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OFG Bancorp Reports 2Q18 Results


OFG Bancorp (NYSE:OFG) reported results for the second quarter ended
June 30, 2018, reflecting the third straight quarter of continued strong
recovery following hurricanes that struck the island in September 2017.

2Q18 Summary

  • Net income available to shareholders was $16.2 million, or $0.35 per
    fully diluted share, compared to 1Q18's $13.5 million and 2Q17's $13.6
    million, equal to $0.30 per share, respectively.
  • Average loan balances of $4.3 billion increased 3.0% from the
    preceding quarter as growth of originated loans is consistently
    outpacing the anticipated runoff of acquired loans.
  • New loan production of $432.1 million grew 39.7% from 1Q18 with
    sequential increases across the board in all categories.
  • Average core deposit balances of $4.4 billion rose 1.6% from 1Q18 with
    a 6.2% increase in non-interest bearing accounts to a record high $1.1
  • Customer count grew 1% from 1Q18 and 3% year over year as our strategy
    of differentiation, delivering superior customer convenience with
    innovative technology solutions, continues to be successful.
  • Total provision for loan and lease losses of $14.7 million dropped
    4.6% from the preceding quarter as credit quality remains stable.
  • All key performance metrics improved from 1Q18 with net interest
    margin at 5.24%, return on average assets at 1.23%, return on average
    tangible common stockholders' equity at 9.20%, and the efficiency
    ratio at 54.49%.
  • Tangible book value per common share of $15.96 at June 30, 2018
    increased 6.4% annualized from March 31, 2018.

CEO Comments

José Rafael Fernández, President, Chief Executive Officer, and Vice
Chairman of the Board, commented: "On behalf of OFG's entire team, we
are extremely proud to announce yet another quarter of superior results
across all facets of our business. 2Q18 EPS is up more than 17%
sequentially and more than 16% year over year. Virtually every one of
our metrics confirms the success of our strategies, people and

"For the third quarter in a row, loan growth, new loan production, and
return on average tangible common stockholders' equity are up, while
credit quality remained stable. For two quarters in a row, customer
count, banking and financial service revenues, core retail deposits and
NIM increased, and delinquency rates fell below pre-hurricane levels.

"Our effort to differentiate Oriental through superior service and
technology is working. During 2Q18, we launched Oriental SmallBiz,
another banking first for Puerto Rico, where new and existing customers
can apply online for commercial credit. Services like these enable us to
step up our ability to reach out to customers and clients fácil,
rápido, hecho
(easy, fast, done).

"We are also encouraged as OFG continues to build solid capital, with
tangible book value per common share at $15.96, up sequentially more
than 6% on an annualized basis. All indicators are positive, positioning
us well to continue this trend for the rest of 2018.

"While Puerto Rico faces similar challenges as before, now that
insurance and federal funds are flowing, economic activity and optimism
are gaining momentum. Based on what we have seen to date, we are
confident about OFG and Oriental's ability to continue to grow, deliver
great customer experience and performance, and help Puerto Rico recover."

Income Statement Highlights

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

  • Interest Income: Increased 5.8% or $4.8 million, reflecting the
  • Originated Loans: Increased $4.4 million to $61.2 million, primarily
    due to higher balances.
  • Acquired Loans: Declined $0.6 million to $17.2 million, reflecting
    continued pay downs.
  • Investment Securities: Increased $1.0 million to $9.6 million, the
    result of higher balances and higher yield.
  • Interest Expense: Increased 13.5% or $1.2 million to $10.4
    million, due to higher borrowings and interest-bearing deposit
  • Total Provision for Loan and Lease Losses: Declined 4.6% or
    $0.7 million to $14.7 million. Provision for originated loans declined
    $2.1 million as most of the incremental commercial, consumer and auto
    charge-offs were previously reserved. This decrease more than offset
    the increase of $1.4 million for acquired loans.
  • Net Interest Margin: Increased 2 basis points to 5.24% mainly
    due to higher yield on originated commercial loans, cash balances and
    investment securities, partially offset by higher rate on borrowings.
  • Total Banking and Wealth Management Revenues: Increased $0.2
    million to $18.4 million from 1Q18's high level. Banking Services rose
    $0.7 million, primarily due to increased electronic banking activity,
    and Wealth Management increased $0.2 million, offsetting a decline in
    Mortgage Banking.
  • Total Non-Interest Expenses: Declined $0.2 million to $52.3
    million. General and administrative increased due to higher electronic
    banking activity. Occupancy increased due to lease cancellations to
    bring more of our offices into the Oriental Center building and reduce
    occupancy costs next year. Compensation declined due to seasonal
    factors during the first quarter, and credit related expenses fell.
  • Effective Tax Rate: 32.8% continued to be in line with the
    approximately 32% rate the Company estimates for the full year.

Balance Sheet Highlights

Unless otherwise noted, the following compares data at June 30, 2018
to March 31, 2018.

  • Total Loans Net: Increased 4.4% or $182.4 million to $4.32
    billion. Production highlights include:
  • Auto lending at a record $131.1 million was up 2.3% from 1Q18 and
    66.8% year over year, reflecting replacement of damaged vehicles, pent
    up demand, and the market's effort to adjust to one less auto lender.
  • Consumer lending increased 12.8% to $42.3 million as customers moved
    to replace needed items, repair homes and prepare for the 2018
    hurricane season.
  • Mortgage lending continued to come back with production up 19.4% to
    $31.8 million, but down 30.7% from the year ago quarter.
  • Commercial lending rebound with production increasing 197.3% to $127.2
    million and up 70.0% year over year, as the Company's bankers continue
    to build relationships with businesses participating in Puerto Rico's
  • The recently established OFG USA program continued to grow, adding
    $99.7 million, up 34.0% from 1Q18, in commercial and industrial
    related loan participations across an array of industries and
    geographies in the continental U.S.
  • Cash and cash equivalents: Increased 3.6% or $13.0 million to
    $378.4 million.
  • Total Investments: Increased 4.2% or $54.5 million to $1.35
    billion with the purchase of new mortgage backed securities to take
    advantage of favorable market opportunities.
  • Customer Deposits (excluding brokered): Increased $59.9 million
    to $4.42 billion, up 1.4% and 10.1% from March 31, 2018 and June 30,
    2017, respectively. Growth in demand and time deposits more than
    offset a decline in savings.
  • Total Borrowings: Increased $197.9 million to $552.3 million as
    OFG used repurchase agreement funding and FHLB advances to acquire
    investment securities.
  • Total Stockholders' Equity: Increased $11.0 million to $957.8
    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 June 30, 2018 to March 31, 2018.

Following hurricanes Irma and Maria, Oriental offered automatic payment
deferrals and 90-day extensions for most loans. Virtually all of these
moratoriums ended early 2Q18 with most credit metrics better than, or
returned to, pre-hurricanes levels.

  • Delinquency Rates: The early delinquency rate declined 13 basis
    points to 3.07% and the total delinquency rate declined 30 basis
    points to 5.95% as both metrics fell below pre-hurricanes levels.
  • Non-Performing Loan Rate: Declined 19 basis points to 3.63%,
    with the mortgage and consumer rates up and commercial and auto rates
  • Allowance for Loan and Lease Losses: Decreased 2.7% or $2.6
    million to $94.2 million, primarily reflecting the charge-off a
    commercial loan placed in non-accrual and provisioned for in 1Q18.
  • Net Charge-Off Rate: Increased 47 basis points to 1.81%, with a
    116 bps increase in auto and smaller increases in consumer, commercial
    and mortgage lending, as hurricane related charge-offs were taken.

Capital Position

Capital for the quarter ended June 30, 2018 was significantly above
regulatory requirements for a well-capitalized institution, with
Tangible Common Equity Ratio at 10.95%, Tangible Book Value per common
share at $15.96, Common Equity Tier 1 Capital Ratio at 14.14%, and Total
Risk-Based Capital Ratio at 19.67%.

Conference Call

A conference call to discuss OFG's results for 2Q18, outlook and related
matters will be held today, Friday, July 20, 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
ended June 30, 2018, 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, 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

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