OFG Bancorp Reports 2Q21 Results
OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, reported results for the second quarter ended June 30, 2021.
José Rafael Fernández, Chief Executive Officer, said: "We generated outstanding second quarter results. This reflects our larger scale and our focus on digital utilization and differentiation, combined with Puerto Rico's early economic and post-pandemic recovery.
"The economy is clearly benefitting from a massive amount of federal reconstruction and COVID stimulus, which are more meaningful here compared to mainland states given the size of our economy as it relates to reconstruction funds and the size of stimulus payments compared to average income levels.
"We saw the effects of all this across all our businesses. New loan origination increased 27.7% from 1Q21 with gains in all major categories, led by commercial and auto lending. Interest income grew 2.2% from 1Q21 as average loan balances expanded 1.3%, excluding residential mortgage. Banking and financial services revenues rose 5.4%.
"Asset quality trends continued to improve as reconstruction and stimulus funds provided significant liquidity to businesses and individuals. As result of this, provision for credit losses was a net benefit of $8.3 million.
"Results were enhanced by a 12.3% reduction in cost of funds compared to 1Q21 and the previously announced deployment of excess capital to redeem all three of our outstanding series of preferred stock, eliminating $1.6 million in quarterly dividends.
"Return on average assets and on average tangible equity expanded to 1.58% and 17.78%, respectively, compared to the previous and year ago quarters.
"As Puerto Rico continues experiencing stronger signs of economic revival, OFG is strategically well-positioned to continue to benefit from and play a major role in this long-awaited development. Thanks to all our team members who have been more than ready to help our customers achieve their goals."
Summary: Earnings per share diluted was $0.78 compared to $0.56 in 1Q21 and $0.39 in 2Q20. Total core revenues were $133.3 million compared to $127.7 million in 1Q21 and $128.2 million in 2Q20. Net interest margin was 4.22% compared to 4.26% in 1Q21 and 4.78% in 2Q20.
Total interest income of $113.5 million increased 2.2% from 1Q21 primarily due to higher income from increased average balances of commercial and auto loans and investment securities. Average loan balances were $6.60 billion compared to $6.64 billion in 1Q21 and $6.84 billion in 2Q20.
New Loan Origination totaled $673.6 million compared to $527.6 million in 1Q21 and $506.0 million in 2Q20. 2Q21 increased 27.7% from 1Q21 due to gains in all major categories, led by commercial and auto lending.
Total Interest Expense was $11.2 million compared to $12.8 million in 1Q21 and $166 million in 2Q20. 2Q21 declined 12.3% from 1Q21 primarily due to lower cost of core deposits, which was 38 bps compared to 47 bps in 1Q21 and 61 bps in 2Q20. Average customer deposit balances were $8.96 billion compared to $8.54 billion in 1Q21 and $7.85 billion in 2Q20.
Asset Quality and Provision for Credit Losses: 2Q21 reflected continued improvement in asset quality trends with the rates for net charge offs (0.13%) and early (1.86%) and total (3.90%) delinquency at their lowest levels in five quarters. Provision for credit losses was a net benefit of $8.3 million, resulting from $2.1 million net charge-offs and $10.4 million net reserve releases, compared to a provision expense of $6.3 million in 1Q21 and $17.7 million in 2Q20.
Banking and Financial Services Revenues were $31.0 million compared to $29.5 million in 1Q21 and $23.1 million in 2Q20. 2Q21 increased 5.4% from 1Q21 and 34.4% from 2Q20 primarily due to increased activity as pandemic related economic restrictions have subsided.
Non-Interest Expenses were $82.7 million compared to $77.7 million in 1Q21 and $85.5 million in 2Q20. 2Q21 reflected previously announced cost savings, a $2.2 million technology project write down, and higher variable expenses related to higher revenues.
Pre-Provision Net Revenues were $51.8 million, which includes the above non-cash write down, compared to $50.9 million in 1Q21 and $46.7 million in 2Q20.
Capital: Tangible book value per share was $18.13 compared to $17.39 in 1Q21 and $16.01 in 2Q20. CET1 ratio was 13.95% compared to 13.56% in 1Q21 and 12.03% in 2Q21.
Conference Call, Financial Supplement & Presentation
A conference call to discuss 2Q21 results, outlook and related matters will be held today at 10:00 AM ET. Phone (News - Alert) (888) 562-3356 or (973) 582-2700. Conference ID: 573-9736. The call can also be accessed live on www.ofgbancorp.com. Webcast replay will be available shortly thereafter.
OFG's Financial Supplement, with full financial tables for the quarter ended June 30, 2021, and the 2Q21 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 (News - Alert) 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 in Puerto Rico; (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, 2020, 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 57th 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.