OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, reported results for the third quarter that ended on September 30, 2020.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, stated:
“We had a strong third quarter performance in our core business. This was due to an improved macro-economic environment in Puerto Rico and the U.S. Virgin Islands coupled with us being resilient, agile, and more than ready to service the changing needs of our customers and communities.
The macro-economic environment benefited from reduced Covid-19 related government restrictions on economic activity, combined with growing liquidity from the federal stimulus programs Puerto Rico is receiving following 2017’s Hurricane Maria, the early 2020 earthquakes, and now the COVID-19 pandemic.
Our success was driven by staying close to our customers and the communities we serve, providing the financial solutions they need as we enter what appears to be a nascent and potentially expanding recovery.
Customer accounts grew, and digital migration expanded. Deposit gathering and loan production were robust. Credit quality continued to be under control. Operating efficiency improved, and the Scotiabank integration is proceeding on schedule.
Return on average assets increased to 1.11%, return on average tangible common stockholders’ equity expanded to 12.23%, and tangible book value, at $16.51 per share, continued to grow.
Tremendous thanks to our hardworking team who continues to put Oriental and its customers first throughout these challenging times”.
3Q20 Highlights1
- Increased Earnings: EPS diluted of $0.50 increased 28% compared to $0.39 in 2Q20 and 355% compared to $0.11 in 3Q19. Total core revenues were $127.0 million versus $128.2 million in 2Q20 and $99.3 million in 3Q19. Net interest margin was 4.30% compared to 4.78% in 2Q20. The effective tax rate was 18.7% based on a higher than originally anticipated proportion of exempt income.
- Lower Provision: Provision for credit losses fell 23% to $13.7 million from $17.7 million in 2Q20 and 69% from $43.8 million in 3Q19. Credit quality also reflected reduced deferrals (2.0% of total loans compared to 30.0%), $5.2 million in lower net charge offs, and increases in the total delinquency and non-performing loan rates of 11 bps and 52 bps, respectively, for non-PCD loans, from 2Q20.
- Expense Reduction: Non-interest expenses of $83.4 million fell more than 2% or $2.0 million compared to $85.5 million in 2Q20, with the efficiency ratio improving 101 bps to 65.7%. Excluding merger and Covid-19 related costs, the adjusted efficiency ratio improved 369 bps to 62.2% from 2Q20, as increased operating leverage from the Scotiabank acquisition began to kick in.
- Deposit and Cash Growth: Customer deposits grew $212.6 million to $8.5 billion on September 30, 2020 from June 30, 2020. Due to the increased deposits as well as repayments of loans and securities, cash increased $383.0 million, to $2.3 billion. As a result, total assets grew $83.6 million to $10.0 billion, which OFG does not anticipate exceeding on December 31, 2020.
- Strong Production: Loan production totaled $457.8 million compared to $506.0 million in 2Q20. Excluding Paycheck Protection Program loans, production increased $227.8 million, driven by commercial, auto, mortgage and consumer lending. Net loans were $6.6 billion on September 30, 2020 compared to $6.7 billion on June 30, 2020.
- Capital Building: Tangible book value per share expanded 3% or $0.50 to $16.51 compared to 2Q20. All regulatory capital ratios continued to be significantly above requirements for a well-capitalized institution. The CET1 ratio was 12.55% on September 30, 2020 compared to 12.03% on June 30, 2020 and 17.98% on September 30, 2019, the quarter before the Scotiabank acquisition.
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, 8-2 and 8-3 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) the rate of growth in the economy and employment levels, as well as general business and economic conditions; (ii) changes in interest rates, as well as the magnitude of such changes; (iii) changes to the financial condition of the government of Puerto Rico; (iv) the potential impact of damages from future hurricanes, earthquakes and other natural disasters in Puerto Rico; (v) the fiscal and monetary policies of the federal government and its agencies; (vi) the performance of the stock and bond markets; (vii) competition in the financial services industry; (viii) possible legislative, tax or regulatory changes; and (ix) the severity, magnitude and duration of the Covid-19 pandemic, including impacts of the pandemic and of responses of federal, state and local governments on our branches, operations and personnel, and on our customers and their businesses.
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, 2019, 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.
