Q1 2025 OFG Bancorp Earnings Call
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Jos Fernndez
Good morning.
Thank you for joining OFG Bancorp's conference call.
My name is Madison, I will be your operator today.
Speaker Change: Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors, Maritza Ares-Mendi, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer. At presentation of companies today's remarks, it can be found on the homepage of the OFG website under the first quarter 2025 section.
Speaker Change: This call may feature certain forward-looking statements about management's goals, plans, and expectations.
Speaker Change: As a result of developments that occur afterwards, all lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session, instructions will be given at that time. I would now like to turn the call over to Mr. Fernndez.
Fernndez: Good morning, and thank you for joining us. We are pleased to report our first quarter
Mr. Fernndez: As we look at page three of our presentation, it was another strong start to the year with solid overall performance.
Fernndez: We had consistent financial results generating earnings per share diluted of $1.
Fernndez: Consumer Credit reflected higher seasonal customer liquidity in Puerto Rico and we bought back shares and raised our dividend supported by our strong capital generation and balance sheet.
Please start the page 4.
Fernndez: Our strategic investment in technology through our detailed first strategy continues to drive innovation. This is freeing up our people to build stronger customer relationships through our island-wide branch network.
Fernndez: Looking at the numbers, 96% of all routine retail customer transactions, 97% of retail deposit transactions and 68% of retail loan payments were made through our detailed and sales service channel.
Fernndez: This has been driven by year-over-year growth of 12% in digital enrollment, 21% in digital loan payments.
Fernndez: During the quarter, we launched three digital tools all first in Puerto Rico.
Fernndez: Our Albany channel online mobile app that provides customers with a fast, easy and seamless banking experience across all digital points.
Fernndez: and Apple Pay for both debit and credit cards. This is new in the local banking industry giving our customers another option for easy and secure in-store, in-app and online purchases.
Speaker Change: I like to add that our self-service portal, which we launched in 2023, was nominated for a banking tech award for best use of technology in consumer banking, which is another first for a Puerto Rican bank. As you can imagine, we're very proud of all these accomplishments.
Speaker Change: Now here's Maritza to go over the financials in more detail, then I'll come back and provide our outlook for Puerto Rico and OFG.
Maritza Erezmendi: Thank you, Hassan. Please turn to page 5 to review our financial highlights.
Maritza Erezmendi: All compatriots are to the fourth quarter, only to the other wife and over it. Core revenues total $170,000.
Maritza Erezmendi: Looking at key components, total interest income was $189 million, a decline of $941,941,000. This mainly reflects two fewer business days, which negatively affects the interest income
Maritza Erezmendi: Partially, I've said in this, where higher balances and yields on investment securities and higher loan balances.
Total interest expense was $40 million, a decline of $800, $4,000.
Maritza Erezmendi: This mainly reflects the two fewer business days and higher average balances of core deposits at a lower rate, work partially upset by higher average balances of balance and brokerage deposits.
Maritza Erezmendi: Total banking and financial service revenues were $29 million, a decrease of $3.6 million. The fourth quarter included $4.8 million combined in annual insurance fees and favorable MSR valuation change.
Maritza Erezmendi: Looking at non-interests expense, they totaled $93.5 million, down $6.3 million. First quarter compensation included $1.6 million in increased incisual spike expenses and made races.
Maritza Erezmendi: General and administrative expenses include a $3.1 million volume incentive payment from business partners.
Maritza Erezmendi: It also included $1.2 million in higher electronic banking volume and related costs as compared
Maritza Erezmendi: Now that the fourth quarter included $4.8 million in early retirement, business rights
Maritza Erezmendi: Taking all these factors into consideration, we were in line with our guidance of $95 to $96 million in quarterly non-interest expense in 2025.
Maritza Erezmendi: Income tax expense was 13.9 million dollars. The tax rate was 23.34 percent. That reflects an anticipated rate of 26.14 percent for the year, and the benefits of $1.7 million in discrete items.
Maritza Erezmendi: Timur Babal was 26.66 per share, 26.66 cents per share. During the quarter, we bought back 23.4 million dollars of shares and raised our dividend to 20%.
Maritza Erezmendi: Please turn to page 6 to review our operational highlights. Total assets were $11.7 billion or 5% from a year ago and 2% from the fourth quarter.
Average loan balances were $7.8 billion, up close to 1%
Maritza Erezmendi: Enoped loans to help for investment, so that $7.9 million, up 4.2% from a year ago, and up $60 million, $61 million from the last quarter.
Maritza Erezmendi: The sequential increase mainly reflects growth in auto and consumer loans, U.S. and Puerto Rico and the repayment of residential mortgage.
Maritza Erezmendi: Rob of Puerto Rico commercial loans included a higher level of life of crisis visualization.
Maritza Erezmendi: First quarter organizations reflected seasonal decline in Puerto Rico commercial lending, partially upset by an increase in U.S. commercial. We continue to have a strong commercial line at this time.
average for deposits were $9.6 billion, of close to 1%.
End of period balances of $9.8 billion in Greece.
Maritza Erezmendi: $308 million, or 3.3% water over quarter, and $211 million or 2.2% year over year.
Maritza Erezmendi: The sequential increase reflects growth in rhythm, commercial and government deposits. It also reflects growth in savings, time deposits and demand deposits.
Maritza Erezmendi: Court deposit cost was 1.42%, down 4 basis points from the fourth quarter. Excluding public points cost of deposit was 1%, compared to 0.96% last quarter.
Maritza Erezmendi: The aggregate freight space was 4.32% down 8 basis point and of period balances were $421 million compared to $557 million. During the first quarter
Maritza Erezmendi: 100 $145 million in short-term repurchase agreement to make a long-time advances mature.
Maritza Erezmendi: Please turn to page 7 to review our Thursday's quality and capital strength.
Maritza Erezmendi: Great Quality continues to be stable, net charge of total $20 million, up $4.5 million.
Maritza Erezmendi: The first quarter included a $2.9 million dollar partial charges of a previously reserved commercial loan as compared to the fourth quarter, which included $2.6 million dollars in recoveries from the sale of previously Charger of Oro and Consumer Loads.
First, put it all on the side top, we're on change.
Maritza Erezmendi: 1.630%, Consumer Necks Actress of Racial Increased 62 points to 4.34%, and there were continued new recoveries in mortgage and Puerto Rico commercial loans.
Maritza Erezmendi: The net chart of rate was 1.5% up to 23 basis points, sequential. Year over year, it wasn't
Provision 4K losses was $25.7 million.
Maritza Erezmendi: Down, $4.5 million. The first quarter included $17.4 million for increased volume, $4.8 million for a specific reserve for privatization loans.
Maritza Erezmendi: and $3.5 million to replace an auto-current loss given the fourth trend was from then.
Maritza Erezmendi: Looking at other great medics, the early and total delinquency rates were 2.19% and 3.49% respectively, both down from the fourth quarter.
The number from the long rate was 1.11%
Maritza Erezmendi: To summarize the first quarter, net interest income remains stable as growth in loan balances and are declining deposit costs largely neutralize the impact of two fewer days.
Maritza Erezmendi: Lone Grove continue to do well in auto and consumer and US and Puerto Rico commercials.
Maritza Erezmendi: Retail and commercial deposit balances increase as we continue to deepen consumer relationship and grow our client base.
Maritza Erezmendi: Net interest margin was slightly higher than expected from higher deals in investment security
Maritza Erezmendi: Results also benefited from a lower tax rate and shared counts.
Thanks for your attention, in addition to buying back shares.
Maritza Erezmendi: Derivina was in place, and I will see the ratio provides us with a strong foundation during volatile or challenging times. Now here's the process.
Thank you, Maritza. Please turn to page 8.
As you all know, we're navigating in uncertain environments.
And this is how we see things today.
Maritza Erezmendi: On the one hand in Puerto Rico, wages and employment are at historically high levels. The business environment is constructively positive, investments in public and private projects continue to flow, and the economy continues to grow, albeit at a slower pace.
Maritza Erezmendi: On the other hand, higher levels of volatility due to macroeconomic and geopolitical events. If they continue, they will eventually have an impact, an economic impact.
Maritza Erezmendi: Our team members are in close contact with our customers to make sure we have a good pause on how they're adapting to the environment and how OFG can better serve them.
Maritza Erezmendi: Turning to OFG our digital first strategy is proving to be highly effective. We will continue to invest in and deploy new customer innovations to further differentiate our business model – increase efficiencies, and most importantly, help both our retail and commercial customers.
Maritza Erezmendi: Consumer credit trends are good, supported by a strong balance sheet and a well-tested leadership team, we continue to methodically execute our business plan and be there for our clients and the communities we serve.
Maritza Erezmendi: As always, our results could not have been achieved without the hard work and dedication of all our team members.
Maritza Erezmendi: We are extremely thankful to them and excited for what's to come.
We hold our annual shareholders meeting next Wednesday.
With this...
Maritza Erezmendi: We conclude our remarks and we open the call for questions.
Jos Fernndez
Speaker Change: If you have a question at this time, please press star one on your telephone keypad. If you wish to remove yourself from the key, press star two on your telephone keypad. And we will take our first question from Frank Cheraldi with Piper Sandler, please go ahead.
Good morning.
O'Reilly, Frank.
Thank you. Thank you.
Speaker Change: Account openings through the digital channels. That's something that's ramping up. Is that something still yet to come? How is that actually?
and service sales service channel.
Speaker Change: So yes, we do have that capability and as everything that we've done from the first detail, first
A strategy that we have deployed throughout the years.
Speaker Change: Checking accounts and certificates of deposits are opened through the digital channel. The rest are open at the branches, so we have seen increasing trends there also.
Okay.
Yep
Speaker Change: So, first quarter is always somewhat seasonal in terms of deposits. We do have the tax refunds, the child tax credit also is part of the equation on the first quarter in terms of...
Speaker Change: We do acknowledge that the first quarter has some important seasonal components, but we are very encouraged with the the way are a
Speaker Change: A online and branch network are moving along and growing our client base, so we do expect to continue to see some deposit growth from here.
Speaker Change: In terms of your second part of your question, which I forgot, if you can recall.
Speaker Change: Just on the government, government deposits, I thought there were some. Yeah, yeah, yeah, we have a, yes, we have a billion or so government deposits that we expect to be renewed for another several months so that is something that we will update every quarter.
Speaker Change: It's still there and we're expecting to renew it in the next couple of weeks.
Speaker Change: Okay. In fact, I could just sneak in one more just in terms of...
Speaker Change: Can you speak to the expect, continue to see some normalization there, I know you had some commercial as well that can be more volatile, but on the consumer side just wondering your thoughts around charge off levels and if you anticipate continued normalization on that front.
Speaker Change: Yes, Alas says our chief risk officer to give you some color on that one.
So...
Speaker Change: Consumer, we have two main portfolios, we have the auto portfolio, which is the latest one, and then we have a...
Speaker Change: on Secure Personal Loan, on the our portfolio we and both of them actually we expected the the trend to improve during this quarter because it's a seasonal improvement always the first quality always good for all great statistic and we experienced that so that was real life.
Speaker Change: On the second, on the auto portfolio, we are seeing now as stabilization 2 on the recovery
Speaker Change: from Necolaterals. I think that was a data-positive effect on the issues with the targets that the customers are having an increased demand for this.
He used vehicle so, that's a positive time so...
Crayon Degrading, we have called Fleet Iron.
Speaker Change: Back in 2022, we tied and created only lighting standards, so we are starting seeing those better.
on all required metrics.
Okay. Okay. Thank you.
Thank you. Thank you for your questions.
Speaker Change: And we will take our next question from Timur, Braziler with Wolves Fargo. Please go ahead.
Hi, good morning.
Speaker Change: Security yields were up nicely again this quarter.
[inaudible]
Speaker Change: and Israel 5 to 6 years in the duration right now.
Speaker Change: Okay, and then maybe more broadly around the margins, certainly held up better than I was expecting, and part of that was the security yields, low and yields also seemed to hold up better. Just where we are today, forget about the impact of additional rate cuts.
Speaker Change: Is there, is the next move likely some pressure on the margin or maybe some of the bond reinvestments and growth could offset that? I guess what's the trajectory from margin here?
Speaker Change: You know, a range of you can 5.3% to 5.4% margin for the year.
Speaker Change: That range will move, it depends a lot on the funding site, particularly if the government deposit exit at certain point, because we will need it to replace with a wholesale
Speaker Change: So these are three loans. One is a Puerto Rico long-standing substandard loan that we placed in Non Acruel and the other two loans are US loans. They are totaling both in the aggregate around $10 million and they were placed in substandard and we took the provision for that.
Great, thank you.
Yep, thank you very much for your questions.
Speaker Change: And we will take our next question from Brett Rabatin with Havdi Group. Please go ahead.
Hey, good morning.
We wanted to start...
Speaker Change: Jose Rafael, could you give us, you know, I haven't seen a lot since then.
Speaker Change: The power outage last week and so you know I haven't seen a lot in the press about what's happened with the Luma contract and anything else going on related to the power grid and seems like it's a continues to be an area of opportunity for more sustainable and cheaper power.
I just want to say if you heard anything regarding-
It's gonna take...
Speaker Change: At least a decade. We are into a two-year kind of, or so, prioritization program. It's been prioritized for two years only or so. So it's going to take a long time, and we're going to have these events sporadically. Probably in the summer, summer will have some to when the heat comes up, and the, uh...
Speaker Change: and the demand increases because it's a fragile system. That's the reality. The other reality is that we are pretty much ready to...
Speaker Change: Power Generators or Solar Panels, or they have been able to do what it requires to adapt to these unexpected events. So yes, it does have an impact on the economy. It was said that it was 100 and some million dollars, the impact because it was a total of blackout.
And it's unfortunate, and there's no, there's no...
Speaker Change: A way to sugarcoat it, but the reality is that it's going to take a while to get this fixed from the generation as well as from the transmission and distribution.
Speaker Change: And those are areas of opportunity, if I should say, in taking a bit of your words.
Speaker Change: Yeah, and it also seems like some of the some of the opportunity could still be there for on-shoring pharmaceuticals and that kind of stuff but I haven't seen anything on that really either than just talking about potential.
Speaker Change: in a way that can take some share of the onshoring given the current...
Speaker Change: Incentives and Motivation for some of the onshoreing coming back to Puerto Rico but I agree with you it's been talked and not necessarily evidence of it has been seen but I'm encouraged to tell you truth because the terrorist is a catalyst for that so being part of the United States
Speaker Change: is an art history in the manufacturing side. Remember, Puerto Rico's economy is 40% manufacturing. So it plays very well. It will require good systematic execution from the government.
Okay.
Maritza Erezmendi: That's great color. And then maybe Maritza on fee income, you know, typically wealth management is a little soft in one queue and then stronger.
Maritza Erezmendi: Stronger in QQ, I want to make sure I understood that the outlook for fee income from here and then obviously mortgage banking is tough to
Maritza Erezmendi: Okay, this call was better than expected in the sense that the banking fees were higher.
Maritza Erezmendi: So, that's how we see in the fees of this moment and this particular was really active in the debit card transactionality and the POS.
Jos Fernndez, Jos Fernndez, Jos Fernndez
Okay.
Maritza Erezmendi: Brett, if I could add just one thing here, and that Maritza just pointed out in terms of
Maritza Erezmendi: Not only our strategy, right, the digital first strategy but it also validates that we are being recognized and our brand is gaining additional traction here in the market.
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Okay, and does Apple Pay roll out? Does that mean a lot to you guys transactionally from here or how do you think about the Apple Pay roll out?
Speaker Change: that we're able to get the Apple pay available for our customers and we were one of those and we're proud of that because we are leaders in innovation and technology and we continue to prove it by…
Speaker Change: by delivering on a timely basis, even to the requirements of Apple which somewhat elusive to some others.
Speaker Change: Okay. And then this last quick one, tax rate from here, you know, any thoughts on full year and then maybe we're trans relative to the past two quarters.
Speaker Change: We're seeing 26% ADR for the year, for the full year.
For more information, visit www.FEMA.gov
Okay.
Great, thanks, appreciate all the color.
Yeah, thank you. Have a great day.
Speaker Change: Again, if you would like to ask a question, press star then the number one on your telephone keypad. And your next question comes from Kelly Motta with KBW, please go ahead.
[inaudible]
Hi, good morning. Thanks for the question.
Maritza Erezmendi: Maybe circling back to the margin, Maritza, could you help us out and remind us how much of the asset base is more rate-sensitive and impacted by an immediate reset on Fed funds? How to think through that?
and how they would say that March in guidance.
Maritza Erezmendi: and the cash. So that the two assets that are more sensitive to any change in the market.
Maritza Erezmendi: Okay, that's helpful. And then it looks like the deposit costs are continued to perform well. I'm wondering if you could provide an update as to the...
Speaker Change: Is it still relatively high competition, or have you seen pressure there back off in the last quarter or two?
Speaker Change: The competitors are competitors and they are relentless, so I hope they say the same of us. So it is what it is, but yeah, the market remains the same Kelly, you know, we were looking out for the best for the best for our customers and on the deposit side there were some credit unions that were out-lagged in terms of rates. That's certainly normalized. And we're really happy with our core
Speaker Change: Also interesting for us and that is that we're growing non-interest bearing deposits too in the quarter. So those are good indicators. We'll see how much of it is seasonal, how much of it is part of structural savings and deposits from the economy that we're operating in Puerto Rico but certainly a pretty solid quarter.
Speaker Change: Thanks for that. And then I also appreciate the commentary about Puerto Rico being and being
Having a lot of manufacturing in the economy, wondering if you'd seen any movement there, Puerto Rico could...
Speaker Change: Theoretically be a beneficiary on a move to greater enchoring to the U.S. I'm wondering if you're seeing any movement there, what the discussion is on the ground and your thoughts around that as, you know, I know it's a moving target here.
Speaker Change: It's too early to tell, we haven't seen any movement to speak off but it's certainly a good opportunity and it's too early to tell as you can read on the...
Speaker Change: In the papers and online, the world is trying to figure things out and we're not an exception. So we're also looking at what's going on around the world and seeing all the tariffs and all that. Right now, I believe pharmaceutical products are not being Paris, additional tariffs. So it's still not yet been added to the list.
Speaker Change: So we'll see. We're seeing some good news coming out of the market yesterday and today. So we'll see. We have to take a hard look at this quarter and
Speaker Change: Managing the uncertainties by building up inventories, making a little bit of a pause in some of the projects, but not necessarily putting a full stop, and that's the color we get from our customers, and we're trying to make sure that we're as close to them as possible, because that's what banks are for.
Speaker Change: I really appreciate the caller. Most of my questions have been asked and answered. I'll step back. Thank you.
Thank you. Have a great day.
Speaker Change: And once again, if you would like to ask a question, please press star then the number one on your telephone keypad, and we will pause for just a moment to allow any further questions to cue.
Jos Fernndez
Speaker Change: And at this time, there are no further questions. I will now turn the call back over to Mr. Fernndez for closing remarks.
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