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OFG BANCORP (OFG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered diluted EPS of $1.09 on total core revenues of $181.9M, up vs Q3 ($1.00; $174.1M) and YoY ($0.98; $175.6M), aided by lower taxes and higher non-interest income from MSR valuation and annual insurance commissions .
  • Net interest margin held at 5.40% (5.43% in Q3), with loan and investment yields offsetting lower cash balances; pre-provision net revenues were $83.0M (vs $83.1M in Q3) .
  • Credit costs rose: provision for credit losses increased to $30.2M (vs $21.4M in Q3), including a $7.6M specific reserve for four U.S. commercial loans and a $5.7M qualitative adjustment for rising auto delinquencies; net charge-offs were 0.82% of average loans, improving vs Q3 (0.90%) .
  • Capital return and dividend signals remain supportive: $45.9M buybacks in Q4 (authorization remaining $29.7M) and post-quarter dividend increased 20% to $0.30 per share for Q1 2025, potential near-term stock catalysts alongside NIM guidance stability (5.30–5.40%) and 2025 ETR outlook at ~26% .

What Went Well and What Went Wrong

What Went Well

  • Strong core revenue and EPS growth: Q4 core revenues rose to $181.9M (+4.5% QoQ; +3.6% YoY) with diluted EPS at $1.09 (+9% QoQ; +11.2% YoY) on lower tax expense and higher fee income; CEO highlighted “consistent and excellent operational execution” and Digital First strategy gains .
  • Non-interest income uplift: banking and financial services revenues climbed to $32.8M (+$6.5M QoQ), driven by $4.8M favorable MSR valuation, $2.1M annual insurance commission recognition, and ~$0.8M contribution from acquired PR mortgage servicing portfolio .
  • Deposit franchise and digital adoption: commercial/retail deposits increased ex-government; management cited rational competition, traction of Libre and Elite accounts, and 12% YoY growth in digital enrollment supporting low-cost funding and efficiency .

What Went Wrong

  • Elevated credit costs and reserves: provision rose to $30.2M (from $21.4M) on loan growth, a $7.6M specific reserve on 4 U.S. C&I loans, and a $5.7M qualitative adjustment for auto delinquency trends; allowance increased to 2.26% of loans .
  • Higher operating expenses: total non-interest expense jumped to $99.7M (+$8.1M QoQ), including $3.4M for early retirement/rightsizing and $1.4M annual incentives; efficiency ratio worsened to 54.82% (vs 52.60% in Q3) .
  • Demand deposit mix pressure and higher wholesale funding: customer demand deposits fell QoQ, and total borrowings & brokered deposits rose to $557.2M EOP (vs $346.5M in Q3), reflecting liquidity positioning amid government deposit declines .

Financial Results

Metric (Units)Q4 2023Q3 2024Q4 2024
Total Core Revenues ($USD Millions)$175.6 $174.1 $181.9
Diluted EPS ($)$0.98 $1.00 $1.09
Net Interest Margin (%)5.62% 5.43% 5.40%
Pre-Provision Net Revenues ($USD Millions)$88.2 $83.1 $83.0
Provision for Credit Losses ($USD Millions)$19.7 $21.4 $30.2
Income Tax Expense ($USD Millions)$21.8 $14.8 $2.4
Wall Street EPS Consensus ($)*N/AN/AN/A
Wall Street Revenue Consensus ($USD Millions)*N/AN/AN/A

*Estimates unavailable at time of research due to S&P Global request limit; comparisons to consensus cannot be provided now. Values would be retrieved from S&P Global.

Segment and Fee Components

Banking & Financial Service Revenues ($USD Millions)Q4 2023Q3 2024Q4 2024
Banking Service Revenues$17.8 $15.6 $15.3
Wealth Management Revenues$10.0 $8.4 $10.6 (incl. $2.1M annual insurance commissions)
Mortgage Banking Activities$4.3 $2.3 $6.8 (incl. $4.8M favorable MSR valuation)
Total Banking & Financial Service Revenues$32.1 $26.3 $32.8

Key KPIs and Balance Sheet

KPI / Balance Sheet (Units)Q4 2023Q3 2024Q4 2024
Loans HFI (EOP, $USD Billions)$7.53 $7.75 $7.79
New Loan Production ($USD Millions)$663.9 $572.2 $609.0
Customer Deposits (EOP, $USD Billions)$9.60 $9.53 $9.45
Investments (EOP, $USD Billions)$2.69 $2.61 $2.72
Borrowings & Brokered Deposits (EOP, $USD Millions)$363.0 $346.5 $557.2
Cash & Cash Equivalents (EOP, $USD Millions)$748.2 $680.6 $591.1
CET1 Ratio (%)14.12% 14.37% 14.26%
TCE Ratio (%)9.68% 10.72% 10.13%
TBVPS ($)$23.13 $26.15 $25.43
ROAA (%)1.76% 1.66% 1.75%
ROATCE (%)18.22% 15.94% 16.71%
Efficiency Ratio (%)53.59% 52.60% 54.82%

Credit Quality Snapshot

Credit MetricsQ4 2023Q3 2024Q4 2024
Net Charge-offs ($USD Millions)$16.3 $17.1 $15.9
Net Charge-off Rate (% of Avg Loans)0.88% 0.90% 0.82%
Early Delinquency Rate (30–89 days)2.76% 2.78% 2.95%
Total Delinquency Rate (≥30 days)3.76% 4.10% 4.38%
Nonperforming Loan Rate (%)1.13% 1.03% 1.06%
Allowance for Credit Losses ($USD Millions)$161.1 $161.5 $175.9
Allowance % of Loans (%)2.14% 2.08% 2.26%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin20255.30–5.40% (carried from Q4 outlook) 5.30–5.40% Maintained
Non-Interest Expense2025 (per quarter)$91–$93M (Q3 view) $95–$96M Raised
Effective Tax Rate (ETR)FY 2025n/a~26% New
Provision Run-Rate2025 (per quarter)n/a~$18–$20M New
DividendQuarter ending Mar 31, 2025$0.25 (Q4 level) $0.30 (announced Jan 29, 2025) Raised
Capital Return (Buybacks)2025Intentional pace (Q3: behind plan) “More methodical” execution, focus on loans/dividends/buybacks Clarified stance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Digital First adoptionQ3: 95% routine retail transactions via digital/self-service; 13% YoY digital enrollment; new Elite account launch Q4: 96% routine retail transactions; 12% YoY digital enrollment; strong traction of Libre/Elite; continued pipeline Strengthening adoption; ongoing investments
Deposit mix & competitionQ3: shift from demand to savings/time; rational pricing; government deposit exit extended to Nov Q4: decline in government deposits, increases in commercial/retail; rational market; credit unions competing on rates Mix normalizing; rational pricing persists
Durbin impactQ3: −$2.7M interchange fees; mitigation via servicing and customer growth Q4: fee momentum in wealth/insurance; mortgage servicing added ~$1M quarterly Mitigation continuing via diversification
Investment portfolioQ3: extending duration to reduce asset sensitivity Q4: added $264M MBS at 5.3% yield; supports NIM in lower-rate environment Constructive extension; supports NIM stability
Auto delinquenciesQ3: annual update of auto risk drivers and consumer loss factors Q4: $5.7M qualitative reserve for increasing auto delinquency trends Elevated; proactively reserved
U.S. commercial exposuresQ3: cautious prior 4–6 quarters; becoming more constructive Q4: $7.6M specific reserve for 4 U.S. C&I loans; diversified nationwide approach Isolated issues; diversified book
Puerto Rico macro & federal fundsQ3: steady growth; lower-rate cycle supportive Q4: positive macro; >50% of allocated federal funds obligated; disbursement risks seen as manageable Supportive macro backdrop

Management Commentary

  • “We demonstrated consistent and excellent operational execution on our plans, with our Digital First strategy helping to grow our banking franchise and market share.” — CEO José Rafael Fernández .
  • “We remain with the similar guidance that we provided in the third quarter. We’re looking at a [NIM] range between 5.3% to 5.40%... the investment portfolio will mitigate most of that impact.” — CFO Maritza Arizmendi .
  • “Provision around $18 million to $20 million a quarter… assuming all things remain equal.” — CEO José Rafael Fernández .
  • “Credit quality continues to be stable… NCOs benefited from a $2.6 million recovery from the sale of fully charged-off auto and consumer loans.” — CFO Maritza Arizmendi .
  • “We love to operate with good capital… deploy in loans, dividends, buybacks… 2025 relatively the same.” — CEO José Rafael Fernández .

Q&A Highlights

  • Margin outlook and deposit competition: Management expects NIM 5.30–5.40% into 2025, supported by extended investment portfolio; deposit market rational but competitive (credit unions offering higher yields), with product-led growth in core deposits .
  • Expense trajectory: Quarterly non-interest expense expected at $95–$96M in 2025, reflecting tech investment and electronic banking fees; without Q4 one-offs, the efficiency ratio would have been ~52.18% .
  • Reserves and credit: $7.6M specific reserve on four U.S. C&I loans (unique borrower issues) and $5.7M qualitative auto overlay; outlook for provision ~$18–$20M per quarter, with PR macro steady and seasonal delinquency expected to improve in Q1 .
  • Tax rate guidance: 2025 ETR ~26% (2024 ETR ~24% excluding discrete items) .
  • Capital allocation and M&A: Continued emphasis on loan growth, dividend increases, and methodical buybacks; U.S. strategy remains loan participations for diversification rather than bank acquisitions .

Estimates Context

  • S&P Global consensus for Q4 2024 EPS and revenue was unavailable during this session due to an API limit; thus, we cannot assess beats/misses vs the Street at this time. We will update comparisons when consensus data can be retrieved. Values would be sourced from S&P Global.

Key Takeaways for Investors

  • Core earnings quality improved with lower tax expense and diversified non-interest income; NIM guidance stability (5.30–5.40%) plus extended-duration MBS purchases should support margin resilience in a potential easing cycle .
  • Watch credit costs: elevated provision tied to specific U.S. C&I credits and auto trends; management proactively increased reserves, guiding to ~$18–$20M quarterly provision run-rate in 2025 .
  • Deposit mix normalization: government deposit declines offset by commercial/retail growth; rational competitive environment, with product-led customer growth underpinning sticky core deposits .
  • Operating leverage trade-off near term: higher quarterly OpEx ($95–$96M) reflects tech investment and scaling of electronic banking; efficiencies from Digital First execution support medium-term returns .
  • Capital return remains constructive: Q4 buybacks ($45.9M) and a 20% dividend increase post-quarter to $0.30 signal confidence in earnings power and capital levels; look for methodical buyback execution through 2025 .
  • Puerto Rico macro tailwinds and federal infrastructure funds continue to support loan production and fee opportunities; management views disbursement risk as manageable given obligation levels .
  • Near-term trading implications: headline strength from EPS uplift and dividend increase versus caution on higher provision/OpEx; medium-term thesis centers on margin durability, digital-driven efficiency, and disciplined capital deployment .