Earnings Call Transcript - OFG Q1 2024

Operator, Operator

Thank you for joining OFG Bancorp's Conference Call. My name is Jamie, and I will be your operator today. Our speakers are José Rafael Fernández, Chief Executive Officer and Vice Chair of the Board of Directors; Maritza Arizmendi, Chief Financial Officer; and César Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the First Quarter 2024 section. 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 any 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. Please go ahead.

José Rafael Fernández, CEO

Thank you for joining us. We are pleased to report our first quarter 2024 results, which reflected solid performances across all our businesses. Growth was in line with both our short and long-term strategies and plans. Our Digital First strategy continues to drive customer acquisition and engagement. Business activity, consumer liquidity, and employment levels in Puerto Rico continued to do well in a strong economy. Regarding our balance sheet, total assets were $11.2 billion, 2% less than last quarter and 11% higher than a year ago. Customer deposits were $9.5 billion reflecting the $1.2 billion public funds deposited in mid-December. Earnings per share diluted increased more than 9% year-over-year to $1.05 on a close to 6% increase in total core revenues to $174.2 million. We increased the quarterly cash dividend by 14% to $0.25 per share and approved a new $50 million stock repurchase authorization. Please turn to Page 4 for an update on our Digital First strategy. As of the first quarter, 94% of all routine retail customer transactions and 96% of retail deposits are being made through our digital and self-service channels. This validates our Digital First strategy and investments.

Maritza Arizmendi, CFO

Thank you, José. Please turn to Page 5 to review our financial highlights. Total interest income was $183 million, up 4% from the fourth quarter. Total interest expense was $39 million, an increase of $6.7 million from the fourth quarter. Our performance metrics remain high. Return on average assets was 1.77%. Return on average tangible common equity was 17.92%. The first quarter efficiency ratio was 52.49%, a 10 basis point improvement from the fourth quarter. Our expectation for non-interest expenses is to average about $90 million to $92 million per quarter over the rest of 2024. We continue to see a downward trend in closer rates and expect to maintain a net interest margin between 5.45% and 5.55%. We have updated our expected effective tax rate to 29% for the full year, reflecting a decrease from prior expectations. We're confident in our trajectory moving forward.

José Rafael Fernández, CEO

Thank you, Maritza. Our outlook for both Puerto Rico and OFG is positive. Local businesses are expanding, and overall business activity is good. We continuously monitor macro uncertainties, interest rate changes, and inflation trends. We are optimistic about Puerto Rico and our future. Our strategy is clearly working. We will continue to invest in and deploy more customer-friendly technology and work tirelessly to improve customer experience. Overall, we look forward to another strong year in 2024.

Operator, Operator

Thank you. We'll go first to Brett Rabatin with Hovde Group.

Brett Rabatin, Analyst

Hey, good morning everyone. Wanted to start with the margin and my call is breaking up a little bit intermittently. But if I heard correctly, the guidance for the full year margin is 5.35% to 5.55%. So it seems like higher for longer is impacting the lower funding cost in Puerto Rico in the past quarter. Can you clarify that guidance?

José Rafael Fernández, CEO

Brett, just to clarify the guidance that you pointed out, Maritza mentioned a range of 5.45% to 5.55%, not 5.35%. We have been asset sensitive, and we're modeling three rate cuts in the second half of the year to benefit from that. In addition, we expect a significant amount of the government deposit to flow out of the balance sheet in the upcoming quarters, impacting our margins accordingly.

César Ortiz, CRO

The first quarter is always seasonal in terms of tax benefits, and we anticipate that while we may see some softening in the auto portfolio, our strategic changes made in prior years should mitigate higher losses.

Alex Twerdahl, Analyst

Hey, good morning all. I wanted to ask about your capital levels continuing to rise and if you're considering opportunities to deploy that capital in the next couple of quarters or years.

José Rafael Fernández, CEO

We still see opportunities for growth in Puerto Rico and we have capital return strategies in place including increasing the dividend and a $50 million repurchase program. We will continue deploying capital stream in both Puerto Rico and the US markets.

Maritza Arizmendi, CFO

As we think about expenses, we anticipate remaining in the low to mid-50s range, while we continue to invest in our strategy. However, we do expect to see some seasonal fluctuations regarding expenses.

José Rafael Fernández, CEO

The Puerto Rico economy continues rebounding, and with federal funds flowing steadily, we are optimistic about future growth and the resilience of local businesses as they embrace expansion and investment.

Kelly Motta, Analyst

Good morning. As I've noted, the effective tax rate has lowered this quarter. How should we view this in the context of future expectations?

Maritza Arizmendi, CFO

We do expect lower effective tax rates due to our business mix, estimated to be around 29% for the full year.

José Rafael Fernández, CEO

I appreciate everyone joining us today. Thank you to our team for their hard work, and we look forward to a successful year ahead.

Operator, Operator

Thank you for your participation. You may disconnect at this time and have a great day.