OFG Bancorp(US:OFG)2022-05-06 13:44PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for OFG Bancorp for the quarterly period ended March 31, 2022, including the Statements of Financial Condition, Operations, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows, along with 23 detailed notes Unaudited Consolidated Statements of Financial Condition As of March 31, 2022, OFG Bancorp's total assets increased to $10.19 billion from $9.90 billion at year-end 2021, driven by growth in total loans to $6.45 billion and a significant rise in investment securities, while total deposits also grew to $8.98 billion and total stockholders' equity slightly decreased to $1.04 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $10,190,120 | $9,899,720 | | Total Investments | $1,258,718 | $895,818 | | Total Loans, net | $6,449,130 | $6,329,311 | | Total Liabilities | $9,150,085 | $8,830,560 | | Total Deposits | $8,978,222 | $8,603,118 | | Total Stockholders' Equity | $1,040,035 | $1,069,160 | Unaudited Consolidated Statements of Operations For the first quarter of 2022, OFG Bancorp reported a net income of $37.5 million, a 23.5% increase from $30.4 million in the same period of 2021, driven by a 7.1% rise in net interest income to $105.2 million and a significant 75.5% decrease in the provision for credit losses, with diluted earnings per share increasing to $0.76 from $0.56 year-over-year Quarterly Operating Results (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $105,194 | $98,198 | | Provision for Credit Losses | $1,551 | $6,324 | | Total Non-interest Income | $31,606 | $30,413 | | Total Non-interest Expense | $81,155 | $77,666 | | Net Income | $37,521 | $30,373 | | Diluted EPS | $0.76 | $0.56 | Notes to Unaudited Consolidated Financial Statements The notes provide detailed disclosures on significant accounting policies, the composition of assets and liabilities, and other financial matters, including investment securities, loan portfolios, allowance for credit losses, regulatory capital, and segment reporting, noting no material impact from new accounting standards - OFG is a financial holding company operating primarily in Puerto Rico, providing a wide range of banking and financial services through subsidiaries like Oriental Bank, Oriental Financial Services, and Oriental Insurance35 - The loan portfolio is composed of four main segments: commercial, mortgage, consumer, and auto loans and leases, with a total amortized cost basis of loans held for investment of $6.55 billion as of March 31, 202255 - The allowance for credit losses (ACL) increased slightly to $157.1 million as of March 31, 2022, from $155.9 million at year-end 2021, with a provision for the quarter of $1.55 million reflecting loan growth and a specific commercial loan provision, offset by improved economic outlook9495 - Total deposits grew to $8.98 billion, primarily driven by increases in non-interest-bearing demand deposits and savings accounts, with public fund deposits from Puerto Rico government entities amounting to $248.3 million114116 - During Q1 2022, OFG redeemed all of its outstanding $36.1 million in subordinated capital notes, resulting in a write-off of $405 thousand in unamortized issuance costs125 - In January 2022, the Board approved a new $100 million stock repurchase program, under which OFG repurchased 1.22 million shares for $33.5 million in Q1 2022138 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strong performance in Q1 2022, characterized by solid loan and deposit growth, net interest margin expansion, and a lower provision for credit losses, covering recent capital actions, the economic environment, and detailed results of operations by segment, changes in financial condition, credit risk management, and capital adequacy Financial Highlights Q1 2022 demonstrated strong core business momentum with diluted EPS of $0.76, core revenues of $136.4 million, net interest income growth to $105.2 million with an expanded NIM of 4.47%, increased loan and deposit balances, improved credit quality, and $33.5 million in common stock repurchases Q1 2022 Key Performance Indicators | Metric | Q1 2022 | Q4 2021 | Q1 2021 | | :--- | :--- | :--- | :--- | | Diluted EPS | $0.76 | $0.66 | $0.56 | | Net Interest Income ($M) | $105.2 | $104.2 | $98.2 | | Net Interest Margin (NIM) | 4.47% | 4.18% | 4.26% | | Provision for Credit Losses ($M) | $1.6 | $7.2 | $6.3 | | Loans Held for Investment ($B) | $6.55 | $6.40 | $6.59 | | CET1 Ratio | 13.24% | 13.77% | 13.56% | - The company repurchased $33.5 million of common stock as part of its new $100 million buyback program216 Analysis of Results of Operations Net interest income increased by $7.0 million year-over-year to $105.2 million due to reduced interest-bearing liability costs, while non-interest income grew 3.9% to $31.6 million from higher banking service and wealth management revenues, and non-interest expense rose 4.5% to $81.2 million primarily from increased compensation and electronic banking charges, with a significant decrease in the provision for credit losses to $1.6 million - Net interest income increased by $7.0 million YoY, primarily due to a $5.0 million reduction in interest expense from lower deposit and borrowing costs238242 - Non-interest income increased by $1.2 million YoY, driven by a $1.1 million rise in banking service revenues and a $469 thousand increase in wealth management revenue242243 - Non-interest expense increased by $3.5 million YoY, mainly due to a $2.2 million increase in compensation and a $1.6 million rise in electronic banking charges from higher transaction volumes246247 - The provision for credit losses decreased by $4.8 million YoY, reflecting improved macroeconomic conditions and the release of certain reserves250 Analysis of Financial Condition Total assets grew by $290.4 million since year-end 2021 to $10.19 billion, driven by increases in the investment and net loan portfolios, while total deposits expanded by 4.4%, and stockholders' equity decreased by 3% to $1.04 billion due to share repurchases and AOCI reduction, yet all regulatory capital ratios remained well above 'well-capitalized' thresholds - Net loans increased by $119.8 million (1.9%) from year-end 2021, with growth in commercial, consumer, and auto loans offsetting a decrease in mortgage loans and PPP loan forgiveness260 - Non-performing assets decreased by 10.6% to $115.3 million (1.13% of total assets) from $129.0 million at year-end 2021276 - Total deposits increased by 4.4% from year-end 2021, mainly from higher commercial and retail deposits298 - Stockholders' equity decreased by $29.1 million, reflecting $33.5 million in share repurchases and a $25.8 million decrease in AOCI, partially offset by $37.5 million in net income300 Regulatory Capital Ratios | Ratio | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | CET1 Capital Ratio | 13.24% | 13.77% | | Tier 1 Risk-Based Capital Ratio | 13.24% | 14.27% | | Total Risk-Based Capital Ratio | 14.49% | 15.52% | | Leverage Ratio | 9.54% | 9.69% | Quantitative and Qualitative Disclosures about Market Risk This section details OFG's management of market, interest rate, credit, liquidity, operational, and concentration risks, highlighting its primary exposure to interest rate risk managed through NII simulation analysis, which projects a 7.08% increase in net interest income from a 100 basis point rate hike, alongside robust liquidity and credit risk management - OFG's primary risk exposures are identified as market, interest rate, credit, liquidity, operational, and concentration risk, with most business activities concentrated in Puerto Rico318350 Net Interest Income Sensitivity Analysis (One-Year Projection) | Change in Interest Rate | Instantaneous Change (%) | Gradual Change (%) | | :--- | :--- | :--- | | +200 Basis points | 14.25% | 7.02% | | +100 Basis points | 7.08% | 3.50% | | +50 Basis points | 3.55% | 1.76% | | -50 Basis points | -2.82% | -1.57% | - As of March 31, 2022, OFG had significant liquidity sources, including $1.856 billion in unrestricted cash and cash equivalents and $664.3 million in borrowing capacity at the FHLB-NY345 - OFG uses interest rate swaps to hedge cash flow variability, with $28.0 million in interest rate swaps designated as cash flow hedges for FHLB-NY advances as of March 31, 2022330 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, providing reasonable assurance of timely and accurate reporting, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of March 31, 2022, OFG's disclosure controls and procedures were effective351 - There were no changes in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control352 PART II – OTHER INFORMATION Legal Proceedings OFG and its subsidiaries are defendants in various legal proceedings incidental to their business, and management believes that the ultimate liability, if any, will not have a material adverse effect on the company's financial condition or results of operations, with an accrued liability of $4.9 million recorded for probable and estimable loss contingencies as of March 31, 2022 - OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business353 - Management is of the opinion that the ultimate aggregate liability from these claims will not have a material adverse effect on OFG's financial condition353 - As of March 31, 2022, the accrued liability for probable and estimable loss contingencies amounted to $4.9 million162 Risk Factors This section supplements the risk factors from the 2021 Form 10-K, specifically addressing new and evolving risks associated with the military conflict in Ukraine, highlighting potential impacts on the global economy, including increased inflation, further interest rate hikes, heightened cybersecurity threats, and financial market volatility, all of which could adversely affect OFG's business, financial condition, and stock price - The military actions of Russia in Ukraine and the resulting geopolitical uncertainty are identified as a significant new risk factor355 - Potential impacts include significant increases in oil, natural gas, and food prices, adding to inflationary pressures and likely prompting further interest rate hikes by the Federal Reserve355 - The risk of increased cyberattacks and the negative effects of financial sanctions on international trade could adversely impact OFG and its customers355 Unregistered Sales of Equity Securities and Use of Proceeds In January 2022, the Board of Directors approved a new $100 million stock repurchase program, under which OFG repurchased 1,219,132 shares of its common stock for a total of $33.5 million at an average price of $27.46 per share during the first quarter of 2022, with approximately $66.5 million remaining available for future repurchases - A new stock repurchase program for $100 million was approved in January 2022356 Share Repurchases in Q1 2022 | Period | Total Shares Purchased | Average Price Paid | Total Cost (in thousands) | | :--- | :--- | :--- | :--- | | Jan 2022 | 700,000 | $27.52 | $19,263 | | Feb 2022 | 287,548 | $27.52 | $7,913 | | Mar 2022 | 231,584 | $27.22 | $6,303 | | Total | 1,219,132 | $27.46 | $33,479 | - As of March 31, 2022, $66.5 million remained available for purchase under the program357