Earnings Call Transcript
OFG BANCORP (OFG)
Earnings Call Transcript - OFG Q4 2024
Operator, Operator
Good morning. Thank you for joining OFG Bancorp's Conference Call. My name is Madison, I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors; Maritza Arizmendi, Chief Financial Officer; and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the fourth quarter 2024 section. 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. Fernandez.
Jose Rafael Fernandez, CEO
Good morning, and thank you for joining us. We are pleased to report our fourth quarter and 2024 results. It was another outstanding quarter and year of performance. Looking at the quarter, earnings per share were up 11.2% year-over-year on a 3.6% increase in total core revenues. We showed consistent operational growth on our plans, including our Digital First strategy. We steadily grew our banking market share. Digital adoption of our new and upgraded products, services, and self-service tools keeps expanding. Results also benefited from lower taxes, and we bought back about $46 million of common shares in the fourth quarter. Please turn to page three for a summary of our fourth quarter results. Looking at the income statement, we reported earnings per share diluted of $1.09 on total core revenues of $182 million. Net interest margin was 5.4%, provision was $30.2 million, non-interest expenses were $99.7 million. This resulted in slightly lower pre-tax income, which was more than offset by reduced year-end taxes. Pre-provision net revenues totaled $83 million. Turning to the balance sheet, total assets were $11.5 billion, up 1.4% from a year ago. Customer deposits were $9.4 billion. Loans held for investment totaled $7.8 billion. New loan production was a solid $609 million. Investments were $2.7 billion, up 1% from a year ago and 4% from the last quarter, and cash at $591.1 million was down 13% from last quarter. Looking at capital, the CET1 ratio was 14.26%, and we bought back $46 million in stock; that leaves $29.7 million remaining on our buyback authorization as of December 31, 2024. Please turn to page four for a summary of our full year results. Earnings per share of $4.23 increased 10.4% year-over-year on a 3.9% increase in total core revenues, for a total of $710 million. Net interest margin was 5.43%, provision was $82 million. Non-interest expense totaled $376 million and pre-provision net revenues was $336 million. Capital management played a big role even with Durbin taking effect mid-year; we were able to increase average interest-earning assets by 11.8% year-over-year. In addition, we acquired the servicing rights to a $1.7 billion Puerto Rico residential mortgage loan portfolio. We bought back a total of 1.8 million shares and we increased the quarterly dividend 14% to $0.25 per quarter or $1 per share annually. Puerto Rico's economy continues to do well with high levels of business activity and employment. We concluded our 60th year in business in an excellent position, fulfilling our purpose of bringing progress to all our stakeholders. Thanks to all our team members for always being more than ready to help our clients and customers today and tomorrow. Please turn to page five. We are really building some substantial progress with our Digital First Strategy. As of fourth quarter, 96% of all routine retail customer transactions, 97% of retail deposit transactions, and 68% of retail loan payments were all made through our digital and/or self-service channels. This has been driven by year-over-year growth of 12% in digital enrollment, 54% in digital loan payments, 34% in virtual teller utilization, and close to 5% customer growth. Over the last 1.5 years, we have introduced or relaunched four major new products and services. The Oriental Servicing Portal was introduced mid-2023. By the end of December last year, a third of all retail clients were using it. The My Biz small business account was relaunched in March 2024 as part of our overall offering. This helped to achieve 14% growth in loans to local businesses last year. The retail mass market Libre account was relaunched in April 2024, and the mass affluent Elite account with its unique cashback program was launched in June 2024. Both are doing extremely well, bringing in new customers and deposits. There are more Digital First initiatives on the pipeline coming this year. Now here is Maritza to go over the financials in more detail.
Maritza Arizmendi Diaz, CFO
Thank you, Jose. Please turn to page six to review our financial highlights. Starting with the components of core revenues, total interest income was $190 million, up $1.1 million from the third quarter. This increase mainly reflects higher balances and higher yields on investment securities, higher loan balances, $700,000 from the prepayment of two commercial loans, and reduced interest income from cash. If you recall, since late last year, we have been growing the investment portfolio to help manage the anticipated lower rate environment going forward, adding higher-yielding U.S. guaranteed longer-duration securities. Total net interest expense was $41 million, slightly down from the third quarter. The decrease reflects a slightly lower average balances and cost of core deposits and higher average balances of borrowings and brokered deposits. Total banking and financial service revenues were $33 million, an increase of $6.5 million from the third quarter. The increase mainly reflects $2.1 million annual insurance commission recognition in wealth management revenues, $4.8 million in favorable MSR valuation due to higher long-term rates, and $800,000 from the previously mentioned acquisition of Puerto Rico residential mortgage servicing portfolio in August. Looking at non-interest expenses, they totaled $99.7 million, up $8.1 million from the third quarter. The increase mainly reflects $3.4 million in early retirement and business rightsizing, $1.4 million in annual performance incentives, and the absence of the third quarter $2.3 million card processing rebate. We expect 2025 non-interest expense to average $95 million to $96 million a quarter. This mainly reflects a combination of increased technology spending, amortization, and higher electronic banking fees and transaction costs as we grow larger. The fourth quarter efficiency ratio was 54.82%, compared to 52.60% in the third quarter. Please note this includes the early retirement and performance incentive expenses that I just mentioned. Without those, the efficiency ratio would have been 52.18%. Overall, performance metrics remained high. Return on average assets was 1.75%, return on average tangible common equity was 16.71%, and tangible book value per share was $25.43. That's down 3% from the third quarter, mainly due to capital used in share buybacks and lower other comprehensive income. Please turn to page seven to review our operational highlights. Average loan balances were $7.7 billion, up slightly from the third quarter. End-of-period balances of loans held for investments increased 0.5% or $41 million from the third quarter. The increase mainly reflects growth in auto, U.S. commercial, and Puerto Rico consumer loans more than offsetting repayments of Puerto Rico commercial and residential mortgages. Year-over-year, fourth-quarter loans held for investment increased 3.3%. Loan yield was 8.01%, down 4 basis points from the third quarter. Fourth quarter new loan origination of $609 million increased 5.5% from the third quarter. This reflects increases in Puerto Rico commercial, auto, and residential mortgage lending, partially offset by a decrease in U.S. commercial and Puerto Rico consumer lending. We continue to have a strong commercial top-line in Puerto Rico. In particular, small commercial had a very good fourth quarter and year. Residential mortgage lending improved. Our average core deposits were $9.6 billion, down slightly from the third quarter. End-of-period balances decreased $84 million or 0.9%. This reflects a decline in government deposits, partially offset by a small increase in commercial and retail. Excluding government deposits, savings and time increased, more than offsetting the decline in demand. Year-over-year, ex-government deposits, retail and commercial also increased. Core deposit cost was 146 basis points, down 7 basis points from the third quarter. Excluding public funds, cost of deposit was 96 basis points, compared to 91 last quarter. Average borrowings and broker deposits were $426 million, compared to $262 million in the third quarter. The aggregate rate paid was 4.40%, down 20 basis points. End-of-period balances were $557 million, compared to $346 million. Net interest margin was 5.40%, compared to 5.43% in the third quarter. Fourth quarter NIM benefited slightly from the commercial loan prepayment I mentioned before. Please turn to page eight to review our credit quality and capital strength. Credit quality continues to be stable. Net charge-offs totaled $16 million, down $1.2 million from the third quarter. Net charge-offs benefited from a $2.6 million recovery from the sale of a portfolio of fully charged-off auto and consumer loans. Overall net charge-off rate fell 1 basis point to 1.63%. Consumers' net charge-off rate fell 98 basis points to 3.72%. At the same time, there were continued recoveries in mortgage and Puerto Rico commercial loans. As a result, the total net charge-off rate was 82 basis points, down 8 basis points sequentially and down from 88 basis points in the year-ago quarter. Provision for credit losses totaled $30.2 million, up $8.8 million from the third quarter. The increase mainly reflects $18.1 million from increased loan volume, $7.6 million for a specific reserve related to four U.S. commercial loans, and the previously mentioned $2.6 million recovery from the sale of auto and consumer loans. The fourth quarter also included a $5.7 million qualitative adjustment related to recent increases in auto delinquency trends that the model doesn't fully capture yet. Looking at other credit metrics, the early and total delinquency rates were 2.95% and 4.38%, respectively. The nonperforming loan rate was 1.06%. Looking at other capital metrics, total stockholders' equity decreased about $64 million from the end of last quarter. And the tangible common equity ratio decreased 59 basis points to 10.13%. That mainly reflects share buybacks and lower other comprehensive income. Income tax expense was $2.4 million compared to $14.8 million in the third quarter. The decrease mainly reflects a reduction in the 2024 expected tax rate for higher than previously forecasted business activities with preferential tax treatment and $2.3 million of discrete benefit. Excluding discrete items, the expected tax rate was 24.03% for 2024 compared to 32.08% for 2023. For 2025, we anticipate the full-year expected tax rate will be about 26%. To summarize, in the fourth quarter, net interest income grew driven by the investment portfolio and loans, partially offset by lower interest income from lower cash balances. Loan growth continued to do well, particularly in the small business area. Ex-public funds, retail and commercial deposit balances increased with savings and time deposits higher, as we continue to deepen customer relationships with the recently added value products and services. Net interest margin held fairly steady, as the yield from investment securities and reduced cost of core deposits helped offset some of the decline in interest rates. Credit quality continues to be well managed. The trends are mostly stable, reflecting the solid economic environment in Puerto Rico. Non-interest expenses were higher, mainly due to early retirements, business rightsizing, increased annual performance incentives as well as higher electronic banking fees, technology spending, and amortization. Regarding capital allocation, we increased our buyback during the fourth quarter. Now here's Jose.
Jose Rafael Fernandez, CEO
Thank you, Maritza. Please turn to page nine. Our outlook for both Puerto Rico and OFG continues to be positive. Looking at Puerto Rico, the island's economy is steadily growing. Wages and employment are at high levels. Altogether, the business environment here remains optimistic. As always, we remain vigilant regarding the significant macro uncertainties. Turning to OFG, we continue to be well-positioned for growth of loans and deposits as well as our customer base. Consumer credit trends should remain at current levels. Our Digital First strategy will continue to evolve, and we will continue to invest in and deploy new customer innovations with the twin goals of further differentiating our business model while at the same time increasing efficiencies. Although we look forward to solid overall performance in 2025, our results could not have been achieved without the hard work and dedication of all our team members. We are very thankful to them and excited for what's to come. With this, we end our formal presentation. Operator, let's start the Q&A.
Operator, Operator
Thank you. We will take our first question from Kelly Motta with KBW. Please go ahead.
Kelly Motta, Analyst
Hi, good morning. Thanks for the question.
Jose Rafael Fernandez, CEO
Good morning.
Kelly Motta, Analyst
Maybe starting off with the margin, your net interest income was really strong, and the margin came in towards the high end of what you had said previously. As we look ahead, assuming there's only maybe a cut or two in 2025, I'm wondering if you could kind of walk us through both what you're seeing on the deposit side and the competitive environment there and wondering if you have the ability to kind of build off this 5.40% level as we look through 2025?
Jose Rafael Fernandez, CEO
Thank you, Kelly, for your question. Let's discuss the competitive landscape and deposits briefly, and then I'll let Maritza share her insights on net interest margin. The competition here remains intense across the board, so we are putting in significant effort to secure our business in both loans and deposits. Despite the competition, we are approaching the market with a rational mindset. On the deposit front, we are experiencing benefits from this environment. Furthermore, we are observing positive customer growth, and it's important to note the momentum we've maintained from 2023 to 2024 and now onto 2025. Our client base has increased by 5% in both 2023 and 2024, placing us in a solid position on the retail side, particularly regarding deposits. The acceptance of our mass checking account, the Libre account, and the newly introduced mass affluent Elite account has been very encouraging. Both products are performing well and attracting healthy levels of deposits. This performance, along with the momentum from our Digital First strategy, is contributing to our customer growth and will positively impact our net interest margin. Now, I'll turn it over to Maritza for more specifics.
Maritza Arizmendi Diaz, CFO
Yes, thank you, Kelly, for your question. And, yes, we remain with the similar guidance that we provided in the third quarter. We're looking at the range between 5.30% to 5.40% because we will have the full effect of the 100 basis point cost of 2024; we will have the full effect in 2025. But the reality is with the extension in the investment portfolio that we have done, that will mitigate most of that impact. And I think what is critical in that range is the funding mix. And I think Jose provided you with how we see the market, and that's why we're keeping the range as it is, even as we anticipate probably two cuts next year in rates. And we continue to be very slightly asset sensitive, but still have an impact there. Okay?
Kelly Motta, Analyst
That's super helpful. Thank you. Next question I have would be on the expenses. There's kind of some push-pull in that. You had some early retirements and potentially some savings that come through there, but also even excluding that, it looks like general and administrative expenses were running higher. As you look ahead to next year, given your outlook and the initiatives that you continue to run and you work to capture market share, wondering if you can share what you're thinking of in terms of how you're managing expense growth, and if it is commensurate with the revenue growth and maybe if net interest income is higher, you might use some of that to reinvest in the business?
Jose Rafael Fernandez, CEO
Understood. Yes, good point. Let me just give you my overall view on expenses, and it's driven by how we've executed on our Digital First vision here in our market, which has two components. One is how do we deploy the technology and how do we invest in technology and in people and in processes to kind of get our Digital First execution going. That started back in 2021 and 2022, so we've come a long way. Just to give you some perspective and context, from 2021 to 2024, the level of transactions in the bank has doubled on a year-over-year basis. It's doubled from 2021 to 2024. Now at the same time, in that same time frame, the number of transactions done at the branches on a monthly basis has been reduced by 150,000 transactions. And that is totally driven by the investments we've made with the self-service portal, with the digital account opening, and with all the services that the clients can serve themselves with at the bank kiosk, with the virtual tellers, and through online and mobile. That is not a small accomplishment in the market where we operate, which is several years behind in terms of digital adoptions versus the markets in the States. So given the growth we've had plus the efficiencies we've seen from the branches, we've been able to reduce some of the workforce on the branch side, particularly on the teller side. We've also seen, in spite of that customer growth, our transactional growth over these four years, we have also seen how we've been more efficient on the back office, and we've been able to see some efficiencies there as well. Now all of that is being said to also highlight the point that we can't stop here; we have to keep moving forward, continue investing in our people, technology, and processes. So when we look into expenses into next year, our range now is around $95 million to $96 million a quarter. That takes everything into account, business growth, efficiencies, investments in technology, and in people. We're really confident that how we're building this model and how we're deploying the strategy is creating great momentum for us to grow and further develop from where we are today.
Kelly Motta, Analyst
Thank you, Jose. That was very, very helpful. Maybe the last question from me, and then I will step back, would be on the reserve build you had. I think in your prepared remarks, you described credit as being stable, but you did have a specific reserve related to those U.S. commercial loans that were called out in the release, as well as the qualitative build related to auto delinquencies. Can you talk a bit about what you're seeing in both those commercial loans as well as just in Puerto Rico, an update on the credit environment, and your decision to take that reserve and how you're feeling overall on asset quality? Thanks.
Jose Rafael Fernandez, CEO
Yes. Big picture, and I'll let Cesar Ortiz give you some more specific details on the credit in Puerto Rico and any color on the four loans in the U.S. But from a big picture, as I said in my remarks, the economy remains solid and steady. We're seeing good optimism in the business sector. Across the entire island, there's a lot of construction going on, and there's a lot of investments being made to different businesses across the island and across different industries. So we're not seeing anything that has changed from a macro perspective. We will continue to see consumers having stronger liquidity than prior years where we had a less favorable economic background. So we're seeing a stronger balance sheet for individuals and businesses, and the economy overall is performing well. So that's kind of the background, Kelly. And I'll let Cesar give you some color on the Puerto Rico credit, particularly on the consumer side.
Cesar Ortiz Marcano, CRO
Thank you. Besides the macroeconomic situation in Puerto Rico, delinquencies have shown an increasing trend in this quarter. It's been seasonal. We're seeing an annual holiday seasonal increase in delinquency, and we should also see an improvement in the first quarter of next year because it's typically a seasonal improvement in the next quarter. But two additional key points give us comfort for the outlook, right? The first one is the non-performing levels. We see slightly better non-performing levels than at the same period last year, especially for the auto portfolio, which is the largest retail portfolio. Additionally, as of December, the auto portfolio is now an 87% prime portfolio; it's been rising since pre-pandemic when it was at 65%. We have discussed this every quarter. So these two factors give us a good outlook in terms of the performance of the retail portfolios in Puerto Rico. The other question you had was regarding the four specific loans in specific reserves that we recorded for this quarter in the U.S. I want to point out that these are unique challenges that each borrower faces with operational challenges. We're continuing to work with them; we're engaging with them productively to mitigate the risks we noted this quarter, which prompted us to record these reserves. These situations are unique to those borrowers.
Kelly Motta, Analyst
Got it. That's all. I will step back. Thank you so much.
Jose Rafael Fernandez, CEO
Yes. Thank you for your questions, Kelly.
Operator, Operator
Thank you. And we will take our next question from Ynyra Bohan with Hovde Group. Please go ahead.
Ynyra Bohan, Analyst
Hi, thank you for taking my questions.
Maritza Arizmendi Diaz, CFO
Thank you. Not thank you, hi.
Ynyra Bohan, Analyst
And my first question has to do with your tax rate going forward. There was quite a reduction. So do you guys have any guidance on what we should expect going into the next quarter and next year?
Jose Rafael Fernandez, CEO
Yes, I'll let Maritza give you…
Maritza Arizmendi Diaz, CFO
Yes. As I mentioned in my prepared remarks, this 2024 full expected tax rate was about 24% compared to 2023, which was 32%, because we were benefiting from business activity with preferential tax rates. Going forward, we continue to see benefits from these types of activities, and that's why we're forecasting a 26% expected tax rate for 2025.
Ynyra Bohan, Analyst
Thank you. And with your non-interest income, there seems to be an uptick in the mortgage banking activities. Should we continue with this uptick as the run rate going forward?
Maritza Arizmendi Diaz, CFO
Well, this last quarter, this fourth quarter as well as the third quarter were impacted differently, both with the MSR valuation. In this one, we did have a positive impact in the MSR valuation that will depend on the market rates. But if we extract that, for the quarter was about $2.7 million, and we can expect the run rate to be the one that we have this quarter without that $2.7 million…
Jose Rafael Fernandez, CEO
On non-interest income.
Maritza Arizmendi Diaz, CFO
Particularly in the mortgage banking side, I'm referring to mortgage banking activity, because as I commented in my prepared remarks, in this fourth quarter, we did have the full effect of the acquisition of the MSR that we acquired in the third quarter; that's about $1 million more that we will have on a quarterly basis.
Ynyra Bohan, Analyst
Perfect. Thank you so much. That was all my questions.
Jose Rafael Fernandez, CEO
Thank you for your questions.
Operator, Operator
Thank you. And we will take our next question from Timur Braziler with Wells Fargo. Please go ahead.
Timur Braziler, Analyst
Hi, good morning.
Maritza Arizmendi Diaz, CFO
Good morning.
Timur Braziler, Analyst
Looking at the linked quarter reduction in demand deposits, what component of that was from public funds?
Jose Rafael Fernandez, CEO
About $100 million, around $100 million.
Timur Braziler, Analyst
Okay. Can you share what you are observing regarding the deposit base on the island, including any seasonality trends for the fourth quarter and the current state of consumer liquidity?
Jose Rafael Fernandez, CEO
Yes. From our vantage point, what we're seeing is a steady inflow. We're starting to see a kind of a shift from CDs back to savings and demand deposits. It's going to happen throughout 2025, I believe. But what we're seeing is a net inflow of a slow, methodical growth in consumer and commercial deposits across all our businesses.
Timur Braziler, Analyst
Great. And then I guess just from a competitive standpoint, from a deposit standpoint, how that's trending, the ability to maybe work down costs even though they're so low to begin with? And just on public funds that there is an expectation for further decline there throughout 2025?
Jose Rafael Fernandez, CEO
Well, on the public funds, remember they're variable rates. So if rates go down, they'll trend downwards also. On the commercial and consumer side, I would say the banking market in Puerto Rico is very rational and stable in terms of pricing. But don't forget that there are credit unions in Puerto Rico, federal credit unions, that are definitely trying to disrupt the market to some degree, as they're bringing in higher yielding accounts. That definitely is a factor. But as a bank, OFG, we have a very strong franchise with very sticky core consumer deposits that we feel with the two products that I mentioned earlier that we have developed and introduced recently; we have done very well at growing our customers as well as our retail deposits as well.
Timur Braziler, Analyst
Okay, great. And then just a couple of follow-ups on the credit piece that for U.S. commercial loans, are those all in a similar geography, or is that spread out somewhat?
Jose Rafael Fernandez, CEO
Now, remember our U.S. strategy is more of a diversification, a geographic diversification strategy. So it's nationwide, industry-wide. So we are not specific to our geography. So and these are mostly, I would say, all of them are C&I commercial loans across the United States.
Timur Braziler, Analyst
And then, I understand, I guess the addition to the reserves for the calibration of the auto book today at 2.25 reserves to loans. I mean, that seems like a high number. How are you thinking about the reserve level as we go through 2025? It's increased now for two straight quarters. Will we see any ability at some point to start seeing some reserve releases, or is that really off the table until we get a plateau on the consumer and auto books?
Jose Rafael Fernandez, CEO
Yes, I'll let Maritza give you the specifics. In my mind, I think the economy in Puerto Rico is shifting from two decades of depression to a stimuli kind of sugar high to a more cyclical type of economy. So that's how we're looking at the world from our vantage point. Going forward, we're seeing the economy in Puerto Rico doing well. We're observing good growth, but we're starting to see the economy also entering a more normal cyclical behavior. We're just trying to ensure that when we look at our credit exposures, we are also cognizant of those changes from a macro perspective. I'll let Maritza give you the specifics on these.
Maritza Arizmendi Diaz, CFO
I think we're sharing the same view on the economy's stability. I think we have reached a good level of allowance coverage at this point. When we look forward, we see a run rate of about $18 million to $20 million, mostly as part of our normal business operation. If you look at this quarter, the volume factor was $18 million, so that would be our main benchmark moving forward, maintaining the same level of allowance coverage that we currently have.
Jose Rafael Fernandez, CEO
So provision around $18 million to $20 million a quarter, assuming everything remains equal. That's kind of the outlook here.
Timur Braziler, Analyst
Great. Thank you.
Jose Rafael Fernandez, CEO
Thank you.
Operator, Operator
Thank you. We will take our next question from Bader Hila with Piper Sandler. Please go ahead.
Unidentified Analyst, Analyst
Hey, good morning, guys.
Jose Rafael Fernandez, CEO
Good morning.
Maritza Arizmendi Diaz, CFO
Good morning.
Unidentified Analyst, Analyst
Just want to touch on fee income again. I know you talked about the mortgage banking segment. Could you give us some more color on the other components? And I might have missed it, but do you have maybe a run rate or an outlook for fee income heading into 2025?
Jose Rafael Fernandez, CEO
Yes, so let me give you a big picture here. When we look at wealth management, we're seeing very good momentum with wealth management, particularly on the brokerage and insurance, both doing well and seeing good momentum. Particularly in the brokerage financial services side, we're seeing a very good opportunity to deepen the relationships with our customers, not only on the deposit side to the brokerage side but also from the brokerage to the deposit side. We're seeing that in wealth management, but we're also focusing on deepening our relationships with auto clients, mortgage clients, and small business clients. We see a robust opportunity to work internally, and that will help us to the earlier question by someone on the deposit. We not only see growth in deposits from bringing in new customers, but we're seeing it from deepening the relationships with our existing loan customers, and we have strategies for this as we speak. So now going back to your fee income question, wealth management is thriving. We have good opportunities ahead. Insurance, as part of wealth management, is contributing well too. In banking, we need to think about Durbin since we're above $11.6 billion. Last year, in the second half, we saw the effects of Durbin. Despite that, we have been able to mitigate the effects on the banking services income by acquiring the servicing portfolio that Maritza mentioned, along with growing our clients and increasing transactionality, and the fees we generate. So, I believe the team has done an excellent job at mitigating the impacts of Durbin. Mortgage banking, as you know, fluctuates based on the valuations of the MSR and how interest rates have fluctuated. We observe more volatility in interest rates. This is why you see more volatility in the MSR value. But overall, we are very enthusiastic about our ability to continue steadily growing our fee income.
Unidentified Analyst, Analyst
Understood. Thanks. And then if I may ask, with regards to new loan originations, do you happen to have the rates coming on the books, and if possible, maybe by segment?
Jose Rafael Fernandez, CEO
So we're seeing auto business and consumer business, all rates coming in around the same levels despite potential lower interest rates. We're seeing commercial coming in at a slightly lower rate and more variable than fixed, but it was slightly lower. I'm assuming we see two additional 25 basis point rate cuts, that will have an impact there. Overall, we're observing yields on the books trending slightly lower, but not significantly. That's why Maritza reaffirms the net interest margin at 5.30% to 5.40%. We feel that on the loan side, we see quite a bit of inelastic behavior, particularly in the consumer portfolios.
Unidentified Analyst, Analyst
Got it. Thank you. And one last question. Is there any concern that the new administration would slow down any federal disbursements to the island or maybe what you're hearing in regards to that?
Jose Rafael Fernandez, CEO
Yes. We've had, I would say, more than 50% of the funds initially allocated to Puerto Rico have been obligated, and these funds will continue to be deployed on the projects that have started or are about to start since they have been obligated. There are many backlogs in projects and several steps that need to be taken through the federal government. Overall, it's a different situation now when compared to starting anew six or seven years ago. Yes, there's always a risk; there's no doubt about it, but I don't think the risk is as significant or major as it could have been four or five years ago.
Unidentified Analyst, Analyst
Awesome. That's all my questions. Thank you.
Jose Rafael Fernandez, CEO
Thank you for your questions.
Operator, Operator
Thank you. And at this time, there are no further questions. I will now turn the call back over to Jose for closing remarks.
Jose Rafael Fernandez, CEO
Thank you, operator. Thanks again to all our team members and thanks to all our stakeholders who have listened in. Have a great day.
Operator, Operator
Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.