OFG Bancorp (NYSE: OFG ) reported a 5.3% increase in earnings per share. share to $1.00 for the third quarter of 2024 from a year earlier, on total core revenue of $174.1 million. The Puerto Rico-based bank saw its total assets grow to $11.5 billion, up 12% from a year earlier.
Key Points:
- Earnings per stock rose 5.3% year-over-year to $1.00
- Total base revenue reached $174.1 million
- The net interest margin was 5.43 per cent.
- Total assets rose 12% to DKK 11.5 billion
- New loan production of $572 million
- 95% of retail transactions happen digitally
Company Outlook
- Positive outlook with expectations of two more rate cuts from the Federal Reserve
- Lending growth is expected to continue, especially in Puerto Rico and the United States
- Net interest margin (NIM) expected between 5.3% and 5.4% for Q4
- Non-interest expenses are expected between $91 million and $93 million
Positive points
- Strong lending growth and positive credit quality
- Robust economic environment in Puerto Rico
- High wages and employment levels support economic activity
- Digital adoption continues to rise
- The purchase of the servicing portfolio is expected to generate $900,000 in quarterly mortgage fees
Negatives
- 21.4 million USD allowance for credit losses, reflecting increased loan volume and updated risk factors
- Some delays in commercial loans
- Cautious outlook for the US economy, although improving
Highlights from the Q&A session
- Management is discussing more deliberate capital return strategies
- Plans to evaluate dividends and share buybacks at upcoming board meetings
- Strategy for adaptation to a long-term low interest rate environment
- Reduction of asset sensitivity from 5% to approx. 2%
OFG Bancorp CEO Jose Rafael Fernandez led the earnings call and highlighted the bank’s strong results and positive outlook. The company reported steady economic activity in Puerto Rico, supported by high wages and significant employment levels. Despite some delays in commercial originations, management was optimistic about loan production.
The digital transformation of banking continues to progress, with 95% of retail transactions now conducted digitally. This aligns with OFG Bancorp’s commitment to increasing customer engagement through innovation as it celebrates its 60th anniversary.
In response to the low interest rate environment, the company extended the duration of its asset portfolio. The management noted a reduction in the sensitivity of the assets from 5% to approx. 2% by extending the duration of 5% of their mortgage-backed securities.
OFG Bancorp has also acquired a servicing portfolio moving from a sub-servicing arrangement to full ownership. The move is expected to generate approximately $900,000 in mortgage fees per quarter and aligns with the company’s goal of building a significant service book in Puerto Rico.
Looking ahead, the bank anticipates two more interest rate cuts of 25 basis points from the Federal Reserve before the end of the year. Net interest margin expectations for Q4 are expected to be between 5.3% and 5.4% following a significant rate cut by the Federal Reserve.
Management has recognized the need for more deliberate capital return strategies and plans to discuss dividends and share buybacks at future board meetings. The company aims to strengthen its competitive position while navigating economic uncertainty in Puerto Rico and the United States.
InvestingPro Insights
OFG Bancorp’s strong performance and positive outlook are reflected in several key InvestingPro metrics. The company’s market cap is $1.93 billion, underscoring its significant presence in the Puerto Rican banking sector.
One of the most notable InvestingPro tips is that OFG has increased its dividend for 3 consecutive years, which is consistent with management’s discussion of more deliberate capital return strategies. This commitment to shareholder value is further underscored by the company’s dividend yield of 2.23% and impressive dividend growth of 13.64% over the past 12 months.
The bank’s profitability is evident in its adjusted P/E ratio of 9.98, which suggests that the stock may be undervalued relative to its earnings. This is particularly interesting given InvestingPro’s advice that OFG has shown strong performance over the past year with a total price return of 50.6% in one year.
OFG’s financial health is also reflected in its strong operating profit margin of 44.86% for the last 12 months, supporting the company’s ability to navigate the changing interest rate environment and continue its digital transformation initiatives.
It should be noted that InvestingPro has identified additional advice that may provide additional insight into OFG Bancorp’s financial position and future prospects. Investors interested in a more comprehensive analysis can explore this advice on the InvestingPro platform.
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