybe maybe last question for me I really appreciate all the detail you provided.
On your digital first strategy and what you're.
Kind of seeing there versus a year ago.
Can you can you kind of expand upon.
What youre doing with your digital strategy, maybe next steps with that I also know you you've added to your.
Executive team.
So any any color around that as well.
Outlook flower.
What you're doing on the digital side would be really interesting. Thank you.
Sure. Thank you for your question.
So so on our digital first strategy, it's all about the customer so let's start there everything that we do every investment that we make every technology that we deploy is got one on one single focus and that is the customer and how can we improve the customer experience how can we.
We have an edge from a customer experience perspective, so that we can then do business development and grow our business and grow our loan book and grow our deposits and make it easier for our customers. So that's kind of what it all how it all begins right. So that's number one number two is we really encouraged with the investments we've made.
In the last couple of years and as I shared with you today. The adoption levels are are pretty good and and we haven't been able to kind of educate the consumer to utilize the kiosk in the self service.
Tellers and and the Chatbot and we're seeing you know.
35% increase on the chatbot utilization, where we're really encouraged with how our customers are embracing the tools that we're providing them above and beyond the brick and mortar. So so as.
As we look at the mid year.
Kind of reflect on how are our investments in technology, playing out I think.
I think we're in good shape now going into the future we can stop.
We live in a competitive market and.
And we need to keep on.
Making sure again from a customer perspective, what is the next thing and what is the next improvement on what is the next year.
In addition that we need to make and I'm wondering we are working on a couple of those I don't want to get into the specifics for competitive reasons, but in general we haven't been working at this for the last two or three years, you guys have heard us say.
Our efficiency ratio is going to be in the mid fifties, because we've got to invest in technology and we're feeling today that not only it's starting to pay out but it's also the right path. It's a confirmation so that's.
That's kind of how I feel about all this and encouraged with.
With the prospects of us continuing to lead lead into in terms of digital and leading in terms of innovation in banking in Puerto Rico.
Great I really appreciate all the color and congrats on a great quarter I'll step back.
Thank you Kelly thank you.
Thank you.
As a reminder, that is star one to ask a question.
And like you have another question from Timur <unk> with Wells Fargo. Your line is open.
Good morning.
Before I had you on mute yes, okay.
Good morning.
How are you doing thanks for good thanks for the follow up just one last one on this last kind of thought process around the technology.
Can you just maybe give us an update on where <unk> is from a technology perspective relative to the other island banks.
Is this kind of sending the lead that you already have is this playing catch up in certain areas, maybe you kind of sort rank. What you guys do best there and then maybe some areas where the other banks might have a lead but you're working to catch up.
Yeah, I mean I agree.
We're not in the leading everything but we have certainly throughout the last 10 years, not only position ourselves for invested in bringing new.
Services and tools to our customers from from a technology side.
So how are we positioned in terms of.
The technology I think.
I think we're well very well positioned in terms of trying to execute on our business strategy, which is differentiation. We're trying to differentiate from our competitors from the traditional brick and mortar strategy to more of a challenger.
Approach and we use technology and people as a way to differentiate so that's kind of how we're positioned and in that sense.
<unk> portal that we came up with and we deployed an iPhone launch in April but it really does is provides one place in our online banking platform to kind of.
Achieve solving all your issues that you might have with one in one one kind of place without having to call somebody or without having to go to a branch and it goes from basic stuff.
Like.
Asking for the.
Violence over over loan to cancel its too and you can get that these all in and.
We're also opening a deposit account digitally and those are things that are that help us to kind of show some differentiation and.
And we keep on we keep on working on that we have formidable competitors and they are.
They have deeper pockets than us and I'm you know at the end of the day.
Each one continues to hum.
To focus on their own strategies, and what we're really happy with the way, we're working hours and for the size of our bank, where we're very happy with the results that we've come up with.
Great. Thanks for that update yeah no problem. Thank you for your question.
Thank you.
Our next question will come from Bernard Horn with Polaris Capital Management. Your line is open.
Yes. Good morning actually my first question was just asked and answered. So thank you, but the second question is on the auto market.
U S has seen lower used car prices.
I'm wondering if you could give us any color on what's happening in Puerto Rico, and whether you see that as a potential risk on residual values for any part of your auto loan book.
Yes, we yes, we have yet to see that redo.
The reduction on the used car values, but it's certainly a risk into the future right in terms of.
In terms of the.
Losses, one thing that we are focused and is on the models and we're focused on.
What type of cars, we we kind of led to long term.
And it's really more on the middle size type of kind of the middle market, the Japanese and the Korean cars most of it.
We really don't play on the higher end autos, so that service a little bit of as a hedge to your to your point. So that's.
That's kind of what we're seeing we're seeing better.
Resale values on some some.
<unk>.
Yeah.
Car manufacturing like.
I don't want to leave.
And advertisement to some of those guys, but we're seeing better buy values and I on the Toyota.
And then in others, and we kind of work it that way.
Thanks, very much unclear.
Yeah. Thank you. Thank you.
Thank you we have no further questions in the queue. So I would like to turn the call back over to Jose for any additional or closing remarks.
Operator, and thanks again to all for joining us in this call and thanks to all our team members for a great job looking forward to the next call have a great day.
Yes.
Thank you ladies and gentlemen, this concludes today's conference call. This call. We appreciate your participation.
You may disconnect at any time.
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