OFG Bancorp (NYSE:OFG) today reported results for the first
quarter ended March 31, 2018, reflecting continued strong recovery
following hurricanes Irma and Maria, which struck the island in
September 2017.
1Q18 Summary
- Net income available to shareholders
was $13.5 million, or $0.29 per fully diluted share. This was in
line with 4Q17’s $13.6 million, or $0.30 per share, and exceeded
the year ago quarter’s $11.7 million, or $0.26 per share.
- Return on average assets and average
tangible common equity was 1.09% and 7.73%, respectively.
- Tangible book value per common share
was $15.71, and tangible common equity ratio was 11.22%.
- Loan production of $309.4 million
increased 22.0% from 4Q17 and 41.4% from the year ago quarter.
- Total provision for loan and lease
losses, net, declined 37.9% from 4Q17, which included $5.4 million
in additional hurricanes-related provision.
- Core non-interest income of $18.2
million increased 9.0% from 4Q17 and 4.7% from the year ago quarter
as banking service fees and mortgage banking revenues
rebounded.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and
Vice Chairman of the Board, commented:
“Our first quarter results reflect the success of our strategies
and Puerto Rico’s emerging recovery. We earned $0.29 per share
fully diluted, 12% higher than a year ago. Our strong capital
position continued to build.
“The island benefited from loan payment moratoriums by Oriental
and other banks, an increased availability of electric power,
improvement in communications, and the return of day to day
stability, as well as rebuild spending by FEMA, the start of
payments of insurance claims, and the prospect of growing
assignments of federal funds.
“Nearly every metric in 1Q18 confirmed this progress. For the
second quarter in a row, our originated loan growth outpaced the
pay down of acquired loans, resulting in a net increase of $77.1
million from December 31, 2017—close to 8% on an annualized
basis.
“Auto, consumer and mortgage lending at $192.3 million increased
52% from 4Q17 and more than 11% from 1Q17. In particular, auto
lending was at a record level, up more than 46% from the preceding
and year ago quarters.
“Commercial loan production in Puerto Rico, while lower than
4Q17, rose more than 13% year over year. Meanwhile, our U.S.
commercial and industrial loan program added $74 million in
participations.
“With nearly all of our loan moratoriums expiring, 1Q18 credit
quality remained stable. Most metrics were better than, or returned
to, pre-hurricanes levels.
“Fee revenues rebounded with a 24% sequential increase in
Banking Services and a 43% increase in Mortgage Banking. Core
Wealth Management held steady at pre-hurricanes levels.
“Customer deposits (excluding brokered) increased 2% from the
end of 2017 and 5% from a year ago. Our Net Interest Margin
expanded to 5.22%, and net new customer accounts grew at an
annualized rate of 8%, significantly exceeding 2017’s hurricanes
affected 2% rise.
“Our effort to differentiate Oriental through superior service
and digital banking technology is proving effective. Our team of
dedicated bankers continually reaching out to our customers and
clients is clearly working. And during 1Q18, we introduced another
new technology-based service—My Payments (Mis Pagos), which enables
loan-only customers to pay online instead of standing in line.
“While we remain cautious due to the uncertain economic
environment on the island, we are confident positive momentum will
prevail for both OFG and Puerto Rico. We will continue to sharpen
our focus on our retail and commercial clients, improve our service
levels, and provide faster and more agile ways to do banking.”
Income Statement Highlights
Unless otherwise noted, the following compares data for the
first quarter 2018 to the fourth quarter 2017.
- Interest Income
- Originated Loans: Increased $0.6
million to $56.8 million, primarily due to higher balances.
- Acquired Loans: Declined $1.1 million
to $17.8 million, reflecting continued pay downs.
- Investment Securities: Increased $0.5
million to $8.6 million, the result of higher balances and higher
yield.
- Interest Expense: Declined $0.5
million to $9.2 million, primarily due to reduced cost of
deposits.
- Total Provision for Loan and Lease
Losses: Declined $9.4 million to $15.5 million. 1Q18 provision
included $8.6 million to replenish the allowance for retail loan
charge-offs of $8.2 million related to the hurricanes. 1Q18
provision also included an increase in the allowance related to
auto loan portfolio growth and one commercial loan placed in
non-accrual.
- Net Interest Margin: Increased
14 basis points to 5.22% mainly due to higher yield in the
investment portfolio and cash balances.
- Total Banking and Wealth Management
Revenues: Increased $1.5 million to $18.2 million.
- Banking Service Revenues rose $2.0
million, largely the result of increased electronic banking
activity with more power coming back on the island.
- Mortgage Banking Activities were up
$0.5 million, primarily due to increased business.
- Wealth Management Revenues fell $1.0
million, reflecting the absence of annual insurance fees recognized
in 4Q17.
- Total Non-Interest Expenses:
Increased $5.5 million to $52.1 million. 4Q17 included $3.8 million
in items that temporarily lowered costs, including reduced expenses
related to electronic banking activity. 1Q18 reflected higher
seasonal compensation expenses and expenses related to the sale of
foreclosed assets returning to pre-hurricanes levels.
- Effective Tax Rate (ETR):
Approximately 32%, the rate the Company is currently estimating for
the full year.
Balance Sheet Highlights
Unless otherwise noted, the following compares data at March 31,
2018 to December 31, 2017.
- Total Loans Net: Increased $77.1
million to $4.13 billion with originated loan growth more than
offsetting normal pay downs of acquired loans. Production
highlights include:
- Auto lending at a record $128.1 million
was up 46.3% from 4Q17 and 47.6% year over year, reflecting
replacement of damaged vehicles, pent up demand, and the market’s
effort to adjust to one less auto lending competitor.
- Consumer lending increased 62.6% to
$37.5 million, exceeding pre-hurricanes levels, as retail customers
moved to replace needed items and repair homes.
- Mortgage lending rebounded 67.7% to
$26.6 million from 4Q17’s low, post-hurricanes level, but was down
38.7% from the year ago quarter.
- Commercial lending at $42.8 million
declined from 4Q17’s robust levels, but was up 13.5% from 1Q17. The
Company’s bankers continue building relationships with businesses
participating in Puerto Rico’s recovery.
- The recently established OFG USA
program added $74.4 million in commercial and industrial related
loan participations across an array of industries and geographies
in the continental U.S.
- Cash and cash equivalents:
Declined $122.8 million to $365.4 million as cash was used to fund
new loan growth and reduce higher cost borrowings.
- Total Investments: Increased
$132.5 million to $1.30 billion with the purchase of new mortgage
backed securities to take advantage of favorable market
opportunities.
- Customer Deposits (excluding
brokered deposits): Increased $77.9 million to $4.36 billion,
up 1.8% and 5.2% from December 31, 2017 and March 31, 2017,
respectively. Growth in demand and savings accounts more than
offset a decline in time deposits.
- Total Borrowings: Increased
$25.6 million to $354.3 million as OFG used repurchase agreement
funding to acquire investment securities. The Company also paid
down higher cost FHLB advances.
- Total Stockholders’ Equity:
Increased $1.7 million to $946.8 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 March 31, 2018 to December 31,
2017.
Following hurricanes Irma and Maria, Oriental offered automatic
payment deferrals and 90-day extensions for most loan categories.
Most of these payment moratoriums ended in 1Q18 with most credit
metrics better than, or returned to, pre-hurricanes levels.
- Net Charge-Off Rate: Remained
virtually level at 1.34%. Consumer loan charge-offs returned to
pre-hurricanes levels, while other loan categories remained flat or
declined.
- Early Delinquency Rate:
Increased 138 basis points to 3.20% and Total Delinquency Rate rose
164 basis points to 6.25% as both metrics returned to
pre-hurricanes levels.
- Non-Performing Loan Rate:
Increased 51 basis points to 3.82%. The commercial loan rate
increased 79 bps due to a $10.5 million loan that is current in its
monthly payments, but was placed in non-accrual due to credit
deterioration. The auto loan rate increased 94 bps due to 1Q18
moratorium expirations.
- Allowance for Loan and Lease
Losses: Increased $4.1 million to $96.8 million, due to higher
loan balances, particularly in auto lending, and the above
mentioned commercial loan placed in non-accrual status.
Capital Position
Unless otherwise noted, the following compares data at March 31,
2018 to December 31, 2017.
Capital continued to grow and remains significantly above
regulatory requirements for a well-capitalized institution.
Metric
1Q18
QoQ Change
YoY Change
Tangible Common Equity Ratio
11.22% -7 bps +56 bps
Tangible Book Value per Common
Share
$15.71 +0.3% +2.5%
Common Equity Tier 1 Capital Ratio
(using Basel III methodology)
14.62% +3 bps +32 bps
Total Risk-Based Capital Ratio
20.31% -3 bps +26 bps
Conference Call
A conference call to discuss OFG’s results for 1Q18, outlook and
related matters will be held today, Friday, April 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 March 31, 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20180420005287/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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