OFG Bancorp Reports 4Q23 & 2023 Results

Rhea-AI Summary

OFG Bancorp reported strong financial results for the fourth quarter and full year 2023, with diluted EPS of $0.98 in 4Q23 and $3.83 for the full year. The company achieved record levels of loans, customer deposits, assets, and stockholders’ equity. Despite workforce early retirement costs, OFG saw a gain on the sale of non-performing loans and a large public funds deposit in 4Q23. The company's 'Digital First Strategy' continues to be successful, with 93% of routine transactions completed through self-service channels. Performance metrics for 4Q23 included a net interest margin of 5.62% and a return on average assets of 1.76%. Credit quality remained strong, with a nonperforming loan rate of 1.22%, the lowest over the last five quarters. OFG also saw growth in loans, new loan production, investments, customer deposits, and total assets, reflecting a positive outlook for the company.

Financial Analyst

The earnings report from OFG Bancorp indicates a consistent upward trajectory in key financial metrics, such as EPS (Earnings Per Share) and total core revenues. The reported EPS growth from $0.95 in the previous quarter to $0.98 in 4Q23 and from $3.44 to $3.83 on a full-year basis, reflects a positive earnings momentum, which is a vital indicator of the company's profitability. Similarly, the increase in total core revenues from $607.8 million in the previous year to $682.7 million in 2023 demonstrates robust revenue generation capabilities.

From an investor's perspective, the enhanced tangible book value (TBV) from $19.56 to $23.13 per share year-over-year is significant as it represents the per-share value of a company's equity, excluding intangible assets - a key metric for assessing a bank's potential investment value. Moreover, the net interest margin (NIM) of 5.62% is particularly strong, suggesting efficient management of interest-earning assets and liabilities in a potentially rising interest rate environment.

The substantial increase in provision for credit losses from $8.8 million in 4Q22 to $19.7 million in 4Q23, while indicative of prudent risk management given the increased loan volume, also suggests a cautious outlook on potential future credit losses, which investors should monitor closely.

Market Research Analyst

OFG Bancorp's strategic focus on digitalization, as evidenced by their 'Digital First Strategy', aligns with broader industry trends towards online banking and self-service. This strategy has enabled 93% of routine transactions to be completed through self-service channels, enhancing customer experience and potentially reducing operational costs. The significant growth in loans held for investment and new loan production, particularly in the commercial sector, indicates aggressive market capture and could signal confidence in Puerto Rico's economic climate.

However, the increased reliance on wholesale funding, as seen in the higher average balances during the quarter, can expose the bank to market liquidity risks. The early repayment of borrowings and the addition of brokered deposits, with most maturing in early 1Q24, will be key factors to watch for their impact on the bank's liquidity and interest expense.

Economist

The report hints at broader economic implications, particularly within Puerto Rico's financial landscape. The large public funds deposit of $1.2 billion mid-December suggests strong public sector liquidity and may indicate governmental confidence in OFG Bancorp's stability. The reference to strong consumer liquidity and employment in Puerto Rico by the CEO supports the notion of a resilient local economy post-pandemic.

On a macroeconomic level, the bank's increased interest expenses reflect the rising interest rate environment, which is a trend across the banking sector as central banks globally have been tightening monetary policy to combat inflation. This trend can affect net interest income and thus profitability, although OFG Bancorp's net interest margin remains high.

Furthermore, the low nonperforming loan rate of 1.22%, the lowest over the last five quarters, could be interpreted as a positive indicator of credit quality within the bank's portfolio, which is reassuring in the context of economic uncertainty and potential future volatility.

SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, today reported results for the fourth quarter and year ended December 31, 2023.

4Q23: EPS diluted of $0.98 compared to $0.95 in 3Q23 and $0.97 in 4Q22. Total core revenues of $175.6 million compared to $172.2 million in 3Q23 and $168.3 million in 4Q22.

Full Year 2023: EPS diluted of $3.83 compared to $3.44 in 2022. Total core revenues of $682.7 million compared to $607.8 million.

CEO Comment

José Rafael Fernández, Chief Executive Officer, said: “2023 was an outstanding year. We are proud of our accomplishments and thank the entire team for making it possible. We ended 2023 with record levels of loans, customer deposits, assets, and stockholders’ equity. Year-end commercial loan balances exceeded $3 billion and tangible common equity was more than $1 billion, both for the first time. Our ‘Digital First Strategy’ continues to empower our retail customers to complete 93% of routine transactions through self-service channels. While consumer credit has begun to normalize post-pandemic, consumer liquidity and employment as well as commercial clients and the economy continue to be strong in Puerto Rico.”

4Q23 Results Included:

Gain on Sale of Non-Performing Puerto Rico Small Business Loans: Resulted in a $6.3 million pre-tax gain in other non-interest income.

Workforce Early Retirement & Rightsizing: Resulted in $3.2 million in severance and lease cancellation costs in non-interest compensation and infrastructure expenses.

Large Public Funds Deposit: $1.2 billion deposited mid-December.

4Q23 Highlights

Performance Metrics: Net interest margin of 5.62%, return on average assets of 1.76%, return on average tangible common stockholders’ equity of 18.22%, and efficiency ratio of 53.59%.

Total Interest Income of $176.2 million compared to $165.7 million in 3Q23 and $145.7 million in 4Q22. Compared to 3Q23, 4Q23 primarily reflected higher average balances and yields on loans and investment securities.

Total Interest Expense of $32.7 million compared to $23.9 million in 3Q23 and $10.4 million in 4Q22. Compared to 3Q23, 4Q23 reflected increases of $4.0 million in the cost of average core deposits and $4.8 million in the cost of average wholesale funding, primarily due to temporarily higher balances of borrowings and brokered deposits during the quarter.

Total Banking & Financial Service Revenues of $32.1 million compared to $30.4 million in 3Q23 and $33.0 million in 4Q22. Compared to 3Q23, 4Q23 reflected annual insurance commission recognition of $2.5 million in wealth management revenues and lower mortgage servicing revenues.

Pre-Provision Net Revenues of $88.2 million compared to $82.3 million in 3Q23 and $76.9 million in 4Q22.

Total Provision for Credit Losses of $19.7 million compared to $16.4 million in 3Q23 and $8.8 million in 4Q22. 4Q23 provision primarily reflected increased loan volume.

Credit Quality: Net charge-offs of $16.3 million compared to $18.8 million in 3Q23 and $11.2 million in 4Q22. 4Q23 early and total delinquency rates were 2.76% and 3.76%, respectively, in line with 3Q23. The nonperforming loan rate of 1.22% was the lowest over the last five quarters.

Total Non-Interest Expense of $94.1 million compared to $90.2 million in 3Q23 and $91.6 million in 4Q22.

Loans Held for Investment (EOP) of $7.53 billion compared to $7.26 billion in 3Q23 and $6.84 billion in 4Q22. Loans increased 3.8% from 3Q23 and 10.2% year-over-year, reflecting increases in commercial loans, and retail auto and consumer loans. This was partially offset by regular paydowns of residential mortgages and securitization and sale of conforming loans.

New Loan Production of $663.9 million compared to $567.5 million in 3Q23 and $616.4 million in 4Q22. 4Q23 primarily reflected increased Puerto Rico commercial lending.

Total Investments (EOP) of $2.69 billion compared to $2.07 billion in 3Q23 and $1.97 billion in 4Q22. 4Q23 investments reflected purchases of $300 million of short-term US Treasury bills and $250 million of long-term government insured, mortgage-backed securities.

Customer Deposits (EOP) of $9.60 billion compared to $8.54 billion in 3Q23 and $8.56 billion in 4Q22.

Total Borrowings & Brokered Deposits (EOP) of $363.0 million compared to $454.4 million in 3Q23 and $38.4 million in 4Q22. The average balance of such wholesale funding was $602.0 million in 4Q23 compared to $266.4 million in 3Q23. The 12/31/23 balance reflected repayment of $250 million of borrowings and the addition of $160 million of brokered deposits, most of which will mature in early 1Q24.

Cash & Cash Equivalents (EOP) of $748.2 million compared to $532.7 million in 3Q23 and $550.5 million in 4Q22.

Total Assets (EOP) of $11.34 billion compared to $10.26 billion in 3Q23 and $9.82 billion in 4Q22.

Capital: CET1 ratio was 14.12% compared to 14.06% in 3Q23 and 13.64% in 4Q22. The Tangible Common Equity ratio was 9.68% compared to 9.74% in 3Q23 and 9.59% in 4Q22. Tangible Book Value (TBV) of $23.13 per share compared to $21.01 in 3Q23 and $19.56 in 4Q22. 4Q23 TBV reflected increased retained earnings and Accumulated Other Comprehensive Income.

Conference Call, Financial Supplement & Presentation

A conference call to discuss 4Q23 results, outlook and related matters will be held today at 10:00 AM ET. Phone (800) 267-6316 or (203) 518-9783. Conference ID: OFGQ423. The call can also be accessed live on www.ofgbancorp.com with webcast replay shortly thereafter.

OFG’s Financial Supplement, with full financial tables for the quarter and year ended December 31, 2023, and the 4Q23 Conference Call Presentation, can be found on the Quarterly Results page on OFG’s Investor Relations website at www.ofgbancorp.com.

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, pandemics and other natural disasters; and (iv) competition in the financial services industry.

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, 2022, 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 60^th 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240123214026/en/

Puerto Rico & USVI: Idalis Montalvo (idalis.montalvo@orientalbank.com) at (787) 777-2847

US: Gary Fishman (gfishman@ofgbancorp.com) and Steven Anreder (sanreder@ofgbancorp.com) at (212) 532-3232

Source: OFG Bancorp

FAQ

What is the diluted EPS for OFG Bancorp in 4Q23?

The diluted EPS for OFG Bancorp in 4Q23 was $0.98.

What were the total core revenues for OFG Bancorp in 2023?

The total core revenues for OFG Bancorp in 2023 were $682.7 million.

What was the net interest margin for OFG Bancorp in 4Q23?

The net interest margin for OFG Bancorp in 4Q23 was 5.62%.

What was the nonperforming loan rate for OFG Bancorp in 4Q23?

The nonperforming loan rate for OFG Bancorp in 4Q23 was 1.22%.

What was the total assets for OFG Bancorp at the end of 2023?

The total assets for OFG Bancorp at the end of 2023 were $11.34 billion.