OFG Bancorp (NYSE: OFG), the financial holding company for Oriental Bank, reported impressive results for the second quarter of 2024, demonstrating the strength of its strategies and franchise. The company's earnings per share (EPS) diluted increased 16.1% year-over-year to $1.08, driven by a 5.2% increase in total core revenues to $179.4 million.

The company's net income for the full year 2023 was $181,872,000, with annual revenue of $776,949,000. Its annual operating cash flow was $327,717,000, and its annual free cash flow was $309,860,000.

In the second quarter of 2024, OFG Bancorp's performance metrics remained strong, with a net interest margin of 5.51%, a return on average assets of 1.82%, a return on average tangible common stockholders' equity of 18.24%, and an efficiency ratio of 51.81%.

Financials

Interest Income and Expense

Total interest income for the quarter was $187.7 million, up from $183.4 million in the previous quarter, primarily reflecting higher average balances and yields on loans. The company also benefited from a $2.1 million recovery on a non-accrual U.S. commercial loan that was paid in full. Total interest expense increased to $40.3 million from $39.3 million in the prior quarter, mainly due to higher average core deposits and a 7 basis point increase in rates, partially offset by lower average wholesale funding and rate.

Banking and Financial Services

Banking and financial service revenues grew to $32.1 million, up from $30.1 million in the previous quarter, driven by higher banking service, wealth management, and mortgage banking revenues. The banking service revenues included $0.6 million in prepayment fees on U.S. loans, while the wealth management segment included $0.5 million in annual recognition of certain commercial insurance commissions.

Pre-provision Net Revenues and Credit Losses

Pre-provision net revenues increased to $86.8 million, compared to $83.0 million in the first quarter of 2024. The total provision for credit losses was $15.6 million, up slightly from $15.1 million in the previous quarter, primarily reflecting increased loan volume.

Credit Quality

Credit quality remained stable, with net charge-offs of $15.0 million, down from $19.8 million in the first quarter. The early and total delinquency rates were 2.81% and 3.71%, respectively, while the non-performing loan rate of 1.08% was the lowest in the last five quarters.

Non-interest Expenses

Non-interest expenses increased to $93.0 million, compared to $91.4 million in the previous quarter, primarily due to higher electronic banking expenses, professional services fees, and FDIC insurance costs now that Oriental exceeds $10 billion in assets. This was partially offset by reductions in foreclosed real estate costs and FICA payroll-related expenses.

Tax Rate

The company's effective tax rate for the quarter was 28.2%, compared to 26.8% in the first quarter, reflecting an expected 2024 effective tax rate of 29.0% due to higher forecasted business activities with preferential tax treatment under the Puerto Rico tax code, partially offset by a $0.8 million tax benefit credit.

Business Overview

Loans and Investments

Loans held for investment (end-of-period) increased 1.3% to $7.64 billion, reflecting growth in Puerto Rico commercial, auto, and consumer loans, partially offset by regular paydowns of residential mortgages and prepayment of U.S. commercial loans. New loan production was $589.0 million, up from $536.6 million in the previous quarter, with increases across all categories, led by auto.

Total investments remained steady at $2.48 billion, while customer deposits increased to $9.60 billion, including strong growth in commercial deposits, partially offset by a decline in retail deposits. Total borrowings and brokered deposits decreased to $201.2 million, and cash and cash equivalents were $740.4 million.

Capital Position

The company's capital position remained strong, with a CET1 ratio of 14.29% and a tangible common equity ratio of 10.09%. Tangible book value per share increased to $24.18, up from $23.55 in the previous quarter.

Outlook

Looking ahead, OFG Bancorp's outlook for both Puerto Rico and the company itself is positive. The island's economy continues to grow and steadily decouple from mainland economic uncertainties, with ongoing expansion of infrastructure projects, business investments, and strong employment levels.

The company is well-positioned to benefit from the growth in loans, deposits, and its customer base, with consumer credit trends expected to remain stable. OFG Bancorp's digital-first strategy is working, and the company will continue to invest in and deploy customer innovations to build out its differentiated business model.

Conclusion

Overall, OFG Bancorp delivered an exceptional performance in the second quarter of 2024, demonstrating the strength of its strategies and franchise. The company's consistent growth, stable credit quality, and strong capital position position it well for continued success in the second half of the year and beyond.