OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, reported results for the fourth quarter that ended on December 31, 2020.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, stated:
“We had another quarter of strong performance in our core businesses, reflecting our larger scale, solid levels of new loans production, lower cost of funds, higher non-interest income, and reduced expenses.
On a macro-basis, we are benefitting from the improved economic environment in Puerto Rico and the U.S. Virgin Islands due to the continuing nascent rebound from the easing of COVID-19 restrictions and from pandemic-related stimulus.
Within this environment, our success continues to be driven by resiliency, agility, and being more than ready to help customers and communities with their changing product and service needs. During the fourth quarter, we also completed the integration of the Scotiabank acquisition and related cost-savings.
We look forward to realizing the full benefits of our larger scale over the course of 2021. The vaccine inoculations should reduce the threat of COVID-19, and the economy of Puerto Rico and USVI should expand from all the pending federal reconstruction and stimulus.
2020 was another challenging year for Puerto Rico, USVI and Oriental. Like past years, we successfully worked our way through it. Our heartfelt thanks go to our team members who helped customers by swiftly processing loan deferrals; implementing an easy-to-use, fully online Paycheck Protection Program; managing the rapid influx of deposits; and providing contactless and in-person services in a COVID-19 safe manner. We are also thankful to the many team members who had to successfully adapt to working from home and implement the Scotiabank integration in the middle of a pandemic”.
4Q20 Highlights
Increased Earnings & Revenues: EPS diluted of $0.42 compared to a loss of $0.05 in 4Q19. Results reflected pre-tax merger and restructuring charges of $10.1 million compared to $21.5 million in 4Q19. Total core revenues were $132.8 million versus $98.4 million in 4Q19. Net interest income of $98.7 million increased 24.7%. Non-interest income of $34.0 million increased 77.4%. Net interest margin was 4.24% compared to 5.34% in 4Q19.
Solid Production: New loan originations totaled $485.4 million compared to $404.9 million in 4Q19. Compared to 3Q20, production (excluding Paycheck Protection Program loans) increased $38.0 million, driven by commercial and mortgage with continued strong levels of auto and consumer lending. Net loans declined $77.9 million from 9/30/20 to $6.5 billion at 12/31/20.
Lower Provision: Provision for credit losses was $14.2 million compared to $23.1 million in 4Q19. 4Q20 net charge-offs of $44.8 million included $31.2 million for two acquired commercial loans that were substantially reserved. 4Q20 loan deferrals fell to 1.4% of total loans from 2.0% in 3Q20.
Core Expenses: Non-interest expenses were $89.0 million compared to $78.9 million in 4Q19. Excluding merger and COVID-19 related costs, 4Q20 non-interest expenses of $77.4 million fell $9.4 million from 1Q20, amounting to approximately $38.0 million in annualized reductions from the Scotiabank acquisition, exceeding original expectations by about 9%.
Lower Cost of Funds: Cost of funds was 66 bps compared to 92 bps in 4Q19. Compared to 3Q20, cost of funds fell 5 bps. Customer deposits declined $169.8 million from 9/30/20 to $8.4 billion at 12/31/20.
Capital Building: Tangible book value per share increased $1.01 to $16.97 compared to 4Q19 and CET1 capital increased $158.6 million to $894.1 million. The CET1 ratio was 13.08% versus 12.55% on 9/30/20 and 10.91% on 12/31/19, when the Scotiabank acquisition closed.
2020 Highlights
Increased Earnings & Revenues: EPS diluted of $1.32 compared to $0.92 in 2019. Total core revenues were $519.3 million versus $396.2 million in 2019, with increases of 26.5% and 51.1% in net interest and non-interest income, respectively. New loan production was $1.7 billion compared to $1.3 billion. Net interest margin was 4.55% compared to 5.37%. The effective tax rate was 21.6% compared to 28.5%.
Results Included (all amounts pre-tax): Merger and restructuring charges mostly related to the Scotiabank acquisition of $16.1 million compared to $24.1 million in 2019, and bargain purchase gain from the acquisition of $7.3 million compared to $0.3 million in 2019. 2020 also included $39.9 million in COVID-19 related provision for credit losses and $5.8 million in COVID-19 related expenses.
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) 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.
