Market Overview

I think you’ll love what you hear,
what you’ll see and the opportunities
that will be set before you.
- Jon Najarian

OFG Bancorp Reports 4Q17 & 2017 Results


OFG Bancorp (NYSE:OFG) today reported results for the fourth quarter
and year ended December 31, 2017. 4Q17 results reflected a strong
recovery following hurricanes Irma and Maria, which struck the island in
September 2017.

4Q17 Summary

  • Net income available to shareholders increased to $13.6 million, or
    $0.30 per share fully diluted, from a net loss of $146 thousand, or
    $0.00 per share, in 3Q17. OFG reported net income of $12.1 million, or
    $0.27 per share fully diluted, in 4Q16.
  • Return on average assets and average tangible common equity was 1.10%
    and 7.92%, respectively. Tangible book value per common share was
    $15.67, and the tangible common equity ratio was 11.29%.
  • 4Q17 results included $5.4 million in loan loss provision, pre-tax,
    based on new data available on the potential impact of the hurricanes.
    Excluding that additional provision, 4Q17 adjusted net income
    available to shareholders totaled $16.9 million, or $0.37 per share
    fully diluted.

2017 Summary

  • Net income available to shareholders was $38.8 million, or $0.86 per
    share fully diluted, compared to $45.3 million, or $1.03 per share, in
  • 2017 results included a $32.4 million loan loss provision, pre-tax,
    related to the hurricanes. Excluding that special provision, full year
    adjusted net income available to shareholders totaled $61.0 million,
    or $1.34 per share fully diluted.

CEO Comment

José Rafael Fernández, President, Chief Executive Officer, and Vice
Chairman of the Board, commented:

"OFG's fourth quarter results were strong considering the impact of the
hurricanes, the slow restoration of electricity, and the resultant
uncertainties. EPS before an additional $5.4 million provision for
potential hurricane losses was $0.37.

"We are encouraged with how our commercial clients and retail customers
have responded. Total net loans increased more than $90 million from
3Q17. December-ended loan payment moratoriums are showing encouraging
trends in all portfolios.

"New loan generation increased more than 32% from 3Q17, rivaling our
best quarter of the year. All our one-on-one outreach with commercial
clients following the hurricanes is building a strong pipeline for new
loan business.

"Auto loan production had one of its best quarters. During December,
consumer lending returned to approximately 70% of pre-hurricanes
production. Mortgage loans demand, however, was understandably down as
residential sales slowed.

"At December 31, customer deposits were up $267 million from June 30.
Non-interest bearing deposits reached close to $1 billion. During
December, average monthly net new customer acquisition returned to
pre-hurricanes levels, and bank service revenues began to recover with
more retail point of sale terminals back on line. Thus far, we haven't
seen any signs that outmigration is affecting our customer base.

"4Q17 results are a testament to our successful effort in restoring
operations quickly after the hurricanes. Our clientele and the
communities we serve clearly appreciated our efforts as we are starting
to see momentum build despite a very challenging environment.

"Puerto Rico is not out of the woods yet, and the island has a long
reconstruction road ahead. However, with the expected benefit from an
influx of substantial funds from the federal government as well as from
insurance recoveries over the next two years, the short-term outlook is

Income Statement Highlights

Unless otherwise noted, the following compares data for the fourth
quarter 2017 to the third quarter 2017.

  • Interest Income
    • Originated Loans: $56.2 million compared to $58.9 million. 3Q17
      included $4.1 million from the pay-off before maturity of a
      commercial loan previously classified as non-accrual. Excluding
      that item, 4Q17 interest income from Originated Loans increased
      $1.3 million due to higher balances.
    • Acquired Loans: $18.9 million compared to $23.5 million. 3Q17
      included $3.1 million in cost recoveries from the Puerto Rico
      Housing Finance Authority (PRHFA) canceling a loan. Excluding that
      item, 4Q17 interest income from Acquired Loans declined $1.5
      million, reflecting continued pay downs.
  • Interest Expense declined $0.2 million to $9.7 million due to
    reduced borrowings.
  • Total Provision for Loan and Lease Losses declined $19.1
    million to $24.9 million. Provision, excluding additional hurricanes
    related provisions of $5.4 million and $27.0 million in 4Q17 and 3Q17,
    respectively, was $19.5 million compared to $17.0 million due to the
    increase in the Originated Loans portfolio.
  • Net Interest Margin was 5.08% compared to 5.64%. 3Q17
    benefitted from the previously mentioned pay-off of an originated
    commercial loan as well as cost recoveries. Compared to the year ago
    quarter, 4Q17 NIM increased 14 basis points.
  • Total Banking and Wealth Management Revenues declined $0.5
    million to $16.7 million.
    • Banking service revenues declined $1.5 million. This reflected
      lower banking fee income from reduced activity related to business
      interruptions due to lack of electricity. 3Q17 benefitted from
      $0.4 million in prepayment penalties from the previously mentioned
      loan pay-off before maturity.
    • Wealth Management revenues increased $1.0 million, primarily due
      to recognition of annual insurance fees.
    • Mortgage banking revenues remained approximately level at $1.2
  • Total Non-Interest Expenses declined $3.8 million to $46.7
    million, reflecting: (1) settlement of outstanding claims at amounts
    below those previously reserved ($1.4 million); (2) lower expenses on
    foreclosed real estate ($1.3 million); and (3) lower electronic
    banking expenses due to reduced activity ($1.0 million).
  • Effective Tax Rate (ETR) was 8.99% due to final year-end tax
    accounting. For the year, the ETR was 23.73% due to (1) higher
    proportion than anticipated of exempt income and income subject to
    preferential rates; and (2) expiration of a $0.7 million tax

Balance Sheet Highlights

Unless otherwise noted, the following compares data at December 31,
2017 to September 30, 2017.

  • Total Loans Net increased $91.8 million to $4.06 billion with
    the rebound in production, partially offset by normal pay downs of
    Acquired Loans. New loan generation increased 32.9% to $253.7 million:
    • Commercial lending increased 121.1% to $102.1 million as our
      bankers developed relationships with businesses participating in
      Puerto Rico's recovery. The quarter also benefited from finalizing
      loans unable to close in 3Q17 due to the hurricanes.
    • The new OFG USA program added $25.1 million in commercial and
      industrial related loan participations. The entity began
      operations in October 2017 with a capital contribution of $50.0
    • Auto lending increased 11.8% to $87.6 million, its best quarter in
      2017, reflecting demand to replace damaged vehicles, pent up
      demand, and attractive retail pricing on new and used cars.
    • While consumer lending declined 31.7% to $23.1 million, there was
      an increasing trend in the monthly production. Mortgage lending
      declined 51.2% to $15.9 million as housing sales had yet to
  • Total Investments increased $8.1 million to $1.17 billion,
    reflecting purchases of new mortgage backed securities to replace pay
    downs of existing ones.
  • Cash and cash equivalents declined $235.5 million to $488.2
    million, mainly due to the unwinding of an $80.0 million repurchase
    agreement and the increase in interest earning assets.
  • Customer Deposits (excluding brokered deposits) were
    approximately level at $4.28 billion as deposit growth offset almost
    all of the temporary influx of insurance company deposits at the end
    of 3Q17. Average non-interest bearing deposits increased $102.1
    million, to $937.3 million.
  • Total Borrowings declined $90.5 million to $328.7 million,
    primarily due to the unwinding of an $80.0 million repurchase
    agreement. Due to deposit growth, higher cost borrowings have been
    reduced by 58.7% or $466.6 million year over year.
  • Total Stockholders' Equity increased $7.5 million to $945.1
    million, reflecting the increase in retained earnings.

Credit Quality Highlights

Unless otherwise noted, the following compares data on the originated
loan portfolio at December 31, 2017 to September 30, 2017.

After Irma, Oriental was the only bank to offer fee waivers for late
payments, recognizing the difficulties people faced in Puerto Rico.
Following Maria, the bank continued to offer automatic payment deferrals
and 90-day extensions for most loan categories.

  • Net Charge-Off Rate declined 19 basis points to 1.35% due to
    lower charge-offs in the consumer loan portfolio as a result of the
    loan payment moratorium.
  • Early Delinquency Rate declined 197 basis points to 1.82% and
    Total Delinquency Rate declined 223 basis points to 4.61% due to the
    automatic moratorium on most retail loans and some commercial loans.
  • Non-Performing Loan Rate increased 21 basis points to 3.31%.
    This primarily reflected commercial loans current in their monthly
    payments being placed in non-accrual due to deterioration of their
    financial statements.
  • Allowance for Loan and Lease Losses for the originated
    portfolio increased $5.2 million to $92.7 million, primarily due to
    higher loan balances.

Capital Position

Unless otherwise noted, the following compares data at December 31,
2017 to September 30, 2017.

Capital continued to grow and remains significantly above regulatory
requirements for a well-capitalized institution.

Metric       4Q17   QoQ Change   YoY Change
Tangible Common Equity Ratio       11.29%   +31 bps   +96 bps
Tangible Book Value per Common Share       $15.67   +1.2%   +3.9%
Common Equity Tier 1 Capital Ratio (using Basel III methodology)       14.59%   -30 bps   +54 bps
Total Risk-Based Capital Ratio       20.34%   -48 bps   +72 bps

Conference Call

A conference call to discuss OFG's results for 4Q17, outlook and related
matters will be held today, Tuesday, January 30, 2018, at 10:00 AM
Eastern Time. The call will be accessible live via a webcast on OFG's
Investor Relations website at
A webcast replay will be available shortly thereafter. Access the
webcast link in advance to download any necessary software.

Financial Supplement

OFG's Financial Supplement, with full financial tables for the quarter
and year ended December 31, 2017, can be found on the Webcasts,
Presentations & Other Files page, on OFG's Investor Relations website at

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with
GAAP, management uses certain "non-GAAP financial measures" within the
meaning of the SEC Regulation G, to clarify and enhance understanding of
past performance and prospects for the future. See Tables 9-1 and 9-2 in
OFG's above-mentioned Financial Supplement for reconciliation of GAAP to
non-GAAP Measures and Calculations.

Forward Looking Statements

The information included in this document contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on
management's current expectations and involve certain risks and
uncertainties that may cause actual results to differ materially from
those expressed in the forward-looking statements.

Factors that might cause such a difference include, but are not limited
to (i) the rate of growth in the economy and employment levels, as well
as general business and economic conditions; (ii) changes in interest
rates, as well as the magnitude of such changes; (iii) the credit
default by the government of Puerto Rico; (iv) amendments to the fiscal
plan approved by the Financial Oversight and Management Board of Puerto
Rico; (v) determinations in the court-supervised debt-restructuring
process under Title III of PROMESA for the Puerto Rico government and
all of its agencies, including some of its public corporations; (vi) the
impact of property, credit and other losses in Puerto Rico as a result
of hurricanes Irma and Maria; (vii) the amount of government, private
and philanthropic financial assistance for the reconstruction of Puerto
Rico's critical infrastructure, which suffered catastrophic damages
caused by hurricane Maria; (viii) the pace and magnitude of Puerto
Rico's economic recovery; (ix) the potential impact of damages from
future hurricanes and natural disasters in Puerto Rico; (x) the fiscal
and monetary policies of the federal government and its agencies; (xi)
changes in federal bank regulatory and supervisory policies, including
required levels of capital; (xii) the relative strength or weakness of
the commercial and consumer credit sectors and the real estate market in
Puerto Rico; (xiii) the performance of the stock and bond markets; (xiv)
competition in the financial services industry; and (xv) possible
legislative, tax or regulatory changes.

For a discussion of such factors and certain risks and uncertainties to
which OFG is subject, see OFG's annual report on Form 10-K for the year
ended December 31, 2016, as well as its other filings with the U.S.
Securities and Exchange Commission. Other than to the extent required by
applicable law, including the requirements of applicable securities
laws, OFG assumes no obligation to update any forward-looking statements
to reflect occurrences or unanticipated events or circumstances after
the date of such statements.

About OFG Bancorp

Now in its 54th year in business, OFG Bancorp is a
diversified financial holding company that operates under U.S. and
Puerto Rico banking laws and regulations. Its three principal
subsidiaries, Oriental Bank, Oriental Financial Services and Oriental
Insurance, provide a wide range of retail and commercial banking,
lending and wealth management products, services and technology,
primarily in Puerto Rico, through 48 financial centers. Investor
information can be found at

View Comments and Join the Discussion!