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OFG Bancorp (NYSE: OFG) reported strong 2Q24 results, with EPS diluted of $1.08, up 16.1% year-over-year. Total core revenues reached $179.4 million, a 5.2% increase from 2Q23. The company demonstrated robust performance metrics, including a net interest margin of 5.51% and a return on average assets of 1.82%. OFG's 'Digital First' strategy continues to drive growth in retail and business relationships. The bank implemented nearly half of its $50 million share buyback program, purchasing $24.3 million of OFG shares. Loans Held for Investment grew to $7.64 billion, up 7.3% year-over-year, while Customer Deposits increased to $9.60 billion. The company maintained strong capital ratios with a CET1 ratio of 14.29% and a Tangible Book Value of $24.18 per share.
Positive
EPS diluted increased 16.1% year-over-year to $1.08
Total core revenues grew 5.2% year-over-year to $179.4 million
Strong performance metrics: 5.51% net interest margin, 1.82% return on average assets
Loans Held for Investment increased 7.3% year-over-year to $7.64 billion
Customer Deposits grew to $9.60 billion from $8.54 billion in 2Q23
Implemented $24.3 million of $50 million share buyback program
Tangible Book Value increased to $24.18 per share from $21.06 in 2Q23
Negative
Total Non-Interest Expense increased to $93.0 million from $88.9 million in 2Q23
Net charge-offs rose to $15.0 million compared to $6.6 million in 2Q23
Total Interest Expense increased to $40.3 million from $18.3 million in 2Q23
Insights
OFG Bancorp delivered a robust performance in 2Q24, with an EPS diluted of $1.08, showing a year-over-year increase of 16.1%. This growth can be attributed to the company's solid revenue base and increased loan production. Importantly, core revenues experienced a 5.2% year-over-year rise, demonstrating stable and consistent growth.
One highlight is the Net Interest Margin (NIM) of 5.51%. This healthy NIM indicates that OFG Bancorp effectively manages its interest income against interest expenses, a important factor for profitability in a rising interest rate environment. The increase in NIM, along with higher average balances and yields on loans, underscores the effectiveness of the company's lending strategies.
Moreover, the purchase of $24.3 million of its own shares under the share buyback program reflects confidence in its financial stability. Share buybacks often signal that a company believes its stock is undervalued and can positively impact earnings per share by reducing the number of shares outstanding.
However, the total non-interest expense also saw a rise to $93.0 million, driven by higher electronic banking costs and professional service fees. These increased expenses could slightly dampen profitability if not managed well in the future.
Overall, OFG Bancorp's performance suggests strong management and strategic execution, which should be reassuring for investors, particularly in terms of long-term growth potential.
OFG Bancorp's focus on a 'Digital First' strategy has proven effective in enhancing its retail and business relationships. This digital transformation is important in today's banking environment, where customers increasingly demand convenient and efficient digital banking solutions. By continuously upgrading products and services, OFG Bancorp positions itself as a competitive player in the market.
The company's increased new loan production of $589.0 million is noteworthy. The increase across all categories, led by auto loans, suggests robust demand and effective lending practices. This positive trend in loan production aligns with the overall growth in customer deposits, which hit $9.60 billion in 2Q24. This reflects customer trust and a growing client base.
Additionally, the low nonperforming loan rate of 1.08%, the lowest in the past five quarters, indicates solid credit quality management. Maintaining low nonperforming loans is vital for minimizing potential credit losses and ensuring financial health.
However, the slightly higher provision for credit losses of $15.6 million due to increased loan volume is a point to watch. A sudden rise in credit losses could impact the company's financials adversely.
In conclusion, OFG Bancorp's strategic focus on digital innovation and solid credit management are positive indicators for sustained growth and market competitiveness.
OFG Bancorp's performance metrics paint a picture of a well-managed bank capitalizing on strategic initiatives. The efficiency ratio of 51.81% is particularly impressive, indicating that the bank is managing its expenses well relative to its revenues. An efficiency ratio below 60% is often viewed favorably in the banking industry, as it suggests that the bank is operating efficiently.
Another critical aspect is the company's capital ratios. The CET1 ratio of 14.29% and the tangible common equity ratio of 10.09% are both strong, indicating a solid capital base relative to its risk-weighted assets. These ratios are above regulatory requirements, which bodes well for the bank's financial stability and ability to weather economic uncertainties.
The effective tax rate of 28.2% is lower than the previous year, partially due to favorable business activities benefiting from the Puerto Rico tax code. This tax benefit adds a layer of financial efficiency, contributing positively to the overall net income.
While the increase in professional services fees and FDIC insurance costs pose some operational expense challenges, these are manageable within the broader scope of the bank's financial health.
Thus, OFG Bancorp's strong capital positioning and efficient operations highlight its potential for continued stability and growth within the banking sector.
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--
OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, today reported results for the second quarter ended June 30, 2024. EPS diluted of $1.08 compared to $1.05 in 1Q24 and $0.93 in 2Q23. Total core revenues of $179.4 million compared to $174.2 million in 1Q24 and $170.5 million in 2Q23.
CEO Comment
José Rafael Fernández, Chief Executive Officer, said: “The second quarter continued to demonstrate the strength of our strategies and franchise. EPS-diluted increased 16.1% year-over-year on a 5.2% increase in total core revenues. We generated strong performance metrics through consistent growth; increased loans, deposits, and non-interest income; and stable credit quality. Our ‘Digital First’ strategy continues to help us expand our retail and business relationships through new and upgraded products, services, and self-service tools. In addition, we implemented close to half of our $50 million share buyback program, purchasing $24.3 million of OFG shares in the open market. At the same time, Puerto Rico’s economy continued to grow and steadily decouple from mainland economic uncertainties. Thanks to our team members for their commitment to making progress possible for our customers, employees, shareholders, and the communities we serve.”
2Q24 Highlights
Performance Metrics: Net interest margin of 5.51%, return on average assets of 1.82%, return on average tangible common stockholders’ equity of 18.24%, and efficiency ratio of 51.81%.
Total Interest Income of $187.7 million compared to $183.4 million in 1Q24 and $158.0 million in 2Q23. Compared to 1Q24, 2Q24 primarily reflected higher average balances and yields on loans. 2Q24 included $2.1 million from the recovery of a non-accrual U.S. commercial loan paid in full.
Total Interest Expense of $40.3 million compared to $39.3 million in 1Q24 and $18.3 million in 2Q23. Compared to 1Q24, 2Q24 reflected higher average core deposits and a 7 basis point increase in rates, partially offset by lower average wholesale funding and rate.
Total Banking & Financial Service Revenues of $32.1 million compared to $30.1 million in 1Q24 and $30.9 million in 2Q23. Compared to 1Q24, 2Q24 reflected higher banking service, wealth management and mortgage banking revenues. Banking service revenues included $0.6 million prepayment fees on U.S. loans, while wealth management included $0.5 million in annual recognition of certain commercial insurance commissions.
Pre-Provision Net Revenues of $86.8 million compared to $83.0 million in 1Q24 and $80.8 million in 2Q23.
Total Provision for Credit Losses of $15.6 million compared to $15.1 million in 1Q24 and $15.0 million in 2Q23. 2Q24 provision primarily reflected increased loan volume.
Credit Quality: Net charge-offsof $15.0 million compared to $19.8 million in 1Q24 and $6.6 million in 2Q23. 2Q24 early and total delinquency rates were 2.81% and 3.71%, respectively. The nonperforming loan rate of 1.08% was the lowest over the last five quarters.
Total Non-Interest Expense of $93.0 million compared to $91.4 million in 1Q24 and $88.9 million in 2Q23. Compared to 1Q24, 2Q24 included increases of $1.3 million in electronic banking expenses, $1.1 million in professional services fees, and $0.4 million for increased FDIC insurance now that Oriental exceeds $10 billion in assets. This was partially offset by reductions of $1.4 million in foreclosed real estate costs and in FICA payroll related expenses relative to the prior quarter.
Effective Tax Rate of 28.2% compared to 26.8% in 1Q24 and 32.9% in 2Q23. 2Q24 reflected an expected 2024 ETR of 29.0% due to higher forecasted business activities with preferential tax treatment under the Puerto Rico tax code, coupled with a $0.8 million tax benefit credit in 2Q24 compared to $1.1 million discrete benefit for stock vested in 1Q24.
Loans Held for Investment (EOP) of $7.64 billion compared to $7.54 billion in 1Q24 and $7.12 billion in 2Q23. Compared to 1Q24, 2Q24 increased 1.3%, reflecting growth in Puerto Rico commercial, auto and consumer loans, partially offset by regular paydowns of residential mortgages and prepayment of U.S. commercial loans. Compared to 2Q23, 2Q24 loans increased 7.3%.
New Loan Production of $589.0 million compared to $536.6 million in 1Q24 and $681.8 million in 2Q23. Compared to 1Q24, 2Q24 loan production, led by auto, reflected increases in all categories.
Total Investments (EOP) of $2.48 billion compared to $2.48 billion in 1Q24 and $1.70 billion in 2Q23.
Customer Deposits (EOP) of $9.60 billion compared to $9.55 billion in 1Q24 and $8.54 billion in 2Q23. Compared to 1Q24, 2Q24 reflected an increase in commercial deposits partially offset by a decline in retail deposits.
Total Borrowings & Brokered Deposits (EOP) of $201.2 million compared to $203.3 million in 1Q24 and $226.5 million in 2Q23.
Cash & Cash Equivalents (EOP) of $740.4 million compared to $754.4 million in 1Q24 and $799.0 million in 2Q23.
Capital: CET1 ratio was 14.29% compared to 14.45% in 1Q24 and 14.03% in 2Q23. The Tangible Common Equity ratio was 10.09% compared to 10.06% in 1Q24 and 9.99% in 2Q23. Tangible Book Value of $24.18 per share compared to $23.55 in 1Q24 and $21.06 in 2Q23.
A conference call to discuss 2Q24 results, outlook and related matters will be held today at 10:00 AM ET. Phone (800) 245-3047 or (203) 518-9708. Conference ID: OFGQ224. 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 ended June 30, 2024, and the 2Q24 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, 2023, 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 60th 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. Our mission is to make progress possible for our customers, employees, shareholders, and the communities we serve. Visit us at www.ofgbancorp.com.
