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OFG Bancorp Reports 3Q18 Results


OFG Bancorp (NYSE:OFG) reported results for the third quarter ended
September 30, 2018.

Net income available to shareholders was $19.6 million or $0.42 per
fully diluted share, compared to 2Q18's $16.2 million or $0.35 per fully
diluted share and breakeven results in the year ago third quarter due to
a special hurricanes related loan loss provision.

"EPS growth reflects another quarter of strong, consistent core growth
based on the success of our strategy of differentiation – providing
superior customer service, convenience and technology – coupled with
Puerto Rico's continued rebound following hurricanes that struck in
September 2017," said José Rafael Fernández, President, Chief Executive
Officer, and Vice Chairman of the Board.


  • All key performance metrics improved, including net interest margin at
    5.38%, return on average assets at 1.42%, return on average tangible
    common stockholders' equity at 10.94%, and efficiency ratio at 50.58%.
  • Increased profitability was driven by new loan production of $354
    million, higher average loan yields of 7.55%, annualized increase in
    average loan balances of 9.7%; and lower non-interest expenses.
  • Core deposit balances of $4.56 billion rose 3.2% from 2Q18 as customer
    count grew 1.2% sequentially and 4.0% year over year.
  • Tangible book value per common share of $16.23 at September 30, 2018
    increased 6.8% annualized from June 30, 2018.
  • Regulatory capital is expected to benefit by $84.0 million as a result
    of the announcement in 3Q18 of the mandatory conversion effective
    Monday, October 22nd, of the Series C 8.750% Non-Cumulative
    Convertible Perpetual Preferred Stock.

Conference Call

A conference call to discuss OFG's 3Q18 results, outlook and related
matters will be held today at 10:00 AM Eastern Time. The call can be
accessed live by dialing (888) 459-5609 or (973) 321-1024. Use
conference ID 758-9354. The call can also be accessed live on OFG's
website at
Access the webcast link in advance to download any necessary software. A
replay of the webcast will be available shortly thereafter.

CEO Comments

Mr. Fernández stated: "On behalf of OFG's entire team, we are extremely
proud to report another quarter of superior core growth across all
facets of our business.

"3Q18 EPS is up more than 20% sequentially and significantly better year
over year. All financial metrics continued to build strong momentum
going forward.

"Key to our success has been the effectiveness of strategies we have
been working on for years. This has enabled us to get closer to our
commercial and retail customers through value-added service, increased
convenience and highly efficient technology.

"With customer count up 4% year over year in the third quarter, we are
achieving growth in part through increased customer adoption of
automated and interactive teller machines, and online and mobile

"Until now, economic activity has been driven primarily by businesses
and consumers rebuilding. We believe businesses are starting to gain new
confidence to invest and expand going forward. We are excited about our
prospects for continued growth."

Income Statement

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

  • Interest Income: Increased 7.0% to $94.1 million, reflecting
    the following:
    • From Originated Loans: Increased $5.7 million to $66.8 million,
      primarily due to higher average balances and higher yields.
    • From Acquired Loans: Declined $0.1 million to $17.2 million,
      resulting from continued pay downs, mostly offset by cost
    • From Investment Securities: Increased $0.5 million to $10.1
      million, primarily due to higher average cash balances and higher
  • Interest Expense: Increased 13.8% or $1.4 million to $11.9
    million, due to higher average balances of deposits and borrowings,
    and higher rates.
  • Total Provision for Loan and Lease Losses: Decreased 1.0% or
    $0.1 million to $14.6 million. Provision for originated loans
    increased $0.6 million due to growth of the portfolio while provision
    for acquired loans declined.
  • Net Interest Margin: Increased 14 basis points to 5.38%.
    Excluding cost recoveries, NIM increased 6 basis points mainly due to
    higher yield on originated commercial loans, cash balances and
    investment securities, reflecting the general effect of Federal
    Reserve Board rate hikes and higher proportion of high yield
    commercial and auto portfolios.
  • Total Banking and Wealth Management Revenues: Remained at a
    high level of $18.4 million as increases in Mortgage Banking and
    Wealth Management more than offset a slight decline in Banking
  • Total Non-Interest Expenses: Declined $1.4 million to $50.9
    million primarily reflecting the absence of lease cancellation
    expenses in 2Q18 as part of an effort to bring more of our offices
    into Oriental Center and reduce occupancy costs next year.
  • Effective Tax Rate: With its 3Q18 results, OFG now expects its
    estimated annual effective tax rate to be about 33.7% due to the
    higher proportion of profit generated by taxable loans.

Balance Sheet

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

  • Total Loans Net: Increased 0.9% or $37.1 million to $4.35
    billion as originated loans increased $97.4 million and acquired loans
    declined $59.1 million.
  • New Loan Production: While lower than the recent high of $432.1
    million in 2Q18, production remained strong at $354.0 million due to:
    • Record auto lending of $140.4 million, up 7.1% from 2Q18,
      reflecting continued pent up demand and the market's adjustment to
      one less competitor in auto lending.
    • High levels of commercial lending at $105.3 million, consumer
      lending at $43.0 million, and residential mortgage lending at
      $27.9 million as businesses and retail customers began to embrace
      market opportunities in the aftermath of the reconstruction and
      recovery from last year's hurricane.
    • The recently established OFG USA program added $37.4 million,
      reflecting seasonally lower deal flow compared to 2Q18.
  • Cash and Cash Equivalents: Increased 44.5% or $168.4 million to
    $546.8 million, reflecting the increase in deposits.
  • Total Investments: Declined 3.5% or $47.0 million to $1.31
    billion. OFG retained a lower amount of originated mortgages as
    Mortgage Backed Securities.
  • Customer Deposits (excluding brokered): Increased $139.3
    million to $4.56 billion, up 3.2% and 6.2% from June 30, 2018 and
    September 30, 2017, respectively. Average non-interest bearing
    accounts remained approximately level at $1.08 billion compared to
    June 30, 2018.
  • Total Borrowings: Declined $64.2 million to $488.0 million as
    OFG paid down FHLB advances.
  • Total Stockholders' Equity: Increased $12.1 million to a recent
    high of $969.9 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

Unless otherwise noted, the following compares data on the originated
loan portfolio at September 30, 2018 to June 30, 2018.

  • Delinquency Rates: The early delinquency rate increased 25
    basis points to 3.32% and the total delinquency rate increased 24
    basis points to 6.19% in line with pre-hurricanes levels.
  • Non-Performing Loan Rate: Declined 18 basis points to 3.45%,
    primarily reflecting a decline in the commercial rate.
  • Allowance for Loan and Lease Losses: Increased 1.1% or $1.0
    million to $95.2 million, primarily reflecting the growth of
    originated loans.
  • Net Charge-Off Rate: Decreased 42 basis points to 1.39%
    primarily due to a 199 basis points decline in auto lending compared
    to 2Q18 when most of the remaining hurricane related charge-offs were

Capital Position

Capital for the quarter ended September 30, 2018 continued to be
significantly above regulatory requirements for a well-capitalized
institution, with Tangible Common Equity Ratio at 10.88%, Tangible Book
Value per common share at $16.23, Common Equity Tier 1 Capital Ratio at
14.38%, and Total Risk-Based Capital Ratio at 19.84%.

Financial Supplement

OFG's Financial Supplement, with full financial tables for the quarter
ended September 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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