OFG Bancorp — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. OFG Bancorp is a Puerto Rico-based financial holding company operating primarily through Oriental Bank, with banking, wealth management, and treasury businesses. The filing also reports fourth-quarter 2022 results; it is an annual report, not a standalone quarterly filing. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net income | $166.2 million | $146.2 million |
| Diluted EPS | $3.44 | $2.81 |
| Net interest income | $482.1 million | $407.4 million |
| Provision for credit losses | $24.1 million | $0.2 million |
| Non-interest income | $131.7 million | $133.2 million |
| Non-interest expense | $345.5 million | $325.8 million |
| Net interest margin | 5.05% | 4.20% |
| Efficiency ratio | 56.85% | 60.70% |
| Loans held for investment, gross | $6.84 billion | $6.40 billion |
| Deposits | $8.57 billion | $8.60 billion |
| Total assets | $9.82 billion | $9.90 billion |
| Common equity Tier 1 ratio | 13.64% | 13.77% |
- Full-year net interest income rose 18.3%, primarily from higher asset yields, Federal Reserve rate increases, and growth in commercial, consumer, and auto lending. Net interest margin increased 85 basis points.
- Net income rose 13.8%; non-interest expense increased 6.1%, with higher compensation, technology, compliance, and electronic banking costs. The efficiency ratio nevertheless improved.
- Net charge-offs were $27.7 million, down from $49.8 million in 2021; non-performing assets declined 10.3% to $115.7 million, or 1.18% of assets. The allowance for credit losses was $152.7 million, 2.2% of loans held for investment.
- Operating cash flow was $164.5 million; investing cash outflow was $1.51 billion, primarily reflecting loan originations and securities purchases. Financing cash outflow was $124.7 million. Cash, cash equivalents, and restricted cash ended the year at $550.5 million, down from $2.02 billion.
- Liquidity resources included approximately $550 million of unrestricted cash, $1.65 billion of unpledged investment securities, and $628 million of available FHLB borrowing capacity. Borrowings totaled $27.0 million after redemption of $36.1 million of subordinated notes.
- Stockholders’ equity was $1.04 billion. Tangible book value per share was $19.56. A $98.6 million after-tax decline in accumulated other comprehensive income, largely from unrealized securities losses as rates rose, weighed on equity.
Fourth-quarter results
- Diluted EPS was $0.97, versus $0.87 in Q3 2022 and $0.66 in Q4 2021. Core revenue was $168.3 million, up 7.3% sequentially; net interest income was $135.3 million and net interest margin was 5.69%.
- Pre-provision net revenue was $76.9 million. Provision for credit losses was $8.8 million; non-interest expense was $91.6 million. Management cited higher compensation and digital-project amortization, partly offset by lower hurricane-related expense.
- Quarter-end deposits were $8.56 billion, down $286.8 million from Q3; loans held for investment were $6.84 billion, up 2.3% sequentially. Total assets were $9.82 billion.
Material changes, outlook, and risks
- Provision for credit losses increased sharply from 2021’s low level, reflecting loan growth and specific commercial-loan reserves, partly offset by a release of qualitative reserves. The allowance declined year over year as charge-offs and recoveries affected balances.
- OFG sold its retirement-plan administration business on December 30, 2022 and discontinued those operations. Managed trust assets fell year over year in part because of the sale.
- The company repurchased 2.35 million shares for $64.1 million under a $100 million authorization and raised its quarterly dividend during 2022 to $0.20 per share. In January 2023, the board approved a further increase to $0.22 per share beginning in Q1 2023. These actions remain subject to capital and regulatory constraints.
- Management described Puerto Rico’s economic activity and customer demand as resilient, but noted uncertainty from inflation, rising interest rates, potential recession, and geopolitical events. It expects further Federal Reserve rate increases during 2023 but provided no quantified earnings or margin guidance in the supplied filing text.
- Key exposures include concentration in Puerto Rico and the U.S. Virgin Islands, natural disasters including Hurricane Fiona, local fiscal and government-debt developments, credit deterioration, deposit competition and funding costs, interest-rate sensitivity, cybersecurity and third-party technology risk, and regulatory or tax changes. OFG ended 2022 below $10 billion in assets; management noted that crossing the threshold could trigger additional requirements, including potential Durbin Amendment impacts on interchange income.
- Hurricane Fiona caused temporary operating and economic disruption. OFG incurred $1.6 million of related expenses, recorded $1.1 million of additional loan-loss provision, waived certain customer fees, and had $33.1 million of loans outstanding under payment accommodations at year-end.
- Legal proceedings are described as ordinary-course matters; management stated the accrued liability was $2.4 million and believed the ultimate outcome would not likely materially affect financial condition. An adverse outcome could still affect results or cash flows in a particular period.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The auditor identified the collective allowance for credit losses as a critical audit matter because of the judgment and uncertainty in models, forecasts, and scenario weighting.
Important facts for investors to verify
- Whether loan growth and higher interest rates continue to support net interest income as deposit costs rise and balances change.
- Commercial and consumer credit trends, charge-offs, non-performing loans, and the adequacy of the $152.7 million allowance under changing economic forecasts.
- Deposit stability, uninsured deposit exposure ($3.50 billion at year-end), and the liquidity and market-value implications of securities losses.
- The effect of share repurchases and dividend increases on capital, particularly as risk-weighted assets grow and subordinated capital has been redeemed.
- Progress and financial effects of the retirement-plan business sale, Hurricane Fiona accommodations, and the subservicing contract transition scheduled for May 2023.