Monday, February 24, 2014

Oriental reacts swiftly to Standard & Poor's credit rating decision

OFG Bancorp responded quickly regarding Standard & Poor’s action involving its credit rating. In a statement to investors, OFG (parent company of Oriental Bank) said it had "stellar" financial results in the past year and that is anticipates a similar performance for 2014 and 2015. OFG attributed S&P's action to the state of Puerto Rico's economy and the government's fiscal deficit.

The following is the complete text of OFG's statement:

OFG has just reported a stellar year in terms of our financial results. We anticipate that 2014 and 2015 will show similar continued operating performances. S&P’s action relates chiefly to the possible impact of the Puerto Rico economy and the Commonwealth’s fiscal deficit. These challenges are not new to us. We have been operating in mostly recessionary conditions since 2006 in a very prudent and disciplined manner.

As a result, we have clearly differentiated ourselves through impressive growth in tangible book value compared to the most profitable small-mid cap publicly traded banks during and after the financial crisis; avoided the need for TARP assistance and/or any recapitalizations; and gained regulatory approval for two acquisitions that have transformed our Company.

We did this by being mindful of current and likely economic conditions, and we will continue to adhere to the same high standards that have characterized our activities and served us well. With this disciplined approach, we have built a strong franchise. To illustrate:
  • Our capital levels are strong at close to $900 million and we have considerable liquidity with more than $760 million of cash on hand.
  • More than half of our loans have been acquired in recent acquisitions and are covered by loss share agreements and/or carry credit marks.
  • Our Puerto Rico government related loans and securities are short term with well-defined specific payment sources, or well-collateralized, and have a total valuation allowance of approximately 3.21%.
  • We have significant opportunities through internal levers to reduce our costs of funds and operating expenses, while increasing non-interest fee revenue through cross selling.
  • A rising rate scenario would improve our net interest income by 2.5-3.5%, depending on the magnitude.
  • We have $680.5 million in accretable yield from covered and non-covered acquired loans to bring into the income statement over the next several years. Moreover, the performance of acquired loans has been improving.
  • In 2013, we had $69.3 million in non-cash expense from FDIC indemnification asset amortization. This ends in the second quarter of 2015 and will result in a significant increase in GAAP earnings.


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