OFG Bancorp (NYSE:OFG) today reported results for the second
quarter ended June 30, 2015.
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented, “While a few quarter
specific items caused us to post a loss in 2Q15, our core business
performed well and capital continues to be strong.”
2Q15 Highlights
- Loss of $6.6 million, or ($0.15) per
share, compared to a loss of $6.5 million, or ($0.14) per share, in
the preceding quarter, and a profit of $17.8 million, or $0.38 per
share diluted, in the year ago quarter.
- Compared to 1Q15, 2Q15 results were
adversely impacted by:
- Absence of $4.2 million in tax free
interest income from loans to the Puerto Rico Electric Power
Authority (PREPA) and the Puerto Rico Aqueduct and Sewer Authority
(PRASA).
- PREPA: Interest payments on the $200
million loan, which is on non-accrual status, are being applied to
the principal.
- PRASA: The $75 million remaining
balance was paid-off on June 1, 2015.
- $10.2 million increase in FDIC
commercial loss share amortization (from $13.1 million to $23.2
million) related to the scheduled expiration of the Eurobank
commercial loss sharing agreement with the FDIC. Going forward, the
loss share amortization for remaining residential mortgages should
be significantly lower.
- $4.5 million of additional loss in
Other Real Estate Owned (OREO) due to revised collateral values as
part of ongoing and proactive de-risking efforts.
- Partially offsetting the above was:
- $26.7 million decline in the total
provision for loan and lease losses. This reflects no additional
PREPA provision ($24.0 million in 1Q15) because the government
utility and its creditors are actively working on a repayment
agreement. Additionally, no provision was required on FDIC covered
commercial loans ($4.8 million in 1Q15).
- Continued growth of the Oriental Bank
franchise through the opening of new retail deposit accounts,
reduced cost of total deposits, and strong levels of core
non-interest fee revenues and loan production.
- Improved credit, with declines in net
charge-offs, total delinquencies and non-performing loans.
- Puerto Rico central government and
public corporation balances declined 20.7% to $301.3 million at
June 30, 2015 from $380.1 million at March 31, 2015. This excludes
$214.0 million in term loans to five municipal governments that are
completely separate entities with their own sources of tax
revenues.
- Tangible book value and book value per
common share declined to $14.67 and $16.81 from $15.12 and $17.25,
respectively, at March 31, 2015. Regulatory capital ratios
continued to be significantly above requirements for a
well-capitalized institution.
CEO Comment
In commenting on 2Q15 results, Mr. Fernández stated, “This
quarter demonstrates our discipline in navigating one of the most
difficult operating environments in banking today.
“Our core business performed well as we continued to grow
Oriental Bank’s franchise serving the commercial and consumer
sectors. We experienced strong generation of quality loans with
good pricing discipline, strong fee revenue levels, and good core
expense management. Oriental’s retail deposit base and mortgage and
consumer loan businesses continued to benefit from successful
marketing attracting new customers. In addition, credit continued
to improve as evidenced, among other things, by lower provisions
and net charge-offs while we maintained provisions at 1.20-1.25% of
net charge-offs, increasing the allowance levels.
“However, the absence of tax-free interest income from the PREPA
and PRASA loans was a drag on NIM and earnings in general. With the
scheduled expiration of our commercial loss share agreement with
the FDIC, we incurred a final write down of the remaining
amortization asset for covered commercial loans. In addition, we
de-risked our non-covered portfolio by updating valuations of
certain underlying collaterals and adopted a restitution program in
our broker-dealer subsidiary.
“Looking ahead, prevailing economic conditions in Puerto Rico
are challenging and uncertain. Our strategy is to be vigilant in
managing our risk exposure and the factors under our control. We
urge the Central Government to act quickly and in cooperation with
the investment community to restart the Puerto Rico economy, which
has now been stalled for nearly a decade.
“Our ultimate goals remain the same: build the Oriental
franchise, further affirming our reputation as the best bank in
Puerto Rico; 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.”
2Q15 Income Statement Highlights
The following compares data for the second quarter 2015 to the
first quarter 2015 unless otherwise noted.
- Total interest income declined
$7.6 million to $99.4 million. This reflected:
- Lower loan income from PREPA ($3.6
million) and PRASA ($0.6 million), as noted above, and from covered
loans ($2.8 million) as balances continued to pay down.
- Growth in loan income from all other
originated loans offsetting declines in all other acquired
non-covered loans.
- $0.6 million in higher premium
amortization on investment securities.
- Total interest expense fell
slightly to $17.1 million as we continued to improve the deposit
funding profile with decreases in rates.
- Net Interest Margin declined to
4.92% from 5.42%, primarily reflecting the loss of income from the
PREPA and PRASA loans.
- Provision for loan and lease
losses fell $26.7 million to $15.5 million. This reflected no
additional PREPA and covered loan provisioning, as previously
mentioned, and $1.3 million decline in provision on other
originated and acquired loans.
- Total core non-interest income
increased slightly to $19.4 million. This reflected increased or
sustained levels of revenue across the board in wealth management,
banking services and mortgage banking activity.
- FDIC indemnification asset
amortization increased $10.2 million, as mentioned above, to
$23.2 million. The indemnification asset was $22.7 million at June
30, 2015 versus $75.2 million at March 31, 2015.
- Non-interest expenses increased
$8.1 million, to $64.4 million. This primarily reflected the
following non-recurring expenses:
- The aforementioned $4.5 million
increased OREO loss and $1.8 million restitution program by our
broker-dealer subsidiary.
- $1.1 million to close a branch and
other quarter specific expenses.
2Q15 Business Activity Highlights
The following compares data for the second quarter 2015 to the
first quarter 2015 unless otherwise noted.
- Total new loan production (excluding
renewals) increased 19.7% to $286.7 million.
- Commercial loan production
increased 40.7% to $120.5 million, reflecting the pipeline that was
starting to build in 1Q15.
- Residential mortgage loan
production, most of which is sold into the secondary market,
increased 5.0% to $64.8 million as Oriental continued to expand its
market share.
- Consumer loan production
increased 52.3% to $39.8 million due to improved marketing and a
larger client base.
- Auto loan production declined
6.6% to $61.5 million. This reflects increased competition from the
captive finance arms of manufacturers, and our own initiative to
increase FICO score requirements to improve credit.
- Cost of deposits declined 5
basis points to 0.65% from 1Q15 and 22 basis points from 0.87% in
2Q14, as a result of reductions in demand, savings, time and
brokered deposit rates.
June 30, 2015 Balance Sheet Highlights
The following compares data as of June 30, 2015 to March 31,
2015 or for the second quarter 2015 to the first quarter 2015
unless otherwise noted.
- Average interest earning assets
increased slightly to $6.71 billion. This reflected an increase in
total investments as OFG reinvested excess cash from repayments of
loans and investment securities, and increased originated loans,
all of which more than offset declines in acquired and covered
loans due to normal pay downs.
- Total stockholders’ equity
declined $24.8 million to $911.6 million. This primarily reflected
a $10.9 million decrease in retained earnings and a $10.0 million
decrease in other comprehensive income.
Credit Quality Highlights
The following compares data for the second quarter 2015 to the
first quarter 2015 unless otherwise noted.
- Net charge-offs declined 10.1%
to $7.7 million as we continued to fine tune our collection efforts
to evolving credit trends. Net charge-offs have declined three
quarters in a row.
- Total delinquency rate
declined 88 basis points to 7.72% primarily due to improvements in
the mortgage, consumer and auto loan portfolios. The total
delinquency rate has declined three quarters in a row.
- Non-performing loan rate
declined 20 basis points to 10.44%.
- Allowance for loan and lease
losses increased $2.2 million to $79.0 million. This resulted
in coverage of 2.67% of loans held for investment compared to
2.64%.
Capital Position
The following compares data for the second quarter 2015 to the
first quarter 2015.
- Tangible common equity to total
tangible assets declined to 8.91% from 9.29% based on a 3.6%
decrease in tangible common equity to $650.9 million and a 0.5%
increase in tangible assets to $7.3 billion.
- Common Equity Tier 1 Capital Ratio
(using Basel III methodology) was 12.25% compared to
12.63%.
- Total risk-based capital ratio
declined to 17.40% from 17.69% based on a 2.1% decline in total
risk-based capital to $868.6 million and a 0.4% decline in total
risk weighted assets to $5.0 billion.
Conference Call
A conference call to discuss OFG’s results for the second
quarter 2015, outlook and related matters will be held today,
Friday, July 24, 2015 at 11:15 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
second quarter ended June 30, 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 52 financial centers and 332 ATMs. Investor
information can be found at www.ofgbancorp.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20150724005214/en/
OFG BancorpPuerto Rico:Alexandra López,
787-522-6970allopez@orientalbank.comorUS:Steven
Anredersanreder@ofgbancorp.comorGary Fishman,
212-532-3232gfishman@ofgbancorp.com
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