OFG Bancorp Q3 FY2025 earnings call

• Digital First strategy: Significant progress with digital enrollment up 8%, digital loan payments up 5%, virtual teller utilization at 25%, and net new customer growth at 4.6%.
• Innovative products: Libre and Elite accounts successful; Libre new customers up 17%, Elite account leads mass affluent market; Oriental biz account suite enhanced for small businesses.
• AI leveraging: Customers receive tailored insights with 93% positive feedback; AI applied to boost operational efficiency across banking operations.
• Financials: Core revenues $184M, interest income up $6M, interest expense up $3M, banking services revenue down $1M but up 11% y/y, other income $2.2M.
• Operational metrics: Assets $12.2B (up 7% y/y), loans $8.1B, core deposits $9.9B (up 1% q/q), investments $2.9B, net interest margin 5.24%.
• Credit: Provision for credit losses $28.3M, net charge-offs $20M, non-performing loan rate 1.22%. Capital: CET ratio 14.13%, stockholders' equity up $41M.

Core revenues totaled $184 million. Total interest income was $200 million, an increase of $6 million. Total interest expense was $45 million, an increase of $3 million. Banking and financial services revenues were $29 million, a decrease of $1 million but up 11% year over year compared to prior year. Other income was $2.2 million. Loans increased 5% year over year with commercial loans being a strategic focus. Core deposits increased 3% year over year. Digital First strategy led to 8% growth in digital enrollment, 5% growth in digital loan payments, 25% virtual teller utilization, and 4.6% net new customer growth. Libre account new customers increased 17%, and Elite account remains market-leading.

• Anticipate annual loan growth in the range of 5% to 6%.
• Fourth quarter net interest margin expected to be in the range of 5.1% to 5.2%.
• Effective tax rate for the year anticipated to be 23.06% compared to previous expectation of 24.9%.
• Continue to buy back shares on a regular basis.

• Global macroeconomic and geopolitical uncertainties.
• Idiosyncratic risks associated with certain commercial loans.
• Seasonal dynamics in auto loan charge-offs.

Q: About deposits, costs rising.

A: Driven by strategy to attract mass affluent via Elite account, betting on long-term relationship with higher deposit rates for that segment.

Q: Commercial loan originations and outlook.

A: Solid commercial pipeline, with repayment of some lines of credit in Q3, but confident in fourth quarter and 2026 pipeline.

Q: Commercial loans and Mainland CRE.

A: Idiosyncratic risks; two commercial loans discussed, one sold with provision/charge-off, one Puerto Rico loan proactively provisioned due to operating/financial weaknesses, seen as idiosyncratic not market-wide.

Q: Auto loans charge-offs.

A: Seasonal dynamics, with charge-offs normalizing to historical ranges, seeing bottoming in auto loan originations.

Q: Q4 margin guidance.

A: Asset sensitive, impact of Fed cuts, with funding mix effects contributing to Q4 NIM range of 5.1%-5.2%.

Q: AI investments and efficiency.

A: Investments in technology to boost efficiency, starting to see operational efficiencies from AI application in banking operations.

Q: Buyback outlook.

A: Active in fourth quarter and 2026, with loan growth priority, followed by buybacks and dividends due to strong earnings and positive economic outlook in Puerto Rico.

Q: Payoff activity affecting commercial.

A: Seasonal payoffs in lines of credit in Q3 due to federal fund receipts, not expecting significant impact in Q4.

Q: Credit quality beyond charge-offs.

A: No major concerns apart from idiosyncratic commercial loans, with economy supporting liquidity and no issues in consumer/auto books.

Q: Onshoring in Puerto Rico.

A: Multiple multinationals investing in medical, pharma, solar, textiles, with positive economic impact from onshoring trends