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OFG Bancorp Reports 1Q18 Results

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OFG Bancorp (NYSE:OFG) today reported results for the first quarter
ended March 31, 2018, reflecting continued strong recovery following
hurricanes Irma and Maria, which struck the island in September 2017.

1Q18 Summary

  • Net income available to shareholders was $13.5 million, or $0.29 per
    fully diluted share. This was in line with 4Q17's $13.6 million, or
    $0.30 per share, and exceeded the year ago quarter's $11.7 million, or
    $0.26 per share.
  • Return on average assets and average tangible common equity was 1.09%
    and 7.73%, respectively.
  • Tangible book value per common share was $15.71, and tangible common
    equity ratio was 11.22%.
  • Loan production of $309.4 million increased 22.0% from 4Q17 and 41.4%
    from the year ago quarter.
  • Total provision for loan and lease losses, net, declined 37.9% from
    4Q17, which included $5.4 million in additional hurricanes-related
    provision.
  • Core non-interest income of $18.2 million increased 9.0% from 4Q17 and
    4.7% from the year ago quarter as banking service fees and mortgage
    banking revenues rebounded.

CEO Comment

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

"Our first quarter results reflect the success of our strategies and
Puerto Rico's emerging recovery. We earned $0.29 per share fully
diluted, 12% higher than a year ago. Our strong capital position
continued to build.

"The island benefited from loan payment moratoriums by Oriental and
other banks, an increased availability of electric power, improvement in
communications, and the return of day to day stability, as well as
rebuild spending by FEMA, the start of payments of insurance claims, and
the prospect of growing assignments of federal funds.

"Nearly every metric in 1Q18 confirmed this progress. For the second
quarter in a row, our originated loan growth outpaced the pay down of
acquired loans, resulting in a net increase of $77.1 million from
December 31, 2017—close to 8% on an annualized basis.

"Auto, consumer and mortgage lending at $192.3 million increased 52%
from 4Q17 and more than 11% from 1Q17. In particular, auto lending was
at a record level, up more than 46% from the preceding and year ago
quarters.

"Commercial loan production in Puerto Rico, while lower than 4Q17, rose
more than 13% year over year. Meanwhile, our U.S. commercial and
industrial loan program added $74 million in participations.

"With nearly all of our loan moratoriums expiring, 1Q18 credit quality
remained stable. Most metrics were better than, or returned to,
pre-hurricanes levels.

"Fee revenues rebounded with a 24% sequential increase in Banking
Services and a 43% increase in Mortgage Banking. Core Wealth Management
held steady at pre-hurricanes levels.

"Customer deposits (excluding brokered) increased 2% from the end of
2017 and 5% from a year ago. Our Net Interest Margin expanded to 5.22%,
and net new customer accounts grew at an annualized rate of 8%,
significantly exceeding 2017's hurricanes affected 2% rise.

"Our effort to differentiate Oriental through superior service and
digital banking technology is proving effective. Our team of dedicated
bankers continually reaching out to our customers and clients is clearly
working. And during 1Q18, we introduced another new technology-based
service—My Payments (Mis Pagos), which enables loan-only
customers to pay online instead of standing in line.

"While we remain cautious due to the uncertain economic environment on
the island, we are confident positive momentum will prevail for both OFG
and Puerto Rico. We will continue to sharpen our focus on our retail and
commercial clients, improve our service levels, and provide faster and
more agile ways to do banking."

Income Statement Highlights

Unless otherwise noted, the following compares data for the first
quarter 2018 to the fourth quarter 2017.

  • Interest Income
    • Originated Loans: Increased $0.6 million to $56.8 million,
      primarily due to higher balances.
    • Acquired Loans: Declined $1.1 million to $17.8 million, reflecting
      continued pay downs.
    • Investment Securities: Increased $0.5 million to $8.6 million, the
      result of higher balances and higher yield.
  • Interest Expense: Declined $0.5 million to $9.2 million,
    primarily due to reduced cost of deposits.
  • Total Provision for Loan and Lease Losses: Declined $9.4
    million to $15.5 million. 1Q18 provision included $8.6 million to
    replenish the allowance for retail loan charge-offs of $8.2 million
    related to the hurricanes. 1Q18 provision also included an increase in
    the allowance related to auto loan portfolio growth and one commercial
    loan placed in non-accrual.
  • Net Interest Margin: Increased 14 basis points to 5.22% mainly
    due to higher yield in the investment portfolio and cash balances.
  • Total Banking and Wealth Management Revenues: Increased $1.5
    million to $18.2 million.
    • Banking Service Revenues rose $2.0 million, largely the result of
      increased electronic banking activity with more power coming back
      on the island.
    • Mortgage Banking Activities were up $0.5 million, primarily due to
      increased business.
    • Wealth Management Revenues fell $1.0 million, reflecting the
      absence of annual insurance fees recognized in 4Q17.
  • Total Non-Interest Expenses: Increased $5.5 million to $52.1
    million. 4Q17 included $3.8 million in items that temporarily lowered
    costs, including reduced expenses related to electronic banking
    activity. 1Q18 reflected higher seasonal compensation expenses and
    expenses related to the sale of foreclosed assets returning to
    pre-hurricanes levels.
  • Effective Tax Rate (ETR): Approximately 32%, the rate the
    Company is currently estimating for the full year.

Balance Sheet Highlights

Unless otherwise noted, the following compares data at March 31, 2018
to December 31, 2017.

  • Total Loans Net: Increased $77.1 million to $4.13 billion with
    originated loan growth more than offsetting normal pay downs of
    acquired loans. Production highlights include:
    • Auto lending at a record $128.1 million was up 46.3% from 4Q17 and
      47.6% year over year, reflecting replacement of damaged vehicles,
      pent up demand, and the market's effort to adjust to one less auto
      lending competitor.
    • Consumer lending increased 62.6% to $37.5 million, exceeding
      pre-hurricanes levels, as retail customers moved to replace needed
      items and repair homes.
    • Mortgage lending rebounded 67.7% to $26.6 million from 4Q17's low,
      post-hurricanes level, but was down 38.7% from the year ago
      quarter.
    • Commercial lending at $42.8 million declined from 4Q17's robust
      levels, but was up 13.5% from 1Q17. The Company's bankers continue
      building relationships with businesses participating in Puerto
      Rico's recovery.
    • The recently established OFG USA program added $74.4 million in
      commercial and industrial related loan participations across an
      array of industries and geographies in the continental U.S.
  • Cash and cash equivalents: Declined $122.8 million to $365.4
    million as cash was used to fund new loan growth and reduce higher
    cost borrowings.
  • Total Investments: Increased $132.5 million to $1.30 billion
    with the purchase of new mortgage backed securities to take advantage
    of favorable market opportunities.
  • Customer Deposits (excluding brokered deposits): Increased
    $77.9 million to $4.36 billion, up 1.8% and 5.2% from December 31,
    2017 and March 31, 2017, respectively. Growth in demand and savings
    accounts more than offset a decline in time deposits.
  • Total Borrowings: Increased $25.6 million to $354.3 million as
    OFG used repurchase agreement funding to acquire investment
    securities. The Company also paid down higher cost FHLB advances.
  • Total Stockholders' Equity: Increased $1.7 million to $946.8
    million, with increases in retained earnings and legal surplus more
    than offsetting the increase of accumulated other comprehensive loss
    due to the effect of higher prevailing market interest rates.

Credit Quality Highlights

Unless otherwise noted, the following compares data on the originated
loan portfolio at March 31, 2018 to December 31, 2017.

Following hurricanes Irma and Maria, Oriental offered automatic payment
deferrals and 90-day extensions for most loan categories. Most of these
payment moratoriums ended in 1Q18 with most credit metrics better than,
or returned to, pre-hurricanes levels.

  • Net Charge-Off Rate: Remained virtually level at 1.34%.
    Consumer loan charge-offs returned to pre-hurricanes levels, while
    other loan categories remained flat or declined.
  • Early Delinquency Rate: Increased 138 basis points to 3.20% and
    Total Delinquency Rate rose 164 basis points to 6.25% as both metrics
    returned to pre-hurricanes levels.
  • Non-Performing Loan Rate: Increased 51 basis points to 3.82%.
    The commercial loan rate increased 79 bps due to a $10.5 million loan
    that is current in its monthly payments, but was placed in non-accrual
    due to credit deterioration. The auto loan rate increased 94 bps due
    to 1Q18 moratorium expirations.
  • Allowance for Loan and Lease Losses: Increased $4.1 million to
    $96.8 million, due to higher loan balances, particularly in auto
    lending, and the above mentioned commercial loan placed in non-accrual
    status.

Capital Position

Unless otherwise noted, the following compares data at March 31, 2018
to December 31, 2017.

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

     

Metric

 

1Q18

 

QoQ Change

 

YoY Change

Tangible Common Equity Ratio

  11.22%   -7 bps   +56 bps

Tangible Book Value per Common Share

  $15.71   +0.3%   +2.5%

Common Equity Tier 1 Capital Ratio (using Basel III methodology)

  14.62%   +3 bps   +32 bps

Total Risk-Based Capital Ratio

  20.31%   -3 bps   +26 bps
 

Conference Call

A conference call to discuss OFG's results for 1Q18, outlook and related
matters will be held today, Friday, April 20, 2018, at 10:00 AM Eastern
Time. The call will be accessible live via a webcast on OFG's Investor
Relations website at www.ofgbancorp.com.
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
ended March 31, 2018, can be found on the Webcasts, Presentations &
Other Files page, on OFG's Investor Relations website at www.ofgbancorp.com.

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, 2017, 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. Investor information can be found at www.ofgbancorp.com.

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