管理層發言
Thank you for your continued patience. Meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good morning, everyone. Thank you for joining OFG Bancorp's conference call. My name is Bo, and I will be your operator today.
Our speakers today are José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors; Maritza Arizmendi, Chief Financial Officer; and Cesar A. Ortiz-Marcano, Chief Risk Officer.
A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the second quarter 2026 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 afterward. 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, sir.
Good morning, and thank you for joining us. We are pleased to report our second quarter results. We had another all-around outstanding quarter, with good momentum in all areas. Let's go to page 3 of our presentation. We continue to show strong financial performance. Earnings per share increased 21% year over year on 4% growth in total core revenues. This was driven by consistent loan growth, core deposit strength, stable credit quality, and effective balance sheet management. We saw continued solid and steady momentum across all our businesses, supported by disciplined execution, excellent customer engagement, and our differentiated operating model. During the quarter, we launched a new branding campaign highlighting our strategic and financial evolution into a digital bank with a human touch that combines innovative technology and our customer-focused culture. With healthy consumer and business liquidity, wage growth, and historically low unemployment, Puerto Rico's economy continues to be resilient.
Please turn to page 4. Our core digital strategy is focused on three key areas of execution. The first area is offering value to customers through innovative account products that meet their specific needs: Libre for the mass market, Elite for the mass affluent, and My Biz for small businesses. The second focus is technology. Our omnichannel platform allows customers to interact with us seamlessly across all our digital channels. This is driving digital adoption, generating efficiencies and savings. In turn, this enables us to reinvest in new ways to serve our customers and transform our branches into places for relationship building as opposed to transaction processing. The third focus is intelligent banking: leveraging data to provide real-time personalized insights with unique value, helping customers better manage their finances. Overall, this approach differentiates OFG in the marketplace, drives higher digital adoption levels, and, most importantly, deepens customer relationships.
All this translates into consistent steady growth of the business. Please turn to page 5. The results continue to show up in our key performance indicators. Most retail customers are doing almost all routine deposit transactions and loan payments through our digital and self-service channels. During the second quarter, we saw year-over-year growth of 4% in net new retail and commercial customers, 11% in active digital users, 6% in digital loan payments, and 3% in virtual teller use. Combined with our increased level of service, our products and people are delivering added value to our customers every day. Year to date as of June, 28% of Libre accounts were opened digitally. We are the only bank in Puerto Rico with this full digital capability. More than 1.1 million personalized smart banking insights have been delivered monthly with more than 90% positive feedback from customers. And more than 68 thousand customers have accessed our live remote tellers during times when the rest of the banks in Puerto Rico are closed. Now I would like to pass the call to Maritza Arizmendi to go over the financials in more detail.
Thank you, José. All comparisons are to the first quarter unless otherwise noted. Now let's turn to page 6. Our financial performance was very strong this quarter. EPS climbed to $1.39. The efficiency ratio was 54%. Return on average assets rose to 1.93%. And return on average tangible common equity increased to almost 18%. The loans-to-deposit ratio was 85%, and the payout ratio was 25%, which reflects the higher income in this quarter versus the first quarter. Let's turn to page 7 to review our income statement highlights. Core revenues increased $4.5 million to $190 million. Total interest income was $197 million, an increase of $3 million. This reflected higher average balances of loans at higher average rates, which more than offset slightly lower income from cash and securities. The quarter included $4.1 million from three prepaid-in-full commercial loans. This compares to $3.3 million from a similar loan paid in full in the first quarter.
There was one additional day in the quarter. This increased interest income by about $1.6 million. Total interest expense was $40 million, a decrease of $500 thousand. This reflected lower average balances of brokered CDs and borrowings, which more than offset the cost of higher average balances of core deposits. The added day increased interest expense by about $400 thousand. Total banking and financial service revenues increased $1 million to $33 million, reflecting higher banking and wealth management revenues, which included $1 million in annual insurance and annuity fees. Noninterest expense increased $8.1 million to $103 million. This included $5.8 million in business operational charges while the first quarter included $1 million in capital markets readiness and registration costs and the benefit of $3.6 million in our business-related volume incentive. Income tax was $15.7 million, reflecting an anticipated ETR of 22.64% for the year, and the benefit of some discrete items.
Now let's turn to page 8 to review our balance sheet highlights. Average loan balances grew $78 million to $8.2 billion, and end-of-period balances grew $62 million or 0.8% due to increases in Puerto Rico commercial and consumer loans. New loan production was $750 million, an increase of $146 million or almost 24%, reflecting increases in Puerto Rico commercial, residential mortgage, and consumer lending. Production in the year-ago period was slightly higher due to a spike in auto sales from the threat of tariffs in the second quarter of 2025. Average core deposit balances grew $145 million to $9.7 billion with end-of-period balances up $85 million or 0.9%, reflecting government, commercial, and retail deposit growth. Regarding our large government deposits: $400 million went into three- and six-month time deposits, with approximately $175 million remaining in the demand deposit category.
Average cash balances fell $45 million but increased $109 million at end of period as a result of deposit growth and repayment from the investment portfolio. Average investments fell $84 million and $92 million at end of period due to principal paydowns in the mortgage-backed securities. Our borrowings and brokered deposits fell $133 million and increased $49 million at end of period, reflecting our liquidity management. Now let's turn to page 9 to review net interest margin. Loan yield increased 3 basis points to 7.90%. Excluding the three loan repayments in the second quarter and the one in the first quarter, loan yield was 7.70% compared to 7.71%. Core deposit cost was level at 1.29%, reflecting growth of $92 million in noninterest-bearing deposits to $2.7 billion. Excluding public funds, cost of deposits was 98 basis points compared to 1%. Net interest margin increased 9 basis points to 5.45%.
Now let's turn to page 10. Capital continued to build. CET1 ratio increased to 14.07%. Total stockholders' equity rose to $1.4 billion. TCE ratio continued to climb to 10.90% and tangible book value continued to expand to $31.12 per share. Looking at share buyback, if you recall, we bought a large number of shares in the first quarter. Cesar will provide more detail about credit in a moment, but let me summarize a little bit where we are at the midpoint of this year. We continue to expect low-single-digit loan growth for the year, with commercial more than offsetting the unanticipated decline in auto, though auto has been slightly stronger than expected. We continue to anticipate deposit growth, excluding the large government deposits, benefiting from our 5.10% to 5.20% guidance this year. Now, we expect NIM to range from 5.25% to 5.35% in the second half of 2026. This is in line with the 5.30% NIM we had in the second quarter and 5.35% in the first quarter, excluding the loan paydowns.
Our second-half outlook incorporates deposit growth and the relocation of the large government deposits. We continue to anticipate no rate cuts this year with the Fed cutting rates once next year. We remain on track to keep expenses in a range of $380 million to $385 million this year. Our estimated tax rate for the year continues to be 22.6%, not including discrete items. While we are not actively buying back shares in the second quarter, our strategy has not changed. We have $194 million in remaining authorization, and we will continue to be selective and opportunistic with disciplined growth and focus on shareholder returns. Now, here's Cesar. Thank you, Maritza.
Please turn to page 11. All comparisons are to the first quarter unless otherwise noted. Credit reflected disciplined execution, proactive risk management, and continued improvement in overall portfolio quality. Net charge-offs increased $7.4 million and were 1.0% of average loans. At the same time, nonperforming loans fell $53.6 million to 0.81% of average loans. This reflected the successful sale of the standalone telecom exposure discussed in previous quarters and of another nonperforming commercial relationship. These actions reduce concentration and tail risk and improve the commercial portfolio's overall risk profile and long-term credit quality. Retail net charge-off rates improved in auto and consumer and remained stable in mortgage. Auto decreased to 1.11%, an improvement of 41 basis points. Consumer improved to 3.78%, down 62 basis points. Provision for credit losses fell $9.5 million to $13 million.
This primarily reflected $14.7 million for increased loan volume and $1.9 million in commercial loan recoveries. This compares to the first quarter which included $17.5 million for increased loan volume, $3.7 million for increased allowance for the telecom loan, and $1 million for newly classified small commercial loans. Looking at other credit metrics, early and total delinquency rates were 2.5% and 3.7%, respectively, reflecting typical seasonality with continued normalization across consumer portfolios. This mix of modest early-stage delinquency and stable back-end losses continues to demonstrate the resiliency of underlying portfolio quality. Despite some movement in early-stage delinquencies, the stability in net charge-offs reinforces the strength of recent vintages and the quality of new originations. Credit should remain stable in the second half in line with seasonal trends which show declines in the first half, increases in the second half, and then declines again in the first half of the next year. Here's José Rafael Fernández to wrap it up.
Thank you, Cesar. Please turn to page 12. The Puerto Rico economy remains resilient. In addition to what I said earlier, federal reconstruction funding, infrastructure projects, and private investment continue to support economic activity. Manufacturing expansion and new onshoring initiatives reinforce the long-term growth outlook. Having said that, we remain very attentive to evolving macroeconomic conditions, including in particular the interest rate outlook and geopolitical developments. Within this environment, OFG is well positioned to grow. Our digital-at-the-core strategy continues to create more personalized customer experience, simplify how we operate, and support sustainable market share growth. We continue to invest in people, technology, and AI to enhance capability and drive long-term operating efficiencies. We see a healthy commercial pipeline and stable credit trends supported by strong risk management and balance sheet discipline. Together with Puerto Rico's favorable operating environment, our agile and disciplined execution positions us well to continue to navigate evolving market conditions and pursue attractive growth opportunities. With this, we end our formal presentation. Operator, let's start the Q&A.
分析師問答
Certainly, Mr. Fernández. Thank you. Ladies and gentlemen, at this time, if you do have any questions or comments please press 1. If you find your question has been addressed, you may remove yourself. We will go first this morning to Kelly Motta with KBW.
Hi, good morning. Thanks for the question and congrats to the team on a great quarter.
Thank you, Kelly.
Maybe taking it off on the margin, you materially raised your NIM outlook for the second quarter in a row. I think I caught that maybe $500 million of the government deposits moved into CDs. Just wondering what your new 5.25% to 5.35% outlook assumes in terms of the longevity of these deposits sticking around on the balance sheet and, excluding that, some of the underlying dynamics you are seeing in terms of new loan originations and incremental cost of core funding? Thank you.
Kelly, before I let Maritza give you the details, you hit it on the nail. When talking about margin, the government deposit is the one that is kind of the variable that we do not control much. But the good news is that this is a long-term relationship that we have at the bank for many years. We have been able to methodically diversify the deposit into wealth management as we saw last year, and now we are terming out a little bit on the CDs so we can help the client optimize its liquidity as well as the yields as they take a little bit longer look at the deposits. So we feel much more confident about our margin guidance, and that is why you are seeing us resetting it in this call. I will let Maritza go into the details. But you hit it on the nail when you addressed the government deposit.
Yeah, and thank you, Kelly, for the question. The reality is that we completed that relocation at the end of June, so we were able to assess for the next half of the year. We will not need to go to the market to replace that funding and it provides us with some additional spread. So that is why we are increasing the guidance. We continue to be slightly asset sensitive, and since we are not expecting changes in the market rate at least this year, we are expecting a more stable type of NIM that resembles what we saw during the first two quarters: 5.25% in the first quarter without the recoveries and 5.30% in the second quarter without the recoveries that are nonrecurring. So that is why our guidance has been increased.
Another point I would like to add is that we are also seeing higher loan balances, particularly from the commercial side. That is something we are very happy with, and we continue to see a very strong pipeline that should support the low single-digit loan growth that Maritza mentioned in her prepared remarks.
Got it. That is helpful. I guess maybe I will switch to loan growth, just to keep the thread here. Clearly, Puerto Rico is still operating at a nice level here. Wondering if this increase in commercial that you are starting to see is tailwinds from onshoring or any other color as to what seems like a better operating environment overall that you are seeing here. Thank you.
Yep. Kelly, good point also. We have been talking about the Puerto Rico economy for several years now since the economy is doing a lot better than in my first many years as CEO. When we look at it, it certainly provides a lot of confidence to operate a bank when you have a stable, steady, consistent economy. The metrics we are seeing continue to reflect the same: low unemployment and high liquidity levels on the consumer side. We are seeing strong interest from businesses to expand because there is demand out there for them to do so. We are not yet seeing the full benefits of onshoring yet, but there is still a pipeline of roughly $3 billion of projects coming through in the next several years. Federal funds continue to flow in, so we are benefiting from that economic environment. I can understand why there might be trepidation about Puerto Rico's economy given our history, but as we keep passing quarter after quarter, what we are seeing — and you saw it this quarter in consumer credit — is a different type of economy supported by real investments.
Add to that the three-bank market here where we are a major player, and who we are as OFG: a company with a unique strategy that has positioned itself differently by investing in technology early and deploying it effectively. Thanks to our team, that is showing results. So what we are seeing is all the wheels running in the right direction, and we feel extremely happy and confident that what we are bringing to the market is differentiating and we are seeing it in growth. That is how I see things overall from 36,000 feet at OFG.
Got it. Last one, then I will step back. It looks like credit was a highlight. It did look like some early delinquencies picked up. Wondering if you can provide some color as to what you are seeing there. Thank you.
I will let Cesar give you the details. We sold the credit that was nonperforming or nonaccrual, and that clearly sends a message to investors that when we need to act, we act. We worked on it for the last three or four months and successfully sold that credit. That was the main large-ticket item. In general, the consumer credit is pretty steady, and I will let Cesar give you more detail on the consumer portfolios.
On the consumer side, you see nonperforming levels similar to or better than last year for both our auto and consumer lending. We are seeing vintages that are better than when we adjusted underwriting standards back in 2022, so those newer vintages are starting to show better credit quality. We are positive about the outlook for these portfolios even though the second half of the year typically brings seasonality that can increase delinquency trends. Fuel prices, while improved significantly from prior quarters, are still above the equivalent of about $4 per gallon in the U.S., and that places some pressure. Overall, customers continued to pay very well during this quarter, but we expect seasonality to start reflecting in the numbers for the next half of the year.
Great. Thank you. I will step back.
Thank you, Kelly.
Thank you. We will go next now to Manuel Navas with Piper Sandler.
Hey. Just to stay on credit for a moment. Does that mean that loan loss reserve ticked down on the payoff or the sale of the telecom loans and the other U.S. exposure? Should it kind of tick up a little bit across the back half of the year and then improve again in the first half of next year? Is that the general direction you expect for seasonality?
You should see that seasonality in the reserves too, definitely.
Okay. I appreciate that. One quick modeling question. Maybe there is a lot of noise but what was the June NIM? I know that there were some movements in the public funds. Maybe it is not all represented there. But what was kind of June NIM entering the back half of the year?
Thanks for the question. We completed the relocation in mid-June, so the month of June reflects that, and June NIM was around 5.26%.
I appreciate that. And then just kind of can you level set on the buyback? You had been pretty aggressive in the first quarter and took a step back this quarter. Just the thought process on near-term expectations on the buyback from here?
Nothing has changed. We did have higher purchases in the first quarter. This quarter, we saw a lot of activity in the market in terms of loan origination, etc., so we are being patient. We have $194 million of approved buyback remaining, and we plan on executing it as we see our stock undervalued versus peers. We will continue to be methodical about our purchases.
I appreciate that. I will step back into the queue. Thank you.
Thank you. We go next now to Arren Cyganovich with Truist Securities.
Sorry, I was muted. Thanks. The brand marketing campaign that you launched in Q2, any kind of early feedback on that? It seems like you are really trying to push the digital focus and let folks know that you are leaning into that from your side.
Yes. It is a brand evolution. We felt that this is the right time to tell the market in a more direct way the capabilities we have for them to benefit from. It launched in early June, so it's too early to share specifics, but early indicators show it has been well received. Ultimately, it's about evolving our brand to communicate who we really are and aligning it with the capabilities we've built over the last couple of years. We're really excited for the rest of the year and next year's results.
Got it. And the $5.8 million of charges that were referenced, did that relate to this branding, or was it due to something else?
No. The $5.8 million is operational charges. They were due to operational errors, we took the charge, the problem has been corrected, and the charge is nonrecurring. It's a matter of moving on.
Okay. And then lastly, the net charge-offs were elevated in the quarter related to the loan sales. If you were to exclude those previously reserved loans from that number, what would the net charge-off rate look like?
The consolidated net charge-off rate would be 0.72% without the Liberty telecom charge-offs.
Thank you.
And just a quick reminder, everyone, star 1 for questions this morning. We will go next now to Kyle Geerman with StoneX.
Hi. This is Kyle Geerman on for Bete Rabatin. Congrats on the quarter.
Thank you.
So I just wanted to touch on credit really quick. On the U.S. commercial side, that charge-off rate has bounced around quite a bit. I was wondering how you would characterize the health of the U.S. commercial portfolio.
Two years ago, we derisked a lot of that portfolio. We released around $30 million of loans that we saw at higher risk when we thought the U.S. economy could enter a recession back then. Right now, that portfolio is behaving much better than in previous years, and we are seeing stabilization. We measure risk ratings internally and those ratings are very stable. So I would say that portfolio is healthy.
We are very happy with the performance. As you know, it serves as geographic diversification for us outside of Puerto Rico, so it plays its role well.
Thank you. Moving on to loan yields, they were up a few basis points to 7.9%. I was wondering how much fixed-rate repricing tailwind is still ahead of you, and what are the new commercial loans coming in at today relative to the back book?
The 7.9% included the recovery, but excluding recoveries in both quarters, the net yield on loans was 7.70% this quarter versus 7.71% previously, so it's pretty stable. Yields on the commercial book vary by geography; blended together they are around 7.25%, including small business. In terms of variable versus fixed, it's about 60% variable and 40% fixed on the commercial side, give or take. Remember, the auto book is fixed rate and yields around 8.5%, which is a different bucket.
Thank you for taking my questions. I will step back.
Thank you, Kyle.
Thank you. We will take a follow-up question now from Manuel Navas with Piper Sandler. Manuel, your line is open.
Thank you. Sorry to jump back on. I want to follow up on some of the deposit trends. It seems like your three accounts are doing quite well. Could you add some color on those and maybe on the commercial side, the strength in your deposit growth?
On the retail side, deposit account growth is driven by higher net customer growth. We are growing customers roughly 4% year over year, and that adds to deposit growth. We are also seeing some movement into CDs on the retail side, particularly in the Libre mass market segment. For Elite, the mass affluent account, we are seeing a steady inflow of deposits, which helps target both the mass market and mass affluent segments. On the commercial small-business side, growth is mostly driven by new account openings, and the team is doing a great job bringing in those customers and deepening relationships toward cash management and lending. On the corporate side—larger commercial relationships—that is relationship-driven. Our team establishes strong relationships and often brings the loans first, and the deposits follow. We are seeing those efforts work in tandem and the results are showing.
With some of the movements you have had, where do you expect deposit costs to go? On a core basis it was down two basis points this quarter. There are some movements with the public funds. Where can deposit costs go from here?
Given what we said about the large deposit relocation, which we are basically fixing for the near term, and our expectation that short-end rates remain where they are, we expect deposit costs to be relatively stable in the next two quarters, similar to the first half of the year.
Thank you so much.
We will take a follow-up question now from Kelly Motta at KBW.
Hi. My question got answered in that. So I am going to step back. Thank you.
Thank you.
Thank you, Ms. Motta. Again, ladies and gentlemen, it appears we have no further questions this morning. Mr. Fernández, I will turn things back to you, sir, for any closing comments.
Thank you, operator. Thanks again to all our team members for an outstanding quarter, and thanks to all our shareholders who have listened in. Looking forward to our next call. Have a great day. Thank you.
Again, ladies and gentlemen, this will conclude OFG Bancorp's conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.