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| OFG > SEC Filings for OFG > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
SELECTED FINANCIAL DATA
FOR THE QUARTERS ENDED MARCH 31, 2009 AND 2008
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended March 31,
2009 2008 Variance %
EARNINGS DATA:
Interest income $ 83,931 $ 82,101 2.2 %
Interest expense 53,266 57,192 -6.9 %
Net interest income 30,665 24,909 23.1 %
Provision for loan losses 3,200 1,650 93.9 %
Net interest income after provision for loan losses 27,465 23,259 18.1 %
Non-interest income 17,246 8,864 94.6 %
Non-interest expenses 19,273 17,730 8.7 %
Income before income taxes 25,438 14,393 76.7 %
Income tax expense (benefit) 690 (2,455 ) -128.1 %
Net Income 24,748 16,848 46.9 %
Less: dividends on preferred stock (1,201 ) (1,201 ) 0.0 %
Income available to common shareholders $ 23,547 $ 15,647 50.5 %
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PER SHARE DATA: Basic $ 0.97 $ 0.65 49.2 % Diluted $ 0.97 $ 0.64 51.6 % Average common shares outstanding 24,245 24,164 0.3 % Average potential common share-options 3 125 -97.6 % Average shares and shares equivalents 24,248 24,289 -0.2 % Book value per common share $ 10.38 $ 11.15 -6.9 % Market price at end of period $ 4.88 $ 19.71 -75.2 % Cash dividends declared per common share $ 0.04 $ 0.14 -71.4 % Cash dividends declared on common shares $ 972 $ 3,399 -71.4 % Return on average assets (ROA) 1.53 % 1.06 % 44.3 % Return on average common equity (ROE) 49.14 % 20.63 % 138.2 % Equity-to-assets ratio 4.92 % 5.50 % -10.6 % Efficiency ratio 51.65 % 54.69 % -5.6 % Expense ratio 0.82 % 0.69 % 18.8 % Interest rate spread 1.79 % 1.34 % 33.6 % Interest rate margin 1.98 % 1.68 % 17.9 % Number of financial centers 23 24 -4.2 % |
March 31, December 31,
2009 2008 Variance %
PERIOD END BALANCES AND CAPITAL RATIOS:
Investments and loans
Investment securities $ 4,576,103 $ 3,945,626 16.0 %
Loans (including loans held-for-sale), net 1,199,431 1,219,112 -1.6 %
Securities sold but not yet delivered 289,565 834,976 -65.3 %
$ 6,065,099 $ 5,999,714 1.1 %
Deposits and Borrowings
Deposits $ 1,806,246 $ 1,785,300 1.2 %
Repurchase agreements 3,757,411 3,761,121 -0.1 %
Other borrowings 467,180 373,718 25.0 %
Securities purchased but not yet received 112,628 398 28198.5 %
$ 6,143,465 $ 5,920,537 3.8 %
Stockholders' equity
Preferred equity $ 68,000 $ 68,000 0.0 %
Common equity 251,351 193,317 30.0 %
$ 319,351 $ 261,317 22.2 %
Capital ratios
Leverage capital 6.54 % 6.38 % 2.5 %
Tier 1 risk-based capital 16.20 % 17.08 % -5.2 %
Total risk-based capital 16.79 % 17.71 % -5.2 %
Trust assets managed $ 1,617,855 $ 1,706,286 -5.2 %
Broker-dealer assets gathered 1,087,781 1,195,739 -9.0 %
Assets managed 2,705,636 2,902,025 -6.8 %
Assets owned 6,485,946 6,205,536 4.5 %
Total financial assets managed and assets owned $ 9,191,582 $ 9,107,561 0.9 %
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OVERVIEW OF FINANCIAL PERFORMANCE
Introduction
The Group's diversified mix of businesses and products generates both the
interest income traditionally associated with a banking institution and
non-interest income traditionally associated with a financial services
institution (generated by such businesses as securities brokerage, fiduciary
services, investment banking, insurance and pension administration). Although
all of these businesses, to varying degrees, are affected by interest rate and
financial markets fluctuations and other external factors, the Group's
commitment is to continue producing a balanced and growing revenue stream.
During the quarter ended March 31, 2009, the strategies in place enabled the
Group to continue to perform well despite the turbulent credit market and the
recession in Puerto Rico. Highlights of the quarter include strong sequential
increases in residential mortgage and commercial loan production, retail
deposits increased 10.73%, or $116.2 million, from December 31, 2008, sequential
increase of 75.9% in mortgage banking activities, sequential increase of 3.0% in
net interest income, stockholders' equity increased $58.0 million during the
quarter, book value per common share increased to $10.38 from $7.96 at
December 31, 2008, and a gain of $10.3 million on the sale of securities.
Income Available to Common Shareholders
For the quarter ended March 31, 2009, the Group's income available to common
shareholders totaled $23.5 million, compared to $15.6 million in the comparable
year-ago quarter. Earnings per basic and fully diluted common share were $0.97
for the quarter ended March 31, 2009, compared to $0.65 per basic and $0.64 per
fully diluted common share in the same year-ago quarter.
Return on Average Assets and Common Equity
Return on average common equity (ROE) for the quarter ended March 31, 2009, was
49.14%, which represents an increase of 138.2%, from 20.63% for the quarter
ended March 31, 2008. Return on average assets (ROA) for the quarter ended
March 31, 2009, was 1.53%, representing an increase of 44.3% from 1.06%, for the
same year-ago quarter.
Net Interest Income after Provision for Loan Losses
Net interest income after provision for loan losses increased 18.1% for the
quarter ended March 31, 2009, totaling $27.5 million, compared with
$23.3 million for the same period last year. Growth reflects the significant
reduction in cost of funds, which has declined more rapidly than the yield on
interest-earning assets.
Non-Interest Income
Non-interest income was $17.2 million, 94.6% higher than the first quarter of
2008. Growth reflects a gain on the sale of government securities, increased
mortgage banking activities from the sale of conforming residential mortgage
production into the secondary market, lower banking and financial service
revenues, in line with first quarter industry trends, and continued de-emphasis
of the overdraft privilege program.
Non-Interest Expenses
Non-interest expenses of $19.3 million increased year over year at a lower rate
than revenues, resulting in an improved efficiency ratio of 51.65% (compared to
54.69% in the year-ago quarter).
Income Tax Expense
The effective income tax rate was 2.7% for the first quarter of 2009, which
includes Puerto Rico's new taxes on the earnings of international banking
entities and financial institutions, versus tax benefits in the first and fourth
quarters of 2008.
Group's Financial Assets
The Group's total financial assets include owned assets and the assets managed
by the trust division, the securities broker-dealer subsidiary, and the private
pension plan administration subsidiary. At March 31, 2009, total financial
assets reached $9.192 billion, compared to $9.108 billion at December 31, 2008,
a 1.0% increase. When compared to December 31, 2008, there was 4.5% increase in
assets owned as of March 31, 2009, while assets managed by the trust division
and the broker-dealer subsidiary decreased from $2.9 billion as of
December 31, 2008 to $2.7 billion as of March 31, 2009.
The Group's trust division offers various types of individual retirement
accounts ("IRA") and manages 401(K) and Keogh retirement plans and custodian and
corporate trust accounts, while Caribbean Pension Consultants, Inc. ("CPC")
manages the administration of private pension plans. At March 31, 2009, total
assets managed by the Group's trust division and CPC amounted to $1.618 billion,
compared to $1.706 billion at December 31, 2008. The Group's broker-dealer
subsidiary offers a wide array of investment alternatives to its client base,
such as tax-advantaged fixed income securities, mutual funds, stocks, bonds and
money management wrap-fee programs. At March 31, 2009, total assets gathered by
the broker-dealer from its customer investment accounts decreased to
$1.088 billion, compared to $1.196 billion at December 31, 2008.
Interest Earning Assets
The investment portfolio amounted to $4.576 billion at March 31, 2009, a 15.98%
increase compared to $3.946 billion at December 31, 2008, while the loan
portfolio decreased 1.61% to $1.199 billion at March 31, 2009, compared to
$1.219 billion at December 31, 2008.
The mortgage loan portfolio totaled $999.1 million at March 31, 2009, a 1.3%
decrease from $1.012 billion at March 31, 2008, and a decrease of 2.4%, from
$1.023 million at December 31, 2008. Nevertheless, mortgage loan production for
the quarter ended March 31, 2009, totaled $67.9 million, which represents a
37.8% increase compared to the same period last year.
Interest Bearing Liabilities
Total deposits amounted to $1.806 billion at March 31, 2009, an increase of
1.17% compared to $1.785 billion at December 31, 2008, primarily due to
increased retail deposits, particularly in demand deposit accounts.
Stockholders' Equity
Stockholders' equity at March 31, 2009, was $319.4 million, compared to
$261.3 million at December 31, 2008, reflecting increased earnings in the
quarter and improvements in the valuation of the Group's available-for-sale
investment securities portfolio.
The Group's capital ratios remain above regulatory capital requirements, with
risk-based capital ratios above regulatory capital adequacy guidelines. At
March 31, 2009, Tier 1 Leverage Capital Ratio was 6.54% (1.6 times the minimum
of 4.00%), Tier 1 Risk-Based Capital Ratio was 16.20% (4.1 times the minimum of
4.00%), and Total Risk-Based Capital Ratio was 16.79% (2.1 times the minimum of
8.00%).
Financial Service-Banking Franchise
The Group's niche market approach to the integrated delivery of services to mid
and high net worth clients performed well, resulting in expanded market share.
Lending
Loan production of $85.1 million was up 38.3% from the year ago quarter and
24.3% from the previous quarter, as the Group's capital levels and low credit
losses compared to most banking institutions enabled it to continue prudent
lending. The average FICO score was 720 and the average loan to value ratio was
82% on residential mortgage loans originated in the first quarter of 2009.
Deposits
Sequential growth in retail deposits from the fourth quarter of 2008 reflects a
$115.1 million increase in demand deposits, primarily from new accounts.
Assets Under Management
Assets under management, which generate recurring fees, declined only 6.8% from
December 31, 2008, as a high proportion of fixed income investments helped
offset the 11.7% decline in equity markets, as measured by the S&P 500 index.
Outflows were minimal.
Credit Quality
Net credit losses increased $0.9 million from the fourth quarter of 2008. The
provision for loan losses for the first quarter of 2009 was $3.2 million (136.6%
of net credit losses), increasing the allowance for loan losses by 6.0% to
$15.1 million, as compared to the fourth quarter of 2008.
Non-performing loans increased $9.1 million from the fourth quarter, reflecting
the economic environment in Puerto Rico. Based on historical performance, the
Group does not expect non-performing loans to result in significantly higher
losses as most are well-collateralized with adequate loan-to-value ratios.
Investment Securities Portfolio
The average balance was $5.0 billion, up 5.5% from the first quarter of 2008 and
up 3.9% from the fourth quarter of 2008.
Approximately 86% of the portfolio consists of fixed-rate mortgage-backed
securities or notes, guaranteed or issued by FNMA, FHLMC, or GNMA and U.S.
agency senior debt obligations, and thus backed by a U.S. government sponsored
entity or the full faith and credit of the U.S. government (84%), and Puerto
Rico Government and agency obligations (2%). The remaining balance consists of
non-agency collateralized mortgage obligations (11%), the majority of which are
backed by prime fixed-rate residential mortgage collateral, and structured
credit investments (3%).
In April 2009, FASB issued the following Final Staff Positions (FSP) to improve
guidance and disclosure on fair value measurements and impairments:
FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly"
FSP FAS 157-4, issued by the FASB in April 2009, provides additional guidance
for estimating fair value in accordance with SFAS No. 157 when the volume and
level of activity for the asset or liability have decreased significantly. FSP
FAS 157-4 also provides guidance on identifying circumstances that indicate a
transaction is not orderly. The provisions of FSP FAS 157-4 are effective for
the Group's interim period ending after June 15, 2009, but entities may early
adopt for the interim and annual periods ending after March 15, 2009. Management
decided not to do an early adoption, and is currently evaluating the effect that
the provisions of FSP FAS 157-4 may have on the Group's statements of financial
condition and income.
FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments"
FSP FAS 115-2 and FAS 124-2, issued by the FASB in April 2009, amend the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. These FSPs do not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the
Group's interim period ending after June 15, 2009, but entities may early adopt
for the interim and annual periods ending after March 15, 2009. Management
decided not to do an early adoption, and is currently evaluating the effect that
the provisions of FSP FAS 115-2 and FAS 124-2 may have on the Group's statements
of financial condition and income.
FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments"
FSP FAS 107-1 and APB 28-1, issued by the FASB in April 2009, amend FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments, to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. These FSPs also amend APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized financial information at
interim reporting periods. The provisions of FSP FAS 107-1 and APB 28-1 are
effective for the Group's interim period ending after June 15, 2009, but
entities may early adopt for the interim and annual periods ending after March
15, 2009. Management decided not to do an early adoption, but as FSP FAS 107-1
and APB 28-1 amend only the disclosure requirements about fair value of
financial instruments in interim periods, the adoption of FSP FAS 107-1 and APB
28-1 is not expected to affect the Group's statements of financial condition and
income.
TABLE 1 - QUARTERLY ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO
VOLUME/RATE
FOR THE QUARTERS ENDED MARCH 31, 2009 AND 2008
(Dollars in thousands)
Interest Average rate Average balance
Variance Variance Variance
2009 2008 in % 2009 2008 in BPS 2009 2008 in %
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A - TAX EQUIVALENT SPREAD Interest-earning assets $ 83,931 $ 82,101 2.2 % 5.43 % 5.55 % (12 ) $ 6,183,981 $ 5,912,847 4.6 % Tax equivalent adjustment 26,035 27,132 -4.0 % 1.68 % 1.84 % (16 ) - - - Interest-earning assets - tax equivalent 109,966 109,233 0.7 % 7.11 % 7.39 % (28 ) 6,183,981 5,912,847 4.6 % Interest-bearing liabilities 53,266 57,192 -6.9 % 3.64 % 4.21 % (57 ) 5,848,697 5,433,537 7.6 % Tax equivalent net interest income / spread $ 56,700 $ 52,041 9.0 % 3.47 % 3.18 % 29 $ 335,284 $ 479,310 -30.0 % Tax equivalent interest rate margin 3.66 % 3.52 % 14 |
B - NORMAL SPREAD
Interest-earning
assets:
Investments:
Investment
securities $ 65,425 $ 61,414 6.5 % 5.34 % 5.30 % 4 $ 4,903,567 $ 4,632,397 5.9 %
Trading securities 15 6 150.0 % 11.39 % 4.12 % 727 527 582 -9.5 %
Money market
investments 170 853 -80.1 % 0.89 % 3.85 % (296 ) 76,151 88,563 -14.0 %
65,610 62,273 5.4 % 5.27 % 5.28 % (1 ) 4,980,245 4,721,542 5.5 %
Loans:
Mortgage 15,498 16,324 -5.1 % 6.21 % 6.44 % (23 ) 998,506 1,014,311 -1.6 %
Commercial 2,310 2,813 -17.9 % 5.02 % 7.52 % (250 ) 184,157 149,537 23.2 %
Consumer 513 691 -25.8 % 9.74 % 10.07 % (33 ) 21,073 27,457 -23.3 %
18,321 19,828 -7.6 % 6.09 % 6.66 % (57 ) 1,203,736 1,191,305 1.0 %
83,931 82,101 2.2 % 5.43 % 5.55 % (12 ) 6,183,981 5,912,847 4.6 %
Interest-bearing
liabilities:
Deposits:
Non-interest
bearing deposits - - - - - - 38,728 35,151 10.2 %
Now accounts 3,592 212 1594.3 % 3.23 % 1.18 % 205 444,381 71,661 520.1 %
Savings 161 4,388 -96.3 % 1.23 % 4.14 % (291 ) 52,135 423,725 -87.7 %
Certificates of
deposit 10,070 7,829 28.6 % 3.49 % 4.68 % (119 ) 1,154,056 669,824 72.3 %
13,823 12,429 11.2 % 3.27 % 4.14 % (87 ) 1,689,300 1,200,361 40.7 %
Borrowings:
Repurchase
agreements 35,799 40,240 -11.0 % 3.81 % 4.21 % (40 ) 3,754,817 3,824,569 -1.8 %
FHLB advances 2,999 3,540 -15.3 % 3.93 % 4.24 % (31 ) 305,175 334,245 -8.7 %
Subordinated
capital notes 436 702 -37.9 % 4.83 % 7.79 % (296 ) 36,083 36,083 0.0 %
FDIC-guaranteed
term notes 112 - 100.0 % 0.00 % 0.00 % 0 23,667 - 100.0 %
Other borrowings 97 281 -65.5 % 0.98 % 2.94 % (196 ) 39,655 38,279 3.6 %
39,443 44,763 -11.9 % 3.79 % 4.23 % (44 ) 4,159,397 4,233,176 -1.7 %
53,266 57,192 -6.9 % 3.64 % 4.21 % (57 ) 5,848,697 5,433,537 7.6 %
Net interest income
/ spread $ 30,665 $ 24,909 23.1 % 1.79 % 1.34 % 45
Interest rate
margin 1.98 % 1.68 % 30
Excess of average
interest-earning
assets over average
interest-bearing
liabilities $ 335,284 $ 479,310 -30.0 %
Average
interest-earning
assets over average
interest-bearing
liabilities ratio 105.73 % 108.82 %
Volume Rate Total
C. Changes in net interest income due to:
Interest Income:
Investments $ 3,411 $ (70 ) $ 3,341
Loans 206 (1,714 ) (1,508 )
3,617 (1,784 ) 1,833
Interest Expense:
Deposits 5,063 (3,669 ) 1,394
Repurchase agreements (734 ) (3,704 ) (4,438 )
Other borrowings (45 ) (834 ) (879 )
4,284 (8,207 ) (3,923 )
Net Interest Income $ (667 ) $ 6,423 $ 5,756
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Net interest income is a function of the difference between rates earned on the Group's interest-earning assets and rates paid on its interest-bearing liabilities (interest rate spread) and the relative amounts of its interest-earning assets and interest-bearing liabilities (interest rate margin). Typically, bank liabilities re-price in line with changes in short-term rates, while many asset positions are affected by longer-term rates. The Group constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels.
For the quarter ended March 31, 2009, net interest income amounted to $30.7 million, an increase of 23.1% from $24.9 million in the same period last year. The increase for the 2009 first quarter reflects a 2.2% increase in interest income, due to a $3.6 million positive volume variance and a $1.8 million negative rate variance. The decrease of 6.9% in interest expense for the quarter ended March 31, 2009, was primarily the result of a decrease of $8.2 million in rate variance, partially offset by an increase of $4.3 million in interest expense from higher volume of interest-bearing liabilities. Interest rate spread increased 45 basis points to 1.79%, from 1.34% at March 31, 2008, due to a 57 point decrease in the average cost of funds to 3.64% from 4.21%, . . .
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