OFG.. $14.12..
"The average FICO score was 722 and the average loan to value ratio was 81% on residential mortgage loans originated in the quarter."
A well run bank that caters to mid to high net worth in Puerto Rico.. It is highly leveraged and poised to have continued explosive earnings.. OFG is a speculative position in my portfolio.. Earnings could reach $4.00 to $4.45 this fiscal year... hank
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Oriental Financial Group Inc. (NYSE: OFG - News) today reported income available to common shareholders of $49.7 million for the second quarter ended June 30, 2009. This represented higher returns on average assets of 3.05% and average common equity of 80.89%, compared with 0.95% and 20.65%, respectively, in the second quarter of 2008. Diluted earnings per common share increased to $2.04 from $0.54 in the year ago quarter.
Highlights
Pre-tax operating income (net interest income, core non-interest income from banking and financial service revenues, less non-interest expenses) of approximately $17.3 million – an increase when compared to the $13.0 million-to-$14.8 million range the Group has generated since the first quarter of 2008.
Strong increase in net interest income of 24.8% and 15.7% compared to the year-ago quarter and the previous quarter, respectively, and a corresponding improvement in the net interest margin to 2.29% (compared to 1.90% and 1.98% in the year-ago and previous quarter, respectively), mainly reflecting the reduction in the cost of funds.
Growth in core banking and financial service revenues of 19.4% and 15.8% compared to the year-ago and previous quarter, respectively. On a sequential quarter basis, the Group saw increases in mortgage banking activities of 30.3%, banking service revenues of 15.0%, and financial service revenues of 5.5%.
Benefitting from the strategic positioning of its investment securities portfolio, the Group took advantage of market conditions during the quarter to realize gains on: (i) sales of securities of $10.5 million, (ii) derivative activities of $19.4 million, and (iii) trading activities of $13.0 million. These gains more than offset credit-related other than temporary impairment charges of $4.4 million on securities.
Sustained growth in retail deposits of $110.4 million (9.3%) on a sequential quarter basis and $220.7 million (20.4%) on a year-to-date basis.
Stockholders’ equity increased $40.3 million during the quarter and $98.3 million since December 31, 2008, representing an increase of 37.6% on a year-to-date basis. Book value per common share increased to $12.04, from $10.38 at March 31, 2009 and $7.96 at December 31, 2008.
Non-interest expenses were negatively affected by approximately $2.9 million, representing the increase in the Group’s insurance expense corresponding to the industry-wide FDIC special assessment on insured depository institutions and payable on September 30, 2009.
“We had an excellent quarter as we continued to implement our plan, focusing on mid and high net worth customers, which is yielding solid results for Oriental’s banking-financial services franchise,” said José Rafael Fernández, President and Chief Executive Officer.
“We are seeing consistent improvement in the deposit base, while also reducing our cost of funds. New customers are recognizing our service offerings. Approximately 20% more clients than a year ago are utilizing their accounts for ATM, debit card, online and telephone transactions. We also are generating more fees from commercial accounts using Oriental’s new cash management and point of sale services.”
“At the same time, the significant non-interest gains we generated highlight our opportunistic approach to market developments in a challenging environment.”
Capital
At June 30, 2009, stockholders’ equity totaled $359.6 million, 19.4% and 12.6% higher than the year ago quarter and the previous quarter, respectively. Tangible common equity to risk-weighted assets was 8.86% compared to 9.69% in the previous quarter.
The Group maintains capital ratios in excess of regulatory requirements. At June 30, 2009, the Leverage Capital Ratio was 7.31% (1.83 times the minimum of 4.00%); Tier I Risk-Based Capital Ratio was 14.62% (3.66 times the minimum of 4.00%), and the Total Risk-Based Capital Ratio was 15.13% (1.89 times the minimum of 8.00%). In dollars, Leverage Capital and Tier 1 Risk-Based Capital was $477.9 million, and Total Risk-Based Capital was $494.6 million, an increase from the previous quarter of $61.0 million and $62.5 million, respectively.
The 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 it 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 $73.5 million remained strong, 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 722 and the average loan to value ratio was 81% on residential mortgage loans originated in the quarter.
The Group sells most of its conforming mortgages into the secondary market, but retains servicing rights. Mortgage banking activities on a sequential quarter basis reflect the continued high level of originations as well as its growing servicing portfolio, a source of recurring revenue.
Deposits
Growth in retail deposits during the quarter primarily reflects a $121.1 million increase in savings and demand deposits. At the same time, Oriental also reduced brokered deposits by $42.7 million
Assets Under Management
Assets under management, which generate recurring fees, increased 5.23% from March 31, 2009, to $2.85 billion. This growth, plus the Group’s participation in the underwriting of Puerto Rico’s COFINA II bond sale, resulted in the sequential increase in financial service revenues. The Group also was awarded the business of two new large trust accounts that will add approximately $75 million in assets under management.
Credit Quality
Net credit losses declined by 11.42%, to $2.1 million (0.70% of average loans outstanding), from $2.3 million (0.78%), in the previous quarter. The Group increased its provision for loan losses to $3.7 million (176% of net credit losses), from $3.2 million in the previous quarter, resulting in a $16.7 million allowance at June 30, 2009, up 10.37% from the previous quarter.
Non-performing loans (NPLs) increased $3.3 million in the quarter, a significantly lower rate than in the previous quarter. The Group’s NPLs generally reflect the economic environment in Puerto Rico. Based on historical performance, however, 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
The average balance of the investment securities portfolio was $5.00 billion, up 4.7% from the year ago quarter and up 0.38% from the previous quarter. Yield declined slightly due to higher prepayments in the first half of the quarter.
Approximately 87% 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, backed by a U.S. government sponsored entity or the full faith and credit of the U.S. government (86%), and Puerto Rico Government and agency obligations (1%). The remaining balance consists of non-agency collateralized mortgage obligations (10%), the majority of which are backed by prime fixed-rate residential mortgage collateral, and structured credit investments (3%).
Subsequent Event
Subsequent to June 30, 2009, as part of its general banking and asset and liability management strategies, the Group executed a $200 million deleverage of its balance sheet by terminating certain repurchase agreements at a cost of approximately $17.5 million (before income taxes). This transaction increases the Group's financial flexibility, creates additional liquidity, and helps to offset the Group’s income tax liability.
Non-GAAP Financial Measures
From time to time, the Group uses certain non-GAAP measures of financial performance to supplement the financial statements presented in accordance with GAAP. The Group presents non-GAAP measures when we believe that the additional information is useful and meaningful to investors. Non-GAAP measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP.
We have reported and discussed our results of operations herein both on a GAAP basis and on a pre-tax operating income basis (as defined on page 1 of this release). We believe that, given the nature of the items excluded from the definition of pre-tax operating income, it is useful to state what our results of operations would have been without them so that investors can see the financial trends from our continuing business.
Conference Call
A conference call to discuss the Group’s results, outlook and related matters will be held on Wednesday, July 22, 2009 at 10:00 am (ET). The call will be accessible live via a webcast on the Group’s Investor Relations website at www.orientalfg.com. A webcast replay will be available shortly thereafter. Access the webcast link in advance to download any necessary software.
About Oriental Financial Group
Oriental Financial Group Inc. is a diversified financial holding company operating under U.S. and Puerto Rico banking laws and regulations. Now in its 45th year in business, Oriental provides a full range of mortgage, commercial and consumer banking services through 23 Oriental Group financial centers in Puerto Rico, as well as financial planning, trust, insurance, investment brokerage and investment banking services. Investor information about Oriental can be found at www.orientalfg.com.
Forward-Looking Statements
This news release may contain forward-looking statements that reflect management's beliefs and expectations and are subject to risks and uncertainties inherent to the Group's business, including, without limitation, the effect of economic and market conditions, the level and volatility of interest rates, and other risks and considerations detailed in the Group’s filings with the Securities and Exchange Commission. These or other factors could cause actual results to differ materially from forward-looking statements. The Group also disclaims any obligations to update information contained in this news release because of developments occurring after the date of issuance.
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