Release Date: October 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OFG Bancorp (OFG, Financial) reported a 5.3% year-over-year increase in earnings per share, driven by a 1.1% rise in total core revenues.
- Digital adoption continues to grow, with 95% of routine retail transactions conducted through digital and self-service channels.
- Total assets increased by 12% year-over-year, reaching $11.5 billion, with significant growth in investments and cash.
- The CET1 ratio stands strong at 14.37%, indicating robust capital strength.
- OFG Bancorp (OFG) acquired servicing rights to a $1.7 billion Puerto Rico residential mortgage loan portfolio, enhancing its servicing capabilities.
Negative Points
- Debit card interchange fees were reduced by $2.7 million due to the Durbin amendment, impacting banking and financial service revenues.
- Total banking and financial service revenues decreased by $5.8 million from the second quarter, partly due to reduced MSR valuation and absence of certain fees.
- Net charge-offs increased by $2 million from the second quarter, with consumer net charge-offs resuming higher traditional levels.
- Provision for credit losses rose by $5.8 million, reflecting increased loan volume and other factors.
- Demand deposits decreased, reflecting a shift towards time and savings deposits, which may affect liquidity management.
Q & A Highlights
Q: Can you provide insights on the strong loan growth, particularly in auto and commercial sectors, and the outlook for loan growth in Puerto Rico and the US?
A: Jose Fernandez, CEO: The economic activity in Puerto Rico supports strong growth in commercial, auto, and consumer loans. We have a strong pipeline in Puerto Rico, with some commercial loans delayed to the fourth quarter. In the US, we are more encouraged by the economic conditions, such as inflation coming down and steady growth, which should strengthen our lending pipeline. Overall, we expect to finish the year strong and start 2025 with momentum.
Q: Regarding deposits, there was a decline in demand deposits. How do you see deposit trends evolving, especially with rate cuts?
A: Jose Fernandez, CEO: We expect deposits to stabilize and grow in 2025 as interest rates decrease. Our business model, including digital account opening and funding, gives us a competitive advantage. We see a transition from checking to savings and time deposits, and we are optimistic about growing our core franchise on the retail side and gaining momentum in commercial accounts.
Q: Could you update us on the status of government deposits and their expected outflow?
A: Jose Fernandez, CEO: A large government deposit was expected to exit in September but has been extended to November. This deposit is indexed to the three-month treasury bill, and as rates decrease, it helps reduce our cost of funds. We will update the market as needed.
Q: Your margin guidance seems lower than expected. Can you explain the factors influencing this outlook?
A: Maritza Arizmendi, CFO: The lower margin outlook is due to a larger-than-expected 50 basis point Fed rate cut in September, rather than the anticipated three 25 basis point cuts. We have also been extending the duration of assets to prepare for a lower rate environment.
Q: What is the strategic rationale behind the recent servicing portfolio purchase, and how will it impact servicing income?
A: Jose Fernandez, CEO: The portfolio was previously under a subservicing agreement, and now owning the servicing rights allows us to manage customer relationships directly. This move complements our existing operations and is expected to generate approximately $900,000 per quarter in mortgage banking fees.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
