OFG Bancorp (NYSE: OFG) reported Q1 EPS of $0.00, $0.43 worse than the analyst estimate of $0.43. Revenue for the quarter came in at $131.3 million versus the consensus estimate of $113.67 million.

1Q20 Highlights

• Strong increase in core net revenues due to the December 31, 2019 acquisition of the Puerto Rico and U.S. Virgin Islands operations of The Bank of Nova Scotia (Scotiabank), and a major reserve build reflecting CECL as well as anticipated changes in Puerto Rico and USVI macroeconomic scenarios due to the effect of the coronavirus pandemic.
• Core net revenues of $131.3 million, CECL “Day 1” allowance of $89.9 million, provision for credit losses of $48.5 million, $4.7 million gain on sale of investment securities, and $0.00 earnings per share. This compares in the year-ago quarter to net core revenues of $99.3 million, provision of $12.2 million, no gain, and $0.42 earnings per share fully diluted.
• All March 31, 2020 regulatory capital ratios increased from December 31, 2019 and continue to be significantly above requirements for a well-capitalized institution. CET1 capital ratio of 11.67%. More than $1.6 billion available liquidity from cash and unencumbered securities.
• Our core operations performed well in what became a challenging and unique operating environment. Net interest margin was 4.94%, loan production totaled $280 million, and there was a large reduction in wholesale funding due to the significant increase in client deposits from the acquisition.
• Following the implementation of local stay-at-home restrictions mid-March, Oriental has achieved uninterrupted and excellent levels of service through all channels while maintaining employee and customer safety and social distancing.
• Years of investments in first to market customer-facing technology, some with unique features, is resulting in noticeable increases by retail and business customers who want to get things done fácil, rápido, hecho.

CEO Comment

José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, said: “The rapid spread around the world of Covid-19 is affecting everybody, personally and financially. Our heart goes out to those who have lost loved ones, are ill, or are suffering monetarily.

“Our priority going into the pandemic was to keep our employees safe while maintaining our nimble and proactive approach to business. OFG entered this crisis in a position of strength, and we remain well capitalized and highly liquid with a CET1 ratio of 11.67% and $1.6 billion in liquidity. Coming out of it, our goal is to maintain our strong capital and liquidity positions so we can continue to help customers now and throughout the inevitable recovery.

“Our first quarter performance confirms the strength of our business, balance sheet and franchise during this critical time. This is the direct result of the proactive and customer focused culture we have developed through the years, our ongoing technology investments, and the effective strategies we have put to work.

“We believe we are in a strong position going forward. In addition to closing the Scotiabank acquisition last year, we significantly reduced higher-cost non-core funding and sold a large portion of non-performing loans. During the first quarter, we increased our allowance for loan losses by $114 million, to a total of $231 million, equal to 3.41% of loans.

“In March, for our employees, we implemented a comprehensive program combining workplace safety, technology and special benefits. More than 90% are working on site or remote. For our retail and business customers, we launched payment relief programs, waived late charges and ATM and overdraft fees, and increased amounts that can be withdrawn or transferred electronically. As a result, we have achieved uninterrupted and superior levels of service through all channels while maintaining employee and customer safety and social distancing.

“The investments we made early on in our digital capabilities are helping customers continue to do banking. Our teams worked quickly to design and deploy a new digital forbearance tool as well as one for the SBA’s Payroll Protection Program. More than 43% of retail customers who requested forbearance have done so digitally, and 100% of small businesses applied for PPP loans digitally. Technology is a core part of our strategy, and we will continue to look for new and innovative ways to help our customers.

“All of this has facilitated close communication with our customers, enabling us to provide the financial advice and resources they need to navigate this challenging time. For example, in the first round of PPP, we helped 900 small businesses with more than 25,000 employees access more than $140 million in loans.

“Our deepest appreciation goes to the front line first responders and healthcare professionals dealing with the coronavirus. We also want to thank our teams at OFG and Oriental on the other front line for doing an outstanding job helping consumers and businesses manage the financial challenges during this crisis.

“For more than half a century, we have been there to help customers manage their finances, own homes, buy cars, build businesses, protect themselves with insurance, and save for retirement. We’re ready to help them now and will be for the decades ahead.”

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