OFG Bancorp (NYSE:OFG) today reported results for the third
quarter ended September 30, 2015.
3Q15 Results
- Income available to common shareholders
was $1.1 million or $0.03 per share fully diluted. This compares to
a loss of $6.6 million or ($0.15) per share in the preceding
quarter and a profit of $16.1 million, or $0.34 per share diluted,
in the year ago quarter.
- Results included:
- The previously announced ($20.2)
million pre-tax net impact of the bulk sale of commercial
non-performing assets (NPAs) from the 2010 FDIC-assisted Eurobank
and the 2012 BBVA PR acquisitions.
- Other items, the largest of which was a
combined $3.2 million pre-tax benefit from a cost recovery and
prepayment penalty from full repayment of a 3.75%, tax free $77.6
million loan to Puerto Rico State Insurance Fund (CFSE).
- Adjusted for these factors, OFG earned
$12.2 million, or $0.28 per share fully diluted, assuming an
effective tax rate of 30%.
3Q15 Business Highlights
- Tangible book value and book value per
common share increased to $14.76 and $16.91 at September 30, 2015,
from $14.67 and $16.81 at June 30, 2015, respectively, while
Tangible Common Equity ratio expanded to 9.11% from 8.91%.
- Puerto Rico (PR) central government and
public corporation loan balances declined 28.4% to $215.6 million
at September 30, 2015, from $301.3 million at June 30, 2015. Loans
to PR municipalities fell 5.2% to $202.9 million from $214.0
million.
- The Oriental Bank franchise continued
to grow in part through:
- Strong loan production at $251.0
million in line with previous quarters. OFG retained securitized
GNMA pools totaling $27.8 million at a yield of 3.06% from its own
originations.
- Introduction of the new My Status
mobile app for tracking the progress of residential mortgage loan
applications. This feature, combined with shorter closing cycles,
is part of Oriental’s strategy to differentiate itself through
customer service.
- Credit metrics for loans were stable on
a linked quarter basis, with no apparent deterioration from Puerto
Rico’s economic challenges.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman, commented: “The third quarter demonstrates the
resiliency of our core business and unwavering customer focus, and
our proactive approach to risk management.
“Regarding the core business, new loan production continued
strong. Whereas 2Q15 saw higher levels of commercial loan closings,
in 3Q15 we continued to build positive momentum in retail lending,
picking up market share in conforming mortgage originations as well
as growing consumer and auto volumes.
“While total deposits declined largely due to lower balances in
government accounts and fluctuations in commercial accounts, we had
another quarter of growth in net new customers. We are encouraged
that our efforts to distinguish Oriental through superior customer
experience, rather than competing solely based on pricing, is
starting to realize its potential.
“To that end, we raised the bar again in technology innovation
with the launch of our industry first My Status residential
mortgage app. To bring this to market, we undertook a major effort
to streamline our underlying mortgage operations, which will result
in other benefits.
“Fee income levels performed well, adjusting for our decision to
hold some of our mortgage production. Lower non-interest expenses
reflect the control we maintain over core operations, as we have
always done.
“On the credit side, the sale of NPAs showed how we can move
expeditiously to further limit our exposure to deteriorating
collateral values and significantly reduce adversely classified
assets.
“Regarding Puerto Rico Electric Power Authority (PREPA),
agreements have been reached with the Ad Hoc Group of bondholders
and fuel line banks, which includes Oriental. Based on what we have
seen in the media, there appears to be increased confidence on the
part of the public utility to come to an agreement soon with the
monolines.
“With respect to our loans to certain PR municipalities, we are
comfortable with their debt service capabilities and confident that
the legal dispute between the Municipal Revenue Collections Center
(CRIM), various municipalities, and the Government Development
Bank, regarding the deposit of tax revenues used to service
municipal debt will be satisfactorily settled, retaining our
security interest on deposits serving as collateral to our
loans.
“Looking forward to 4Q15 and beyond, we expect our core business
to continue to perform well, although somewhat affected by lower
interest income from the Eurobank loan portfolio and the reduction
in PR government loans. Ultimately, we look forward to putting our
PR government exposure behind us to better highlight our core
business successes.
“As for Puerto Rico itself, we believe a comprehensive solution
is needed to overcome the fiscal challenges and to improve its
competitiveness. We are encouraged by the attention it has received
from the federal government in recent weeks.”
3Q15 Income Statement Highlights
As mentioned above, results included the following quarter
specific items:
- The bulk sale of acquired NPAs,
resulting in: (i) $7.0 million cost recoveries from acquired loans,
(ii) $38.0 million impairment provisions, (iii) $20.0 million FDIC
receivable for its share of the loss, and (iv) $9.3 million loss on
other real estate owned (OREO).
- Other non-recurring items, consisting
of: (i) $3.2 million cost recovery in interest income due to a
prepayment, (ii) $778,000 fee revenue from an associated prepayment
penalty, (iii) $246,000 in an Other Than Temporary Impairment
(OTTI) charge, based on a quarterly assessment, related to a $1.5
million PR security that is part of our U.S. Community Reinvestment
Act obligation, (iv) $917,000 additional severance accrual, and (v)
$180,000 benefit from a onetime credit from a vendor.
2Q15 results included the following quarter specific items: (i)
$21.0 million charge associated with expiry of the FDIC Commercial
Loss Share Agreement, and (ii) $2.5 million in a FINRA restitution
settlement and legal expenses associated with concluding the FDIC
agreement.
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Loss on Bulk Sale
Actual Results Non-Recurrent Adjusted Results
Actual Results of Non-Performing Non-Recurrent Adjusted
Results
(Dollars in thousands) (unaudited) (US GAAP)
Items (Non-GAAP)
(US GAAP) Loans and OREOs Items (Non-GAAP)
Interest income
$ 99,413 -
99,413
$ 107,247 7,058 3,180 97,009 Interest expense
(17,122 ) - (17,122 )
(17,423 ) - -
(17,423 )
Net interest income 82,291 - 82,291
89,824 7,058 3,180 79,586 Provision for loan and lease
losses, excluding acquired Eurobank
(15,643 ) -
(15,643 )
(18,090 ) (5,175 ) - (12,915 ) Provision
for acquired Eurobank loan and lease losses
105
- 105
(33,490
) (32,855 ) - (635 )
Total
provision for loan and lease losses, net (15,538
) - (15,538 )
(51,580
) (38,030 ) - (13,550 )
Net
interest income after provision for loan and leases losess
66,753 - 66,753
38,244 (30,972 ) 3,180 66,036 Banking
and wealth management revenues
19,358 - 19,358
18,703
- 778 17,925 Other-than-temporary impairment losses on investment
securities
- - -
(246 ) - (246 ) - FDIC
shared-loss expense, net
(23,245 ) (21,000 ) (2,245 )
(2,079 ) - - (2,079 ) Gain on FDIC shared-loss
coverage in sale of loans
- - -
20,000 20,000 - -
Other (losses) gains, net
(770 )
- (770 )
(401 ) -
- (401 )
Total non-interest
income (4,657 ) (21,000 ) 16,343
35,977
20,000 532 15,445 Compensation and employee benefits
(19,260
) - (19,260 )
(21,015 ) - (917 ) (20,098 )
Rent and occupancy costs
(8,882 ) - (8,882 )
(8,556 ) - - (8,556 ) General and administrative
expenses
(36,294 ) (2,500 )
(33,794 )
(39,519 ) (9,260 ) 180
(30,439 )
Total non-interest expense
(64,436 ) (2,500 ) (61,936 )
(69,090 ) (9,260 ) (737 )
(59,093 )
Income before taxes (2,340 ) (23,500
) 21,160
5,131 (20,232 ) 2,975 22,388 Income tax expense
(benefit)
769 6,198
562 6,716
Net income
(3,109 ) 14,962
4,569 15,672 Preferred stock
dividends
(3,466 ) (3,466 )
(3,465 ) (3,465 )
Net income (loss)
available to common shareholders $ (6,575
) $ 11,496
$ 1,104 $ 12,207
Earnings (loss) per common share - basic
$ (0.15 ) $
0.26 $
0.03 $
0.28 Earnings (loss) per
common share - diluted $ (0.15 ) $
0.26 $ 0.03 $
0.28
Performance Metrics Net interest margin
4.92 % 4.92 %
5.29 % 4.68 % Return on
average assets
-0.17 % 0.82 %
0.25 %
0.86 % Return on average tangible common stockholders' equity
-3.93 % 6.88 %
0.68 % 7.49 % Efficiency
ratio
63.39 % 60.93 %
63.66 % 60.60 %
The following compares Adjusted Results (non-GAAP) for the third
quarter 2015 to the second quarter 2015 based on the table above
unless otherwise noted.
- Total Interest Income declined
to $97.0 million from $99.4 million due to lower balances in
acquired portfolios, reflecting repayments and sales. Interest
income from originated loans continued to increase, compensating to
a large extent for the reduction in income from the acquired BBVA
PR portfolio.
- Total Interest Expense increased
slightly to $17.4 million compared to $17.1 million. This was
primarily due to an increase in borrowing expense as OFG used a
higher average balance of short-term repurchase agreements for
temporary funding purposes.
- Provision for loan and lease
losses declined to $13.6 million from $15.5 million due to
significantly lower impairments on acquired BBVA PR loans.
- Net Interest Margin was 4.68%,
reflecting reduced cost recoveries as seen in the prior quarters,
partially offset by expanded volumes of originated loans at average
yields of 6.17% coupled with deposit costs staying level at
0.65%.
- Total banking and wealth management
revenues were $17.9 million compared to $19.4 million. This
reflected a decrease in mortgage banking activity due to foregone
gains on sales as a result of retaining securitized GNMA pools, as
previously mentioned.
- FDIC shared loss indemnification
asset amortization was $2.1 million compared to $2.3 million.
The loss share agreement now covers remaining Eurobank residential
mortgages.
- Total Non-Interest Expenses
declined to $59.1 million compared to $61.9 million, primarily
reflecting lower losses and markdowns in OREO and repossessed
autos, respectively.
September 30, 2015 Balance Sheet Highlights
The following compares data as of September 30, 2015 to June 30,
2015 unless otherwise noted.
- Total loans declined to $4.47
billion from $4.64 billion primarily due to the bulk sale and
repayment of the CFSE loan.
- Total investments were almost
flat with prepayments of mortgage backed securities (MBS)
compensated by new purchases and retention of our GNMA securitized
pools.
- Total deposits declined $32.6
million to $4.72 billion due to previously mentioned factors.
- Total borrowings reduced sharply
to $1.44 billion from $1.60 billion.
- Total stockholders’ equity
declined $3.7 million to $907.9 million, largely reflecting the
decline in retained earnings.
Credit Quality Highlights
The following compares data for the third quarter 2015 to the
second quarter 2015 unless otherwise noted.
- Net charge-off rate at 1.23%
increased 17 basis points from 2Q15, but declined 11 bps from the
year ago quarter, and was generally in line with its quarterly
level. Auto NCOs were higher due to stepped up efforts to reduce
repo lot inventory.
- Non-performing loan rate at
10.32% declined 12 basis points from 2Q15, but was up 667 bps from
the year ago quarter due to the PREPA loan going on non-accrual
status in 1Q15.
- Allowance for loan and lease
losses increased $1.4 million to $80.4 million. Coverage of
loans held for investment remained steady at 2.65% compared to
2.67%.
Capital Position
Regulatory capital ratios continued to be significantly above
requirements for a well-capitalized institution.
The following compares data for the third quarter 2015 to the
second quarter 2015.
- Tangible common equity to total
tangible assets at 9.11% increased 20 basis points from 2Q15
and 29 basis points from the year ago quarter.
- Common Equity Tier 1 Capital Ratio
(using Basel III methodology) was 12.03% compared to
12.26%.
- Total risk-based capital ratio
was 16.93% compared to 17.41%.
Other Matters
During 3Q15, Oriental Bank entered into a Consent Order with the
FDIC to address certain matters related to its Bank Secrecy Act /
anti-money laundering (BSA/AML) compliance program. The Consent
Order requires, among other things, that Oriental implement
improved internal controls reasonably designed to ensure full
compliance with the BSA. The Consent Order does not include civil
money penalties.
Conference Call
A conference call to discuss OFG’s results for the third quarter
2015, outlook and related matters will be held today, Friday,
October 23, 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
third quarter ended September 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 51 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/20151023005324/en/
Puerto Rico:OFG BancorpAlexandra López,
787-522-6970allopez@orientalbank.comorUS:Steven
Anredersanreder@ofgbancorp.comorGary
Fishmangfishman@ofgbancorp.com212-532-3232
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