OFG Bancorp (NYSE: OFG) reported Q1 EPS of $0.56, $0.12 better than the analyst estimate of $0.44. Revenue for the quarter came in at $127.7 million versus the consensus estimate of $99.55 million.

1Q21 Highlights

• Earnings: EPS diluted was $0.56 compared to $0.42 in 4Q20 and $0.00 in 1Q20, which was the first quarter to be impacted by the pandemic.
• Revenues: Total core revenues were $127.7 million compared to $132.8 million in 4Q20. 4Q20 benefited from $3.9 million in seasonal annual insurance commissions, $2.0 million in mortgage sales held back from 3Q20, and $3.1 million interest income from acquired loan pre-payments. 1Q21 included $1.6 million in interest income from unamortized yield from approximately $92 million of forgiven PPP loans and benefitted from $1.4 million lower cost of deposits.
• Expenses: Non-interest expenses were $77.7 million compared to $89.0 million in 4Q20 and $87.3 million in 1Q20. 4Q20 included $10.1 million in merger and restructuring expenses. 1Q21 reflected previously-announced cost savings as well as $1.8 million primarily in gains on sales as well as improved valuations of foreclosed properties. The efficiency ratio improved to 60.84% from 67.06% in 4Q20 and 66.49% in 1Q20.
• Pre-Provision Net Revenues: PPNR was $50.9 million compared to $44.1 million in 4Q20 and $49.2 million in 1Q20.
• Provision: Provision for credit losses was $6.3 million compared to $14.2 million in 4Q20 and $47.1 million in 1Q20. 1Q21 included a $3.7 million release of last year’s COVID-19 related loan reserves and $3.5 million for a commercial loan in workout prior to the pandemic. 1Q20 included $34.1 million related to the pandemic.
• Loan Generation and Balances: New loan originations totaled $527.6 million ($401.4 million excluding PPP), compared to $485.3 million in 4Q20 and $280.8 million in 1Q20. In addition to PPP loans, 1Q21 was driven year-over-year by increases in mortgage, auto, and commercial lending. Net loans were $6.43 billion at 3/31/21 compared to $6.50 billion at 12/31/20 and $6.54 billion at 3/31/20. Net interest margin was 4.26% compared to 4.24% in 4Q20 and 4.94% in 1Q20.
• Deposit Balances and Cost of Funds: Customer deposits at 3/31/21 were $8.72 billion compared to $8.37 billion at 12/31/20 and $7.56 billion at 3/31/20. Cost of funds was 48 bps compared to 53 bps in 4Q20 and 69 bps in 1Q20. Total interest expense was $12.8 million compared to $14.3 million in 4Q20 and $18.6 million in 1Q20.
• Asset Quality: Net charge-offs were $9.1 million compared to $44.8 million in 4Q20 and $24.0 million in 1Q20. The nonperforming loan rate was 2.22% compared to 2.35% in 4Q20 and 2.07% in 1Q20. Total delinquency rate was 2.15% compared to 2.68% in 4Q20 and 3.16% in 1Q20.
• Capital: Tangible book value per share was $17.39 compared to $16.97 in 4Q20 and $15.60 in 1Q20. The CET1 ratio was 13.56% compared to 13.08% in 4Q20 and 11.69% in 1Q20.

CEO Comment

José Rafael Fernández, Chief Executive Officer, said: “First quarter results reflected strong core performance based on the continued success of our strategies focusing on agility and service. Our results also reflected the federal stimulus, increased liquidity, and an improving Puerto Rico economy as more people get vaccinated.

“We benefitted from strong new loan generation and deposit growth, significantly reduced cost of funds, a more efficient operating structure, and the release of some COVID-related loan reserves.

“We followed up last year’s efforts to help small businesses and their employees with another $126 million in Paycheck Protection Program loans. Our proprietary PPP portal enables clients to apply for funds, receive them, and then apply for forgiveness, quickly and easily, and all online.

“Performance metrics improved with a loan yield of 6.61%, return on average assets of 1.21%, return on average tangible common stockholders’ equity of 13.11%, and an efficiency ratio of 60.84%. Credit metrics also improved as net charge-offs, delinquency rates, and loan deferrals all fell.

“Our capital strategies are working well. In January, we increased the regular quarterly cash dividend 14%. In March, we announced the redemption of all three outstanding series of preferred stock, which will improve our capital structure, enable us to effectively deploy excess liquidity, and increase net income available to shareholders. As of 1Q21, we more than earned back all the tangible book value per common share dilution involved in the Scotiabank acquisition significantly ahead of schedule.

“As Puerto Rico and USVI continue experiencing stronger signs of economic revival, at OFG we are strategically well-positioned to benefit from and play a major part in this long-awaited development. Thanks to all our team members who are más que listo (more than ready) to help our customers achieve their goals and aspirations through the pandemic and beyond.”

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