OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, reported results for the second quarter ended June 30, 2022. EPS diluted was $0.84 compared to $0.76 in 1Q22 and $0.78 in 2Q21. Total core revenues were $146.3 million compared to $136.4 million in 1Q22 and $133.3 million in 2Q21.
CEO Comment
José Rafael Fernández, Chief Executive Officer, said: “We had another strong quarterly performance in all our core businesses. Loans and deposits grew, net interest margin expanded, and banking and wealth management income rebounded. All this confirms an overall increase in business activity, driven by our solid strategic position and continuously improving customer experience. This quarter we increased our number of self-service banking kiosks and introduced digital commercial account opening. We also repurchased $30.6 millions of shares, completing $64.1 million of our current $100 million buyback program. Capital metrics remain high. On a macro level, despite global headwinds, the Puerto Rico economic environment continues to trend positively.”
2Q22 Highlights
Net Interest Income of $115.1 million compared to $105.2 million in 1Q22 and $102.3 million in 2Q21. Net Interest Margin expanded to 4.80% from 4.47% in 1Q22 due to increased volume of loans and investments and FRB rate hikes.
Interest Income of $122.2 million compared to $112.9 million in 1Q22 and $113.5 million in 2Q21. Compared to 1Q22, 2Q22 interest income benefited from higher yields on higher average balances of loans and of investment securities, and higher average yields on cash.
Total Interest Expense of $7.1 million compared to $7.8 million in 1Q22 and $11.2 million in 2Q21. Compared to 1Q22, 2Q22 interest expense primarily reflected lower average balances and cost of borrowings.
Non-Interest Income of $36.2 million compared to $31.6 million in 1Q22 and $32.2 million in 2Q21. Compared to 1Q22, 2Q22 non-interest income primarily reflected higher banking service and wealth management revenues, lower mortgage banking revenues, and a $4.7 million gain on sale of a legacy branch building.
Pre-Provision Net Revenues of $66.0 million compared to $55.6 million in 1Q22 and $51.8 million in 2Q21.
Provision for Credit Losses of $6.7 million compared to $1.6 million in 1Q22 and a net benefit of $8.3 million in 2Q21. 2Q22 reflected increases of $5.1 million due to loan growth and $4.8 million in commercial specific reserves due to two loans placed in non-accrual, partly offset by a reduction of $4.9 million in qualitative adjustment and loss factors due to the improvement in the performance of loan portfolios and economic conditions in Puerto Rico.
Provision for Credit Losses of $6.7 million compared to $1.6 million in 1Q22 and a net benefit of $8.3 million in 2Q21. 2Q22 reflected increases of $5.1 million due to loan growth and $4.8 million in commercial specific reserves due to two loans placed in non-accrual, partly offset by a reduction of $4.9 million in qualitative adjustment and loss factors due to the improvement in the performance of loan portfolios and economic conditions in Puerto Rico.
Credit Quality: Net charge off and nonperforming loan rates increased to 0.27% and 1.61%, respectively, compared to 0.04% and 1.49% in 1Q22. 2Q22 NCOs of $4.5 million included $2.5 million from a previously reserved commercial loan sold during the quarter. 1Q22 NCOs of $0.6 million benefited from $3.9 million in recoveries from an acquired PCD loan and the final settlement of the sale of non-performing mortgage loans in 4Q21.
Non-Interest Expenses of $85.3 million compared to $81.2 million in 1Q22 and $82.7 million in 2Q21. The $4.1 million increase from 1Q22 primarily reflected higher compliance related professional expenses due to greater levels of business activity as well as higher technology expenses related to digital transformation.
Loans Held for Investment (EOP) of $6.70 billion compared to $6.55 billion in 1Q22 and $6.50 billion in 2Q21. Loans grew $154.7 million from 1Q22, primarily reflecting increases in commercial loans as well as increases in consumer and auto loans.
New Loan Origination of $587.2 million compared to $623.2 million in 1Q22 and $673.6 million in 2Q21, which included $32.7 millions of PPP loans. 2Q22 reflected continued high levels of auto and consumer lending as well as commercial lending in Puerto Rico and the US.
Total Investments (EOP) of $1.73 billion compared to $1.26 billion in 1Q22 and $643.5 million in 2Q21. Investments grew $468.5 million from 1Q22, taking advantage of the higher yield environment.
Customer Deposits (EOP) of $9.02 billion compared to $8.97 billion in 1Q22 and $9.08 billion in 2Q21. Core deposits grew $51.3 million from 1Q22, reflecting increases in commercial and retail accounts.
Total Assets (EOP) of $10.25 billion compared to $10.19 billion in 1Q22 and $10.46 billion in 2Q21.
Capital: CET1 ratio was 12.80% compared to 13.24% in 1Q22 and 13.95% in 2Q21. The decline from 1Q22 reflected common stock repurchased during the quarter and an increase in risk weighted assets, partially offset by an increase in retained earnings. Tangible book value per share was $18.86 compared to $18.90 in 1Q22 and $18.13 in 2Q21. The slight decline from 1Q22 reflected the common stock repurchase and a reduction in other comprehensive income, partially offset by the increase in retained earnings.
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, management uses certain “non-GAAP financial measures” within the meaning of SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Please refer to Tables 8-1 and 8-2 in OFG’s above-mentioned Financial Supplement for a reconciliation of GAAP to non-GAAP measures and calculations.
Forward Looking Statements
The information included in this document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and involve certain risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements.
Factors that might cause such a difference include but are not limited to (i) general business and economic conditions, including changes in interest rates; (ii) cybersecurity breaches; (iii) hurricanes, earthquakes, and other natural disasters; (iv) competition in the financial services industry; and (v) the severity, magnitude and duration of the COVID-19 pandemic, and its impact on our operations, personnel, and customers.
For a discussion of such factors and certain risks and uncertainties to which OFG is subject, please refer to OFG’s annual report on Form 10-K for the year ended December 31, 2021, as well as its other filings with the U.S. Securities and Exchange Commission. Other than to the extent required by applicable law, including the requirements of applicable securities laws, OFG assumes no obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
About OFG Bancorp
Now in its 58th year in business, OFG Bancorp is a diversified financial holding company that operates under U.S., Puerto Rico and U.S. Virgin Islands banking laws and regulations. Its three principal subsidiaries, Oriental Bank, Oriental Financial Services, and Oriental Insurance, provide a wide range of retail and commercial banking, lending and wealth management products, services, and technology, primarily in Puerto Rico and U.S. Virgin Islands. Visit us at www.ofgbancorp.com.
