OFG Bancorp Reports 1Q14 Results

Business Wire

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--

OFG Bancorp (OFG) today reported results for the first quarter ended March 31, 2014.

1Q14 Highlights

  • Income available to common shareholders totaled $20.3 million, or $0.42 per share diluted, compared to $16.6 million, or $0.35 per share diluted, in the preceding quarter and $17.7 million, or $0.37 per share, in the first quarter of 2013. 1Q14 results included a gain on the sale of securities of $4.4 million.
  • Net interest margin continued strong at 5.90% compared to 6.01% in the fourth quarter of 2013, which benefited from some non-recurring items.
  • Puerto Rico government related loan and investment security balances (excluding obligations of municipalities) fell 13.6%, to $545.5 million at March 31, 2014, from $631.6 million at December 31, 2013.
  • OFG’s strong credit quality continued to improve, with declines in the non-performing loan rate for the fourth quarter in a row and in net charge offs ratio for the third straight quarter, both excluding acquired loans.
  • Cost of deposits fell by 7 basis points, to 80 bps, from the fourth quarter of 2013, as OFG successfully grew demand and savings account balances in both dollars and as a proportion of deposits.
  • Tangible book value per common share of $14.07 at March 31, 2014 increased 3.5%, from $13.60 at December 31, 2013, while book value per common share of $16.23 grew 3.1%, from $15.74 at December 31, 2013.
  • Performance metrics were in line with OFG’s targets, with return on average assets of 1.18%, return on average tangible common stockholders' equity of 12.86%, and efficiency ratio of 50.03%.
  • Late in the first quarter of 2014, OFG repurchased a total of 707,400 common shares, at an average price of $14.66 per share, as part of its current stock repurchase program.

CEO Comment

José Rafael Fernandez, President, Chief Executive Officer, and Vice Chairman, commented:

“OFG has delivered another strong quarter – our fifth consecutive one – since the close of the BBVA PR acquisition. We continued to show impressive growth in book value and capital, with little or no noise in the numbers.”

“In particular, our innovative products and high service levels are building our franchise and brand value by attracting new customers, expanding core deposits, and lowering cost of funds. Employee enthusiasm and growth momentum positions us well to be successful and differentiate Oriental in the market.”

“Puerto Rico has made some good progress in addressing its fiscal situation and in meeting its immediate liquidity needs. While the economic environment is still challenging, we have proven our ability over the years to navigate such conditions.

“Looking beyond 2014, we expect a notable increase in reported earnings as non-cash, amortization of the FDIC indemnification asset will be significantly lower.”

1Q14 Income Statement Highlights

   
Table 1   1Q14   4Q13
($ in millions)  

Reported
GAAP

 

Adjust-
ments

 

Adjusted
Non-GAAP

 

Reported
GAAP

 

Adjust-
ments1

 

Adjusted
Non-GAAP

Loan income: non-
covered

  $85.2   $--   $85.2   $92.6   $9.5   $83.1

Loan income:
covered

  23.4   1.6 2   21.8   25.9   3.0   22.9

Total loan income

  108.6   1.6   107.0   118.5   12.5   106.0

Provision for loan
and lease losses (ex.
acquired loans)

  (5.6)   --   (5.6)   (6.9)   --   (6.9)

Provision for
acquired loan and
lease losses

  (6.1)   --   (6.1)   (5.7)   (2.8)   (2.9)

Total provision
for loan and lease
losses

  (11.7)   --   (11.7)   (12.6)   (2.8)   (9.8)

Banking service
revenues

  10.6   --   10.6   7.8   (2.9)   10.7

Wealth
management
revenues

  6.9   --   6.9   7.8   1.0   6.8

Mortgage banking
activities

  2.0   --   2.0   1.9   --   1.9

FDIC shared-loss
expense

  (18.5)   (1.3) 2   (17.2)   (20.5)   (2.4)   (18.1)

Total non-interest
expenses

  (61.5)   --   (61.5)   (65.7)   (4.4)   (61.3)

Gain on sale of
securities

  4.4   4.4 3   --   --   --   --
(1)   Adjustments as discussed in 4Q13 Conference Call presentation, dated February 4, 2014
(2) Cost recoveries for the quarter for the covered commercial portfolio and related impact on FDIC share loss expense
(3) Sale of $110.8 million of MBS at a gain of $4.4 million

The following compares the first quarter 2014 to the fourth quarter of 2013 with items removed from both periods, as reflected in Table 1.

  • Non-covered loan income increased 2.5%, to $85.2 million from $83.1 million, primarily reflecting better re-pricing in certain commercial loans.
  • Provision for loan and lease losses, excluding acquired loans, fell to $5.6 million from $6.9 million, while provision for acquired loans and leases increased.
  • Banking service revenues continued at steady levels, with revenues of $10.6 million compared to $10.7 million.
  • Wealth management revenues increased slightly. Despite weaker market conditions, revenues totaled $6.9 million compared to $6.8 million.
  • Mortgage banking activities also increased. Revenues totaled $2.0 million compared to $1.9 million, but OFG expects headwinds in the quarters ahead from new regulations likely to reduce origination volume.
  • FDIC indemnification asset amortization continued as expected, at $17.2 million compared to $18.1 million. Reported FDIC shared loss expense, at $18.5 million for 1Q14, was reduced due to lower cost recoveries versus 4Q13.
  • Non-interest expenses were slightly higher, at $61.5 million compared to $61.3 million, reflecting higher costs on foreclosed real estate.
  • Sale of securities. OFG sold $110.8 million of mortgage-backed securities (MBS), yielding 2.45%, at a gain of $4.4 million, taking advantage of market opportunities to realize gains and reduce some interest rate sensitivity. The securities were owned by the IBE subsidiary, which has tax advantages on its earnings and gains.

March 31, 2014 Balance Sheet Highlights

  • Demand deposit and savings account balances resulted in an improved funding profile. At $3.4 billion, these balances were up 3.9% on a sequential quarter basis and 9.2% year over year, and now account for 63.4% of OFG’s deposit base, compared to 60.1% at December 31, 2013 and 55.3% a year ago.
  • Puerto Rico government related debt fell as $98.7 million in principal amount of privately-placed securities were repaid by the issuer at par late in the first quarter of 2014.
  • Average interest earning assets declined to $7.1 billion for the first quarter of 2014, from $7.3 billion for the fourth quarter of 2013. This was primarily due to the (i) contractual maturities late in the fourth quarter of 2014 of $142.5 million in Puerto Rico government related loans, in addition to the securities repaid in 1Q14; (ii) the previously mentioned sale of MBS; and (iii) normal prepayment of MBS of approximately $55 million.
  • Total stockholders’ equity of $896.5 million at March 31, 2014 increased 1.3% from $884.9 million at December 31, 2013, reflecting increases in retained earnings and other comprehensive income, partially offset by stock repurchases.
  • Stock repurchases. OFG utilized $10.4 million of existing Board authority to repurchase 707,400 shares. Approximately $23.1 million of authorization remains. Due to the timing of these repurchases, weighted average diluted shares declined approximately 389,000; the balance will affect the second quarter of 2014.

Credit Quality Highlights

OFG’s strong credit quality continued to improve in the first quarter of 2014. Auto loan quality began to stabilize as organically generated business has become more seasoned, while mortgage portfolio quality has continued to improve.

  • Net charge offs (excluding acquired loans) declined to $5.2 million from $5.4 million in the fourth quarter of 2013. This reflected a drop in mortgage charge offs, partially offset by an increase from auto loans as collection and recovery processes continue to improve after a systems conversion in 4Q13.
  • Nonperforming loan rates (excluding acquired loans) continued to fall, to 3.25% in the first quarter of 2014 compared to 3.32% in the fourth quarter of 2013 and 9.31% in the year ago quarter.
  • Allowance for loan and lease losses (excluding acquired loans) increased slightly to $49.5 million compared to $49.1 million in the fourth quarter of 2013. OFG continues to hold a coverage ratio of reserves to loans of 1.95%.

Oriental Starts 50th Anniversary Celebration

During the first quarter of 2014, Oriental kicked off its 50th anniversary celebration by highlighting the bank’s strong financial performance, its track record of bringing innovative banking and financial services to Puerto Rico, and its tradition of helping communities.

“We are very grateful for our clients’ continuous support and the commitment of our more than 1,500 employees to become a leading institution in Puerto Rico,” said Mr. Fernández. “Oriental Bank began its business as a small savings and loan institution, helping residents finance the purchases of their first homes. Today, we are one of the leading banks in Puerto Rico. Throughout our 50-year history, we have made it a priority to help our clients manage their finances well. Along the way, we have demonstrated impressive financial performance, overcome challenges, and delivered solid returns to our stockholders.”

More details related to Oriental’s 50th Anniversary Celebration will be announced over the course of 2014.

Non-GAAP Financial Measures

From time to time, OFG uses certain non-GAAP measures of financial performance to supplement the financial statements presented in accordance with GAAP. OFG presents non-GAAP measures when its management believes that the additional information is useful and meaningful to investors. Non-GAAP measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP.

OFG’s management has reported and discussed the results of operations herein both on a GAAP basis and on an adjusted, non-GAAP basis that excludes certain items. The reconciliation of the tangible book value per common share and tangible common stockholders’ equity to the reported GAAP measures is presented in Table 9 of OFG’s Financial Supplement for the quarter ended March 31, 2014. The reconciliation of the adjusted, non-GAAP income statement is shown above in Table 1 of this news release.

Conference Call

A conference call to discuss OFG’s results for the first quarter of 2014, outlook and related matters will be held Tuesday, April 29, 2014 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 quarter ended March 31, 2014, 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, 2013, 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 50th 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 55 financial centers. Investor information can be found at www.ofgbancorp.com.

Contact:
Puerto Rico:
OFG Bancorp
Alexandra López, 787-522-6970
allopez@orientalbank.com
or
US:
Anreder & Company
Steven Anreder
steven.anreder@anreder.com
and
Gary Fishman
gary.fishman@anreder.com
212-532-3232
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