OFG Bancorp Q1 FY2025 earnings call

• Strong first quarter performance with earnings per share diluted of $1, driven by operating execution and loan/deposit growth.
• Digital First strategy driving innovation: 96% of retail customer transactions, 97% of retail deposit transactions, and 68% of retail loan payments through digital/self-service channels; 12% year-over-year digital enrollment growth, 21% digital loan payments growth, 40% virtual teller utilization growth, and 5% customer growth.
• Launched three digital tools: omni-channel app, Smart Banking Insights, and Apple Pay for debit/credit cards. Self-service portal nominated for a banking tech award.
• Financial highlights: Core revenues $178M, total interest income $189M, total interest expense $40M, non-interest expense $93.5M, income tax expense $13.9M, tangible book value $26.66 per share.

Core revenues totaled $178 million. Total interest income was $189 million, a decline of $941,000 mainly due to two fewer business days, but offset by higher balances and yields on investment securities and loan balances. Total interest expense was $40 million, a decline of $874,000. Total banking and financial service revenues were $29 million, down $3.6 million. Non-interest expense totaled $93.5 million, down $6.3 million. Tangible book value was $26.66 per share. Total assets were $11.7 billion, up 5% from a year ago. Average loan balances were $7.8 billion, up close to 1%. Average core deposits were $9.6 billion, up close to 1%. Net interest margin was 5.42%.

• Non-interest expense guidance for 2025 was in line with $95 million to $96 million quarterly.
• Margin range of 5.3% to 5.4% for the year, dependent on funding side, especially government deposit renewal.
• Effective tax rate expected to be 26% for the full year.

• Macroeconomic and geopolitical events posing potential economic impact.
• Puerto Rico power grid issues with sporadic outages and long-term privatization process impacting the economy.

Q: About digital channel deposit account openings, what's the current status?

A: Around 25%-26% of checking accounts and CDs opened through digital channel, with increasing trends.

Q: Seasonality of deposit growth and government deposits?

A: First quarter has seasonal components like tax refunds, expect continued growth; $1 billion+ government deposits expected to be renewed in next couple of weeks.

Q: Consumer charge-offs, expected normalization?

A: Consumer charge-offs expected to normalize with seasonal improvement, auto portfolio seeing stabilization in recovery rates and better vintage grading.

Q: Bond book duration and margin trajectory?

A: Bond book duration around 5-6 years; margin range 5.3%-5.4% for year, dependent on government deposit renewal.

Q: Commercial loan reserves, location?

A: Three loans (one Puerto Rico, two US) totaling ~$10M placed in substandard, provision taken.

Q: Power grid and on-shoring in Puerto Rico?

A: Power grid issue will take decade, on-shoring potential exists but no visible movement yet.

Q: Margin sensitivity and competitive environment?

A: 53% of commercial book and cash tied to variable rates; competition remains, but core deposit performance strong with 5% net customer growth and growth in non-interest-bearing deposits.

Q: Manufacturing movement in Puerto Rico?

A: Too early to tell, but tariff environment provides opportunity, customers managing uncertainties by building inventories.