OFG Bancorp Reports 2Q18 Results

SAN JUAN, Puerto Rico--()--OFG Bancorp (NYSE: OFG) reported results for the second quarter ended June 30, 2018, reflecting the third straight quarter of continued strong recovery following hurricanes that struck the island in September 2017.

2Q18 Summary

  • Net income available to shareholders was $16.2 million, or $0.35 per fully diluted share, compared to 1Q18’s $13.5 million and 2Q17’s $13.6 million, equal to $0.30 per share, respectively.
  • Average loan balances of $4.3 billion increased 3.0% from the preceding quarter as growth of originated loans is consistently outpacing the anticipated runoff of acquired loans.
  • New loan production of $432.1 million grew 39.7% from 1Q18 with sequential increases across the board in all categories.
  • Average core deposit balances of $4.4 billion rose 1.6% from 1Q18 with a 6.2% increase in non-interest bearing accounts to a record high $1.1 billion.
  • Customer count grew 1% from 1Q18 and 3% year over year as our strategy of differentiation, delivering superior customer convenience with innovative technology solutions, continues to be successful.
  • Total provision for loan and lease losses of $14.7 million dropped 4.6% from the preceding quarter as credit quality remains stable.
  • All key performance metrics improved from 1Q18 with net interest margin at 5.24%, return on average assets at 1.23%, return on average tangible common stockholders’ equity at 9.20%, and the efficiency ratio at 54.49%.
  • Tangible book value per common share of $15.96 at June 30, 2018 increased 6.4% annualized from March 31, 2018.

CEO Comments

José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, commented: “On behalf of OFG’s entire team, we are extremely proud to announce yet another quarter of superior results across all facets of our business. 2Q18 EPS is up more than 17% sequentially and more than 16% year over year. Virtually every one of our metrics confirms the success of our strategies, people and technology.

“For the third quarter in a row, loan growth, new loan production, and return on average tangible common stockholders' equity are up, while credit quality remained stable. For two quarters in a row, customer count, banking and financial service revenues, core retail deposits and NIM increased, and delinquency rates fell below pre-hurricane levels.

“Our effort to differentiate Oriental through superior service and technology is working. During 2Q18, we launched Oriental SmallBiz, another banking first for Puerto Rico, where new and existing customers can apply online for commercial credit. Services like these enable us to step up our ability to reach out to customers and clients fácil, rápido, hecho (easy, fast, done).

“We are also encouraged as OFG continues to build solid capital, with tangible book value per common share at $15.96, up sequentially more than 6% on an annualized basis. All indicators are positive, positioning us well to continue this trend for the rest of 2018.

“While Puerto Rico faces similar challenges as before, now that insurance and federal funds are flowing, economic activity and optimism are gaining momentum. Based on what we have seen to date, we are confident about OFG and Oriental’s ability to continue to grow, deliver great customer experience and performance, and help Puerto Rico recover.”

Income Statement Highlights

Unless otherwise noted, the following compares data for the second quarter 2018 to the first quarter 2018.

  • Interest Income: Increased 5.8% or $4.8 million, reflecting the following:
  • Originated Loans: Increased $4.4 million to $61.2 million, primarily due to higher balances.
  • Acquired Loans: Declined $0.6 million to $17.2 million, reflecting continued pay downs.
  • Investment Securities: Increased $1.0 million to $9.6 million, the result of higher balances and higher yield.
  • Interest Expense: Increased 13.5% or $1.2 million to $10.4 million, due to higher borrowings and interest-bearing deposit balances.
  • Total Provision for Loan and Lease Losses: Declined 4.6% or $0.7 million to $14.7 million. Provision for originated loans declined $2.1 million as most of the incremental commercial, consumer and auto charge-offs were previously reserved. This decrease more than offset the increase of $1.4 million for acquired loans.
  • Net Interest Margin: Increased 2 basis points to 5.24% mainly due to higher yield on originated commercial loans, cash balances and investment securities, partially offset by higher rate on borrowings.
  • Total Banking and Wealth Management Revenues: Increased $0.2 million to $18.4 million from 1Q18’s high level. Banking Services rose $0.7 million, primarily due to increased electronic banking activity, and Wealth Management increased $0.2 million, offsetting a decline in Mortgage Banking.
  • Total Non-Interest Expenses: Declined $0.2 million to $52.3 million. General and administrative increased due to higher electronic banking activity. Occupancy increased due to lease cancellations to bring more of our offices into the Oriental Center building and reduce occupancy costs next year. Compensation declined due to seasonal factors during the first quarter, and credit related expenses fell.
  • Effective Tax Rate: 32.8% continued to be in line with the approximately 32% rate the Company estimates for the full year.

Balance Sheet Highlights

Unless otherwise noted, the following compares data at June 30, 2018 to March 31, 2018.

  • Total Loans Net: Increased 4.4% or $182.4 million to $4.32 billion. Production highlights include:
  • Auto lending at a record $131.1 million was up 2.3% from 1Q18 and 66.8% year over year, reflecting replacement of damaged vehicles, pent up demand, and the market’s effort to adjust to one less auto lender.
  • Consumer lending increased 12.8% to $42.3 million as customers moved to replace needed items, repair homes and prepare for the 2018 hurricane season.
  • Mortgage lending continued to come back with production up 19.4% to $31.8 million, but down 30.7% from the year ago quarter.
  • Commercial lending rebound with production increasing 197.3% to $127.2 million and up 70.0% year over year, as the Company’s bankers continue to build relationships with businesses participating in Puerto Rico’s recovery.
  • The recently established OFG USA program continued to grow, adding $99.7 million, up 34.0% from 1Q18, in commercial and industrial related loan participations across an array of industries and geographies in the continental U.S.
  • Cash and cash equivalents: Increased 3.6% or $13.0 million to $378.4 million.
  • Total Investments: Increased 4.2% or $54.5 million to $1.35 billion with the purchase of new mortgage backed securities to take advantage of favorable market opportunities.
  • Customer Deposits (excluding brokered): Increased $59.9 million to $4.42 billion, up 1.4% and 10.1% from March 31, 2018 and June 30, 2017, respectively. Growth in demand and time deposits more than offset a decline in savings.
  • Total Borrowings: Increased $197.9 million to $552.3 million as OFG used repurchase agreement funding and FHLB advances to acquire investment securities.
  • Total Stockholders’ Equity: Increased $11.0 million to $957.8 million, with increases in retained earnings and legal surplus more than offsetting the increase of accumulated other comprehensive loss due to the effect of higher prevailing market interest rates.

Credit Quality Highlights

Unless otherwise noted, the following compares data on the originated loan portfolio at June 30, 2018 to March 31, 2018.

Following hurricanes Irma and Maria, Oriental offered automatic payment deferrals and 90-day extensions for most loans. Virtually all of these moratoriums ended early 2Q18 with most credit metrics better than, or returned to, pre-hurricanes levels.

  • Delinquency Rates: The early delinquency rate declined 13 basis points to 3.07% and the total delinquency rate declined 30 basis points to 5.95% as both metrics fell below pre-hurricanes levels.
  • Non-Performing Loan Rate: Declined 19 basis points to 3.63%, with the mortgage and consumer rates up and commercial and auto rates down.
  • Allowance for Loan and Lease Losses: Decreased 2.7% or $2.6 million to $94.2 million, primarily reflecting the charge-off a commercial loan placed in non-accrual and provisioned for in 1Q18.
  • Net Charge-Off Rate: Increased 47 basis points to 1.81%, with a 116 bps increase in auto and smaller increases in consumer, commercial and mortgage lending, as hurricane related charge-offs were taken.

Capital Position

Capital for the quarter ended June 30, 2018 was significantly above regulatory requirements for a well-capitalized institution, with Tangible Common Equity Ratio at 10.95%, Tangible Book Value per common share at $15.96, Common Equity Tier 1 Capital Ratio at 14.14%, and Total Risk-Based Capital Ratio at 19.67%.

Conference Call

A conference call to discuss OFG’s results for 2Q18, outlook and related matters will be held today, Friday, July 20, 2018, 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, 2018, 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 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) the credit default by the government of Puerto Rico; (iv) amendments to the fiscal plan approved by the Financial Oversight and Management Board of Puerto Rico; (v) determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations; (vi) the impact of property, credit and other losses in Puerto Rico as a result of hurricanes Irma and Maria; (vii) the amount of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, which suffered catastrophic damages caused by hurricane Maria; (viii) the pace and magnitude of Puerto Rico’s economic recovery; (ix) the potential impact of damages from future hurricanes and natural disasters in Puerto Rico; (x) the fiscal and monetary policies of the federal government and its agencies; (xi) changes in federal bank regulatory and supervisory policies, including required levels of capital; (xii) the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico; (xiii) the performance of the stock and bond markets; (xiv) competition in the financial services industry; and (xv) 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, 2017, 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 54th 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 wide range of retail and commercial banking, lending and wealth management products, services and technology, primarily in Puerto Rico. Investor information can be found at www.ofgbancorp.com.

Contacts

Puerto Rico:
Idalis Montalvo, 787-777-2847
idalis.montalvo@orientalbank.com
or
US:
Steven Anreder, 212-532-3232
sanreder@ofgbancorp.com
or
Gary Fishman, 212-532-3232
gfishman@ofgbancorp.com

Contacts

Puerto Rico:
Idalis Montalvo, 787-777-2847
idalis.montalvo@orientalbank.com
or
US:
Steven Anreder, 212-532-3232
sanreder@ofgbancorp.com
or
Gary Fishman, 212-532-3232
gfishman@ofgbancorp.com