José Rafael Fernández: We are on track to achieve our forecast goals
After reporting last week a net income of $37.5 million ($34.1 million available to common shareholders) or 68¢ per diluted share, for the second quarter (2Q) 2013, José Rafael Fernández, OFG Bancorp president, CEO & vice chairman described the bank's 2Q performance as "excellent" and very strong, as it was in 1Q.
The 2Q numbers compare favorably with $13.8 million, or 34¢ per share, reported in 2Q 2012, and $17.7 million, or 37¢ per share, in 1Q 2013.
Speaking during the earnings call with financial analysts following the release of 2Q results last week, Fernández outlined the number of significant accomplishments during the quarter for the bank holding company of Oriental Bank.
"We saw record levels of loan income and production, and retail and commercial deposits. We achieved important growth in deposits, despite consolidation of eight branches during the quarter. In addition, we experienced significant expansion of net interest margin, and we reported record wealth-management and banking-fee income," Fernández said. "Our client base, both commercial and retail, continues to expand and we are gaining a lot of traction with our customers for our highly service-oriented approach. All this highlights the increased market recognition of our brand."
With respect to the integration of Oriental and the former Banco Bilbao Vizcaya Argentaria- Puerto Rico business, the top Oriental executive said it continues very smoothly, with the end in sight. The integration should be completed in 3Q 2013.
"The result will be a larger, even more effective platform that will drive our future growth plans," Fernández added.
He noted there were two major items that affected results during 2Q: corporate income taxes went up significantly in Puerto Rico, from 30% to 39%, as the government instituted higher tax rates for businesses, and the bank is also subject to a new 1% tax on gross proceeds (also known as the patente nacional).
While these actions increased the bank's tax expense and provisions, it did enable Oriental to record a one-time benefit on its deferred tax asset, Fernández noted.
Partially offsetting this favorable adjustment was the bank's decision to move nearly $59 million in nonperforming residential mortgage loans to the held-for-sale portfolio.
These loans, he added, substantially represent all residential mortgage nonperforming loans (NPLs) that were originated before 2009. While the loans had very strong credit metrics, this action further reduces nominal risk exposure in the NPL category, putting Oriental in even stronger shape going forward, Fernández said.
"I am happy to report that our second-half core business indicators look very promising, with continued growth expected in all the businesses and progress toward our established goals," Fernández said. "Our businesses are on track to achieve our forecast goals despite the additional tax burden. The integration is going smoothly and on schedule. I would also like to note our balance sheet is well-positioned, should rates rise."
While the government approved the fiscal 2014 budget with higher revenue and a smaller deficit that seems to have averted the imminent threat of a ratings downgrade, Fernández said the bank has yet to fully understand the implications the new tax amendments will have on the overall credit profile of the market.