OFG - OFG Bancorp (OFG) Q1 2023 Earnings Call Transcript
2023-04-20 13:27:03 ET
OFG Bancorp (OFG)
Q1 2023 Earnings Conference Call
April 20, 2023, 10:00 AM ET
Company Participants
José Rafael Fernández - Vice Chair, Board and CEO
Maritza Arizmendi - Chief Financial Officer
Conference Call Participants
Timur Braziler - Wells Fargo
Brett Rabatin - Hovde Group
Alex Twerdahl - Piper Sandler
Kelly Motta - KBW
Presentation
Operator
Please standby. Your program is about to begin. [Operator Instructions] Good morning. Thank you for joining OFG Bancorp’s Conference Call. My name is Melinda. I will be your operator today. Our speakers are José 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 home page 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.
José Rafael Fernández
Good morning and thank you for joining us. We are pleased to report our first quarter 2023 results. All our businesses performed well and contributed to another strong quarterly performance by OFG. The quarter’s results also reflect the strength of our franchise, supported by high levels of liquidity and capital. This places OFG in a strong position in today’s banking environment.
Now let’s turn to page three of our conference call presentation. Core revenues, net interest margin, credit quality, operating leverage and customer acquisition trends all remain at high levels or improved compared to the fourth quarter. Deposit balances were stable with only a 10% cumulative beta.
We continue to execute our digital-first strategy, placing more banking kiosks and interactive teller machines in the field. Client digital adoption increased 10% year-over-year. Our key performance metrics also continued at strong levels.
Businesses and consumers are in good financial shape in Puerto Rico and the economy continues to do well. We look forward to ongoing progress in 2023. Thanks to our teams for their excellent execution, commitment and drive, helping customers and the communities we serve achieve their financial goals.
Looking at the income statement. Earnings per share diluted was $0.96, up 26% year-over-year. Core revenues totaled $164 million, up 21%. Net interest margin was 5.89%, up 142 basis points. Provision was $9.4 million, non-interest expenses were $90.2 million and pre-provision net revenues totaled $74.6 million, up 34%.
When we look at our balance sheet, customer deposits were $8.6 billion, up slightly compared to the fourth quarter. Loans held for investment totaled $6.9 billion, also up slightly over the fourth quarter. New loan production remained strong at $561 million. Investments totaled $1.9 billion, down slightly from the fourth quarter due to the maturities of treasuries and the normal paydown of mortgage-backed securities.
Cash was $847 million, almost $300 million higher than the fourth quarter. We continue to build capital. The CET1 ratio was 14.07%, compared to 13.64% in the fourth quarter. All in all, excellent quarter, very strong performance.
Now here is Maritza to go over the financials in more detail.
Maritza Arizmendi
Thank you, José. Please turn to page four to review our financial highlights. Let me start with total core revenues. Net interest income of $136 million held steady compared to the fourth quarter. This primarily reflected the full effect offset fourth quarter 2022 increase -- rate increase of 50 basis points, but only a partial effect of the 50 basis point increase in the first quarter of 2023.
Also, higher yields on higher average balances of loans, in particular, auto, commercial and consumer. And we did have two fewer days during the quarter compared to the fourth quarter, which reduced net interest income by $2.2 million.
Banking and wealth management revenues were $29 million, compared to $33 million in the fourth quarter. This primarily reflected reductions of $2 million in mortgage service valuation, $1 million in wealth management revenues from the annual recognition of insurance fees in the December quarter and $0.5 million from the sale of the retirement plan administration business that we announced at the end of last year.
Looking at the efficiency ratio. It was 54.87% in the first quarter. That’s a minor change from the first quarter and significantly better compared to a year ago. This reflected our increased positive operating leverage in line with trends we have seen over the last year.
Non-interest expenses totaled $90 million, compared to $92 million in the fourth quarter. That primarily reflected lower general and administrative costs. In part, that was due to $0.5 million of lower costs as a result of the sale of our pension administration business. Non-interest expenses should continue to average about $90 million to $92 million per quarter in 2023. Our efficiency ratio target should also continue in the mid-50% range.
Looking at our performance metrics. Return on average asset was 1.87% and return on average tangible common equity was 19.13%.
Looking at tangible book value per share, that was $20.57. That’s an increase of about $1 compared to the fourth quarter ago -- the fourth quarter. This reflected increased retained earnings and lower other comprehensive loss.
Please turn to page five to review our operational highlights. Looking at average loan balances, they increased $96 million from the fourth quarter. End-of-period loans increased to $6 to $60 -- to $6.85 billion. That is a 1.1% annualized increase from the previous quarter and a 4.7% increase year-over-year. Sequential growth reflected increased balances of auto and consumer loans. This was partially offset by paydowns of residential mortgages and commercial lines of credit.
Looking at loan yield, it was 7.58%. That’s 26-basis-point increase from the fourth quarter. That’s due to Fed rate increases combined with a higher proportion of auto, consumer and commercial loans versus residential mortgages.
Looking at new loan origination. This reflected continued high levels of auto lending and increased commercial lending in the U.S. Puerto Rico commercial lending was lower compared to the fourth quarter. However, our commercial pipeline remains strong.
Looking at core deposits. Compared to the fourth quarter, average balances decreased, but end-of-period deposits increased. Over the course of the quarter, we saw a shift from demand deposits to savings accounts, time deposits and to a lesser degree to our wealth management business.
During the quarter, government deposits went down from $295.4 million to $231.4 million. We also saw a marginal decline in retail deposits of 0.3% and a noticeable increase in commercial deposits of 2.3%.
Looking at core deposits. That was 53 basis points, an increase of 14 basis points from the quarter ago. So far, our cumulative deposit beta has been about 10%. We expect cumulative beta -- deposit beta for -- of about 25%, well below expected last level through this cycle.
Borrowings increased, that reflected a $200 million two-year advance from the Federal Home Loan Bank.
Looking at net interest margin. That was 5.89%, an increase of 20 basis points from last quarter and 100 -- and 42 basis points year-over-year. Our NIM outlook generally remains the same. Our tax rate for the first quarter was 29%. For the year, we are anticipating an effective tax rate of 32%.
Please turn to page five -- six to review our credit quality and capital strength. Looking at net charge-offs. They totaled $10 million, compared to $11 million in the fourth quarter. That reflected a significant reduction in auto loan net charge-offs. In addition, delinquency and non-performing loans rate fell across the Board.
Looking at provision for credit losses. That totaled $9.4 million, reflecting $6.2 million due to increased loan volume, $2.1 million from a commercial loan held for sale and a $1.1 million increase adjustment due to increase in recessionary risk in the United States.
Looking at non-performing loans. That total NPL -- the total non -- the total NPL rate was 1.32%. That was down 29 basis points from the fourth quarter and 34 basis points from a year ago. Overall, credit improved noticeable from the fourth quarter.
Looking at some of our other capital metrics. Total stockholders’ equity was $1.1 billion. That’s up $47 million from the fourth quarter and TCE ratio increased to 9.85%.
Now here is José.
José Rafael Fernández
Thank you, Maritza. Please turn to page eight for the outlook. The Puerto Rico economy continues to show strength on the part of both businesses and consumers. Business activity is robust and building momentum as reconstruction projects continue to rollout.
This is helping to create a more resilient infrastructure, but we must continue to keep a watchful eye on interest rate changes, inflation and a probable mainland recession. Within this environment, our deposits overall have remained stable with retail customer flows moving to higher yielding products like CDs and to our wealth management business.
High levels of liquidity put us in a strong position in the current banking environment, and this enables us to continue to focus on our plans by adding value to our customers and building stronger relationships, investing in people, technology and infrastructure to provide easy, fast, around-the-clock self-service digital solutions for clients and growing market share in our main businesses.
I want to thank again 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 open the call for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And we go to our first question from Timur Braziler with Wells Fargo. Please go ahead.
Timur Braziler
Hi. Good morning.
José Rafael Fernández
Good morning.
Timur Braziler
Maybe starting just on a bigger picture question. So can you take us back to the week of March 13th when things were kind of falling apart on the mainland? What was the feeling on the island, what was the level of conversations you were having with your own deposit base, and ultimately, what was the dynamic that was taking place in Puerto Rico?
José Rafael Fernández
Sure. Thank you for your question, Timur. I’d like to take the opportunity receiving your question to kind of share my thoughts on the overall banking environment right now in the United States and how does that translate if at all to Puerto Rico.
And I think the current banking environment in the United States brings to light in a very positive way the differences that exist between Puerto Rico banking market, as well as the difference with the peers in the States.
I think when you look at the Puerto Rico banking market, what you are seeing and you will see in this quarter, you are going to see an economy that continues to build momentum in a banking industry that is strong and it’s supportive of the island’s economic development with higher capital levels, higher liquidity levels, much more stable deposit trends with lower betas and really no credit deterioration and/or concentration. All of these compare very favorably to our peers in the states.
So to your question, I think, whenever it was in the middle of March, that the events that transpired in California and New York regarding the two financial institutions that were closed. Here in Puerto Rico, the news come and everybody is aware of it, but there is a strong understanding that the banking sector in Puerto Rico is solid and it’s rational and efficient.
And I think all you guys have been talking about this for a while and I think this moment in terms of the banking environment in the states puts a spotlight in a positive way to the Puerto Rico banking market.
So that’s kind of how I view what’s going on and what has happened. Certainly, we have a very competitive market here in the island. But it’s a market very different from what the last 25 years, 30 years investors are accustomed to see in Puerto Rico.
It’s a market with excess deposits, it’s a market that does not have irrational players and it’s a market that really is also playing in an economy that is growing, and it’s an economy that has been turned around as we -- as the moneys come in to rebuild and reconstruct.
So I -- as I said a couple of years ago, in my 20 years almost as CEO of OFG, this last couple of years have been building the momentum and today I am sitting here and I see the island being rebuilt and that is extremely positive for us is a way to get closer to our customers and support them to help the economic development of the island also. So that’s kind of how I view this.
Timur Braziler
Great. Thank you. That’s great color. And then maybe just taking that and expanding on that just a little bit. So as you are looking at the deposit base for the remainder of the year, has -- have the activities on the mainland kind of stemmed the outflows that we have seen in the back end of 2022, where you might have some migration within DDA to higher costing or higher yielding products from a depositor basis but not as much leaving the institution or is there still an element of deposits that are at risk for either going to a larger institution, heading into treasuries or otherwise leaving the banking system?
José Rafael Fernández
So the trends are the trends, right? And remember that in the fourth quarter of 2022, as well as in the fourth quarter of 2021, we were managing below the $10 billion mark. So that is really what kind of drove, particularly in 2021, but also in 2022, to some degree.
So what has happened in the first quarter is that, you are seeing that kind of stabilizing, and to some degree, we have higher deposit balances. Certainly, the remix is taking place and that is the normal thing to happen and we are seeing some savings deposits moving towards a one-year, two-year CD.
We are also seeing, as I said in my remarks and I think Maritza mentioned it too, we are also seeing wealth management benefiting from also some of the flows going to our business in wealth management.
But our expectation throughout the year is, as Maritza pointed out, 25% beta cumulative. That’s how we are modeling the year and the reason for that is we are seeing the remix playing out. And again, based on what I just said earlier, our expectation is to deposits to remain stable and it’s just going to depend on how we do business development, but I really don’t see the same dynamics that are occurring in the U.S. banking market.
Timur Braziler
Okay. Great. And then just last for me, looking within your commercial buckets, can you fill us in on kind of broader commercial real estate exposure. What you have in terms of if any commercial real estate office exposure on the mainland and then more broadly kind of how you are thinking about commercial real estate in Puerto Rico versus commercial real estate on the mainland?
José Rafael Fernández
Yeah. Yeah. So we don’t have anything on commercial real estate in the mainland really. What we have here in Puerto Rico, we do have in Puerto Rico an office building is around 3% of the commercial portfolio, office building CRE. So, overall, I am sorry, 8%, I made a mistake. So it’s 8% of the commercial portfolio is office building. So -- yeah, so that’s kind of how the exposure that we have.
Timur Braziler
Okay. And is -- clearly the risk around the office space is being widely publicized on the mainland. Can you just maybe talk about the dynamics in office more broadly in Puerto Rico and what the risk or perceived risk is to those loans?
José Rafael Fernández
So, Timur, let me correct myself on the numbers. Maritza just pointed them out to me. So our office building is 8% of our CRE portfolio and it is -- and we have a CRE portfolio of around 36%. So -- and again, the CRE portfolio has an ample gamut of different office -- real estate loans. So that’s kind of just making sure I got the numbers right for you.
And in terms of the -- giving you color in terms of office building here in Puerto Rico. So Puerto Rico is an island, so there are concentrations of office buildings, particularly or primarily in the metropolitan area. So that’s where you see it.
And we are seeing the same global trends of hybrid office and work and all that stuff. But my take from this is that, we are not seeing the same acute issues and challenges that the office building market is having in the large cities in the United States. We really don’t have those type of issues right now.
So from our perspective, even in spite of the trends towards hybrid work and the post-pandemic kind of dynamics, we are seeing quite a bit of office occupancy, high levels of office occupancy and we are not seeing any significant deterioration there.
Timur Braziler
Got it. Thank you for the color. Much appreciate it.
José Rafael Fernández
Yeah. You are welcome.
Operator
Next we go to the line of Brett Rabatin with Hovde Group. Please go ahead.
Brett Rabatin
Hey. Good morning, everyone. Appreciate the questions.
José Rafael Fernández
Good morning.
Brett Rabatin
I wanted to first start, José, with auto, and on the mainland, you have seen things like Capital One pull back from their floor plan lending platform, but in Puerto Rico, it’s obviously a different environment. There’s not a great public transportation system and so people need their cars, but I was a little bit surprised to see the improvement linked-quarter in credit across the Board in auto specifically. And I get, you talked earlier about the economy, I get that the EAI index is up a little bit in March to 126 and I think March sales of auto were 10,700 for the island. But I was just hoping to maybe get some color around credit improvement in auto specifically, if you would ascribe that to anything in particular?
José Rafael Fernández
Yeah. I think you pointed out the differences and what we are seeing in the way we manage our auto business is high FICO scores. We are making the adjustments to interest rates also. We are originating loans right now around 9% handle with FICO score average of around 720.
So we are -- what we are seeing in terms of the credit and the delinquency rates on auto is another confirmation of the liquidity of our consumers and how the excess liquidity that they have, they are deploying it into buying autos and remodeling their homes and there’s optimism.
So I think it’s kind of multiple factors. We have always been very conservative on the underwriting side of the auto business, but we also recognize that the economy is also very supportive today.
Brett Rabatin
Okay. And wanted to ask, in my mind, PREPA is the remaining big piece to kind of getting things continue headed in the right direction and I have seen the wrangling around the debt. Any -- as you see it from your vantage point, any update on PREPA and just the cost of electricity, if you think that could be resolved here in the near-term or do you think that might be a longer term situation?
José Rafael Fernández
PREPA is a long-term situation. The things that are being executed on it now like privatization of the distribution and transmission and now recently, the generation also is being privatized. There’s a lot of noise. But it’s the noise that is required to get things done, right? So it’s going to take a while.
In the meantime, I think there’s quite a bit of momentum for solar panels on the private sector, I think the federal government is also supporting that and I think let’s not lose sight of Puerto Rico being a beneficiary of the focus that Washington is putting on us from an economic perspective and I think that is another reason why we are sitting where we are today.
So PREPA is going to take longer but it’s -- I think there are going to be private forces. There’s going to be public forces. I mean, the Secretary of Energy from the U.S. has visited 3 times or 4 times already.
So PREPA and electricity for Puerto Rico is a high focus for the executive branch in Washington and I think together with the local government and the private sector, we as banks supporting also the financing of solar panels for businesses, as well as for residents. I think it’s going to accelerate this kind of shift towards lower, more diversified, more resilient electricity production in Puerto Rico.
So I think that’s as much as I can share in terms of electricity and PREPA in itself. So don’t get discouraged by hearing too much noise on PREPA. The rails are in place to kind of bring it down in terms of cost and improving its quality and the resiliency.
Brett Rabatin
Okay. Appreciate that. And then maybe just lastly, I wanted to make sure I understood you are still talking about guidance of a mid-50s efficiency ratio. And so if I am just thinking about the implications of that, it would seem like your margin maybe has peaked out here. But in terms of the net operating income, it would seem like your expenses would maybe climb $0.5 million to $1 million quarterly from here and fee income doesn’t change too much. Is that a fair way to think about the implicit guidance from the mid-50s efficiency ratio?
José Rafael Fernández
I think you are looking at it the right way. Remember, we have some variability throughout quarter-over-quarter in terms of the non-interest expenses just simply, because we are deploying technology and as the deployment comes out we need to capitalize those investments. But you are looking at the right way, Brett. I don’t know, Maritza wants to add anything?
Maritza Arizmendi
That’s correct. That’s why we are providing a guidance from -- of $90 million to $92 million quarterly expense range.
José Rafael Fernández
And Maritza, do you want to add anything…
Brett Rabatin
Okay.
José Rafael Fernández
… on the margin on the income...
Maritza Arizmendi
Well, yeah. In intra-region [ph], as I mentioned in my prepared remarks, we continue to have the same expectation for the full year that we will be in the same level as the last quarter. That was around 5.69%, so we will be between that range through -- for the full year and that’s our expectation.
José Rafael Fernández
Part of it has to do with our, I think, you guys are pointing it out in your write-offs are higher yielding assets and that’s kind of what’s driving it and it helps us mitigate some of the shifting on the deposit side that I mentioned earlier.
Brett Rabatin
Okay. Great. Thanks for the color.
José Rafael Fernández
Yeah. Thank you for your questions. Have a good day.
Operator
Next we go to the line of Alex Twerdahl with Piper Sandler. Please go ahead. Your line is open.
Alex Twerdahl
Hey. Good morning.
José Rafael Fernández
Good morning, Alex.
Alex Twerdahl
I first wanted to go back to the commentary on the 25% through the cycle deposit beta and I was just curious if you can just really break that down for us in terms of is that total deposits, interest-bearing deposits only and when you think about the beta, how does potential rate cuts later this year play into that, because it just seems to me that the -- we actually called around this morning and tried to get the highest rate we could get in any of the Puerto Rican banks and I am having a hard time getting to that 25% beta based on what we are hearing in the market today?
Maritza Arizmendi
Yeah. So, Alex, when -- and I think we have explained how we are seeing things this quarter, how we have been shifting through from DDA and savings into high yielding time deposits. So we are expecting to continue to see that type of migration through the rest of the year. So far, the cumulative beta has been 10%.
So we continue to see that customer will continue looking for high yields, so we will continue to see the time deposit book of us growing and that’s the reasoning that we are in our base case scenario, we are targeting or estimating a 25% beta for the end of the year.
José Rafael Fernández
I think, Alex, also, when we look at the beta and you break it into retail versus commercial, the beta on the commercial is higher. So we are also going to see some commercial clients asking for higher rates and that’s also part of what our base case scenario of 25% beta means.
So, if you kind of think about it, our beta for retail is going to be -- our expectation is to be significantly lower than that 25%. But we are going to see the commercial beta trending higher in the next -- the rest of the year, just simply as Maritza mentioned, clients being more efficient in their cash management.
Alex Twerdahl
Okay. And then as we think about that playing out over the rest of the year, is it -- I mean, do you think the increases will be roughly straight line or are we sort of in the -- have you seen more increase or more pressure to increase deposit rates in the first quarter and do you think that will slow? How are you kind of thinking about it playing out over the next couple of quarters in terms of deposit cost pressures?
José Rafael Fernández
So I really don’t feel that we are operating in a kind of pressured environment. I think you need to think about this and I don’t have an answer for you in terms of when, because who knows, right?
But I think we need to think about this on also how do we continue to build and retain good profitable customer relations too on the commercial side and that’s how we are thinking about this. We are -- there’s a competitive market here too. It’s not irrational but it’s competitive. So that’s how we look at this.
And it’s very hard to pinpoint how or when interest rates are going to be, kind of how our customers going to be asking us for higher rates or not. But in general, what we are doing here, there’s -- it looks to us that throughout the year, there is going to be that continuing shift. But I wouldn’t call it pressure, I would call it more of a normal trending of rational clients doing the right thing in terms of their cash management.
Maritza Arizmendi
But mostly in this type of cycle…
José Rafael Fernández
Correct.
Maritza Arizmendi
… and I think we have -- we still have maturities on time deposits that had lower rates. So that will happen through the year, just the maturity of time deposits and replacing with higher rates.
José Rafael Fernández
You also mentioned lower interest rates. If the Fed turns around and starts lowering interest rates. Well, that’s not the base case scenario that we are modeling ourselves on. We are modeling ourselves on that the lower -- the Fed moves rates lower next year, not this year.
So what we are seeing is Fed going -- moving up rates a bit more from these levels and then holding on until later in the first part of 2024. But again I don’t have a crystal ball and we are just modeling.
Maritza Arizmendi
And just to add there, so far and the beta on the asset side has been much higher than the deposit side and we have -- still have a room for the year to continue having that type of dynamics through the beta on the asset side versus the beta on the deposit side.
Alex Twerdahl
Okay. Yeah. I mean, that was the next question I had is just in terms of, one, loan yields, if there’s anything in there that’s, quote-unquote, non-core that’s pushed that higher in the first quarter that we should be aware of. And then, secondly, sort of how much more lift there could be, assuming rates basically stay here, maybe we get one more hike in the next couple of months and then…
Maritza Arizmendi
So…
Alex Twerdahl
Yeah. You start with that.
Maritza Arizmendi
Yeah. So if you think about the expansion of this quarter, the 19 basis point NIM expansion, about 7 basis points came from cash and investment and the other 24 basis points came from loans. So --and there is nothing extraordinary there.
So we have -- we still have that benefit in the next quarter that we will have the full effect of the 50 basis points that we -- that the Fed increases during this first quarter, so we will have that full effect.
But also just wanted to mention that we still have some maturities coming from the treasury group. We have $40 million maturity in May, then in August, $200 million in August and we will replenish that with a high yielding asset in the base.
We can invest in what we want, but I think if we assume cash, cash will be yielding more than the current carrying yield of that asset. So today there is a room for us to continue having a very good positive beta on the asset side.
Alex Twerdahl
Great. And then, so I guess, as you boil that down, I mean, is the NIM, I think, one of the earlier questions alluded to the NIM potentially peaking in the first quarter. I am just curious how you are seeing the trajectory of the NIM over the next couple of quarters?
José Rafael Fernández
So as Maritza mentioned, we are seeing it equal to what we saw in the fourth quarter. The NIM should end for the year around the 5.65%, 5.67%, 5.68%. So that’s kind of how we are modeling the NIM for the full year. So definitely, there is a little bit of a trending down throughout the year as we kind of talked about last on the fourth quarter call and we are repeating it here, Alex, so it hasn’t changed.
Alex Twerdahl
Okay. That’s helpful. And then I just wanted to ask one other question on buybacks. You guys certainly have managed the balance sheet very well to have excess liquidity, excess capital levels or at least what I would consider excess capital levels. I am just curious, with the share pulling -- share price pulling back with every other bank out there, how you guys are thinking about buyback activity or possible for buyback activity over the next couple of quarters?
José Rafael Fernández
Yeah. So thank you for your question, Alex. And we have been patient on the investment portfolio, we have also been patient on the capital management. We have always felt in the last couple of years that there was no rush for us to go into the investment -- investing in securities and lower rates and the same thing we felt about capital management.
We did the buybacks. We kind of put a pause to it last year. And so now it’s -- actually the patience is becoming, I think it’s -- the way we see ourselves is patient -- we are patiently opportunistic.
And I think now there is an opportunity for us to look at investment opportunity, investment portfolio and now it’s yielding 5 kind of [ph] with tax benefits. So that’s another kind of another point that we put in the bag of alternatives.
The same thing with capital. When we look at capital. We have looked at the dividend. We can increase the dividend very consistently throughout the last several years. We have also been opportunistic on the buyback and we will continue to be opportunistic on the buyback too. So we still have around $60 million and change in the authorization.
Alex Twerdahl
Thanks for taking my questions.
José Rafael Fernández
You are welcome, Alex. Have a great day.
Operator
Next we go to the line of Kelly Motta with KBW. Please go ahead.
Kelly Motta
Hi. Good morning. Thanks for the question. Great quarter. I think maybe I will circle back to the funding. Just from a high level perspective, with -- unique to Puerto Rico, you guys have a lot of relief money still flowing in and that’s accelerated at least in the last, like, year or two. Do you guys have a sense of how much of that incremental relief funding ends up sticking in Puerto Rico and kind of staying in the deposit accounts, whether it be in consumer accounts or business accounts and wondering if that can help stem the outflows that we are seeing on the mainland?
José Rafael Fernández
Yeah. So, Kelly, it’s a good question, hard to answer, because money is fungible and there is some U.S. businesses here, retail businesses that really have operations in the island, but their banking is outside of Puerto Rico and those are kind of the nationwide kind of franchises and that’s a lot of the consumer kind of activity.
But, all in all, what we are seeing is higher balances on the retail individuals and we are also seeing higher balances on the commercial and it’s all because of the liquidity that is running through the system.
And it has stayed, it hasn’t stayed at the same level as it was a year ago, but certainly, it has stayed at a higher level than before all the stimulus and all the reconstruction activity starts flowing in -- started to flow in. So I wish I could give you a specific answer to that question, but I really don’t have the data for that.
Kelly Motta
Okay. I appreciate entertaining it. I don’t think we have talked much about the $200 million of two-year FHLB funding you guys brought on. Just wondering kind of the thought process behind that, if that was kind of a defensive measure in the midst of mid-March and any kind of color to around what the rate is on that would be helpful for modeling purposes?
José Rafael Fernández
Yeah. Yeah. Yeah. So I think Timur asked the question at the beginning of the call regarding mid-March, how did you guys look at deposits and all that stuff? So now how do we look at the world? We read the news. We see what’s going on. So we were being prudent and saying, let’s just, we have ample liquidity here. We have availability of the Federal Home Loan Bank and all kinds of liquidity, we have different other places.
And we said, let’s just be prudent. Let’s just take a two-year $200 million advance from the Federal Home Loan Bank. And by the way, the yield is -- the cost is around 4.50%, 4.55% [ph] or something and really just be defensive in case that anything trickles into Puerto Rico. The good news is that it didn’t and it hasn’t. So I think we are in a good position overall in terms of our balance sheet and that’s how we are seeing it.
Kelly Motta
Got it. Maybe last question for me is on credit. Your early-stage and total delinquencies are down, NPAs down as well. As you look ahead, charge-off rates are running a lot lower than they were pre-COVID. Do you have a sense of a cadence of normalization from here on out, do you think where you have been the past couple of quarters is a good estimation near term on a go-forward basis or is there anything you are seeing that may indicate there could be a tick-up in credit losses?
José Rafael Fernández
Yeah. We are not seeing any reversal. We are not necessarily seeing a trend -- a continuation of the trend downwards in terms of the delinquency rates and all accelerating, because it’s hard for us to envision that.
But certainly, what we are seeing from the consumer side on the credit is very encouraging and we have been kind of waiting for the last year or so, when is it going to kind of revert closer to the levels before the pandemic and it hasn’t.
So I think it’s time for us to say there’s a paradigm shift here and there is a lower level and Puerto Rico’s economy has also done that shift in terms of unemployment, in terms of business activity, manufacturing and all. So it’s logical that credit trends will continue to trend positive in the foreseeable future.
Kelly Motta
Great. I will step back. Thank you so much for the questions.
José Rafael Fernández
You are welcome. Thank you for your questions too.
Operator
[Operator Instructions] At this time, there are no further questions. I will now turn the call back over to management for any closing remarks.
José Rafael Fernández
Thank you, Operator. Thanks again to all our team members and to all our stakeholders who listened in today. Have a wonderful day and enjoy the upcoming weekend.
Operator
Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at any time.
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OFG Bancorp (OFG) Q1 2023 Earnings Call Transcript