OFG Bancorp (NYSE:OFG) today reported results for the first
quarter ended March 31, 2015.
1Q15 Highlights
- Income available to common shareholders
was a loss of $6.5 million, or ($0.14) per share, which includes a
previously announced provision of ($0.35) per share net of
tax.
- Excluding this, income was $9.4
million, or $0.21 per share diluted. Results compare to $17.1
million, or $0.36 per share diluted, in the preceding quarter, and
$20.3 million, or $0.42 per share diluted, in the year ago
quarter.
- The quarter was adversely affected by:
- $24.0 million provision related to
placing on non-accrual status a 7.5%, $200 million participation in
a fuel purchase line of credit with the Puerto Rico Electric Power
Authority (PREPA), a government utility.
- $7.9 million less in loan interest
income, primarily due to lower acquired balances and yields. This
includes a $1.7 million decline from fewer days and lower cost
recoveries 1Q15 versus 4Q14.
- $4.8 million in provisions for covered
loans, increasing the allowance to $70.7 million. The commercial
loss share coverage with the FDIC is coming to an end on June 30,
2015.
- However, net interest margin continued
strong at 5.42%.
- Continued growth of the Oriental Bank
franchise through the opening of 7,670 net new retail deposit
accounts, reduction in cost of total deposits, core non-interest
fee revenue strength, and major expansion of its ATM network.
- Efficiency ratio in our target range at
51.75%, and improved credit, with declines in net charge offs and
total delinquencies.
- Tangible book value and book value per
common share declined slightly from December 31, 2014, to $15.12
and $17.25, respectively.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented:
“We’re clearly disappointed at being forced to take a provision
against our PREPA credit, especially in light of our analysis that
multiple ways exist for the government utility to repay its debts.
Likewise, we remain concerned about the challenges businesses are
forced to face in Puerto Rico’s heavily taxed, underperforming
economy.
“On the plus side, we continued to grow Oriental Bank’s core
franchise serving the commercial and consumer sectors. We prudently
originated quality loans with strong pricing discipline. Despite
normal reductions in our high-yielding acquired loan portfolios,
our NIM at 5.42% and efficiency ratio at less than 52% are among
the best in the industry. Additionally, Oriental’s retail deposit
base and mortgage business are benefiting from successful marketing
attracting an influx of new customers.
“Our outlook for 2015 calls for preserving our performance
metrics and diligently managing expenses, albeit with a decline in
earning assets and NIM. Most of the FDIC indemnification asset
amortization will end in the second half, helping to offset reduced
interest income from acquired loans.
“Operationally, we remain focused on building the Oriental
franchise and further affirming our reputation as the best bank in
Puerto Rico. We will continue to expand our customer base, deepen
client relationships, and differentiate ourselves in terms of
service and innovation.
“Our ultimate goals remain the same: maximize our profitability
and capital; preserve our flexibility to pursue strategic
alternatives; and deploy our strong capital base to increase
shareholder return in a sustainable manner, as we have done
before.”
1Q15 Income Statement Highlights
The following compares data for the first quarter 2015 to the
fourth quarter 2014 unless otherwise noted.
- Total interest income from loans
declined $7.9 million to $97.5 million, reflecting above mentioned
factors and the transition in our loan portfolio as originated
loans with more normal yields grew at a slower pace than
higher-yielding acquired loans fell, due to repayments and
maturities.
- Originated loans: Interest
income increased modestly to $46.3 million as balances grew 2.4%
and yield expanded 4 basis points to 6.63%.
- Acquired non-covered loans:
Interest income fell $4.0 million to $35.7 million as balances
declined 5.6% and yield compressed 23 basis points to 8.58%.
- Covered loans: Interest income
fell $4.3 million to $15.5 million as balances declined 9.3% and
yield reduced 306 basis points to 22.89%.
- Investment securities interest
income declined $1.0 million to $9.5 million. This primarily
reflects higher premium amortization on existing securities.
- Deposit interest expense fell
$1.0 million to $7.1 million. We continued to improve the funding
profile with increases in lower cost demand and savings deposits
and decreases in higher cost time and brokered deposits.
- Borrowing interest expense fell
$0.4 million to $10.3 million. This reflects the use of excess cash
to pay down $52.8 million in maturing wholesale funding
mid-1Q15.
- Provision for loan and lease
losses excluding PREPA increased $1.3 million to $18.2 million,
primarily due to a $3.5 million increase for covered loans.
- Total core non-interest income
declined $1.8 million to $19.2 million. This reflects the absence
of approximately $1.0 million in year-end recognition of insurance
commissions in 4Q14. In addition, broker dealer commissions were
lower due to subdued client trading activity.
- FDIC indemnification asset
amortization increased $1.1 million to $13.1 million in line
with plans for the year. The indemnification asset was $75.2
million at March 31, 2015 versus $97.4 million at December 31,
2014.
- Non-interest expenses fell $5.6
million, to $56.3 million. This reflects decreased costs in all
major categories as well as reduced accruals from 4Q14. In 1Q15,
two branches were consolidated as planned.
- The effective income tax rate
excluding the PREPA provision was 41.58%. For the year, the rate is
expected to be about 36.5%.
1Q15 Business Activity Highlights
The following compares data for the first quarter 2015 to the
fourth quarter 2014 unless otherwise noted.
- Total new loan production (excluding
renewals) increased slightly to $239.4 million. Growth in the
commercial and residential mortgage categories offset declines in
auto and consumer.
- Commercial production increased
2.7% to $85.7 million with a good pipeline for the rest of the
year.
- Residential mortgage production,
most of which is sold into the secondary market, increased 7.8% to
$61.7 million. With one less player in the market, Oriental
continued to expand its share.
- Auto loan production declined
4.9% to $65.9 million. This reflects increased competition from the
captive finance arms of manufacturers, and our own initiative to
increase FICO score requirements to improve credit.
- Consumer loan production
declined 9.5% to $26.2 million, reflecting seasonal trends.
- Cost of deposits declined 7
basis points to 0.70%, and 22 basis points from 0.92% in 1Q14.
- Core retail deposits (demand and
savings) increased 2.2% to $3.4 billion, representing 68.7% of
total deposits versus 66.8% in 4Q14 and 63.4% in 1Q14.
- Subsequent to 1Q15, Oriental expanded
its ATM network 34% to 332 units, making it the second largest in
Puerto Rico with the placement of machines in 72 Walgreens and 13
other retail locations.
March 31, 2015 Balance Sheet Highlights
The following compares data as of March 31, 2015 to December 31,
2014 or for the first quarter 2015 to the fourth quarter 2014
unless otherwise noted.
- Cash and cash equivalents
increased 19.3% to $694.3 million, primarily from repayments of
loans and investment securities.
- Average interest earning assets
of $6.7 billion declined 1.6%. Originated loans increased 2.4%, or
$67.1 million. Acquired loans declined 6.1%, or $128.8 million, due
to scheduled maturities and a reduction of government loan
balances. Investment securities declined 4.7%, or $65.8 million,
primarily due to repayments.
- Puerto Rico government related loans
and securities contractual balances declined $26.7 million to
$626.0 million. This was primarily due to a $25.0 million partial
repayment of a contractual obligation by the Puerto Rico Aqueduct
and Sewer Authority (PRASA). Year over year, PR government related
loans and securities shrunk 19.6% from $778.3 million at March 31,
2014.
- Total stockholders’ equity
declined $5.8 million to $936.4 million. This primarily reflects
the decrease in retained earnings partially offset by an increase
in other comprehensive income.
Credit Quality Highlights
The following compares data for the first quarter 2015 to the
fourth quarter 2014 unless otherwise noted. This also excludes
acquired loans and the PREPA credit and its provision.
- Net charge offs declined
slightly to $8.6 million as we continue to adjust our collection
efforts to evolving credit trends.
- Total delinquency declined 39
basis points to 8.60% primarily due to improvements in mortgage and
auto portfolios.
- Nonperforming loans increased
$4.8 million, primarily due to $7.9 million inflows in the form of
repurchases from GSEs, as well as TDRs, in mortgages.
- Allowance for loan and lease
losses increased $1.3 million to $52.8 million.
Capital Position
The following compares data for the first quarter 2015 to the
fourth quarter 2014.
Regulatory capital ratios continued to be significantly above
requirements for a well-capitalized institution.
- Tangible common equity to total
tangible assets increased to 9.29% from 9.25% based on a 0.8%
decrease in tangible common equity to $675.2 million and a 1.1%
decline in tangible assets to $7.3 billion.
- Common Equity Tier 1 Capital Ratio
(using Basel III methodology) was 12.63%.
- Total risk-based capital ratio
increased to 17.69% from 17.57% based on a 4.2% increase in total
risk-based capital to $887.0 million and a 3.5% increase in total
risk weighted assets to $5.0 billion.
Conference Call
A conference call to discuss OFG’s results for the first quarter
2015, outlook and related matters will be held today, Friday, April
24, 2015 at 10:00 AM Eastern Time. The call will be accessible live
via a webcast on OFG’s Investor Relations website at
www.ofgbancorp.com. A webcast replay will be available shortly
thereafter. Access the webcast link in advance to download any
necessary software.
Financial Supplement
OFG’s Financial Supplement, with full financial tables for the
first quarter ended March 31, 2015, can be found on the Webcasts,
Presentations & Other Files page, on OFG’s Investor Relations
website at www.ofgbancorp.com.
Forward Looking Statements
The information included in this document contains certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
based on management’s current expectations and involve certain
risks and uncertainties that may cause actual results to differ
materially from those expressed in the forward-looking
statements.
Factors that might cause such a difference include, but are not
limited to (i) the rate of growth in the economy and employment
levels, as well as general business and economic conditions; (ii)
changes in interest rates, as well as the magnitude of such
changes; (iii) a credit default by the government of Puerto Rico;
(iv) the fiscal and monetary policies of the federal government and
its agencies; (v) changes in federal bank regulatory and
supervisory policies, including required levels of capital; (vi)
the relative strength or weakness of the consumer and commercial
credit sectors and of the real estate market in Puerto Rico; (vii)
the performance of the stock and bond markets; (viii) competition
in the financial services industry; and (ix) possible legislative,
tax or regulatory changes.
For a discussion of such factors and certain risks and
uncertainties to which OFG is subject, see OFG’s annual report on
Form 10-K for the year ended December 31, 2014, as well as its
other filings with the U.S. Securities and Exchange Commission.
Other than to the extent required by applicable law, including the
requirements of applicable securities laws, OFG assumes no
obligation to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date
of such statements.
About OFG Bancorp
Now in its 51st year in business, OFG Bancorp is a diversified
financial holding company that operates under U.S. and Puerto Rico
banking laws and regulations. Its three principal subsidiaries,
Oriental Bank, Oriental Financial Services and Oriental Insurance,
provide a full range of commercial, consumer and mortgage banking
services, as well as financial planning, trust, insurance,
investment brokerage and investment banking services, primarily in
Puerto Rico, through 53 financial centers and 332 ATMs. Investor
information can be found at www.ofgbancorp.com.
OFG BancorpPuerto Rico:Alexandra López,
787-522-6970allopez@orientalbank.comorUS:Anreder&
CompanySteven Anreder, steven.anreder@anreder.comGary Fishman,
gary.fishman@anreder.com212-532-3232
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