OFG BANCORP SEC 10-K Report

OFG Bancorp, a financial holding company operating primarily in Puerto Rico and the U.S. Virgin Islands, has released its 2023 Form 10-K report. The report highlights the company's robust financial performance, strategic initiatives aimed at enhancing shareholder value, and the challenges and risks it faces in its operating environment.

Financial Highlights

OFG Bancorp reported a solid financial performance for 2023, with key metrics reflecting growth and operational efficiency:

• Total Net Income: $198.2 million, up from $181.9 million in the previous year.
• Diluted EPS: $4.23, an increase from $3.83 in 2023.
• Net Interest Income: $588.4 million, up by $27.5 million from $560.9 million, driven by higher interest income from loans and investment securities.
• Total Interest Income: $750.3 million, reflecting higher balances and yields on investment securities and loans.
• Total Interest Expense: $161.8 million, increased due to higher average cost of deposits and borrowings.
• Provision for Credit Losses: $82.3 million, up by $21.7 million, reflecting growth in loan balances and specific reserves for commercial loans.
• Non-Interest Income: $123.2 million, decreased by $5.2 million, impacted by reduced banking service revenues and a prior year gain on loan sales.
• Non-Interest Expenses: $375.7 million, increased by 3.4% due to higher compensation, foreclosed real estate expenses, and electronic banking charges.
• Efficiency Ratio: 52.94%, an improvement from 53.22%, indicating better cost management relative to revenue generation.

Business Highlights

OFG Bancorp operates through three major business segments: Banking, Wealth Management, and Treasury. Each segment is tailored to provide specific financial services:

• Banking: Focuses on commercial, consumer, auto, and mortgage lending.
• Wealth Management: Offers securities brokerage, insurance, and trust services.
• Treasury: Manages investment portfolios and liquidity.

The company primarily serves clients in Puerto Rico and the U.S. Virgin Islands, with certain loan products available in the continental United States. OFG continues to expand its commercial relationships in the U.S. through its commercial loan program.

OFG is committed to a Digital First strategy, emphasizing convenience and accessibility through digital channels to enhance customer experience. In March 2024, OFG's principal subsidiary, Oriental Bank, organized OBPEF LLC, a private equity fund under the Puerto Rico Incentives Code, to provide financing to eligible borrowers and support the economic development of Puerto Rico.

The company focuses on operational excellence by ensuring its technology, systems, and processes are secure, automated, and efficient. OFG leverages customer insights to empower clients to monitor and manage their finances effectively, with banking experts equipped to help customers achieve their financial goals.

OFG emphasizes continuous learning and talent development, offering over 350 learning sessions and access to 22,000 online courses in 2024. The company also focuses on leadership development and skills enhancement in data science and analytics. OFG is committed to diversity, equity, and inclusion, with a workforce represented by 68% female and 32% male, and balanced representation in the executive team.

Looking ahead, OFG aims to strengthen its banking and financial services franchise by expanding lending businesses, improving asset-liability management, and growing non-interest revenue, while focusing on digital transformation and customer experience.

Strategic Initiatives

OFG Bancorp announced several strategic initiatives aimed at enhancing shareholder value and strengthening its financial position:

• In January 2024, the Board of Directors approved an increase in the regular quarterly cash dividend to $0.25 per common share, up from $0.22.
• OFG launched a new $50 million stock repurchase program, replacing the previous program. In October 2024, another $50 million stock repurchase program was approved.

These initiatives are part of OFG's broader strategy to optimize its capital structure and improve shareholder returns. In 2024, OFG repurchased 1,791,414 shares for a total of $70.3 million at an average price of $39.26 per share. The company also increased its total stockholders' equity by 5.1% to $1.254 billion, driven by net income of $198.2 million and partially offset by $46.9 million in common stock dividends.

OFG's capital ratios remained strong, with a CET1 ratio of 14.26% and a total risk-based capital ratio of 15.52%, both exceeding regulatory requirements. The company managed its liabilities effectively, with total deposits and borrowings amounting to $10.006 billion, reflecting a strategic balance between deposit growth and borrowing.

Looking ahead, OFG plans to continue its focus on capital management and shareholder value enhancement. In January 2025, the Board approved another increase in the regular quarterly cash dividend to $0.30 per common share, starting in the quarter ending March 31, 2025. The company remains vigilant about potential economic challenges, including high market interest rates and inflation trends, and is prepared to adjust its strategies accordingly.

Challenges and Risks

OFG Bancorp faces several challenges and risks in its operating environment:

• Geographical Concentration: Operating primarily in Puerto Rico and the USVI, regions susceptible to natural disasters such as earthquakes and hurricanes, which could be exacerbated by climate change.
• Economic and Market Conditions Risk: OFG's business is heavily influenced by the economic conditions in Puerto Rico, which has faced prolonged economic contraction and fiscal challenges.
• Climate Change Risk: Immediate and long-term risks, including operational risks from physical climate events, credit risks from borrowers with climate exposure, and transition risks associated with moving to a less carbon-dependent economy.
• Interest Rate Risk: Changes in interest rates can impact OFG's net interest income and the value of financial instruments, affecting profitability.
• Credit Risk: Heightened credit risk could necessitate increased provisions for credit losses, adversely affecting financial results.
• Regulatory Risk: OFG is subject to extensive regulation, and changes in laws or regulations could materially impact operations.
• Operational and Cybersecurity Risk: The increasing sophistication of cyber-attacks poses significant risks. OFG's reliance on technology and third-party services for operations heightens vulnerability to disruptions.
• Liquidity Risk: Access to stable funding sources is crucial. Any disruption in funding could adversely affect OFG's operations.

Management acknowledges these challenges and has strategies in place to mitigate them, including enhancing digital capabilities and focusing on operational excellence. OFG is actively monitoring market risks, including interest rate fluctuations and geopolitical uncertainties, and adjusting strategies to mitigate potential adverse effects.

SEC Filing: OFG BANCORP [ OFG ] - 10-K - Feb. 26, 2025