ofg-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-12647

OFG Bancorp

(Exact name of registrant as specified in its charter)


Commonwealth of Puerto Rico						66-0538893
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


254 Muñoz Rivera Avenue						00918
San Juan, Puerto Rico						(Zip code)
(Address of principal executive offices)


			(787) 771-6800
			(Registrant’s telephone number, including area code)
			N/A
			(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, par value $1.00 per share	OFG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☑

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

47,527,802 common shares ($1.00 par value per share) outstanding as of April 30, 2023

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition	3
	Unaudited Consolidated Statements of Operations	5
	Unaudited Consolidated Statements of Comprehensive Income	7
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements

	Note 1 – Significant Accounting Policies	12
	Note 2 – Restricted Cash	13
	Note 3 – Investment Securities	13
	Note 4 – Loans	19
	Note 5 – Allowance for Credit Losses	35
	Note 6 – Foreclosed Real Estate	36
	Note 7 – Servicing Assets	36
	Note 8 – Derivatives	38
	Note 9 – Goodwill and Other Intangible Assets	39
	Note 10 – Accrued Interest Receivable and Other Assets	40
	Note 11 – Deposits and Related Interest	41
	Note 12 – Borrowings and Related Interest	43
	Note 13 – Income Taxes	43
	Note 14 – Regulatory Capital Requirements	44
	Note 15 – Stockholders’ Equity	46
	Note 16 – Accumulated Other Comprehensive (Loss) Income	47
	Note 17 – Earnings per Common Share	48
	Note 18 – Guarantees	48
	Note 19 – Commitments and Contingencies	50
	Note 20 – Operating Leases	51
	Note 21 – Fair Value of Financial Instruments	53
	Note 22 – Banking and Financial Service Revenues	60
	Note 23 – Business Segments	61
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
	Critical Accounting Policies and Estimates	66
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	97
Item 4.	Controls and Procedures	103

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	103
Item 1A.	Risk Factors	103
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	104
Item 3.	Defaults upon Senior Securities	105
Item 4.	Mines Safety Disclosures	105
Item 5.	Other Information	105
Item 6.	Exhibits	106
Signatures		107

FORWARD-LOOKING STATEMENTS

The information included in this quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the financial condition, results of operations, plans, objectives, future performance and business of OFG Bancorp (“we,” “our,” “us” or “OFG”), including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on OFG’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which by their nature are beyond OFG’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

•the rate of growth in the economy and employment levels, inflationary pressures or recessionary conditions, as well as general business and economic conditions;

•changes in interest rates, as well as the magnitude of such changes;

•a credit default by municipalities of the government of Puerto Rico;

•a credit default by the U.S. government or a downgrade in the credit ratings of the U.S. government, including as a result of Congress and the President failing to reach agreement on federal budgetary matters or debt ceiling limitations, as well as on other matters of fiscal and economic policy;

•the impacts related to or resulting from recent bank failures and other volatility, including potential increased regulatory and compliance requirements and costs and potential impacts to macroeconomic conditions, which could affect the ability of depository institutions, including the Bank, to attract and retain depositors and to borrow or raise capital;

•the actual or perceived soundness of other financial institutions, including as a result of the financial or operational failure of a major financial institution, or concerns about the creditworthiness of such a financial institution or its ability to fulfill its obligations, which can cause substantial and cascading disruption within the financial markets;

•amendments to the fiscal plan approved by the Financial Oversight and Management Board for Puerto Rico;

•determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations, as well as the ability to successfully implement any court-approved plan of adjustment;

•unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters, pandemics, war or other international conflicts (including the ongoing conflict between Russia and Ukraine) and acts of terrorism (including cyber-attacks), or utility disruptions, which could cause a disruption in our operations or other adverse consequences for our business;

•the impact of property, credit and other losses in Puerto Rico as a result of hurricanes, earthquakes and other natural disasters;

•the amount of government financial assistance for the reconstruction of Puerto Rico’s infrastructure, which was impacted by the effects of Hurricane Maria in 2017, earthquakes in 2020, and Hurricane Fiona in 2022;

•the pace and magnitude of Puerto Rico’s economic recovery;

•the fiscal and monetary policies of the federal government and its agencies;

•changes in federal bank regulatory and supervisory policies, including with respect to required levels of capital;

•the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico;

•the performance of the stock and bond markets;

•competition in the financial services industry;

•possible legislative, tax or regulatory changes; and

•factors beyond our control such as continued waves of Covid-19 cases, the severity and contagiousness of new variants, severe weather conditions, natural disasters, power loss, disruptions in telecommunications, terrorism and other catastrophic events, any of which could significantly affect delinquency rates, loan and receivable balances and other aspects of our business and results of operations.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; risk of impairment of investment securities, goodwill, other intangible assets or deferred tax assets; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; OFG’s ability to grow its core businesses; decisions to downsize, sell or close units or otherwise change OFG’s business mix; and management’s ability to identify and manage these and other risks.

All forward-looking statements included in this quarterly report on Form 10-Q are based upon information available to OFG as of the date of this quarterly report on Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, OFG assumes no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2023 AND DECEMBER 31, 2022


	March 31,		December 31,
	2023		2022
	(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	844,180	$	546,146
Money market investments	3,172		4,161
Total cash and cash equivalents	847,352		550,307
Restricted cash	142		157
Investments:
Trading securities, at fair value, with amortized cost of $162 (December 31, 2022 - $162)	10		9
Investment securities available-for-sale, at fair value, with amortized cost of $1,445,218 (December 31, 2022 - $1,522,812); no allowance for credit losses “ACL”	1,353,106		1,412,776
Investment securities held-to-maturity, at amortized cost, with fair value of $471,615 (December 31, 2022 - $469,186); no allowance for credit losses	530,880		535,070
Equity securities	33,218		23,667
Total investments	1,917,214		1,971,522
Loans:
Loans held-for-sale, at lower of cost or fair value	32,685		40,587
Loans held for investment, net of allowance for credit losses of $151,884 (December 31, 2022 - $152,673)	6,702,596		6,682,649
Total loans	6,735,281		6,723,236
Other assets:
Foreclosed real estate	9,250		11,214
Accrued interest receivable	62,140		62,402
Deferred tax asset, net	37,372		55,485
Premises and equipment, net	104,851		106,820
Customers' liability on acceptances	30,094		28,607
Servicing assets	49,345		50,921
Goodwill	84,241		84,241
Other intangible assets	25,868		27,593
Operating lease right-of-use assets	23,897		25,363
Other assets	130,534		120,912
Total assets	$	10,057,581	$	9,818,780

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2023 AND DECEMBER 31, 2022 (CONTINUED)


	March 31,		December 31,
	2023		2022
	(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	5,038,122	$	5,176,758
Savings accounts	2,271,774		2,227,965
Time deposits	1,255,525		1,163,641
Total deposits	8,565,421		8,568,364
Borrowings:

Advances from the Federal Home Loan Bank of New York (the “FHLB”)	226,661		26,716

Other borrowings	128		318
Total borrowings	226,789		27,034
Other liabilities:


Acceptances executed and outstanding	30,094		28,607
Operating lease liabilities	25,990		27,370
Accrued expenses and other liabilities	119,777		124,999
Total liabilities	8,968,071		8,776,374
Commitments and contingencies (See Note 19)
Stockholders’ equity:

Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 47,611,402 shares outstanding (December 31, 2022 - 59,885,234 shares issued; 47,581,375 shares outstanding)	59,885		59,885
Additional paid-in capital	634,785		636,793
Legal surplus	138,333		133,901
Retained earnings	547,641		516,371
Treasury stock, at cost, 12,273,832 shares (December 31, 2022 - 12,303,859 shares)	(212,794)		(211,135)
Accumulated other comprehensive loss, net of tax of $13,497 (December 31, 2022 - $16,221)	(78,340)		(93,409)
Total stockholders’ equity	1,089,510		1,042,406
Total liabilities and stockholders’ equity	$	10,057,581	$	9,818,780

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022



	Quarter Ended March 31,
	2023		2022
	(In thousands, except per share data)
Interest income:
Loans	$	128,311	$	107,565
Mortgage-backed securities	10,074		4,321
Investment securities and other	10,600		1,063
Total interest income	148,985		112,949
Interest expense:
Deposits	12,497		7,041

Advances from FHLB and other borrowings	591		193
Subordinated capital notes	—		521
Total interest expense	13,088		7,755
Net interest income	135,897		105,194
Provision for credit losses	9,445		1,551
Net interest income after provision for credit losses	126,452		103,643
Non-interest income:
Banking service revenue	17,513		17,562
Wealth management revenue	7,120		7,857
Mortgage banking activities	3,898		5,782
Total banking and financial service revenues	28,531		31,201





Other non-interest income	370		405
Total non-interest income	28,901		31,606

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022 (CONTINUED)



	Quarter Ended March 31,
	2023		2022
	(In thousands, except per share data)
Non-interest expense:
Compensation and employee benefits	38,473		34,768
Occupancy, equipment and infrastructure costs	14,257		11,916
Electronic banking charges	10,337		9,786
Information technology expenses	6,418		4,804
Professional and service fees	5,064		5,421
Taxes, other than payroll and income taxes	3,273		3,307
Insurance	2,918		2,635
Loan servicing and clearing expenses	2,267		1,922
Advertising, business promotion, and strategic initiatives	2,036		2,062
Communication	1,029		1,116
Printing, postage, stationery and supplies	730		1,092
Director and investor relations	258		249


Foreclosed real estate and other repossessed assets expenses (income), net	793		(1,482)
Other	2,367		3,559
Total non-interest expense	90,220		81,155
Income before income taxes	65,133		54,094
Income tax expense	18,904		16,573


Net income available to common shareholders	$	46,229	$	37,521
Earnings per common share:
Basic	$	0.97	$	0.77
Diluted	$	0.96	$	0.76
Average common shares outstanding and equivalents	47,944		49,484
Cash dividends per share of common stock	$	0.22	$	0.15

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022


	Quarter Ended March 31,
	2023		2022
	(In thousands)
Net income	$	46,229	$	37,521
Other comprehensive income (loss) before tax:
Unrealized gain (loss) on securities available-for-sale	17,924		(30,752)

Unrealized (loss) gain on cash flow hedges	(131)		619
Other comprehensive income (loss) before taxes	17,793		(30,133)
Income tax effect	(2,724)		4,335
Other comprehensive income (loss) after taxes	15,069		(25,798)
Comprehensive income	$	61,298	$	11,723

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022


	Quarter Ended March 31,
	2023		2022
	(In thousands)




Common stock:
Balance at the beginning and end of period	59,885		59,885
Additional paid-in capital:
Balance at beginning of period	636,793		637,061
Stock-based compensation expense	965		973
Lapsed restricted stock units	(2,973)		(4,238)

Balance at end of period	634,785		633,796
Legal surplus:
Balance at beginning of period	133,901		117,677
Transfer from retained earnings	4,432		3,712
Balance at end of period	138,333		121,389
Retained earnings:
Balance at beginning of period	516,371		399,949



Net income	46,229		37,521
Cash dividends declared on common stock[1]	(10,527)		(7,438)

Transfer to legal surplus	(4,432)		(3,712)

Balance at end of period	547,641		426,320
Treasury stock:
Balance at beginning of period	(211,135)		(150,572)
Stock repurchased	(2,894)		(33,479)
Lapsed restricted stock units and options	1,235		3,334
Balance at end of period	(212,794)		(180,717)
Accumulated other comprehensive loss, net of tax:
Balance at beginning of period	(93,409)		5,160
Other comprehensive income (loss), net of tax	15,069		(25,798)
Balance at end of period	(78,340)		(20,638)
Total stockholders’ equity	$	1,089,510	$	1,040,035

[1] Dividends declared per common share during the quarter ended March 31, 2023 - $0.22 (March 31, 2022 - $0.15).

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022


	Quarter Ended March 31,
	2023		2022
	(In thousands)
Cash flows from operating activities:
Net income	$	46,229	$	37,521
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan origination fees and fair value premiums (discounts) on loans	497		(723)

Amortization of investment securities premiums, net of accretion of (discounts)	(2,343)		599
Amortization of other intangible assets	1,725		2,146
Net change in operating leases	86		59
Depreciation and amortization of premises and equipment	5,043		3,780
Deferred income tax expense, net	15,391		15,789
Provision for credit losses	9,445		1,551
Stock-based compensation	965		973

(Gain) loss on:

Sale of loans	(252)		(899)
Early extinguishment of debt	—		(42)
Foreclosed real estate and other repossessed assets	(238)		(4,157)
Sale of other assets	(20)		6

Originations and purchases of loans held-for-sale	(27,509)		(56,954)
Proceeds from sale of loans held-for-sale	3,260		57,261

Net decrease (increase) in:

Accrued interest receivable	307		478
Servicing assets	1,576		(473)
Other assets	(9,764)		11,300
Net increase (decrease) in:
Accrued interest on deposits and borrowings	543		(152)
Accrued expenses and other liabilities	7,259		(28,860)
Net cash provided by operating activities	52,200		39,203


See notes to unaudited consolidated financial statements.

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OFG BANCORP UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022 (CONTINUED)
	Quarter Ended March 31,
	2023		2022
	(In thousands)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale	(476)		(399,025)

FHLB stock	(9,000)		—
Equity securities	(573)		(998)
Maturities and redemptions of:
Investment securities available-for-sale	101,510		22,170
Investment securities held-to-maturity	4,492		7,540
FHLB stock	22		20
Proceeds from sales of:

Foreclosed real estate and other repossessed assets, including write-offs	15,110		13,090


Premises and equipment	20		—

Origination and purchase of loans, excluding loans held-for-sale	(631,471)		(770,935)
Principal repayment of loans	593,606		612,039
Additions to premises and equipment	(3,118)		(9,072)


Net cash provided by (used in) investing activities	$	70,122	$	(525,171)
Cash flows from financing activities:
Net (decrease) increase in:
Deposits	(10,417)		394,932

Subordinated capital notes	—		(36,041)
FHLB advances, federal funds purchased, and other borrowings	199,329		(458)
Exercise of stock options and restricted units lapsed, net	(1,738)		(904)
Purchase of treasury stock	(2,894)		(33,479)


Dividends paid on common stock	(9,572)		(6,003)
Net cash provided by financing activities	$	174,708	$	318,047
Net change in cash, cash equivalents and restricted cash	297,030		(167,921)
Cash, cash equivalents and restricted cash at beginning of period	550,464		2,023,650
Cash, cash equivalents and restricted cash at end of period	$	847,494	$	1,855,729

See notes to unaudited consolidated financial statements.

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OFG BANCORP UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 2023 AND 2022 (CONTINUED)

	Quarter Ended March 31,
	2023		2022
	(In thousands)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Statements of Financial Condition:
Cash and due from banks	$	844,180	$	1,849,906
Money market investments	3,172		5,648
Restricted cash	142		175
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	847,494	$	1,855,729