OFG Bancorp (NYSE:OFG), the financial holding company for Oriental Bank, reported results for the second quarter ended June 30, 2023. EPS diluted of $0.93 compared to $0.96 in 1Q23 and $0.84 in 2Q22. Total core revenues of $170.5 million compared to $164.4 million in 1Q23 and $146.3 million in 2Q22.

CEO Comment

José Rafael Fernández, Chief Executive Officer, said: "The second quarter generated year-over-year increases of 16.5% in total core revenues and 10.7% in earnings per share. The period was highlighted by strong loan production, stable core deposits along with low cumulative deposit beta of 16% and increased operating leverage. Customer liquidity and the Puerto Rico economy continued at high levels. We also repurchased 565,299 shares of OFG stock as part of our buyback program."

"Our ‘Digital First' strategy continues to show excellent progress. We launched a first to market, self-service portal that enables customers to manage quickly and easily all their loan and deposit accounts in one place. Customers are increasingly adopting this and other self-service tools. Use of brick and mortar channels is down and digital is up, leading to an overall 5% increase in customer transaction activity in June year-over-year. This is freeing more Oriental team members to provide value-added service and develop new business. As always, thanks to our team for helping our customers and the communities we serve."

2Q23 Highlights

Performance Metrics: Net interest margin of 5.90%, return on average assets of 1.76%, return on average tangible common stockholders' equity of 17.67%, and efficiency ratio of 52.13%.

Net Interest Income of $139.6 million compared to $135.9 million in 1Q23 and $115.1 million in 2Q22. 2Q23 reflected the full effect of 1Q23's 50 basis point increase in the Federal Reserve Board's funds rate and a partial effect of 2Q23's 25 bps increase.

Total Interest Income of $158.0 million compared to $149.0 million in 1Q23 and $122.2 million in 2Q22. Compared to 1Q23, 2Q23 primarily reflected higher yields on increased average balances of loans and cash.

Total Interest Expense of $18.3 million compared to $13.1 million in 1Q23 and $7.1 million in 2Q22. Compared to 1Q23, 2Q23 reflected higher cost of funds on increased average balances of interest bearing liabilities, including the full quarter effect of a $200 million mid-March Federal Home Loan Bank advance.

Total Banking & Financial Service Revenues of $30.9 million compared to $28.5 million in 1Q23 and $31.2 million in 2Q22. Compared to 1Q23, 2Q23 primarily reflected increased wealth management and mortgage servicing revenues. Non-interest income also included a loss of $0.8 million due primarily to the sale of a short-term Treasury note.

Pre-Provision Net Revenues of $80.8 million compared to $74.6 million in 1Q23 and $66.0 million in 2Q22.

Total Provision for Credit Losses of $15.0 million compared to $9.4 million in 1Q23 and $6.7 million in 2Q22. 2Q23 included $9.1 million for a specific reserve for three US commercial loans and $6.3 million due to increased loan volume.

Credit Quality: Net charge-offs of $6.6 million compared to $10.1 million in 1Q23 and $4.5 million in 2Q22. 2Q23 included a recovery of $3.7 million from the sale of older, fully charged off auto and consumer loans. 2Q23 delinquency and non-performing loan rates rose slightly from reduced levels in 1Q23.

Total Non-Interest Expense of $88.9 million compared to $90.2 million in 1Q23 and $85.3 million in 2Q22. Compared to 1Q23, 2Q23 operating expenses increased $1.8 million, which was more than offset by $3.1 million from (i) a higher gain on foreclosed real estate and (ii) lower credit expenses.

Loans Held for Investment (EOP) of $7.12 billion compared to $6.85 billion in 1Q23 and $6.70 billion in 2Q22. Loans increased 15.4% annualized from the previous quarter and 6.2% year-over-year. Compared to 1Q23, 2Q23 reflected increases in commercial, auto, and consumer loans. This was partially offset by regular paydowns of residential mortgages.

New Loan Production of $691.8 million compared to $561.3 million in 1Q23 and $587.2 million in 2Q22. 2Q23 reflected strong levels of commercial lending in Puerto Rico and the US as well as auto, consumer, and residential mortgage lending.

Total Investments (EOP) of $1.70 billion compared to $1.92 billion in 1Q23 and $1.73 billion in 2Q22. 2Q23 investments declined $214.0 million from 1Q23 primarily due to the previously mentioned sale of a Treasury note.

Customer Deposits (EOP) of $8.54 billion compared to $8.57 billion in 1Q23 and $9.02 billion in 2Q22.

Total Borrowings (EOP) of $226.5 million compared to $226.8 million in 1Q23 and $27.6 million in 2Q22.

Cash & Cash Equivalents (EOP) of $799.0 million compared to $847.5 million in 1Q23 and $1.31 billion in 2Q22.

Total Assets (EOP) of $10.03 billion compared to $10.06 billion in 1Q23 and $10.25 billion in 2Q22.

Capital: CET1 ratio of 14.01% compared to 14.07% in 1Q23 and 12.80% in 2Q22. The Tangible Common Equity ratio was 9.99% compared to 9.85% in 1Q23 and 8.85% in 2Q22. Tangible Book Value per share of $21.06 compared to $20.57 in 1Q23 and $18.86 in 2Q22.

Conference Call, Financial Supplement & Presentation

A conference call to discuss 2Q23 results, outlook and related matters will be held today at 10:00 AM ET. Phone (800) 579-2543 or (785) 424-1789. Conference ID: OFGQ223. 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, 2023, and the 2Q23 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 59^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.

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OFG Bancorp Reports 2Q23 Results