OFG Bancorp Reports 2Q14 Results

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--OFG Bancorp (NYSE:OFG) today reported results for the second quarter ended June 30, 2014.

2Q14 Highlights

• Income available to common shareholders totaled $17.8 million, or $0.38 per share diluted. In the preceding quarter, OFG earned $20.3 million, or $0.42 per share diluted, which included a pre-tax gain on the sale of securities of $4.4 million. In the year ago quarter, OFG earned $34.1 million, or $0.68 per share diluted, which included a net positive impact of $16.3 million from non-recurring items.
• Net interest margin continued strong at 6.10% compared to 5.90% in the first quarter of 2014.
• Puerto Rico government related loan and investment security balances (excluding obligations of municipalities) declined 15.7%, to $454.9 million at June 30, 2014, from $539.5 million at March 31, 2014.
• Cost of deposits continued to fall, to 76 bps from 80 bps in the first quarter of 2014, as demand and savings account balances continued to increase as a proportion of deposits.
• Tangible book value per common share of $14.71 at June 30, 2014 rose 4.6%, from $14.07 at March 31, 2014, and book value per common share of $16.87 grew 3.9%, from $16.23 at March 31, 2014.
• Performance metrics were in line with OFG’s targets, with return on average assets of 1.10%, return on average tangible common stockholders' equity of 10.96%, and efficiency ratio of 47.89%.
• Average common shares outstanding declined 0.7%, to 45.0 million at June 30, 2014, from the end of the previous quarter, reflecting share repurchases late in the first quarter of 2014.

CEO Comment

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

“OFG’s strong results for the sixth consecutive quarter since the close of the BBVA PR acquisition demonstrate the success of our growth strategies, timely capital management actions, and overall execution discipline. Post-acquisition, we have achieved notable growth in book value and capital.”

“Our operational outlook remains intact. We are focused on managing our businesses in a prudent manner, while carefully controlling costs, in order to grow our core profits. This has been our approach to navigate the challenging economic environment that has prevailed in Puerto Rico for a while now. At the same time, we are continuing our focus on building our franchise and brand value to differentiate Oriental in the local market.”

“We expect to see a notable upside to reported earnings in the second half of 2015, as the amortization of the FDIC indemnification asset will be significantly lower.”

2Q14 Income Statement Highlights

The following compares data for the second quarter 2014 to the first quarter of 2014 unless otherwise noted.

• Non-covered loan income increased 3.3%, to $88.1 million from $85.2 million. Growth reflects certain acquired loans rolled over to the originated loans category, and higher cost recoveries from acquired loans.
• Covered loan income rose 6.4%, to $24.9 million from $23.4 million. The increase reflects continued, higher cost recoveries due to successful workout efforts.
• Investment securities interest income declined $1.5 million, to $13.0 million from $14.4 million, due to lower balances of securities as a result of prepayments, and the previously reported first quarter 2014 sale of mortgage-backed securities and repayment of a PR government related security.
• Total provision for loan and lease losses increased $3.1 million, to $14.8 million from $11.7 million, mostly reflecting higher originated loan balances and an increase in charge off levels.
• Banking service revenues continued steady, with revenues of $10.0 million compared to $10.6 million, which included approximately $0.5 million in certain annual and cyclical client payments.
• Wealth management revenues increased to $7.3 million, compared to $6.9 million, largely reflecting higher sales of variable annuities.
• Mortgage banking activities remained level, with revenues of $1.6 million compared to $1.7 million. Second quarter 2014 results reflected increased production offset by smaller gains from secondary market sales. OFG sells most of its residential mortgage production into the secondary market.
• FDIC indemnification asset amortization continued as expected, at $18.4 million compared to $18.5 million. The indemnification asset was $143.7 million at June 30, 2014 compared to $166.2 million at March 31, 2014.
• Non-interest expenses declined 2.5%, to $59.8 million from $61.4 million. This primarily reflects reaching deduction limits for payroll benefits, and reduced costs associated with foreclosed real estate.

June 30, 2014 Balance Sheet Highlights

The following compares data as of June 30, 2014 to March 31, 2014 or for the second quarter of 2014 to the first quarter of 2014 unless otherwise noted.

• Production of new loans (excluding renewals) increased 4.4%, to $221.6 million, due to increases in consumer, commercial and mortgage volumes. Areas where OFG is focused on building loans – commercial, consumer and auto – increased 4%, to a balance of $2.6 billion.
• Puerto Rico government related debt declined primarily due to $100.0 million in principal amount of Tax Revenue Anticipation Notes (TRANs) repaid upon maturity by the Central Government, and $20 million in principal amount of privately-placed securities repaid by the issuer at par.
• Average interest earning assets declined to $7.0 billion from $7.1 billion. This was primarily due to (i) second quarter 2014 maturities of PR government related loans mentioned above; and (ii) the previously reported first quarter 2014 sale of mortgage-backed securities and repayment of a PR government related security.
• Demand deposit and savings account balances increased to 64% of total deposits compared to 63% at the end of last quarter, and 57% at the end of the year ago quarter. This reflects OFG’s effort to enhance its funding profile and reduce cost of deposits, which fell to an average 76 bps in the second quarter of 2014, compared to 80 bps in the preceding quarter, and 96 bps in the year ago quarter.
• Total stockholders’ equity increased 3.2% to $925.2 million from $896.5 million, reflecting increases in retained earnings and other comprehensive income.

Credit Quality Highlights

The following compares data excluding acquired loans for the second quarter 2014 to the first quarter 2014 unless otherwise noted.

Credit metrics remained in line with general ranges reported over the last 12 months. Increases from the preceding quarter reflect higher volumes in certain businesses.

• Net charge off rate increased to 0.96% from 0.86%, primarily due to increasing volume in the consumer business.
• Nonperforming loan rate increased to 3.39% from 3.25%, mainly due to residential mortgages.
• Total delinquency rate increased to 8.61% from 8.10%, mainly due to mortgages.
• Allowance for loan and lease losses as a percentage of loans held for investment (including acquired loans) declined to 1.92% from 1.95%.

Capital Position

The following compares data for the second quarter 2014 to the first quarter of 2014.

Regulatory capital ratios continued to be significantly above requirements for a well-capitalized institution.

• Tangible common equity to total tangible assets increased to 8.70% from 8.16%, based on a 4.6% increase in tangible common equity, to $662.4 million, and a 1.9% decline in tangible assets, to $7.6 billion.
• Tier 1 risk-based capital ratio increased to 15.49% from 14.76%, based on a 3.8% increase in Tier 1 capital, to $773.8 million, and a 1.1% decline in total risk weighted assets, to $5.0 billion.
• Total risk-based capital ratio increased to 17.30% from 16.56%, based on a 3.3% increase in total risk-based capital, to $863.8 million, and total risk weighted assets of $5.0 billion.

Conference Call

A conference call to discuss OFG’s results for the second quarter of 2014, outlook and related matters will be held Thursday, July 24, 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 June 30, 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.