OFG Bancorp (NYSE: OFG) today reported results for the third
quarter ended September 30, 2017. Results were significantly
impacted by Hurricanes Irma and Maria, which struck the island on
September 7 and 20, 2017, respectively.
3Q17 Summary
- Net loss to shareholders was $146
thousand or $0.00 per share. This compares to a profit of $13.6
million, or $0.30 per share fully diluted, in 2Q17 and a profit of
$11.7 million, or $0.26 per share fully diluted, in the year ago
3Q16.
- Tangible book value per common share
was $15.49 and tangible common equity ratio was 10.98%, with common
equity Tier 1 capital ratio of 14.89%, Tier 1 risk-based capital
ratio of 19.53%, and total risk-based capital ratio of 20.82%.
- Based on current assessments of
information available for the impact of the hurricanes on our
credit portfolio, 3Q17 results included an additional $27.0 million
in loan loss provision, pre-tax.
- Excluding this provision:
- Adjusted net income available to
shareholders totaled $18.8 million or $0.40 per share fully diluted
– an increase of $0.10 per share or 33.0% from 2Q17 and of $0.14 or
53.8% from the year ago 3Q16.
- Adjusted return on average assets was
1.47% and return on average tangible common equity was 10.90% – 38
and 289 basis points higher than 2Q17, respectively.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented:
“Hurricanes Irma and Maria devastated Puerto Rico and exposed
the fragility of our infrastructure and economy. Our deepest
sympathy and concern goes out to everyone who has suffered. That
includes our own staff and customers. We admire the resilience of
all island residents in the face of extremely challenging recovery
efforts.
“After the hurricanes, our efforts were focused on assuring the
safety and well-being of all members of our team and securing our
assets. Our operations continue to be constrained by several
factors, in particular challenges with electricity and
telecommunications. However, we are committed to doing everything
we can to help our customers rebuild their personal lives and
businesses. As we say, juntos lograremos más – together we will
achieve more!
“Due to our investments in technology, OFG’s digital channels,
core banking and electronic funds transfer systems continued to
function uninterrupted during and after the hurricanes. Within days
after Maria, and after securing a continuing supply of diesel fuel
for generators, we started opening branches and ATMs with no limits
on teller withdrawals. As a result, we were able to serve our
clients regardless of which branches they chose.
“Today, we have 20 branches and 142 ATMs open, in addition to
our digital and phone channels. Current branch activity is
primarily deposit transactions. While demand for lending and other
business is still tame, commercial and auto loan production has
begun to pick up a little.
“We are very proud of the truly exceptional efforts of our
entire team for going the extra mile to help our customers under
very difficult circumstances. After Irma, Oriental was the only
bank to offer fee waivers for late payments, recognizing the
difficulties people in Puerto Rico might have. Following Maria, we
continued to assist our customers by offering automatic payment
deferrals and 90-day extensions for most loan categories.
“There is no doubt the economy will be extremely challenging in
the short term. But it is widely expected several industry sectors
will benefit from the anticipated massive rebuilding effort.
Although the magnitude and timing of such benefit is not yet clear,
Puerto Rico and OFG need to look forward to a ‘new normal’ and take
advantage of the potential opportunities it will present.
“With our strong capital position, OFG is well prepared. We have
repeatedly demonstrated our ability to grow during difficult times.
We look forward to doing so again.”
3Q17 Income Statement Highlights
The following compares data for the third quarter 2017 to the
second quarter 2017, unless otherwise noted.
- Interest Income from
- Originated Loans, increased $5.5
million to $58.9 million, reflecting $4.1 million from the pay-off
before maturity of a commercial loan previously classified as
non-accrual.
- Acquired Loans, declined $0.3 million
to $23.5 million, reflecting continued pay downs offset by cost
recoveries. In 3Q17, the Company recognized $3.1 million in cost
recoveries when the Puerto Rico Housing Finance Authority (PRHFA)
paid to cancel a loan that had a $10.6 million book balance.
- Securities, declined $0.8 million to
$7.9 million from lower balances partially offset by higher yields
on higher cash balances.
- Interest Expense declined $0.5
million to $9.9 million primarily due to lower borrowings.
- Total Provision for Loan and Lease
Losses increased $17.5 million to $44.0 million. 3Q17 reflects
regular provision of $17.0 million and the previously mentioned
additional hurricane related provision of $27.0 million. Of that
$27.0 million, $16.8 million was applied to originated loans and
$10.2 million to acquired loans.
- Net Interest Margin expanded to
5.64% from 5.18%. This was due to the above mentioned pay-off of an
originated commercial loan classified as non-accrual. It also
reflected cost recoveries, lower borrowing balances and costs, and
higher cash balances and yield.
- Total Banking and Wealth Management
Revenues declined $0.7 million to $17.2 million. During 3Q17,
the Company experienced lower banking and wealth management
activity levels in September. This was partially offset by
increased mortgage banking revenues from servicing asset valuation
and prepayment penalty income from the above mentioned commercial
loan.
- Other Non-Interest Income
totaled $0.7 million compared to $7.0 million. In 2Q17, the Company
had a net gain of $6.8 million on the sale of MBS.
- Total Non-Interest Expenses
declined $2.3 million to $50.5 million. 2Q17 included costs
associated with consolidating office space and lower credit related
expenses.
- Income Tax decreased $3.4
million to $560 thousand. 3Q17 reflected lower net income before
taxes at the 2017 estimated tax rate of 29.77%. In addition, 3Q17
benefitted from the $0.9 million resolution of a contingent tax
position. 2Q17 included a $2.1 million beneficial catch-up
adjustment to estimated income tax.
September 30, 2017 Balance Sheet Highlights
The following compares data at September 30, 2017 to June 30,
2017, unless otherwise noted.
- Total Loans Net declined $127.3
million to $3.96 billion. The decline reflecting the previously
announced sale of a $38.0 million municipal loan, continued pay
downs of acquired loans, and the $27.0 million additional hurricane
loan loss provision.New loan generation fell to $190.8 million due
to declines in commercial, mortgage and consumer lending in
September. Auto loan production was level with 2Q17 due to strong
performance in the first two months of 3Q17.
- Total Investments declined $63.7
million to $1.16 billion, primarily due to the sale of $45.0
million in Treasury securities.
- Total Borrowings declined $208.0
million to $419.3 million, primarily due to the maturities of
$160.4 million in short-term repurchase agreement funding and $72.9
million in Federal Home Loan Bank advances.
- Cash and cash equivalents
increased $243.4 million to $723.8 million, due to increased
deposits and lower transaction outflows toward the end of the
quarter from commercial customers.
- Customer Deposits increased
$243.7 million to $4.83 billion, reflecting deposits from
commercial customers mentioned above.
- Total Stockholders’ Equity
declined $1.3 million to $937.6 million, primarily due to decrease
in retained earnings.
Credit Quality Highlights
The following compares data on the originated loan portfolio at
September 30, 2017 to June 30, 2017, unless otherwise noted.
- Net Charge-Off Rate declined 25
basis points to 1.54%. 2Q17 reflected an increase for commercial
loans with the sale of the municipality loan.
- Early Delinquency Rate increased
27 basis points to 3.79% and Total Delinquency Rate increased 53
basis points to 6.84% due to increases in September.
- Non-Performing Loans declined 6
basis points to 3.10%, due to improvements in the mortgage,
commercial and consumer loan categories, partially offset by an
increase in the auto loan category.
- Allowance for Loan and Lease
Losses for the originated portfolio increased $17.9 million to
$87.5 million. This was mainly due to the previously mentioned
additional provision of $16.8 million related to the
hurricanes.
Capital Position
The following compares data at September 30, 2017 to June 30,
2017, unless otherwise noted.
Capital continued to build and remains significantly above
regulatory requirements for a well-capitalized institution.
- Tangible Common Equity Ratio at
10.98% decreased 11 basis points from 2Q17 but increased 73 basis
points year over year.
- Tangible Book Value per Common
Share at $15.49 decreased $0.02 cents from 2Q17, but increased
$0.31 or 2.1% year over year.
- Common Equity Tier 1 Capital
Ratio (using Basel III methodology) at 14.89% increased 23
basis points from 2Q17 and 155 basis points year over year to the
highest level in five quarters.
- Total Risk-Based Capital Ratio
at 20.82% increased 40 basis points from 2Q17 and 209 basis points
year over year to the highest level in five quarters.
Conference Call
A conference call to discuss OFG’s results for the third quarter
2017, outlook and related matters will be held today, Wednesday,
October 25, 2017 at 11:00 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 September 30, 2017, 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, 2016, 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 53rd 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, 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/20171025005569/en/
OFG BancorpPuerto Rico:Idalis Montalvo,
787-777-2847idalis.montalvo@orientalbank.comorUS:Steven
Anreder, 212-532-3232sanreder@ofgbancorp.comorGary Fishman,
212-532-3232gfishman@ofgbancorp.com
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