Key Highlights

  • Diluted EPS of USD 1.33 beat the USD 1.23 estimate, up 14.7% year over year.
  • Core revenues of USD 185.7 million trailed the USD 187.11 million estimate.
  • Net interest margin narrowed to 5.23% from 5.45% in the second quarter.
  • Loans held for investment reached USD 8.45 billion, up 4.1% from a year earlier.

OFG Bancorp (NYSE:OFG) reported third-quarter results on Wednesday, Oct. 21, with diluted EPS of USD 1.33, ahead of the USD 1.23 estimate. Total core revenues of USD 185.7 million fell short of the USD 187.11 million estimate. EPS rose 14.7% from USD 1.16 a year earlier but slipped from USD 1.39 in the second quarter.

OFG is the financial holding company for Oriental Bank, which serves customers mainly in Puerto Rico and the U.S. Virgin Islands. Shares were down 3.69% at USD 51.00 in Wednesday trading.

Margin Narrows From a High Second Quarter

Net interest income was USD 153.6 million, versus USD 157.3 million in the second quarter and USD 154.7 million a year earlier. Net interest margin was 5.23%, compared with 5.45% in the prior quarter and 5.24% a year ago. The second quarter had included USD 4.1 million from three commercial loans paid in full.

Total interest income was USD 195.7 million, while interest expense rose to USD 42.2 million from USD 39.9 million on larger deposit balances at a higher cost. Management said loan yield declined 22 basis points to 7.68% and core deposit cost increased 5 basis points to 1.34%.

The Federal Reserve's 25 basis point increase in September had a limited effect. About USD 550 million of the USD 1.7 billion variable-rate commercial portfolio repriced late in the quarter.

Loans Grow While Deposits Slip

Loans held for investment ended at USD 8.45 billion, up USD 150.9 million, or 1.8%, from the second quarter, led by Puerto Rico commercial and consumer lending. New loan production was USD 693.8 million, down from USD 755.0 million, with auto, Puerto Rico commercial and residential mortgage lower.

Customer deposits were USD 9.66 billion, down 0.8% sequentially as demand and savings balances fell and time deposits rose. Excluding USD 500 million of government deposits that moved to wealth management in the first quarter, deposits were up 3.5% year over year. Borrowings and brokered deposits increased to USD 926.6 million from USD 795.5 million for liquidity management, and cash fell to USD 566.8 million.

Credit, Costs and Capital

The provision for credit losses was USD 18.1 million, up from USD 13.0 million in the second quarter and down from USD 28.3 million a year earlier. Net charge-offs fell to a 0.70% rate from 1.40%, and nonperforming loans were 0.74% of loans. Early and total delinquency rates of 2.65% and 3.91% rose from the second quarter on seasonal trends but improved from a year ago.

Noninterest expense was USD 96.3 million, down from USD 102.8 million, which had included USD 5.8 million of business-related operational charges. The efficiency ratio was 51.83%, return on average assets 1.86% and return on average tangible common equity 17.06%.

The CET1 ratio was 14.10%. Tangible book value per share fell to USD 29.66 from USD 31.12, mainly on a change in accumulated other comprehensive loss. The company bought back USD 13.5 million of shares, with USD 180 million remaining on its authorization, and paid a dividend of USD 0.35 per share.

Chief Executive Officer José Rafael Fernández said the bank's digital strategy is attracting customers, citing growth of 24% in active digital users and 5% in net new retail and commercial customers.

Fourth-Quarter Markers

Management projects low single-digit loan growth for the year, with commercial lending more than offsetting a projected decline in auto. It guides to a net interest margin near 5.25% for the rest of the year, assuming one more 25 basis point rate increase in December, and a fourth-quarter provision of USD 18 million to USD 20 million.

Noninterest expense is projected at about USD 385 million for the year, excluding the second-quarter charge, with a tax rate near 22.5%. Items to watch include deposit costs, the pace of commercial loan growth, auto credit metrics and further buybacks.