OFG Bancorp Q3 FY2024 earnings call

• Earnings per share were up 5.3% year-over-year on a 1.1% increase in total core revenues. - Digital adoption of new and upgraded products, services, and self-service tools is steadily growing. - Puerto Rico's economy is doing well with high business activity and employment. - Celebrating 60th anniversary and renewing commitment to customers, employees, etc. - Commented on recent hurricanes in the Southeast US. - Total core revenues were $174.1 million, earnings per share diluted $1, net interest margin 5.43%. - Total assets $11.5 billion, customer deposits $9.5 billion, loans held for investment $7.8 billion. - Investments $2.6 billion, cash $681 million, CET1 ratio 14.37%. - Durbin took effect reducing debit card interchange fees by $2.7 million, and acquired servicing rights to a $1.7 billion Puerto Rico residential mortgage loan portfolio. - 95% of routine retail customer transactions, 97% of retail deposit transactions, and 67% of retail loan payments through digital/self-service channels. - Digital enrollment up 13%, digital loan payments up 53%, virtual teller utilization up 40%, customer growth 4.6%. - 30% of retail clients using Oriental Servicing Portal by end of September. - Launched Elite deposit account with unique debit card benefits and fully digital account opening.

For the third quarter of 2024, OFG Bancorp reported earnings per share diluted of $1 on total core revenues of $174.1 million. Net interest margin was 5.43%. Provision was $21.4 million. Non-interest expenses were $91.6 million. Total assets were $11.5 billion, with customer deposits at $9.5 billion, loans held for investment totaling $7.8 billion, investments at $2.6 billion, and cash at $681 million. The CET1 ratio was 14.37%. Total interest income was $189 million, up 1% from the second quarter. Total interest expense was $41 million, an increase of less than $1 million from the second quarter. Banking and financial service revenues were $26 million, a decrease of $5.8 million from the second quarter. Non-interest expenses were down $1.4 million from the second quarter. Average loan balances were $7.6 billion, with end-of-period loans held for investment increasing 1.5%. Average core deposits were $9.6 billion, down slightly from the second quarter. Net charge-offs totaled $17 million, up $2 million from the second quarter. Provision for credit losses was $21.4 million, up $5.8 million from the second quarter.

• Fourth quarter NIM outlook between 5.3% and 5.4% due to the first Fed rate cut. - Expect two additional 25 basis point Federal Reserve rate cuts by the end of the year. - Non-interest expense should range from $91 million to $93 million. - Will update on fourth quarter call about interest rate, net interest margin, and credit outlook for 2025. - Capital allocation remains opportunistic, focusing on Puerto Rico and US loan growth, and looking at dividends and share buybacks.

• Macro uncertainties such as changes in interest rates and inflation. - Impact of unfortunate weather events. - Ongoing geopolitical conflicts.

Q: Asked about loan growth, pipeline in Puerto Rico and US, and expectations for loan growth ahead.

A: Jose Rafael Fernandez mentioned strong economic activity in Puerto Rico supporting commercial, auto, and consumer loan growth, with some commercial loan originations pushed to fourth quarter. More constructive on US side due to improving economic conditions in US.

Q: Inquired about deposit side, migration among accounts, and growth prospects.

A: Jose Rafael Fernandez stated deposits are transitioning from checking to savings and time deposits, expecting deposits to stabilize and grow steadily in 2025. Government deposit with tentative exit in November 2024.

Q: Asked about margin guidance and securities purchases.

A: Maritza Arizmendi explained margin guidance adjustment due to larger than expected Fed rate cut in September. Securities portfolio is part of preparing for lower rate environment by extending duration of assets.

Q: Questioned about capital return, dividends, and buybacks.

A: Jose Rafael Fernandez said will review with Board in off-site strategic session and January Board, and mentioned being a bit slow on capital return currently.

Q: Inquired about the purchased servicing portfolio.

A: Jose Rafael Fernandez explained it was a complementary move to build the servicing book, owning the servicing rights instead of subservicing, expected to generate approximately $900,000 in mortgage banking fees.