OFG Bancorp reports $170.5M in core revenues for 2Q23
OFG Bancorp, the financial holding company for Oriental Bank, has reported its results for the second quarter ended June 30, which showed diluted earnings per share of $0.93, compared to $0.96 in the first quarter of 2023 and $0.84 in second quarter of 2022.
Total core revenues were $170.5 million, compared to $164.4 million in the first quarter of 2023 and $146.3 million in the second quarter of 2022, the bank reported.
“The second quarter generated year-over-year increases of 16.5% in total core revenues and 10.7% in earnings per share,” said OFG Bancorp CEO José Rafael Fernández. “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.”
This is the bank’s 10th consecutive quarter of growth, which Fernández credited to an “emerging and improving economy” during a call with reporters.
“We’re very happy with the results, because it shows that there is strong activity, especially in small and mid-sized businesses that are investing in their operations and requesting financing to expand and to grow. That’s also good news for Puerto Rico,” he said.
During the second quarter, Oriental closed on $692 million in loans, compared to $561.3 million in the first quarter of 2023 and $587.2 million in the second quarter of 2022. The recent period’s results reflected strong levels of commercial lending in Puerto Rico and the U.S., as well as auto, consumer and residential mortgage lending.
In the second quarter of 2023, the financial institution reported net interest income of $139.6 million, compared to $135.9 million in the first quarter of 2023 and $115.1 million in second quarter of 2022. The quarter reflected the full effect of the first quarter of 2023’s 50 basis point increase in the Federal Reserve Board’s funds rate and a partial effect of the second quarter of 2023’s 25 basis point increase, it stated.
“Our ‘Digital First’ strategy continues to show excellent progress. We launched a first-to-market, self-service portal that enables customers to quickly and easily manage all their loan and deposit accounts in one place,” Fernández said.
“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,” he added.
In the second quarter of 2023, Oriental Bancorp’s net interest margin was 5.9%, the return on average assets was 1.76%, the return on average tangible common stockholders’ equity was 17.67%, and the efficiency ratio was 52.13%.
The bank’s total interest income for the second quarter of 2022 was $158 million, compared to $149 million in the first quarter of 2023 and $122.2 million in the second quarter of 2022. Compared to the first quarter of 2023, the second quarter of 2023 primarily reflected higher yields on increased average balances of loans and cash.
Total interest expense was $18.3 million, compared to $13.1 million in the first quarter of 2023 and $7.1 million in second quarter of 2022. Compared to the first quarter of 2023, the second quarter of 2023 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.
As for the bank’s credit quality, in the second quarter of 2023, it reported net charge-offs of $6.6 million compared to $10.1 million in the first quarter of 2023 and $4.5 million in the second quarter of 2022. The second quarter of 2023 included a recovery of $3.7 million from the sale of older, fully charged-off auto and consumer loans. The second quarter of 2023 delinquency and nonperforming loan rates rose slightly from reduced levels in the first quarter of 2023.
During the most recent reporting period, new loan production was $691.8 million, compared to $561.3 million in the first quarter of 2023 and $587.2 million in second quarter of 2022. The second quarter of 2023 reflected strong levels of commercial lending in Puerto Rico and the U.S. as well as auto, consumer and residential mortgage lending.
Increase in interest rates
Fernández acknowledged during the call that the 500 basis point hike in interest rates enacted by the Federal Reserve in “a short period of time, historically speaking,” could pose debt service repayment challenges, particularly for commercial clients.
“That’s unless the economy is strengthening and giving those clients a chance to grow their revenue to be able to cover that debt repayment. We’re at a crossroads now where it’s expected that the Reserve will hit the brakes and achieve what is called a ‘soft landing’ and avoid a recession in the United States,” he said, noting the possibility of another hike of 25 basis points on interest rates in July.
However, Puerto Rico is still benefiting from the wave of federal funds which are keeping the local economy steady and growing.
