OFG Bancorp (NYSE:OFG) today reported results for the fourth
quarter and the year ended December 31, 2015.
4Q15 Results
- A loss of ($4.4) million, or ($0.10)
per share fully diluted. This compares to net income of $1.1
million, or $0.03 per share diluted, in the preceding quarter, and
$17.1 million, or $0.36 per share diluted, in the same quarter a
year ago.
- Results included:
- An additional $30.4 million provision
on the $200 million participation in a syndicated fuel line of
credit to the Puerto Rico Electric Power Authority (PREPA),
reflecting continued hurdles in restructuring the credit. Currently
in non-accrual status, interest payments are being credited to the
payment of principal. The unpaid principal balance, net of
allowances, was $135.9 million, or 68.5% of the total outstanding
credit, at December 31, 2015.
- $9.2 million in other quarter-specific
charges or expenses, consisting of $4.9 million impairment during
the annual recasting of a BBVA PR loan pool, $1.5 million in
additional legal fees related to PREPA negotiations, $1.6 million
in final adjustments to the 2Q15 settlement of the Eurobank
commercial shared loss agreement with the FDIC, and $1.2 million in
an Other Than Temporary Impairment (OTTI) related to a $11.0
million Puerto Rico Industrial Development Company (PRIDCO)
bond.
- $19.9 million in tax benefits primarily
resulting from the 4Q15 loss.
- Adjusted for the above listed factors,
OFG earned $9.1 million, or $0.21 per share fully diluted, assuming
an effective tax rate of 33%.*
4Q15 Highlights
- All components of our business
continued strong as in previous quarters:
- Pre-Provision Net Revenues of $36.4
million compared to an average of $38.3 million the last two
quarters.
- New loan production at $236.8 million
compared to an average of $254.0 million the last four
quarters.
- Banking and wealth management fee
revenues at $19.3 million compared to an average of $19.6 million
the last four quarters.
- Tangible book value per common share of
$14.53 and tangible common equity (TCE) ratio of 9.10% at December
31, 2015.
- OFG’s focus on cost control brought
non-interest expenses down 5.4% from 4Q14, largely due to proactive
rightsizing.
- Asset quality trends were encouraging.
Early and total delinquency rates fell to 3.70% and 6.94% of loans,
respectively, from 4.91% and 8.99% in 4Q14. The non-performing loan
rate (excluding PREPA) at 3.63% was the lowest it has been in five
quarters.
2015 Summary
- A loss of ($16.4) million, or ($0.37)
per share, compared to net income of $71.3 million, or $1.50 per
share diluted, for 2014.
- Results reflected significant
de-risking steps, including the following:
- Puerto Rico central government and
public corporation loan balances fell 47.8% to $211.9 million at
December 31, 2015, from $406.1 million a year ago. Loans to Puerto
Rico municipalities declined 4.4% to $203.5 million, and Puerto
Rico securities balance came down 15.0% to $17.8 million.
- Successful negotiation and termination
of the FDIC commercial shared loss agreement. This resulted in a
$10.2 million increase in share loss amortization in 2Q15, but a
reduction of approximately $10 million a quarter going
forward.
- Successful bulk sale of $235.2 million
in unpaid principal balances of acquired NPAs. This resulted in a
charge of $20.2 million pre-tax in 3Q15.
- In all, the de-risking resulted in
normalization of net interest margin to 5.03% from 5.84%, primarily
reflecting contraction from the steep reduction in tax exempt, high
yield, government related loans.
- Growth of the Oriental retail franchise
through new customers, products and services.
- Oriental Bank furthered its innovative
edge in 3Q15 with the launch of MyStatus. The industry-first mobile
app updates home buyers on every step of their mortgage application
from origination through closing.
- MyStatus followed the introduction of
FOTOdepósito, People Pay, and Cuenta Libre (Freedom Account). With
Cuenta Libre, customers who access their accounts via mobile phone,
tablet, web, debit / credit card, or ATMs, do not have to pay ATM
fees.
- New products and services like these
helped Oriental Bank add 15,400 net new retail customers,
increasing its total customer base by 4.40%. New customers added
approximately $67 million in deposits, $115 million in loans, and
$15 million in wealth management assets.
- In total, new loan production of $1.0
billion increased 10.3% year over year, with commercial up 38.9%,
residential mortgage up 14.8%, and consumer up 17.3%, more than
offsetting a decline in auto.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented:
“Our core business performed well this past quarter and year,
given the challenging economy and Puerto Rico’s fiscal situation.
We maintained good levels of interest and non-interest revenues and
loan production, while retaining a solid capital position. This
enabled us to take decisive de-risking actions to further
strengthen our balance sheet. Non-interest expenses declined, most
credit metrics improved, and we continued to expand the Oriental
franchise.
“Clearly, market valuations and sentiment regarding OFG outside
of Puerto Rico appear to be incongruent to our core performance and
asset quality trends and positions.
“We are cognizant of the high level of uncertainty regarding
Puerto Rico’s future. While lower fuel prices have significantly
enhanced personal disposable income and reduced operating costs for
businesses, the Government lost an opportunity to take a major step
in solving the fiscal situation when the Legislature, for a second
time, delayed voting on the PREPA Revitalization Act.
“Despite the difficult environment in which we operate, we
remain steadfast in our long standing management strategies:
maintaining discipline in underwriting, pricing, operations and
expenses. Furthermore, we have shifted our capital management
strategy toward preserving and continuing to build excess capital.
We believe this is the prudent thing to do until we can get a
better read on the future.
“Looking forward to 2016 and beyond, we expect to continue to
perform well, although somewhat affected by lower interest income
from a smaller balance of acquired loans. Ultimately, we look
forward to putting our PREPA exposure behind us, to better
highlight our solid core business performance.
“As for Puerto Rico itself, a comprehensive solution is needed
to overcome the fiscal challenges and to improve the island’s
competitiveness. We are encouraged by the attention Puerto Rico has
received in Washington, but the time for talk is over. Leadership
needs to take tangible actions.”
4Q15 Income Statement Highlights
The following compares GAAP and Non-GAAP Adjusted Results for
the fourth quarter 2015 to the third quarter 2015.
Quarter ended September 30, 2015
Quarter ended December 31, 2015 Loss on Bulk Sale
Actual Results
of Non-Performing
Quarter Specific Adjusted Results
Actual Results Quarter
Specific Adjusted Results
(Dollars in thousands) (unaudited)
(US GAAP) Loans and OREOs(1) Items(2) (Non-GAAP)
(US
GAAP) Items(3) (Non-GAAP) Interest income
$
107,247 7,058 3,180 97,009
$ 92,907 - 92,907
Interest expense
(17,423) - - (17,423)
(17,285) - (17,285)
Net interest
income 89,824 7,058 3,180 79,586
75,622 - 75,622
Provision for loan and lease losses, excluding acquired loans
(10,459) - - (10,459)
(45,012) (30,345) (14,667)
Provision for acquired BBVAPR loan and lease losses
(7,630)
(5,175) - (2,455)
(7,332) (4,900) (2,432)
(Recapture) provision for acquired
Eurobank loan and lease losses
(33,490) (32,855) (635)
154 - 154
Total provision for loan and
lease losses, net (51,579) (38,030) -
(13,549)
(52,190) (35,245)
(16,945)
Net interest income after provision for
loan and lease losses
38,245 (30,972) 3,180 66,037
23,432 (35,245) 58,677
Banking and wealth management revenues
18,703 - 778 17,925
19,349 - 19,349 Other-than-temporary impairment losses on
investment securities
(246) - (246) -
(1,244) (1,244)
- FDIC shared-loss expense, net
(2,079) - - (2,079)
(4,400) (1,589) (2,811) Gain on FDIC shared-loss coverage in
sale of loans
20,000 20,000 - -
- - - Other (losses)
gains, net
(401) - - (401)
565 - 565
Total non-interest
income 35,977 20,000 532 15,445
14,270 (2,833)
17,103 Compensation and employee benefits
(21,015) - (917)
(20,098)
(18,717) - (18,717) Rent and occupancy costs
(8,556) - - (8,556)
(8,111) - (8,111) General and
administrative expenses
(39,519) (9,260) 180
(30,439)
(31,714) (1,462)
(30,252)
Total non-interest expense (69,090)
(9,260) (737) (59,093)
(58,542)
(1,462) (57,080)
Income before taxes 5,132
(20,232) 2,975 22,389
(20,840) (39,540) 18,700 Income tax
expense (benefit)
562 7,388
(19,863) 6,171
Net income 4,570 15,001
(977) 12,529 Preferred stock dividends
(3,465)
(3,465)
(3,466) (3,466)
Net income
(loss) available to common shareholders $ 1,105 $
11,535
$ (4,443) $ 9,063
Earnings (loss)
per common share - basic $ 0.03 $
0.26
$ (0.10) $
0.21 Earnings (loss) per common
share - diluted $ 0.03 $
0.26 $
(0.10) $
0.21 Performance Metrics Net
interest margin
5.29% 4.68%
4.55% 4.55% Return on
average assets
0.25% 0.82%
-0.05% 0.70% Return on
average tangible common stockholders' equity
0.68% 7.08%
-2.75% 5.62% Efficiency ratio
63.66% 60.60%
61.64% 60.10% (1) 3Q15 results included
($20.2) million pre-tax impact from the bulk sale of acquired NPAs,
reflecting: (i) $7.0 million cost recoveries, (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. (2) 3Q15 results also included other quarter
specific items, consisting of: (i) $3.2 million cost recovery in
interest income due to a prepayment, (ii) $778,000 fee revenue from
a prepayment penalty, (iii) ($246,000) in an OTTI charge, (iv)
($917,000) additional severance accrual, and (v) $180,000 from a
onetime vendor credit. (3) 4Q15 results included the
following quarter specific items, as previously mentioned: ($30.4)
million provision related to the PREPA line, ($4.9) million
impairment during the annual recasting of a BBVA PR loan pool,
($1.5) million in legal fees related to PREPA’s restructuring,
($1.6) million in a final settlement with the FDIC related to the
expiration of the commercial loss sharing agreement, ($1.2) million
in OTTI, and a $19.9 million tax benefit.
Adjusted for the above listed factors:
- Interest Income declined $4.1
million to $92.9 million due to lower balances and yields in the
BBVA PR acquired portfolio, partially offset by higher interest
income from a greater volume of originated loans.
- Interest Expense declined
slightly to $17.3 million with the repayment of repurchase
agreements used for temporary funding in 3Q15.
- Total Provision for Loan and Lease
Losses increased $3.4 million to $16.9 million. This included
$2.5 million for originated loans due to increased net charge offs
and $1.0 million in re-yielding from the annual evaluation of
certain acquired loan pools.
- Net Interest Margin was 4.55%
compared to 4.68%, primarily due to lower yields on acquired
loans.
- Total banking and wealth management
revenues increased $1.4 million to $19.3 million, primarily due
to certain annual fees in wealth management and an increase in fees
arising from mortgage banking activities.
- Total Non-Interest Expenses
declined $2.0 million to $57.1 million, primarily due to reduced
compensation and employee benefits.
December 31, 2015 Balance Sheet Highlights
The following compares data as of December 31, 2015 to September
30, 2015 unless otherwise noted.
- Total loans declined to $4.43
billion from $4.47 billion, as originated loans partially offset
outflows in acquired loans.
- Total investments were
approximately level at $1.62 billion as mark to market and
prepayments of mortgage backed securities were mostly offset by
purchases.
- Total deposits remained
approximately level at $4.72 billion with slightly lower savings
and slightly higher short-term brokered balances.
- Total borrowings declined to
$1.37 billion from $1.44 billion due to the previously mentioned
repayment of short-term repurchase agreements.
- Total stockholders’ equity
declined to $897.1 million from $907.9 million, reflecting a
reduction in retained earnings and in accumulated other
comprehensive income, net.
Credit Quality Highlights
The following compares data for the fourth quarter 2015 to the
third quarter 2015 unless otherwise noted.
- Net charge-off (NCO) rate at
1.67% increased 44 basis points. The increase in commercial NCOs
was primarily due to one loan, while the increase in auto NCOs was
from a year end push to reduce repo inventory.
- Early delinquency rate continued
to fall to 3.70%, its lowest level in the last five quarters, due
to measures taken to proactively manage the environment in Puerto
Rico.
- Non-performing loan rate at
9.74% declined 58 basis points most notably due to commercial, auto
and consumer, while holding nearly flat in mortgage.
- Allowance for loan and lease
losses increased $32.3 million to $112.6 million primarily due
to the increased PREPA provision. Coverage of loans held for
investment increased to 3.62% from 2.65%.
Capital Position
The following compares data for the fourth quarter 2015 to the
third quarter 2015.
Regulatory capital ratios continued to be significantly above
requirements for a well-capitalized institution.
- Tangible common equity to total
tangible assets at 9.10% declined one basis point.
- Common Equity Tier 1 Capital Ratio
(using Basel III methodology) increased to 12.15% from
12.03%.
- Total risk-based capital ratio
increased to 17.30% from 16.93%.
Conference Call
A conference call to discuss OFG’s results for the fourth
quarter 2015, outlook and related matters will be held today,
Monday, February 1, 2016 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
fourth quarter ended December 31, 2015, can be found on the
Webcasts, Presentations & Other Files page, on OFG’s Investor
Relations website at www.ofgbancorp.com.
*Non-GAAP Financial Measures
In addition to our financial information presented in accordance
with GAAP, management uses certain “non-GAAP financial measures”
within the meaning of the SEC Regulation G, to clarify and enhance
understanding of past performance and prospects for the future.
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 52nd 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 48 financial centers. Investor information can
be found at www.ofgbancorp.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20160201005577/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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