Earnings Call Transcript
OFG BANCORP (OFG)
Earnings Call Transcript - OFG Q2 2023
Operator, Operator
Good morning. Thank you for joining OFG Bancorp's Conference Call. My name is Chelsea, and I will be your operator today. Our speakers are Jose Rafael Fernández, Chief Executive Officer and Vice Chair of the Board of Directors; and Maritza Arizmendi, Chief Financial Officer. A presentation accompanies today's remarks. It can be found on 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 OFG's 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 the speakers' 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. Fernández.
Jose Rafael Fernandez, CEO
Good morning, and thank you for joining us. We are pleased to report our second quarter results. All 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 sales service actions and lower branch visits. The result has been an overall increase in customer transaction activity. 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. For 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 3 of our conference call presentation. Looking at the income statement, earnings per share diluted was $0.93, up 11% year-over-year. Core revenues increased 17% to $170.5 million. Net interest margin was 5.9%. Provision was $15 million. Non-interest expenses were $89 million, and pre-provision net revenues totaled $80.8 million, up 22% year-over-year. Looking at our balance sheet, total assets remained steady at approximately $10 billion. Customer deposits were approximately $8.5 billion. Loans held for investment totaled $7.1 billion, up 3.8% from the first quarter. New loan production increased 23% from the first quarter to approximately $692 million. Investments totaled $1.7 billion, and cash was $799 million. Looking at capital, the CET1 ratio was 14.0%. During the second quarter, we bought back about 565,000 OFG shares. This leaves us with a remaining authorization of about $19 million. Please turn to Page 4 to look at our progress so far on our digital-first strategy. Looking at data from June this year compared to last year, digital enrollment is up 10%. Self-service transactions increased 6%. That includes 14% growth in kiosk usage and 17% growth in digital loan payments. Overall, transactions increased 5%. And to provide additional detail on our customer adoption levels, 78% of our customers are registered on our retail digital 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 this continues to validate that our investments in technology are 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 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 would like to pass the call to Maritza to go over the financials in more detail.
Maritza Arizmendi, CFO
Thank you, Jose. Please turn to Page 5 to review our financial highlights. Let me start with total core revenues. Net interest income was $140 million. That is a 2.8% increase over the first quarter. This mainly reflected the full effect of the first 50 basis point increase in the first quarter, partial effect of the 25 basis point increase in the second quarter, higher yields on higher average balances of auto, commercial, and consumer loans, higher yields on higher average balances of cash, and one additional day. This 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 $1.1 million from the sale of a $205 million treasury note. Looking at the efficiency ratio, it was 52.13%. That's an improvement of 274 basis points from the first quarter and more than 600 basis points from a year ago. This reflects increased operating leverage. Non-interest expenses totaled $89 million. This compares to $90 million in the first quarter. Operating expenses increased $1.8 million. These were more than offset by $3 million from lower credit expenses and higher gains on the sales of foreclosed real estate. Non-interest expenses should 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-50 percentage range. Looking at our other performance metrics, return on average assets was 1.76%, and return on average tangible common equity was 17.67%. We continue to raise capital. Tangible book value per share was $21.06. That's up 2.4% from the first quarter and up 12% year-over-year. Total tangible common equity was $991 million. That's up 1.2% from the first quarter and 10.5% year-over-year. Please turn to Page 6 to review our operational highlights. Looking at average loan balances, they increased $136 million from the first quarter. End-of-period loans were up $263 million. Sequential growth reflected increased balances of commercial, auto, and consumer loans. Looking at loan yields, it was 7.76%, up 18 basis points from the first quarter. That reflects increases from variable rate commercial loans and a larger proportion of higher yielding auto, consumer, and commercial loans. Looking at new loan originations, they were up 23% from the first quarter with increases in all lending categories in Puerto Rico. This was partially offset by a small decline in commercial U.S. loan production. Looking at core deposits, average balances declined $63 million from the first quarter. End-of-period deposits declined $27 million. Retail deposits declined $136 million, commercial declined $21 million, and government deposits increased $130 million. We continue to see a shift to time deposits and wealth management. Looking at core deposit costs, that was 69 basis points, up 16 basis points from the first quarter. As of the second quarter, our cumulative deposit beta has been 16%. Excluding government deposits, it was 12%. Through this cycle, we continue to expect cumulative deposit beta of about 25%. Looking at borrowings, average balances were $226 million compared to $64 million in the first quarter. The rate increased to 4.30% from 3.74%. This quarter reflects the full effect of March advance from the Federal Home Loan Bank. Looking at cash, average balance was $693 million, up $140 million from the first quarter. Yield was 5.22% compared to 4.73%. End-of-period cash declined $49 million. Looking at net interest margin, that was 5.90% flat from the first quarter and up 110 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, it was 33% for the quarter. We anticipate it to be that level for the year. Please turn to Page 7 to review our credit quality and capital strength. Looking at net charge-offs, they totaled $6.6 million. That compares to $10.1 million in the first quarter. The second quarter included a recovery of $3.7 million. Delinquency rates rose slightly from reduced levels in the first quarter. Looking at the provision for credit losses that totaled $15 million. That reflects two major items, $9.1 million from a specific reserve for 3 U.S. commercial loans with an aggregate balance of $18 million and $6.3 million due to increased loan volume. Looking at non-performing loans, the rate was 1.45%, 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 to around the second quarter level for the rest of the year. Overall, credit continued to be strong. Looking at some of our other capital metrics, total stockholders' equity was $1.1 billion, up slightly from the first quarter, and the TCE ratio increased to 10%. Now here is Jose.
Jose Rafael Fernandez, CEO
Thank you, Maritza. Please turn to Page 8 for our outlook. Turning first to Puerto Rico, the economy continues to demonstrate resiliency and growth and the private sector continues to expand. The economic activity index in May increased 1.8% year-over-year. Retail sales in April increased 2.6% compared to last year. Wages are rising, labor participation is increasing, and the flow of federal funds to rebuild infrastructure continues. Having said that, we're keeping an eye on the potential impact of interest rate changes, inflation, and a possible mainland recession. Nonetheless, we remain optimistic about Puerto Rico's strength and its continued decoupling from mainland economic uncertainties. As to OFG, 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 spending 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 provide OFG with a strong position in today's banking environment. We're encouraged by the 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.
Operator, Operator
Our first question will come from Tim Braziler with Wells Fargo. Your line is open.
Timur Braziler, Analyst
Hi, good morning.
Jose Rafael Fernandez, CEO
Good morning.
Timur Braziler, Analyst
Maybe starting off on the loan outlook. Pretty phenomenal quarter kind of across the board. Maybe looking specifically at commercial loan growth, any color around the pipeline, the heightened growth this quarter. Was some of that kind of timing from the first quarter that got pulled into the second quarter? And then yeah, any kind of outlook you can provide on just general loan growth for the remainder of the year?
Jose Rafael Fernandez, CEO
Thank you for your question. It was a strong quarter for loan origination, especially on the commercial side. In Puerto Rico, we have a solid pipeline. We aim to replicate the first half's performance in the second half and are confident in our pipeline. We continue to observe commercial customers investing in their business expansion and seeking growth opportunities. Overall, we see a healthy commercial market, particularly focused on small and midsized businesses.
Timur Braziler, Analyst
Okay. And then if we look at the loan-to-deposit ratio, it's been picking up a little bit, still well below the mid-90s of pre-pandemic levels. What are your renewed thoughts around the funding base and where we can ultimately see that loan-to-deposit ratio migrate?
Jose Rafael Fernandez, CEO
We still have some room to grow in our loan-to-deposit ratio. As you've mentioned, we've increased the ratio from the mid-70s to the 80s. Given the current environment with positive loan growth, we need to keep focusing on our deposits and clients. We're pleased with how we've managed this so far. On the commercial side, we prioritize primary relationships and continuously communicate with our customers to serve them well and capture as much of their deposits as possible. On the retail side, many customers are investing their excess liquidity. It's important to note that Puerto Rico's excess liquidity as a percentage of GDP is around 10%, compared to about 6% in the U.S. This indicates that there's still substantial liquidity available, and consumers are using it to enhance their lives, especially as their wages have increased. Therefore, it's crucial for us to ensure that we grow our consumer deposits moving forward to maintain the loan-to-deposit ratio around the mid-80s.
Timur Braziler, Analyst
Okay, great. I have a question for Maritza. The deposit beta guidance remains at 25%, which seems quite conservative since we're currently at about half that. However, the guidance on margin appears to have improved, with expectations now looking flat instead of showing a downward trend. Does this suggest that the beta guidance is indeed conservative? I'm curious about what would occur if we assume there is only one rate hike left. What will the lag be after that last rate hike to reach a 25% beta?
Maritza Arizmendi, CFO
Yeah. Well, what we're seeing is as you have seen in the first two quarters, we have moved the beta from 11% to almost 15% during the quarter. As we see the mix and the change in the funding that we have, we continue to see cost of funds increasing. But we will continue to have this yield on the loan book growing as well as the mix in the balance sheet will improve on the earning asset side. So that's why we continue to see cost of fund increasing, but the yield on the loan book also increases our NIM being stable for the next two quarters.
Timur Braziler, Analyst
Okay, great. And then just last for me on the credit front. Maritza, I missed the aggregate amount of the 3 mainland credits. And then just more broadly, as you look at your credit portfolio, any color you can provide on if there's any similarities on the borrower on those three credits? And then just in the mainland, kind of the areas that you're putting more attention and focus on.
Maritza Arizmendi, CFO
No. These were really very specific situations to these three loans that are related or not contaminate the rest of the portfolio as we have a very well-diversified portfolio. We don't have any concentration in any industries in that portfolio, and it's very well diversified throughout the U.S. So these are really very specific situations related to supply chains, and we don't see anything that relates to the whole portfolio. That's the way we see in these cases. And as I mentioned, they were really, really specific. And we're optimistic on those three cases also because management has continued to make the restructuring in a very efficient way and the perspective on those three loans continue to be good.
Jose Rafael Fernandez, CEO
And just to add, the aggregate amount is $18 million on the three loans.
Timur Braziler, Analyst
Okay. Great. Thanks for the questions. Nice quarter.
Jose Rafael Fernandez, CEO
Thank you.
Operator, Operator
Thank you. Our next question will come from Brett Rabatin with Hovde Group. Your line is open.
Brett Rabatin, Analyst
Good morning. Thank you for the questions. I wanted to start with the efficiency ratio guidance. It was previously in the mid-50s, and it seems you've adjusted that to a range of low-50s to mid-50s. I understand there was a recapture of ORE or a gain this quarter that reduced expenses. However, can we assume that expenses will trend higher moving forward? Could you provide more insights on your expectations for spending in the latter half of the year and any factors that might influence expense levels? Thank you.
Maritza Arizmendi, CFO
Thanks for the question. And if we take out that gain in repossessed, the expenses increased $1.8 million during the quarter, mostly because of technology. As we have been disclosing in prior calls and we're disclosing in this call, particularly 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 as an ongoing expense for the next quarter. We know that in the long term, this technology will bring some efficiency, but the timing, it will evolve. So I cannot tell you when it will happen. But 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 are giving you this guidance of $90 million to $92 million as we continue executing on our digital-first strategy.
Brett Rabatin, Analyst
Okay. And then wanted to talk about auto for a second. 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 the net really light this quarter. But was just curious what you were seeing with the consumer, their ability to absorb inflation. And just any thoughts on where auto from a credit perspective might go from here.
Jose Rafael Fernandez, CEO
So Brett, first, we are equally surprised with the strength of the auto loan growth. We're also equally surprised with 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 starting point of a slowdown in terms of new auto sales. But in general, I think it's a couple of things. One is we are coming from an environment where clients or customers are not changing their cars too often. And they kind of pushed that decision for a later time. And as their economic situation has improved, we've seen definitely their liquidity levels and their FICO scores have all increased and improved. So they feel more confident and they're going out there and making those big-ticket purchases. So we're really focusing on our auto portfolio. It's really high FICO score, 720-plus. We continue to increase the loan yields. Now we're booking loans or loans that are being booked in this quarter average, I think, around 9.5%. So again, that Maritza mentioned earlier, it's helping us on our net interest margin. It also is giving us the ability to get a higher FICO customer for us to do business in other areas with the bank. So actually, I call it a good problem to have.
Brett Rabatin, Analyst
Okay that's helpful. And then if you mentioned it, I missed it, but I know you bought back over 0.5 million shares this quarter. Obviously, you still have a high level of capital. Any thought on the buyback activity in the back half of the year?
Jose Rafael Fernandez, CEO
With the current levels of loan growth, our main focus is on how to effectively deploy our capital for our customers and the communities we serve. The increase in yields is definitely resulting in a better return on our capital. We are also considering dividends and our repurchase program, for which we still have $19 million available. We plan to stay active in the market. As we have done in the previous quarters, we are confident in our capital levels, which are around 14% CET1, and our strong earnings retention. Therefore, we are looking at loan growth, dividends, and the repurchase program as our key areas of focus.
Brett Rabatin, Analyst
Okay, great. Thanks. Appreciate the color.
Jose Rafael Fernandez, CEO
Thank you for your questions. Yeah, thank you for your questions, Brett.
Operator, Operator
Thank you. Our next question will come from Alex Twerdahl with Piper Sandler. Your line is open.
Alex Twerdahl, Analyst
Hey, good morning.
Maritza Arizmendi, CFO
Good morning.
Jose Rafael Fernandez, CEO
Good morning, Alex.
Alex Twerdahl, Analyst
First off, Jose, I was hoping you could just give us an update on what you're seeing in terms of deposit pressure trends on the island. I know you still have 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 if there's been any change in customer mentality over the last couple of months with respect to what they need on their deposits.
Jose Rafael Fernandez, CEO
Yeah. So let's split the answer into two. Let's start with the retail side, on the consumer side. What we're seeing is lower non-interest-bearing deposit balances on the retail side. And that's a direct relation to what I mentioned in my prepared remarks in terms of customers using their money for improvements at home, buying furniture, etc. So they're deploying that liquidity, and that's item number one, right? And also, what we're also seeing is moving some funds to higher-yielding vehicles. And some of it is coming through to our wealth management unit. This quarter, we had close to $30 million that 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 irrational environment. Given the Puerto Rico market, it might be called that way because Puerto Rico has a different dynamic in terms of the banking competitive landscape versus the mainland. Given who we are in Puerto Rico and the banking industry on the island, I think the competitive forces are really competitive, but at the same time, not irrational. So that's kind of how it's playing out on the consumer side. On the commercial side, where we have a higher beta, it's really driven by relationships, and we have very strong relationships with a segment of our commercial clients, and our team is working very closely with them. We just make sure that we take care of them. I think we're well-positioned to not only take care of our customers but also be able to attract new customers on the commercial side, small and midsized 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 landscape and how we're seeing it. Into the next second half of the year, I think we're starting to see a slowdown on the outflows on the retail side. We see the same kind of behavior on the commercial side, pretty steady and managing our primary relationships.
Alex Twerdahl, Analyst
That’s helpful information. Considering the level of deposits and overall balance sheet management, along with the strong loan growth you've experienced this quarter and expect in the second half of the year, can we assume that while deposits remain stable, most of the balance sheet growth, specifically loan growth, will be financed through the securities portfolio, similar to what occurred in the second quarter? What is your perspective on overall balance sheet management?
Jose Rafael Fernandez, CEO
There are a couple of options here. First, we have short-term maturities in our securities portfolio coming up early next year, which can help. We also have some flexibility with our loan-to-deposit ratio, as I've mentioned earlier. This allows us to continue growing our loan portfolio and funding it with our deposits. These are the primary factors. However, it's challenging to maintain the same level of loan growth we've seen this quarter. Our expectation is that we can manage with our current deposit levels, and if necessary, we can utilize some of the securities to support that growth.
Alex Twerdahl, Analyst
Okay. And then I wanted to ask, on 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.
Jose Rafael Fernandez, CEO
On the origination side?
Alex Twerdahl, Analyst
Yeah.
Jose Rafael Fernandez, CEO
Yeah. On the commercial, Puerto Rico is, I would say, almost 8%. I don't have the exact number, but Maritza can provide it to you later.
Alex Twerdahl, Analyst
Okay, very good. And then just a final question. You talked about the avenues of capital management. And it seems like given the earnings generation, you can grow loans and continue to buy back stock and then the dividend. You guys have been on a nice track record of increasing the dividend at a fairly regular pace and the payout ratio. Can you just talk maybe about sort of the long-term goal for the dividend payout ratio for earnings and what your expectations for the dividend are over the next, I guess, over the next couple of quarters?
Jose Rafael Fernandez, CEO
We evaluate our payout ratio in total, which includes both dividends and buybacks. Currently, our payout ratio is 41% at the midpoint of the year. We reported a net income of $90 million and have distributed $21 million in dividends and $16 million in stock repurchases, totaling $37 million. Our aim is to gradually increase our common dividend to achieve a payout ratio above 25%, supplemented by our buybacks.
Alex Twerdahl, Analyst
Okay, and if I remember correctly, you guys look at that generally around this time each year and then again in the January timeframe. Is that correct?
Jose Rafael Fernandez, CEO
Can you repeat the question again?
Alex Twerdahl, Analyst
The time frame for changes to the capital management outlook is generally around July and January. Am I remembering that correctly?
Jose Rafael Fernandez, CEO
Yes, that's correct. We take a look at it twice a year, July and January.
Alex Twerdahl, Analyst
Okay, great. Thank you for taking my questions.
Jose Rafael Fernandez, CEO
Yeah, Alex. Have a great day.
Operator, Operator
Thank you. Our next question will come from Kelly Motta with KBW. Your line is open.
Kelly Motta, Analyst
Hi, good morning. Thanks for the questions. I guess starting out, going back to the margin, I appreciate the color you just gave about new origination yields and also the color around your expectation for deposits. Just wondering, it looks like a lot of the growth this quarter came from CDs. Can you provide what you're pricing new CDs at currently and how that compares to the roll-off rates right now?
Jose Rafael Fernandez, CEO
You're talking about time deposits?
Kelly Motta, Analyst
Correct, yes.
Maritza Arizmendi, CFO
The entry price right now is around 2.9% in the new CDs, while the ones maturing is about 60 to 65 basis points. So that's one of the drivers on the beta that we're showing you these last two quarters.
Jose Rafael Fernandez, CEO
Yeah. And I think the additional 1 is on the commercial side.
Maritza Arizmendi, CFO
Yeah, and it's the commercial side, yes.
Kelly Motta, Analyst
Got it. And then in terms of the balance sheet management, just kind of closing the loop there, the past two years, you kind of skirted by 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 crossing $10 billion and the timing of that and the implementation of Durbin?
Jose Rafael Fernandez, CEO
You mentioned an important point. If we can keep expanding our loan portfolio and stabilize our deposits, I believe 2023 may not see us surpass the $10 billion mark, although I can't make any promises. However, with the rise in higher-yielding loans and cash, managing the Durbin requirements related to asset levels is becoming easier. We likely won't exceed the $10 billion threshold before year-end, but we aren't overly worried about exceeding it in 2024, thanks to better yields on our loans and other assets like cash and securities. So, regarding the $10 billion mark, we are nearing a conclusion on that.
Kelly Motta, Analyst
I appreciate the color. Just kind of zooming out and taking a more high-level view, it does look like the macro backdrop in Puerto Rico is holding up quite nicely. Can you give us an update on the pace of federal funds and how those have been flowing and kind of what you've been seeing on the ground on the island?
Jose Rafael Fernandez, CEO
Sure. Specific dollar numbers, I really try 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 amounts of construction going on in the island on the public side from the roads and bridges and all the broadband that is being redone here in the island. We're also seeing a lot of construction on the private sector. We're seeing, as I mentioned in my earlier comments, commercial businesses are really investing in their own businesses. So all that is kind of adding to the equation. I also want to point out that the recently passed federal laws on infrastructure, that's going to represent, I think, $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 continue to flow in 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 midsized businesses and have recurring economic growth not so dependent on several funds. So in general, that's my outlook on the federal funds and how things are playing out down in the island.
Kelly Motta, Analyst
Thank you so much. 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 kind of expand upon what you're doing with your digital strategy, maybe next steps with that? I also know you've added to your executive team. So any color around that as well as the outlook for what you're doing on the digital side would be really interesting. Thank you.
Jose Rafael Fernandez, CEO
Thank you for your question. Our digital-first strategy is centered on the customer. Everything we do, every investment and technology we implement, focuses solely on enhancing the customer experience. We're aiming to improve how our customers interact with us, which will drive our business development, increase our loan book and deposits, and simplify processes for our customers. That's our primary focus. I'm also pleased with the investments we've made in recent years. As I mentioned earlier, customer adoption levels are promising. We're successfully educating consumers on using kiosks, self-service tellers, and chatbots, with a notable 35% increase in chatbot usage. It's encouraging to see our customers engaging with the digital tools we're providing beyond traditional services. Reflecting on our midyear performance and the impact of our technology investments, I believe we are on the right track. Looking ahead, we can't afford to slow down in this competitive market. We must continuously assess what improvements and additions we can make from the customer's perspective. While I can't share specific details for competitive reasons, we've been focused on this for the past few years. We have indicated that our efficiency ratio will be in the mid-50s as we invest in technology. Our feelings today are that not only are these efforts beginning to yield results, but they also affirm that we are on the right path. Overall, I am optimistic about our ability to lead in digital innovation in banking within Puerto Rico.
Kelly Motta, Analyst
Great. I really appreciate all the color. Congrats on a great quarter. I'll step back.
Jose Rafael Fernandez, CEO
Thank you, Kelly. Thank you.
Operator, Operator
Thank you. We have another question from Timur Braziler with Wells Fargo. Your line is open.
Jose Rafael Fernandez, CEO
Timur?
Timur Braziler, Analyst
Good morning. Had you on mute, sorry about that.
Jose Rafael Fernandez, CEO
Hi, Timur. How are you doing?
Timur Braziler, Analyst
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 OFG is from a technology perspective relative to the other island banks? Is this kind of extending the lead that you already have? Is this playing catch-up in certain areas? Maybe you can sort-rank what you guys do best and then maybe some areas where the other banks might have a lead but you're working to catch up.
Jose Rafael Fernandez, CEO
I agree that we're not the leader in every aspect, but over the past decade, we've positioned ourselves and invested in providing new services and tools for our customers through technology. Regarding our technology positioning, I believe we're well-equipped to execute our business strategy focused on differentiation. We're aiming to set ourselves apart from competitors by shifting from a traditional brick-and-mortar approach to a more challenger strategy. We leverage technology and our team to stand out. For instance, the portal we launched in April centralizes various functions within our online banking platform, allowing customers to resolve issues without calling or visiting a branch. Whether it's checking a loan balance or cancelling a loan, customers can do this digitally, and they can even open a deposit account online. These features highlight our differentiation efforts. While we face strong competitors with greater financial resources, we remain focused on our strategy and are pleased with the results we've achieved given our bank's size.
Timur Braziler, Analyst
Great. Thanks for that update.
Jose Rafael Fernandez, CEO
Yeah. No problem. Thank you for your questions.
Bernard Horn, Analyst
Yes. Good morning. Actually, my first question was just asked and answered, so thank you. But the second question is on the auto market. The 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.
Jose Rafael Fernandez, CEO
Yeah. We have yet to see that reduction in the used cars values, but it's certainly a risk into the future, right, in terms of the losses. One thing that we are focused on is on the models, and we're focused on what type of cars we kind of lend to. It's really more on the middle-size type of market, the Japanese and the Korean cars, most of it. We really don't play on the higher-end autos. So that serves a little bit as a hedge to your point, so that's kind of what we're seeing. We're seeing better resale values on some car manufacturing, like I don't want to give an advertisement some of those guys, but we're seeing better values on the Toyotas than in others, and we kind of work it that way.
Bernard Horn, Analyst
Thanks very much. I'm clear.
Jose Rafael Fernandez, CEO
Yeah. Thank you.
Operator, Operator
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.
Jose Rafael Fernandez, CEO
Thank you, 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.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. We appreciate your participation. You may disconnect at any time.