1Q17 Highlights
- Net income available to shareholders held steady. OFG reported $11.7 million, or $0.26 per share fully diluted, compared to $12.1 million, or $0.27 per share, in 4Q16 and $10.7 million, or $0.24 per share, in the year ago 1Q16.
- Oriental Bank’s retail franchise continues to grow. Auto and consumer loan generation was strong, customer deposits increased 1.3% from the previous quarter, and retail accounts grew 5% year over year.
- Innovation streak continues. Oriental Bank introduced the first fully integrated online and mobile personal loan application in Puerto Rico.
- Net interest margin expanded. NIM increased 16 basis points from 4Q16 to 5.10% due to a significant reduction in the cost of borrowings and as the proportion of higher yielding auto and consumer loans increased.
- The remaining FDIC loss share agreement was terminated. This is in line with OFG’s ongoing efforts to optimize its operations.
- Credit quality strong. The net charge off, non-performing loan and total delinquency rates declined from 4Q16.
- Major performance ratios solid. Return on average assets was 0.95%, return on average tangible common stockholders’ equity 7.00%, and efficiency ratio 56.15%.
- Capital buildup continues. All major capital metrics advanced compared to the previous and year ago quarters. Tangible book value per common share at $15.33 was up 1.7% and 4.4%, respectively, and the tangible common equity ratio at 10.66% was up 33 and 116 basis points, respectively.
CEO Comment
José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, commented:
“OFG Bancorp once again delivered consistent quarterly earnings, generating $0.26 per share for the first quarter of 2017, with consistent quality in our performance, especially in light of our operating environment.
“Our overall results reflect the strength of our retail franchise, where we saw quarter over quarter and year over year increases in loan production and balances, deposits and customers.
“We continued to lead the way in deploying customer-facing banking technology in Puerto Rico, launching the first fully integrated online personal loans application. This is part of our highly successful strategy of differentiating ourselves in delivering unparalleled customer experience.
“As planned during the quarter, we significantly reduced our borrowing costs and balances and ended our remaining loss share agreement with the FDIC, as part of our ongoing efforts to optimize operating results.
“We continued to control credit quality in our challenging environment. This enabled us to dramatically lower credit risk levels, while enhancing our financial strength, as evidenced by our credit trends and capital ratios, which are significantly stronger today than they were five years ago.
“In mid-March, the Financial Oversight and Management Board and the Puerto Rico Government reached an agreement on a 10-year fiscal plan. Steps in the right direction such as this will help increase confidence among people and businesses in Puerto Rico. However, there is much more to be done to restore Puerto Rico’s fiscal stability, competitiveness and economic growth.
“To sum up, we are pleased with our performance and how we have proactively managed our business. While optimistic, we will continue to closely monitor local economic conditions.”
1Q17 Income Statement Highlights
The following compares data for the first quarter 2017 to the fourth quarter 2016, unless otherwise noted.
- Interest Income:
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- Originated Loans: Increased $0.4 million to $52.0 million, due to higher yields from a larger proportion of retail loans.
- Acquired Loans: Declined $1.2 million to $25.7 million, reflecting continued pay downs.
- Securities: Increased $0.2 million to $8.5 million, a result of higher interest rates on our cash balances.
- Interest Expense declined $1.0 million to $11.6 million. In March 2017, a $232.0 million repurchase agreement at 4.78% was repaid.
- Total Provision for Loan and Lease Losses increased $4.3 million to $17.6 million. Provision for originated loans increased $1.1 million due to continued growth of the portfolio. Provision for acquired loans increased $3.2 million due to periodic assessment of loans remaining in these portfolios.
- Core Net Interest Margin (excluding cost recoveries) expanded to 5.00% from 4.89% primarily due to lower borrowing balances.
- Total Banking and Wealth Management Revenues declined $3.0 million to $17.4 million. In 4Q16, wealth management and banking services benefitted from $1.9 million in seasonal year end income. In 1Q17, mortgage banking declined $1.1 million due to lower secondary market activity and servicing asset valuation.
- FDIC Shared-Loss Expense saw a one-time net gain of $1.4 million, reflecting the outcome of the previously announced February 2017 termination of the FDIC shared loss agreement covering the former Eurobank loan portfolio.
- Total Non-Interest Expenses declined $0.7 million to $51.7 million due to lower costs partially offset by higher seasonal compensation and the semi-annual payment of property taxes in credit related expenses.
- Effective Tax Rate was 38.3% compared to 41.1% in 4Q16.
March 31, 2017 Balance Sheet Highlights
The following compares data at March 31, 2017 to December 31, 2016, unless otherwise noted.
- Total Loans Net declined $58.0 million to $4.09 billion. 1Q17 new retail loan production increased 0.8% to $172.4 million. Auto increased 11.8% due to the success of marketing efforts with our floor plan auto dealers. Consumer was level, but 23.0% higher than 1Q16, while mortgage declined 15.1% due to market contraction. Commercial loan production declined to $37.7 million, reflecting the seasonality of this business.
- Total Investments increased $33.0 million to $1.40 billion. This reflected new purchases of agency mortgage backed securities, partially offset by prepayments.
- Customer Deposits increased $53.9 million to $4.14 billion from both existing and new customers.
- Total Borrowings declined $123.0 million to $672.4 million due to a reduction in repurchase agreement balances. On a year over year basis, borrowings declined $400.3 million with large reductions in all categories.
- Total Stockholders’ Equity increased $11.0 million to $931.4 million primarily due to increases in retained earnings.
Credit Quality Highlights
The following compares data at March 31, 2017 to December 31, 2016, unless otherwise noted.
- Net Charge-Off Rate fell 40 basis points to 1.40% due to declines in the commercial, auto and consumer loan categories, partially offset by an increase in mortgage loans.
- Early Delinquency Rate increased 11 basis points to 3.42% due to increases in commercial and consumer loans, partially offset by improvements in auto and mortgage loans.
- fell 29 basis points to 3.17% due to declines in mortgage, auto and consumer loans.
- Total Delinquency Rate was down 15 basis points to 6.34% due to declines in auto and mortgage loans, partially offset by commercial and consumer loans.
- Allowance for Loan and Lease Losses increased $1.2 million to $60.5 million. The loan loss reserve ratio to total loans (excluding acquired loans) rose 3 basis points to 1.98%.
Capital Position
The following compares data at March 31, 2017 to December 31, 2016, unless otherwise noted.
Capital continued to build and remains significantly above regulatory requirements for a well-capitalized institution.
- Tangible Common Equity to Total Tangible Assets at 10.66% increased 33 basis points from 4Q16 and 116 basis points year over year to the highest level in five quarters.
- Tangible Book Value per Common Share at $15.33 increased 1.7% from 4Q16 and 4.4% year over year to the highest level in five quarters.
- Common Equity Tier 1 Capital Ratio (using Basel III methodology) at 14.30% increased 25 basis points from 4Q16 and 197 basis points year over year to the highest level in five quarters.
- Total Risk-Based Capital Ratio at 20.05% increased 43 basis points from 4Q16 and 238 basis points year over year to the highest level in five quarters.
Conference Call
A conference call to discuss OFG’s results for the first quarter 2017, outlook and related matters will be held today, Friday, April 21, 2017 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 first quarter ended March 31, 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) 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, 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. 6
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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