Update: OFG Bancorp Q2 2014 Earnings

Aug. 1.14 | About: OFG Bancorp (OFG)

Summary

OFG Bancorp reported Q2 '14 earnings of $0.38 per share.

In-line with my expectations, the bank's core performance continues to improve.

The bank continues to trade at a discount to fair value, but this reflects environmental risk that needs to be monitored and included in all investment decisions.

From an operational perspective, just about everything about OFG Bancorp (NYSE:OFG) continues to improve and outpace growth at virtually every bank in North America. Unfortunately, this Puerto Rican island bank is in Puerto Rico, and the country continues to struggle. On top of that, every financial company connected to PR took a nosedive this week after the Argentinean debt debacle.

For Q2 2014, OFG reported steady core earnings that added up to $0.38 per share, down from the sequential and year-ago periods that were helped by one time gains on the sale of securities and other non-recurring items. Tangible book value increased 4.6% since March, to $14.07 per share. NIMs came in really strong at 6.1%, up from 5.9% in the first quarter of 2014. Helping margins was a fall in the cost of deposits, to 76 bps, and a decline in the bank's nonperforming loans.

Going forward, two key numbers to continue to watch is the bank's outstanding balance of PR government loans and securities. Down 15.7% YOY, the balance is still high at $454.9 million. The other major item is the amortization of the bank's indemnification asset. You can read more about it in my last article, but essentially, the accounting for this 'receivable' is amortized as asset quality improves. The only thing is the amortization is taking down pre-tax earnings by ~$18 million a quarter. Over the past four quarters over $81 million has been charged and the balance stands at $143.6 million, so there is still more to come. When this is gone, the bank's earnings will skyrocket. Now, however, may not be the time to go all in, this one is a very small portion of my portfolio and one that needs extra attention due to the shadow being cast by the government, and a lot of bad assets sitting in the accounts of its island peers.

Disclosure: The author is long OFG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.