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| OFG > SEC Filings for OFG > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
SELECTED FINANCIAL DATA
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended September 30, Nine-months ended September 30,
2009 2008 Variance % 2009 2008 Variance %
EARNINGS DATA:
Interest income $ 78,553 $ 84,744 -7.3 % $ 244,535 $ 252,003 -3.0 %
Interest expense 45,659 56,703 -19.5 % 145,488 170,468 -14.7 %
Net interest income 32,894 28,041 17.3 % 99,047 81,535 21.5 %
Provision for loan losses 4,400 1,950 125.6 % 11,250 5,580 101.6 %
Net interest income after provision
for loan losses 28,494 26,091 9.2 % 87,797 75,955 15.6 %
Non-interest income (loss) 16,320 (57,016 ) 128.6 % 79,616 (41,652 ) 291.1 %
Non-interest expenses 20,486 18,197 12.6 % 61,971 54,007 14.7 %
Income before income taxes 24,328 (49,122 ) 149.5 % 105,442 (19,704 ) 635.1 %
Income tax expense (benefit) 3,001 (4,226 ) 171.0 % 8,452 (6,083 ) 238.9 %
Net Income 21,327 (44,896 ) 147.5 % 96,990 (13,621 ) 812.1 %
Less: dividends on preferred stock (1,201 ) (1,200 ) 0.1 % (3,602 ) (3,601 ) -
Net Income available to common
shareholders $ 20,126 $ (46,096 ) 143.7 % $ 93,388 $ (17,222 ) -642.3 %
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PER SHARE DATA: Basic $ 0.83 $ (1.90 ) 143.7 % $ 3.85 $ (0.71 ) 642.3 % Diluted $ 0.83 $ (1.89 ) 143.9 % $ 3.84 $ (0.71 ) 640.8 % Average common shares outstanding 24,303 24,292 0.0 % 24,284 24,249 0.1 % Average potential common share-options 65 82 -20.7 % 17 100 -83.0 % Average shares and shares equivalents 24,368 24,374 0.0 % 24,301 24,349 -0.2 % Book value per common share $ 12.98 $ 7.16 81.3 % $ 12.98 $ 7.16 81.3 % Market price at end of period $ 12.70 $ 17.86 -28.9 % $ 12.70 $ 17.86 -28.9 % Cash dividends declared per common share $ 0.04 $ 0.14 -71.4 % $ 0.12 $ 0.42 -71.4 % Cash dividends declared on common shares $ 972 $ 3,402 -71.4 % $ 2,916 $ 10,206 -71.4 % Return on average assets (ROA) 1.32 % -2.99 % 144.1 % 1.98 % -0.30 % 760.0 % Return on average common equity (ROE) 28.12 % -88.58 % 131.7 % 51.61 % -8.97 % 675.4 % Equity-to-assets ratio 6.00 % 4.10 % 46.3 % 6.00 % 4.10 % 46.3 % Efficiency ratio 50.82 % 53.03 % -4.2 % 51.31 % 53.07 % -3.3 % Expense ratio 0.86 % 0.80 % 7.5 % 0.87 % 0.76 % 14.5 % Interest rate spread 2.07 % 1.63 % 27.0 % 2.01 % 1.56 % 28.8 % Interest rate margin 2.17 % 1.88 % 15.4 % 2.15 % 1.82 % 18.1 % Number of financial centers 21 23 -8.7 % 21 23 -8.7 % |
September 30, December 31,
PERIOD END BALANCES AND CAPITAL RATIOS: 2009 2008 Variance %
(Dollars in thousands)
Investments and loans
Investment securities $ 4,512,752 $ 3,945,626 14.4 %
Loans (including loans held-for-sale), net 1,151,592 1,219,112 -5.5 %
Securities sold but not yet delivered 417,280 834,976 -50.0 %
$ 6,081,624 $ 5,999,714 1.4 %
Deposits and Borrowings
Deposits $ 1,917,905 $ 1,785,300 7.4 %
Repurchase agreements 3,557,086 3,761,121 -5.4 %
Other borrowings 458,264 373,718 22.6 %
Securities purchased but not yet received 30,945 398 7675.1 %
$ 5,964,200 $ 5,920,537 0.7 %
Stockholders' equity
Preferred equity $ 68,000 $ 68,000 0.0 %
Common equity 314,569 193,317 62.7 %
$ 382,569 $ 261,317 46.4 %
Capital ratios
Leverage capital 7.69 % 6.38 % 20.5 %
Tier 1 risk-based capital 15.81 % 17.11 % -7.6 %
Total risk-based capital 16.45 % 17.73 % -7.2 %
Trust assets managed $ 1,759,464 $ 1,706,286 3.1 %
Broker-dealer assets gathered 1,235,341 1,195,739 3.3 %
Assets managed 2,994,805 2,902,025 3.2 %
Assets owned 6,381,046 6,205,536 2.8 %
Total financial assets managed and assets owned $ 9,375,851 $ 9,107,561 3.0 %
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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 September 30, 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 third quarter included:
• Pre-tax operating income (net interest income after provision for loan
losses, core non-interest income from banking and financial service revenues,
less non-interest expenses) of approximately $15.4 million compared to
$14.2 million in the year-ago quarter.
• Net interest income increased 17.3% compared to the year-ago quarter, due to an improvement in the net interest margin to 2.17% from 1.88% in the year-ago quarter, primarily reflecting lower cost of funds.
• Benefitting from the strategic positioning of its investment securities portfolio, the Group took advantage of market conditions during the quarter to realize gains on sales of securities of $35.5 million. These gains more than offset a $17.6 million charge for early termination of $200 million in high-cost repurchase agreements and credit-related other than temporary impairment charges of $8.3 million on non-agency mortgage-backed securities.
• Proceeds from these sales of securities have been used in a combination of strategies to position Oriental for a potential increase in interest rates, while maintaining the flexibility to take advantage of local market opportunities. These strategies include keeping higher levels of short-term money market instruments, and investing in seasoned U.S. agency mortgage-backed securities and short-to-intermediate maturing U.S. agency debentures.
• Stockholders' equity increased $22.9 million during the quarter and $121.3 million since December 31, 2008, representing an increase of 46.4% on a year-to-date basis. Book value per common share increased to $12.98, from $12.04 at June 30, 2009 and $7.96 at December 31, 2008.
• Non-interest expenses fell 7.8% from the second quarter which included an industry-wide FDIC special assessment on insured depository institutions.
Income Available to Common Shareholders
For the quarter and nine-month period ended September 30, 2009, the Group's
income available to common shareholders totaled $20.1 million and $93.4 million,
respectively, compared to a loss to common shareholders of $46.1 million and
$17.2 million, respectively, in the comparable year-ago quarter and nine-month
period. Earnings per basic and fully diluted common share were $0.83, for the
quarter ended September 30, 2009, compared to losses per basic and fully diluted
common share of $1.90 and $1.89, respectively, in the same year-ago period; and
earnings per basic and fully diluted common share of $3.85 and $3.84 for the
nine-month period ended September 30, 2009, compared to losses of $0.71 per
basic and fully diluted common share in the year ago period.
Return on Average Assets and Common Equity
Return on average common equity (ROE) for the quarter and nine-month period
ended September 30, 2009, was 28.12% and 51.61%, respectively, up from (88.58%)
and (8.97)% for the quarter and nine-month period ended September 30,2008,
respectively. Return on average assets (ROA) for the quarter and nine-month
period ended September 30, 2009, was 1.32% and 1.98%, respectively, up from
(2.99%) and (0.30%), for the quarter and nine-month period ended September 30,
2008, respectively.
Net Interest Income after Provision for Loan Losses
Net interest income after provision for loan losses increased 9.2% for the
quarter and 15.6% for the nine-month period ended September 30, 2009, totaling
$28.5 million and $87.8 million, respectively, compared with $26.1 million and
$76.0 million for the same periods 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 $16.3 million and $79.6 million, respectively, for the
quarter and nine-month period ended September 30, 2009, representing an increase
of 128.6% and 291.1% when compared to losses of $57.0 million and $41.7 million
in the year-ago periods. Core banking and financial service revenues increased
18.3% and 7.4% when compared to the corresponding quarter and nine-month period
ended September 30, 2008. During the September 2009 quarter the Group took
advantage of market conditions during the quarter to realize gains on sales of
securities of $35.5 million, partially offset by $17.6 million loss on the early
termination of certain repurchase agreements and credit-related other than
temporary impairment charges of $8.3 million on non-agency mortgage-backed
securities.
Non-Interest Expenses
Non-interest expenses of $20.5 million and $62.0 million, respectively, for the
quarter and nine-month period ended September 30, 2009, compared to
$18.2 million and $54.0 million, respectively, in the year ago periods,
resulting in an efficiency ratio of 50.82% and 51.31%, respectively, for the
quarter and nine-month period ended September 30, 2009 (compared to 53.03% and
53.07% in the year-ago periods).
Income Tax Expense
The income tax expense was $3.0 million and $8.5 million, respectively, for the
quarter and nine-month period ended September 30, 2009, which includes Puerto
Rico's additional taxes on international banking entities and financial
institutions, compared to a benefit of $4.2 million and $6.1 million for the
respective periods ended September 30, 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 September 30, 2009, total financial
assets reached $9.376 billion, compared to $9.108 billion at December 31, 2008,
a 2.94% increase. When compared to December 31, 2008, there was 2.83% increase
in assets owned as of September 30, 2009, while assets managed by the trust
division and the broker-dealer subsidiary increased from $2.902 billion as of
December 31, 2008 to $2.995 billion as of September 30, 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 September 30, 2009,
total assets managed by the Group's trust division and CPC amounted to $1.759
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 September 30, 2009,
total assets gathered by the broker-dealer from its customer investment accounts
increased to $1.235 billion, compared to $1.196 billion at December 31, 2008.
Interest Earning Assets
The investment portfolio amounted to $4.513 billion at September 30, 2009, a
14.4% increase compared to $3.946 billion at December 31, 2008, while the loan
portfolio decreased 5.5% to $1.152 billion at September 30, 2009, compared to
$1.219 billion at December 31, 2008.
The mortgage loan portfolio totaled $955.6 million at September 30, 2009, a 7.3%
decrease from $1.031 billion at September 30, 2008, and a decrease of 6.6%, from
$1.023 billion at December 31, 2008. Mortgage loan production for the quarter
and nine-month period ended September 30, 2009, totaled $56.2 million and
$188.1 million, respectively, which represents an increase of 0.2% for the
quarter and a 3.7% increase for the nine-month period from the preceding year.
Interest Bearing Liabilities
Total deposits amounted to $1.918 billion at September 30, 2009, an increase of
7.5% 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 September 30, 2009, was $382.6 million, compared to
$261.3 million at December 31, 2008, mainly reflecting increased earnings in the
nine-month period.
The Group maintains capital ratios in excess of regulatory requirements. At
September 30, 2009, Tier 1 Leverage Capital Ratio was 7.69% (1.92 times the
requirement of 4.00%), Tier 1 Risk-Based Capital Ratio was 15.81% (3.95 times
the requirement of 4.00%), and Total Risk-Based Capital Ratio was 16.45% (2.06
times the requirement of 8.00%).
Due to the initial adoption of FASB ASC 320-10-65-1, in the second quarter of
2009 the Group reclassified the noncredit-related portion of an
other-than-temporary impairment loss previously recognized in earnings in the
third quarter of 2008 for an amount of $14.4 million that increased retained
earnings and accumulated other comprehensive loss. This reclassification had a
positive impact on regulatory capital, but no impact on stockholders' equity.
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 as Oriental expanded market share
based on its service proposition and capital strength, as opposed to using rates
to attract loans or deposits.
Lending
Total loan production and purchases of $69.2 million for the quarter remained
strong, as the Group's capital levels and low credit losses enabled it to
continue prudent lending. The average FICO score was 724 and the average loan to
value ratio was 84% on residential mortgage loans originated in the quarter.
The Group sells most of its conforming mortgages, which represented 94% of third
quarter production, into the secondary market, and retains servicing rights. As
a result, mortgage banking activities now reflect originations as well as a
growing servicing portfolio, a source of recurring revenue.
Deposits
Growth in retail deposits primarily reflects increases in demand and savings
deposits of $97.5 million in the quarter and $338.7 million year to date. The
Group also reduced brokered deposits by $55.4 million in the quarter and
$164.4 million year to date.
Assets Under Management
Assets under management increased 5.19% from June 30, 2009, to $2.99 billion,
which contributed to a 14.6% sequential growth in financial service revenues.
Credit Quality
Net credit losses declined by 54.69%, to $0.9 million (0.32% of average loans
outstanding), from $2.1 million (0.70%), in the previous quarter. The Group
increased its provision for loan losses to $4.4 million, mainly due to an
increase in non-performing commercial loans, resulting in a $20.2 million
allowance at September 30, 2009, up 20.68% from the preceding quarter.
Non-performing loans (NPLs) increased $3.2 million in the quarter. The Group's
NPLs generally reflect the economic environment in Puerto Rico. 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. In residential
mortgage lending, more than 90% of the Group's portfolio consists of fixed-rate,
fully amortizing, fully documented loans that do not have the level of risk
generally associated with subprime loans. In commercial lending, more than 90%
of its loans are collateralized by real estate.
The Investment Securities Portfolio
Approximately 87% of the investment securities 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, backed by a U.S. government
sponsored entity or the full faith and credit of the U.S. government (85%), and
Puerto Rico Government and agency obligations (2%). The remaining balance
consists of non-agency collateralized mortgage obligations (10%) and structured
credit investments (3%).
TABLE 1 - QUARTERLY ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO
VOLUME/RATE
FOR THE QUARTERS ENDED SEPTEMBER 30, 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 $ 78,553 $ 84,744 -7.3 % 5.19 % 5.67 % (48 ) $ 6,055,662 $ 5,980,562 1.3 % Tax equivalent adjustment 27,038 27,916 -3.1 % 1.79 % 1.87 % (8 ) - - - Interest-earning assets - tax equivalent 105,591 112,660 -6.3 % 6.98 % 7.54 % (56 ) 6,055,662 5,980,562 1.3 % Interest-bearing liabilities 45,659 56,703 -19.5 % 3.12 % 4.04 % (92 ) 5,855,924 5,612,134 4.3 % Tax equivalent net interest income / spread $ 59,932 $ 55,957 7.1 % 3.86 % 3.50 % 36 $ 199,738 $ 368,428 -45.8 % Tax equivalent interest rate margin 3.96 % 3.74 % 22 |
B - NORMAL SPREAD
Interest-earning
assets:
Investments:
Investment
securities $ 60,161 $ 64,478 -6.7 % 5.11 % 5.47 % (36 ) $ 4,708,209 $ 4,717,589 -0.2 %
Trading securities 5 2 150.0 % 5.88 % 1.54 % 434 340 518 -34.4 %
Money market
investments 136 293 -53.6 % 0.31 % 3.07 % (276 ) 177,555 38,137 365.6 %
60,302 64,773 -6.9 % 4.94 % 5.45 % (51 ) 4,886,104 4,756,244 2.7 %
Loans:
Mortgage 15,084 16,706 -9.7 % 6.32 % 6.48 % (16 ) 954,820 1,030,894 -7.4 %
Commercial 2,689 2,663 1.0 % 5.53 % 6.29 % (76 ) 194,646 169,297 15.0 %
Consumer 478 602 -20.6 % 9.52 % 9.98 % (46 ) 20,092 24,127 -16.7 %
18,251 19,971 -8.6 % 6.24 % 6.52 % (28 ) 1,169,558 1,224,318 -4.5 %
78,553 84,744 -7.3 % 5.19 % 5.67 % (48 ) 6,055,662 5,980,562 1.3 %
Interest-bearing
liabilities:
Deposits:
Non-interest
bearing deposits - - - - - - 46,234 35,638 29.7 %
Now accounts 5,046 912 453.3 % 3.01 % 2.40 % 61 671,454 152,314 340.8 %
Savings 249 2,298 -89.2 % 1.50 % 2.92 % (142 ) 66,424 315,124 -78.9 %
Certificates of
deposit 8,695 8,992 -3.3 % 3.41 % 3.87 % (46 ) 1,019,343 930,053 9.6 %
13,990 12,202 14.7 % 3.10 % 3.41 % (31 ) 1,803,455 1,433,129 25.8 %
Borrowings:
Repurchase
agreements 26,107 40,456 -35.5 % 2.92 % 4.27 % (135 ) 3,582,362 3,787,608 -5.4 %
Interest rate risk
management 1,102 - 100.0 % 0.12 % 0.00 % 12 - - -
Total repurchase
agreements 27,209 40,456 -32.7 % 3.04 % 4.27 % (123 ) 3,582,362 3,787,608 -5.4 %
FHLB advances 3,039 3,323 -8.5 % 4.25 % 4.19 % 6 285,934 317,184 -9.9 %
Subordinated
capital notes 333 540 -38.3 % 3.70 % 5.99 % (229 ) 36,083 36,083 0.0 %
FDIC-guaranteed
term notes 1,021 - 100.0 % 3.71 % 0.00 % 371 110,000 - 100.0 %
Other borrowings 67 182 -63.2 % 0.70 % 1.91 % (121 ) 38,090 38,130 -0.1 %
31,669 44,501 -28.8 % 3.13 % 4.26 % (113 ) 4,052,469 4,179,005 -3.0 %
45,659 56,703 -19.5 % 3.12 % 4.04 % (92 ) 5,855,924 5,612,134 4.3 %
Net interest income
/ spread $ 32,894 $ 28,041 17.3 % 2.07 % 1.63 % 44
Interest rate
margin 2.17 % 1.88 % 29
Excess of average interest-earning assets over average
interest-bearing liabilities $ 199,738 $ 368,428 -45.8 %
. . .
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