OFG Bancorp Reports 4Q13 and 2013 Results

SAN JUAN, Puerto Rico--()--OFG Bancorp (NYSE: OFG) today reported results for the fourth quarter and year ended December 31, 2013.

Highlights

  • For the fourth quarter of 2013, income available to common shareholders amounted to $16.6 million, or $0.35 per share diluted. In the corresponding year ago period, OFG lost $23.3 million, or ($0.53) per share. This included $22.9 million in net costs for deleveraging its investment securities portfolio in relation to the acquisition of BBVA’s Puerto Rico operations in late 2012.
  • With its strong 4Q13 performance, full year 2013 income available to common shareholders totaled $84.6 million, or $1.73 per share diluted, exceeding OFG’s guidance of $1.55 per share on a GAAP basis. In 2012, OFG earned $14.6 million, or $0.35 per diluted share. This included $12.9 million in net costs for deleveraging.
  • 2013 results reflect the integration of BBVA PR, with the successful conversion of technology platforms and consolidation of other resources.
  • Reflecting 2013 results, book value stood at $15.74 per common share as of December 31, 2013, having more than recovered from pre-acquisition levels of $15.40 at September 30, 2012.
  • The Board of Directors increased OFG’s regular quarterly cash dividend per common share by 33%, to $0.08 per share, from $0.06 per share, for the fourth quarter of 2013, as previously announced.
  • Puerto Rico government related loan and investment security contractual balances (excluding municipalities) fell 17.4% in line with scheduled maturities, to $631.6 million at December 31, 2013, from $764.8 million at September 30, 2013.

CEO Comment

“2013 was a stellar year for our Oriental banking, wealth management and insurance franchise in Puerto Rico, as we realized the benefits of our acquisition of BBVA PR,” said José Rafael Fernández, President, Chief Executive Officer and Vice Chairman of the Board. “Operating income increased 190%, to $176.5 million, and despite new, locally legislated tax increases, we generated earnings per share of $1.73, well in excess of our $1.55 guidance.

“As envisioned, the acquisition has enhanced our capabilities significantly. We now have sophisticated corporate treasury services, scalable transactional banking, and a leading auto lending platform.

“We also have the ability to bring to market innovative product ‘firsts’ to Puerto Rico, such as Cuenta Libre (Freedom Account), which reimburses our customers for using ATMs outside of our network, and Foto Deposito, for depositing checks from their mobile devices.

“Our capital levels are strong at close to $900 million. We have considerable liquidity with more than $760 million of cash on hand. And more than half of our loan balances have assigned credit marks as part of purchase accounting.”

2013 Results (vs. 2012)

  • Net interest income grew 160.5%, to $409.7 million from $157.3 million, as OFG transformed its revenue profile, with investment securities producing only 10.1% of interest income in 2013 versus 36.6% in 2012.
  • Total banking and financial services revenues increased 74.6%, to $85.3 million from $48.8 million, due to more products and services and a larger customer base.
  • Operating expenses (excluding merger and restructuring costs) remained on target, averaging $61.8 million per quarter, despite $5.4 million in new gross proceeds taxes in 2013.
  • Performance metrics compare well to other publicly traded banks. Return on average assets increased to 1.16% from 0.37%, return on average tangible common stockholders’ equity increased to 14.30% from 2.36%, and the efficiency ratio improved to 53.45% from 64.05%.
  • OFG’s capital position strengthened across the board, with increases in all regulatory ratios, as they continued to be significantly above requirements for a well-capitalized institution. Tangible common equity to total tangible assets was 7.56%, increasing from 6.45%, leverage capital ratio of 9.11% grew from 6.55%, tier 1 risk-based capital ratio expanded to 14.36% from 13.18%, and total risk-based capital ratio rose to 16.15% from 15.40%.
  • Credit quality is strong. Approximately 52% of loans have been acquired in recent acquisitions and are covered by loss share agreements and/or carry credit marks. Total delinquency fell to 8.92% at December 31, 2013 versus 17.65% a year-ago, partly due to the sale of non-performing residential mortgages in the third quarter of 2013.
  • Non-maturing deposit balances increased 4.9%, to $3.2 billion, while higher-priced time deposits declined 21.4% as part of efforts to reduce the cost of deposits, which averaged 0.73% in 2013 compared to 1.24% in 2012.
  • This has enabled OFG to be among industry leaders with a Net Interest Margin of 5.46% in 2013, up from 2.67% in 2012.

4Q13 Results (vs. 3Q13)

Income Statement

  • Total interest income of $132.1 million increased 9.0%, while total interest expense of $21.4 million declined 2.8% and total provision of $12.6 million fell 2.9%. As a result, net interest income of $98.1 million grew 13.9%, and NIM expanded to 6.07% from 5.33%.
    • Interest income from non-covered, acquired loans benefitted from:
      • $4.6 million due to higher cash flows than expected in certain acquired loan pools;
      • $2.9 million from reclassifying fees formerly recorded as banking service revenues, in accordance with our accounting policies; and
      • $2.0 million from re-yielding of certain acquired loan pools, as part of the annual reforecast.
    • Interest income from covered loans benefitted from an additional approximately $3.0 million due to higher recoveries than previously expected.
    • Provision for loan and lease losses from non-covered loans increased $2.3 million due to lower cash flows in other pools of acquired loans, reflecting the previously mentioned annual reforecast.
  • Total non-interest expenses increased 3.8%. Within that, merger and restructuring expenses of $4.4 million included a reserve to cover already planned integration and consolidation-related activities for 2014. No additional merger and restructuring expenses are anticipated in 2014.
  • Net amortization of the shared-loss indemnification asset related to the 2010 FDIC-assisted Eurobank acquisition increased $4.5 million, of which approximately $2.4 million was due to higher covered loan cash flows mentioned above. OFG actively monitors cash flow experience and amortizes the associated FDIC indemnification asset in line with the loss share durations. As of December 31, 2013, the net indemnification asset was $170.7 million.
  • The effective income tax rate, in line with recent local tax increases, was 32.13%, compared to 25.13% in the preceding quarter, which benefitted from one-time items from BBVA PR tax positions and re-measured purchase accounting adjustments.

PR Government Related Loans, Investment Securities and Deposits

  • The decline in OFG’s balance of Government related loans and investment securities was in line with contractual maturities of $142.5 million.
  • The Company plans to use the maturity schedule to continue to strategically reduce these balances.
  • Nearly all of OFG’s Government related loans and investment securities have well-defined sources of repayment and collateral.
  • Government related deposits declined to $334.9 million at December 31, 2013, from $491.7 million at September 30, 2013.

Credit Quality

  • Quarter over quarter increases in credit metrics largely reflect higher average loans held for investment (excluding acquired loans) of $2.4 billion at December 31, 2013, up 13.9% from September 30, 2013.
  • Non-performing loans of $86.2 million increased $6.6 million.
  • The allowance for loan and lease losses (excluding acquired loans) of $49.1 million increased 3.1%.
  • Net charge offs totaled $5.4 million, up $0.4 million, while the net charge off rate of 0.92% declined 6 basis points.

Outlook

“With core operating results for the fourth quarter and 2013 much stronger than in the year earlier periods, OFG ended 2013 as a top performing financial institution,” CEO Fernández said.

“We have approached Puerto Rico’s challenging economic conditions, which have prevailed since 2006, in a rational and disciplined manner. We are confident that we will continue to be successful in further optimizing our businesses for profitability and capital generation.

“Looking ahead, we believe our 2013 fourth quarter core operating run rate is indicative of what our performance should be over the next few quarters. In 2015, when the non-cash charge off of FDIC indemnification asset amortization ends, OFG’s GAAP earnings should significantly expand.”

Conference Call

A conference call to discuss OFG’s results for the fourth quarter of 2013, outlook and related matters will be held Tuesday, February 4, 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.

Full Financial Tables

Full financial tables for 4Q13 and 2013 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) difficulties in integrating BBVA PR into OFG’s operations; (ii) the amounts by which our assumptions related to the acquisition fail to approximate actual results; (iii) the rate of growth in the economy and employment levels, as well as general business and economic conditions; (iv) changes in interest rates, as well as the magnitude of such changes; (v) the fiscal and monetary policies of the federal government and its agencies; (vi) changes in federal bank regulatory and supervisory policies, including required levels of capital; (vii) the relative strength or weakness of the consumer and commercial credit sectors and of the real estate market in Puerto Rico; (viii) the performance of the stock and bond markets; (ix) competition in the financial services industry; (x) possible legislative, tax or regulatory changes; and (xi) difficulties in combining the operations of any other acquired entity.

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, 2012, 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 49th 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.

Contacts

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

Sharing

Contacts

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