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Oriental’s 3Q results reflect ‘consistent core growth’

By on October 19, 2018

SAN JUAN – Puerto Rico-based financial holding company OFG Bancorp, whose three principal subsidiaries are Oriental Bank, Oriental Financial Services and Oriental Insurance reported results for the third quarter ended Sept. 30.

“Net income available to shareholders was $19.6 million or $0.42 per fully diluted share, compared to 2Q18’s $16.2 million or $0.35 per fully diluted share and breakeven results in the year ago third quarter due to a special hurricanes related loan loss provision,” the company said.

“EPS growth reflects another quarter of strong, consistent core growth based on the success of our strategy of differentiation – providing superior customer service, convenience and technology – coupled with Puerto Rico’s continued rebound following hurricanes that struck in September 2017,” said José Rafael Fernández, OFG Bancorp and Oriental Bank president, CEO and vice chairman.

“3Q18 EPS is up more than 20% sequentially and significantly better year over year. All financial metrics continued to build strong momentum going forward,” Fernández said. “With customer count up 4% year over year in the third quarter, we are achieving growth in part through increased customer adoption of automated and interactive teller machines, and online and mobile channels.”

He added that “economic activity has been driven primarily by businesses and consumers rebuilding. We believe businesses are starting to gain new confidence to invest and expand going forward.”

The institution listed the following highlights:

  • All key performance metrics improved, including net interest margin at 5.38%, return on average assets at 1.42%, return on average tangible common stockholders’ equity at 10.94%, and efficiency ratio at 50.58%.
  • Increased profitability was driven by new loan production of $354 million, higher average loan yields of 7.55%, annualized increase in average loan balances of 9.7%; and lower non-interest expenses.
  • Core deposit balances of $4.56 billion rose 3.2% from 2Q18 as customer count grew 1.2% sequentially and 4.0% year over year.
  • Tangible book value per common share of $16.23 at September 30, 2018 increased 6.8% annualized from June 30, 2018.
  • Regulatory capital is expected to benefit by $84.0 million as a result of the announcement in 3Q18 of the mandatory conversion effective Monday, October 22nd, of the Series C 8.750% Non-Cumulative Convertible Perpetual Preferred Stock.

A replay of the conference call webcast discussing the results, outlook and related matters Friday can be accessed at OFG’s website,

The following was extracted from OFG’s release:

Income Statement

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

  • Interest Income: Increased 7.0% to $94.1 million, reflecting the following:
    • From Originated Loans: Increased $5.7 million to $66.8 million, primarily due to higher average balances and higher yields.
    • From Acquired Loans: Declined $0.1 million to $17.2 million, resulting from continued pay downs, mostly offset by cost recoveries.
    • From Investment Securities: Increased $0.5 million to $10.1 million, primarily due to higher average cash balances and higher yields.
  • Interest Expense: Increased 13.8% or $1.4 million to $11.9 million, due to higher average balances of deposits and borrowings, and higher rates.
  • Total Provision for Loan and Lease Losses: Decreased 1.0% or $0.1 million to $14.6 million. Provision for originated loans increased $0.6 million due to growth of the portfolio while provision for acquired loans declined.
  • Net Interest Margin: Increased 14 basis points to 5.38%. Excluding cost recoveries, NIM increased 6 basis points mainly due to higher yield on originated commercial loans, cash balances and investment securities, reflecting the general effect of Federal Reserve Board rate hikes and higher proportion of high yield commercial and auto portfolios.
  • Total Banking and Wealth Management Revenues: Remained at a high level of $18.4 million as increases in Mortgage Banking and Wealth Management more than offset a slight decline in Banking Services.
  • Total Non-Interest Expenses: Declined $1.4 million to $50.9 million primarily reflecting the absence of lease cancellation expenses in 2Q18 as part of an effort to bring more of our offices into Oriental Center and reduce occupancy costs next year.
  • Effective Tax Rate: With its 3Q18 results, OFG now expects its estimated annual effective tax rate to be about 33.7% due to the higher proportion of profit generated by taxable loans.

Balance Sheet

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

  • Total Loans Net: Increased 0.9% or $37.1 million to $4.35 billion as originated loans increased $97.4 million and acquired loans declined $59.1 million.
  • New Loan Production: While lower than the recent high of $432.1 million in 2Q18, production remained strong at $354.0 million due to:
    • Record auto lending of $140.4 million, up 7.1% from 2Q18, reflecting continued pent up demand and the market’s adjustment to one less competitor in auto lending.
    • High levels of commercial lending at $105.3 million, consumer lending at $43.0 million, and residential mortgage lending at $27.9 million as businesses and retail customers began to embrace market opportunities in the aftermath of the reconstruction and recovery from last year’s hurricane.
    • The recently established OFG USA program added $37.4 million, reflecting seasonally lower deal flow compared to 2Q18.
  • Cash and Cash Equivalents: Increased 44.5% or $168.4 million to $546.8 million, reflecting the increase in deposits.
  • Total Investments: Declined 3.5% or $47.0 million to $1.31 billion. OFG retained a lower amount of originated mortgages as Mortgage Backed Securities.
  • Customer Deposits (excluding brokered): Increased $139.3 million to $4.56 billion, up 3.2% and 6.2% from June 30, 2018 and September 30, 2017, respectively. Average non-interest bearing accounts remained approximately level at $1.08 billion compared to June 30, 2018.
  • Total Borrowings: Declined $64.2 million to $488.0 million as OFG paid down FHLB advances.
  • Total Stockholders’ Equity: Increased $12.1 million to a recent high of $969.9 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

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

  • Delinquency Rates: The early delinquency rate increased 25 basis points to 3.32% and the total delinquency rate increased 24 basis points to 6.19% in line with pre-hurricanes levels.
  • Non-Performing Loan Rate: Declined 18 basis points to 3.45%, primarily reflecting a decline in the commercial rate.
  • Allowance for Loan and Lease Losses: Increased 1.1% or $1.0 million to $95.2 million, primarily reflecting the growth of originated loans.
  • Net Charge-Off Rate: Decreased 42 basis points to 1.39% primarily due to a 199 basis points decline in auto lending compared to 2Q18 when most of the remaining hurricane related charge-offs were taken.

Capital Position

Capital for the quarter ended September 30, 2018 continued to be significantly above regulatory requirements for a well-capitalized institution, with Tangible Common Equity Ratio at 10.88%, Tangible Book Value per common share at $16.23, Common Equity Tier 1 Capital Ratio at 14.38%, and Total Risk-Based Capital Ratio at 19.84%.

Financial Supplement

OFG’s Financial Supplement, with full financial tables for the quarter ended September 30, 2018, can be found on the Webcasts, Presentations & Other Files page, on OFG’s Investor Relations website at

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.


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