OFG Bancorp (NYSE:OFG) today reported results for the third
quarter ended September 30, 2016.
3Q16 Highlights
- Net income available to shareholders
totaled $11.7 million, or $0.26 per share fully diluted,
compared to $10.9 million, or $0.25 per share fully diluted, in
2Q16. In the year ago quarter, OFG reported $1.1 million, or $0.03
per share fully diluted.
- Oriental Bank’s overall business
performance continued strong. New loan generation totaled
$226.8 million. Banking and wealth management fee revenues remained
level versus 2Q16. Retail and commercial deposits grew 2.2%. Net
new customer accounts continued to increase at a 4% annualized
rate.
- Major credit exposure
eliminated. As previously announced, Oriental Bank sold its
participation in a Puerto Rico Electric Power Authority (PREPA)
fuel line of credit, with the transaction settling after the
quarter end. The sale eliminated $183.0 million of non-performing
assets. As a result of the sale, a number of metrics used in
this release reflect the exclusion of the PREPA credit
facility.
- Credit quality remained stable, with
a meaningful improvement in net charge offs (NCOs), excluding
PREPA. NCOs declined to 1.15% from 1.21% in 2Q16 while
non-performing loan rates at 3.68% remained nearly level with 2Q16.
Separately, early and total delinquencies were below year-ago
levels.
- Capital continued to build.
Tangible book value per common share increased to $15.18 from
$14.96 in 2Q16. Tangible common equity ratio increased to 10.25%
from 9.92%.
- Net Interest Margin (NIM)
expanded to 4.95% from 4.69% in 2Q16. Excluding cost
recoveries, NIM rose to 4.70% from 4.64%.
- Costs remained under control.
The operating efficiency ratio improved to 57.69%, the best level
in the last five quarters, as a result of continued focus on
optimizing the expense base.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented: “OFG delivered another
strong quarter. Diluted EPS of $0.26 was slightly better than the
two prior quarters, and our Return on Average Assets at 0.91% and
Return on Average Tangible Common Stockholders' Equity at 7.06%
were the highest they’ve been in the last five quarters.
“We continue to deliver consistent earnings while being
proactive in our business development strategies and prudently
managing balance sheet risk. We are particularly pleased to have
found an optimal exit point for the PREPA credit facility. This
eliminated our single largest credit exposure and significantly
reduced our Puerto Rico government related exposures. It also
meaningfully increased our capital ratios and contributed to
improved credit quality through a major reduction in non-performing
loans.
“Oriental Bank’s franchise growth confirms the successful
customer differentiation achieved in our business delivery model,
emphasizing higher levels of advisory relationships and superior
levels of service.
“New loan generation was good, with solid yield expansion.
Retail and commercial deposits rose across all categories, due in
part to continued growth in net new customers. We have been able to
reduce borrowings, with an important reduction in interest expense
and positive contribution to NIM. Non-interest revenues and
expenses continue to be well managed, while Oriental seamlessly
assumed the servicing of its originated residential mortgage loans
portfolio.”
3Q16 Income Statement Highlights
The following compares data for the third quarter 2016 to the
second quarter 2016, unless otherwise noted.
- Interest Income from Loans rose
$2.9 million to $82.6 million. A large portion of the increase came
from a $2.2 million recovery from former Eurobank loans. While the
non-acquired portfolio grew, acquired loan portfolios continued to
run off.
- Interest Income from Securities
declined $0.3 million to $8.0 million, mainly due to lower balances
in the mortgage-backed securities (MBS) portfolio.
- Interest Expense declined $0.9
million to $13.7 million due to lower borrowings.
- Total Provision for Loan and Lease
Losses increased $9.0 million to $23.5 million. Provision for
non-acquired loans included $2.9 million towards the sale of the
PREPA credit and another $2.9 million for a single commercial loan.
Provision for BBVA PR acquired loans included $4.4 million for a
Puerto Rico Housing Finance Authority (PRHFA) loan, which now has a
carrying amount of $3.5 million or 31% of the unpaid principal
balance.
- Total Banking and Wealth Management
Revenues remained level at $18.3 million. Banking service fees
increased due to higher transaction volume. Mortgage banking
revenues grew, reflecting better mark to market on sales. Wealth
management remained level, excluding certain annual broker dealer
and insurance fees received in 2Q16.
- Other Gains reflected a $5.0
million recovery from a Bear Stearns claim of loss in 2009 from the
BALTA private label collateralized mortgage obligation.
- Total Non-Interest Expenses
increased $1.1 million to $54.9 million. Total operating expenses
were $0.4 million lower despite higher compensation expenses due to
the number of business days in the quarter as well as general and
administrative expenses for the servicing conversion initiative.
OREO related expenses increased $1.2 million as part of normal
activities.
- Income Tax Expense benefited
from a $0.3 million resolution of a contingent tax position as well
as from a reduction of the effective income tax rate, now estimated
at 26.0%.
September 30, 2016 Balance Sheet Highlights
The following compares data as of September 30, 2016 to June 30,
2016, unless otherwise noted.
- Total Loans Net Held for
Investment at $4.30 billion remained level.
- Total Investments declined $22.2
million to $1.30 billion, mainly due to prepayments in the MBS
portfolio.
- Total Puerto Rico Government Related
Exposure fell 50.0% to $202.4 million, when taking the sale of
PREPA into account. Balances now primarily consist of loans to the
five largest municipalities.
- Total Deposits increased $110.7
million to $4.75 billion across all categories, reflecting deposits
from new and existing clients. Excluding brokered deposits,
deposits increased $91.2 million.
- Total Borrowings declined $237.0
million to $800.3 million primarily due to net pay down of $200.5
million in FHLB advances and the maturity of a subordinated capital
note of $67.0 million.
- Total Stockholders’ Equity was
up $9.0 million to $924.9 million due to the increase in retained
earnings.
Credit Quality Highlights
The following compares data as of September 30, 2016 to June 30,
2016, unless otherwise noted.
- Net Charge-Off Rate (ex-PREPA)
at 1.15% fell 6 basis points due to declines in the auto and
commercial lending categories.
- Early Delinquency Rate was 3.70%
and total delinquency 6.92%, down 7 and 14 basis points,
respectively, from year ago levels due to proactive measures
implemented to deal with the economic environment.
- Non-Performing Loan Rate at
3.68% declined 541 basis points reflecting the sale of PREPA, but
was up only 12 basis points from the prior quarter ex-PREPA.
- Allowance for Loan and Lease
Losses fell $50.6 million to $62.2 million, also reflecting the
sale of PREPA. As a result, the loan loss reserve ratio to total
loans (excluding acquired loans) decreased to 2.06% from
3.53%.
Capital Position
The following compares data as of September 30, 2016 to June 30,
2016, unless otherwise noted.
Regulatory capital ratios continued to be significantly above
requirements for a well-capitalized institution.
- Tangible Common Equity to Total
Tangible Assets at 10.25% increased 33 basis points to the
highest level in five quarters.
- Common Equity Tier 1 Capital
Ratio (using Basel III methodology) increased to 13.34% from
12.64%.
- Total Risk-Based Capital Ratio
increased to 18.73% from 18.00%.
Conference Call
A conference call to discuss OFG’s results for the third quarter
2016, outlook and related matters will be held today, Friday,
October 21, 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
third quarter ended September 30, 2016, 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. See
Tables 9-1 and 9-2 in OFG’s above-mentioned 3Q16 Financial
Supplement for reconciliation of GAAP to non-GAAP Measures and
Calculations.
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, 2015, 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/20161021005334/en/
For OFG BancorpPuerto Rico:Idalis Montalvo,
787-777-2847idalis.montalvo@orientalbank.comorUS:Steven
Anreder and Gary Fishman,
212-532-3232sanreder@ofgbancorp.comgfishman@ofgbancorp.com
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