OFG Bancorp(OFG) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for OFG Bancorp as of September 30, 2023, and for the three and nine-month periods then ended Unaudited Consolidated Statements of Financial Condition As of September 30, 2023, total assets increased to $10.26 billion from $9.82 billion at year-end 2022, driven by a 6.1% growth in net loans to $7.13 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $10,257,138 | $9,818,780 | | Total cash and cash equivalents | $532,699 | $550,307 | | Total investments | $2,074,474 | $1,971,522 | | Total loans, net | $7,130,052 | $6,723,236 | | Goodwill | $84,241 | $84,241 | | Total Liabilities | $9,161,675 | $8,776,374 | | Total deposits | $8,541,553 | $8,568,364 | | Total borrowings | $451,475 | $27,034 | | Total Stockholders' Equity | $1,095,463 | $1,042,406 | Unaudited Consolidated Statements of Operations For the third quarter of 2023, net income available to common shareholders was $44.9 million, or $0.95 per diluted share, up from $41.9 million, or $0.87 per diluted share, in the same quarter of 2022 Key Performance Indicators (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $141,787 | $126,510 | $417,328 | $346,798 | | Provision for Credit Losses | $16,430 | $7,120 | $40,919 | $15,362 | | Total Non-interest Income | $30,699 | $30,620 | $89,673 | $98,436 | | Total Non-interest Expense | $90,158 | $87,492 | $269,266 | $253,905 | | Net Income | $44,873 | $41,919 | $135,275 | $119,872 | | Diluted EPS | $0.95 | $0.87 | $2.84 | $2.47 | Unaudited Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities was $188.1 million, while net cash used in investing activities was $548.5 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $188,133 | $115,546 | | Net cash used in investing activities | ($548,488) | ($1,491,017) | | Net cash provided by financing activities | $342,590 | $167,254 | | Net change in cash, cash equivalents and restricted cash | ($17,765) | ($1,208,217) | Notes to Unaudited Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial data, covering investments, loans, credit losses, deposits, borrowings, regulatory capital, and segment performance Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting continued loan growth, stable core deposits, and strong performance metrics despite industry volatility - Q3 2023 results showed a 10% year-over-year increase in core revenues and a 9% increase in EPS, driven by loan growth, stable deposits, and a low cumulative deposit beta of 19%[239] - The company believes Puerto Rico's economy continues to show resiliency and growth, with key indicators like the Economic Activity Index, retail sales, and employment all increasing year-over-year[234] - Despite recent failures of high-profile banks, OFG's customer deposits remained stable at $8.5 billion, and the company believes its high levels of liquidity and capital place it in a strong position[235] Analysis of Results of Operations For Q3 2023, net interest income rose 12.1% YoY to $141.8 million, driven by higher loan yields, while non-interest expense increased 3.0% to $90.2 million Quarterly Results of Operations (Q3 2023 vs Q3 2022, in thousands) | Metric | Q3 2023 | Q3 2022 | Variance % | | :--- | :--- | :--- | :--- | | Net Interest Income | $141,787 | $126,510 | 12.1% | | Provision for Credit Losses | $16,430 | $7,120 | 130.8% | | Non-interest Income | $30,699 | $30,620 | 0.3% | | Non-interest Expenses | $90,158 | $87,492 | 3.0% | | Net Income | $44,873 | $41,919 | 7.0% | - The increase in net interest income for Q3 2023 was primarily driven by a $25.9 million increase in interest income from loans, reflecting higher yields on variable rate commercial loans and growth in the auto and consumer loan portfolios[269] Analysis of Financial Condition As of September 30, 2023, total assets grew to $10.26 billion, up 4.5% from year-end 2022, with the net loan portfolio increasing 6.1% to $7.13 billion Loan Portfolio Composition (in thousands) | Loan Type | Sep 30, 2023 | Dec 31, 2022 | Variance % | | :--- | :--- | :--- | :--- | | Commercial | $2,832,985 | $2,629,929 | 7.7% | | Mortgage | $1,604,010 | $1,704,221 | (5.9)% | | Consumer | $613,195 | $537,257 | 14.1% | | Auto | $2,211,545 | $1,963,915 | 12.6% | | Total Loans Held for Investment | $7,261,735 | $6,835,322 | 6.2% | - Non-performing assets decreased by 11.3% to $102.6 million (1.00% of total assets) at September 30, 2023, from $115.7 million (1.18% of total assets) at December 31, 2022[317] - Tangible book value per common share increased to $21.01 at September 30, 2023, from $19.56 at December 31, 2022[352] Item 3. Quantitative and Qualitative Disclosures about Market Risk OFG manages market risk, primarily interest rate risk, through its Asset/Liability Team (ALT), using net interest income simulation analysis to estimate earnings sensitivity to interest rate changes Net Interest Income Sensitivity Analysis (One-Year Projection) | Change in Interest Rate | Instantaneous Change (%) | Gradual Change (%) | | :--- | :--- | :--- | | +200 Basis points | 6.48% | 3.02% | | +100 Basis points | 3.23% | 1.50% | | -100 Basis points | -3.70% | -1.69% | - As of September 30, 2023, OFG has transitioned all of its financial instruments from LIBOR to alternative benchmark rates, primarily SOFR[371] - OFG's primary sources of liquidity include $532.7 million in cash, $1.361 billion in unpledged investment securities, $346.4 million in FHLB borrowing capacity, and access to the Federal Reserve's Bank Term Funding Program (BTFP)[384] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023 - The CEO and CFO concluded that as of the end of the period, OFG's disclosure controls and procedures were effective in providing reasonable assurance for timely and accurate reporting[391] - No material changes to the company's internal control over financial reporting occurred during the quarter ended September 30, 2023[392] PART II – OTHER INFORMATION Item 1. Legal Proceedings OFG and its subsidiaries are involved in various legal proceedings incidental to their business, with management believing ultimate liability will not materially affect financial condition or results of operations - Management does not expect the outcome of current legal proceedings to have a material adverse effect on OFG's financial condition[393] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Form 10-K, as supplemented by subsequent quarterly reports - No material changes to risk factors were reported since the 2022 Form 10-K and subsequent filings[394] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities During Q3 2023, OFG repurchased 73,600 shares of common stock for $2.2 million under its $100 million stock repurchase program, with $17.2 million remaining available Q3 2023 Stock Repurchase Activity | Metric | Value | | :--- | :--- | | Shares Repurchased | 73,600 | | Total Cost | $2.2 million | | Average Price per Share | $29.70 | | Remaining Authorization | $17.2 million | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and the financial statements formatted in Inline XBRL - The report includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[401]