OFG Bancorp Posts Net Income of $11.7M in 3Q
SAN JUAN – OFG Bancorp, the bank holding company of Oriental Bank, on Friday reported positive results for the third quarter (3Q) ended Sept. 30.
Net income available to shareholders totaled $11.7 million, or $0.26 per share fully diluted, compared with $10.9 million, or $0.25 per share fully diluted, in the second quarter (2Q) of 2016. In the year ago quarter, OFG reported $1.1 million, or $0.03 per share fully diluted.
Oriental Bank’s overall business performance continued strong. New loan generation totaled $226.8 million. Banking and wealth management fee revenues remained level versus 2Q16. Retail and commercial deposits grew 2.2%. Net new customer accounts continued to increase at a 4% annualized rate.
As previously announced, Oriental Bank sold its participation in a Puerto Rico Electric Power Authority (Prepa) fuel line of credit. The sale eliminated $183 million of non-performing assets.
José Rafael Fernández, president, CEO and vice chairman, commented that OFG delivered another strong quarter. Diluted EPS of $0.26 was slightly better than the two prior quarters, and the bank’s return on average assets at 0.91% and return on average tangible common stockholders’ equity at 7.06% were the highest they’ve been in the last five quarters, he said.
“We continue to deliver consistent earnings while being proactive in our business development strategies and prudently managing balance sheet risk. We are particularly pleased to have found an optimal exit point for the PREPA credit facility. This eliminated our single largest credit exposure and significantly reduced our Puerto Rico government related exposures. It also meaningfully increased our capital ratios and contributed to improved credit quality through a major reduction in non-performing loans,” Fernández said. “Oriental Bank’s franchise growth confirms the successful customer differentiation achieved in our business delivery model, emphasizing higher levels of advisory relationships and superior levels of service.”
Fernández added that new loan generation was “good,” with “solid” yield expansion. Retail and commercial deposits rose across all categories, due in part to continued growth in net new customers.
“We have been able to reduce borrowings, with an important reduction in interest expense and positive contribution to NIM [net interest margin]. Non-interest revenues and expenses continue to be well managed, while Oriental seamlessly assumed the servicing of its originated residential mortgage loans portfolio,” Fernández added.
Income Statement Highlights
Interest income from loans rose $2.9 million to $82.6 million. A large portion of the increase came from a $2.2 million recovery from former Eurobank loans. While the non-acquired portfolio grew, acquired loan portfolios continued to run off.
Interest Income from securities declined $0.3 million to $8 million, mainly due to lower balances in the mortgage-backed securities portfolio.
Interest Expense declined $0.9 million to $13.7 million due to lower borrowings.
Total Provision for loan and lease losses increased $9 million to $23.5 million. Provision for non-acquired loans included $2.9 million toward the sale of the Prepa credit and another $2.9 million for a single commercial loan. Provision for BBVA PR acquired loans included $4.4 million for a Puerto Rico Housing Finance Authority (PRHFA) loan, which now has a carrying amount of $3.5 million or 31% of the unpaid principal balance.
Total banking and wealth management revenues remained level at $18.3 million. Banking service fees increased due to a higher transaction volume. Mortgage banking revenue grew, reflecting better mark to market on sales. Wealth management remained level, excluding certain annual broker dealer and insurance fees received in 2Q16.
Other gains reflected a $5 million recovery from a Bear Stearns claim of loss in 2009 from the BALTA private label collateralized mortgage obligation.
Total non-interest expenses increased $1.1 million to $54.9 million. Total operating expenses were $0.4 million lower despite higher compensation expenses due to the number of business days in the quarter as well as general and administrative expenses for the servicing conversion initiative. Other real estate owned (OREO) related expenses increased $1.2 million as part of normal activities.
Income tax expense benefited from a $0.3 million resolution of a contingent tax position as well as from a reduction of the effective income tax rate, now estimated at 26%.
Balance Sheet Highlights
Total loans net held for investment at $4.3 billion remained level versus 2Q ended June 30.
Total investments declined $22.2 million to $1.3 billion, mainly due to prepayments in the mortgage-backed securities (MBS) portfolio.
Total Puerto Rico government related exposure fell 50% to $202.4 million, when taking the sale of Prepa’s line of credit portion into account. Balances now primarily consist of loans to the five largest municipalities.
Total deposits increased $110.7 million to $4.75 billion across all categories, reflecting deposits from new and existing clients. Excluding brokered deposits, deposits increased $91.2 million.
Total borrowings declined $237 million to $800.3 million primarily due to net pay down of $200.5 million in Federal Home Loan Bank (FHLB) advances and the maturity of a subordinated capital note of $67 million.
Total stockholders’ equity was up $9 million to $924.9 million due to the increase in retained earnings.
Credit Quality Highlights
The following compares data as of Sept. 30, 2016, to June 30, 2016, unless otherwise noted.
Net charge-off rate (ex-Prepa) at 1.15% fell 6 basis points due to declines in the auto and commercial lending categories.
Early delinquency rate was 3.7% and total delinquency 6.92%, down 7 and 14 basis points, respectively, from year-ago levels due to “proactive” measures implemented to deal with the economic environment.
Non-performing loan rate at 3.68% declined 541 basis points reflecting the sale of Prepa, but was up only 12 basis points from the prior quarter ex-PREPA.
Allowance for loan and lease losses fell $50.6 million to $62.2 million, also reflecting the sale of Prepa. As a result, the loan loss reserve ratio to total loans (excluding acquired loans) decreased to 2.06% from 3.53%.
Regulatory capital ratios continued to be significantly above requirements for a well-capitalized institution.
Tangible common equity to total tangible assets at 10.25% increased 33 basis points to the highest level in five quarters.
Common Equity Tier 1 Capital Ratio (using Basel III methodology) increased to 13.34% from 12.64%.
Total Risk-Based Capital Ratio increased to 18.73% from 18%.