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OFG Bancorp Reports 4Q18 & 2018 Results

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OFG Bancorp (NYSE:OFG) reported results for the fourth quarter and year
ended December 31, 2018.

4Q18 Summary

  • Net income available to shareholders of $23.1 million or $0.45 per
    fully diluted share compared to 3Q18's $19.6 million or $0.42 per
    share and 4Q17's $13.6 million or $0.30 per share.
  • Originated loan growth of 3.0% from the preceding quarter to $3.66
    billion, with new loan production of $323.0 million, continuing to
    exceed $300 million for the fourth consecutive quarter.
  • Strong performance metrics, with net interest margin of 5.26%, return
    on average assets of 1.50%, return on average tangible common
    stockholders' equity of 11.67%, and efficiency ratio of 51.06%.
  • Record total stockholders' equity of approximately $1 billion, with
    book value per common share of $17.90, tangible book value per common
    share of $16.15, and capital metrics at multi-year highs.
  • Common equity increased $84.0 million and preferred dividend payments
    dropped 53.0% from the preceding quarter with the conversion into
    common stock of the Series C 8.750% Non-Cumulative Convertible
    Perpetual Preferred Stock.
  • 16.7% increase in the regular quarterly cash dividend per common share
    to $0.07, resulting in an annualized rate of $0.28 per share.

2018 Summary

Net income available to shareholders of $72.4 million or $1.52 per fully
diluted share compared to 2017's $38.8 million or $0.88 per share. 2017
included a $32.4 million pre-tax loan loss provision related to the
hurricanes.

CEO Comment

"OFG achieved strong core growth in 4Q18 and 2018 based on the continued
success of our strategy of differentiation – providing superior customer
service, convenience and technology – coupled with Puerto Rico's
emerging economic rebound," said José Rafael Fernández, President, Chief
Executive Officer, and Vice Chairman of the Board.

"Our plan is working. For the year as a whole, we generated impressive
results across the board, with originated loans up 17.3%, average
deposits up 6.4%, customer count up 4.6%, and stockholders' equity up
5.8%, as well as achieving improved credit quality, converting our
Series C preferred, and increasing our quarterly dividend.

"Thanks go to our entire OFG team for their commitment and dedication
and to all our retail and commercial customers for their support and
loyalty. We plan to continue to focus on our growth strategies in 2019,
capitalizing on our momentum, continuing to make our services better – fácil,
rápido, hecho
(easy, fast, done) – and developing fresh ways to
employ digital technology to the benefit of customers."

Conference Call

A conference call to discuss OFG's 4Q18 results, outlook and related
matters will be held today at 10:00 AM Eastern Time. The call can be
accessed live by dialing (888) 562-3356 or (973) 582-2700. Use
conference ID 378-7416. The call can also be accessed live on OFG's
website at www.ofgbancorp.com.
Access the webcast link in advance to download any necessary software. A
webcast replay will be available shortly thereafter.

Income Statement

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

  • Interest Income: Increased 1.0% or $1.0 million to $95.1
    million. Originated Loans increased $2.4 million due to higher average
    balances and a 7 basis point yield increase. Acquired Loans declined
    $2.1 million due to pay downs and $1.2 million in lower cost
    recoveries. Investment Securities increased $0.7 million due to higher
    average balances and yields on cash and cash equivalents.
  • Interest Expense: Increased 10.2% or $1.2 million to $13.1
    million, reflecting higher average deposit and borrowing balances and
    rates. The rate on customer deposits increased only 4 basis points.
  • Total Provision for Loan and Lease Losses: Decreased 22.6% or
    $3.3 million to $11.3 million. Provision for originated loans declined
    $2.6 million. This reflected $1.8 million cash recovery on the sale of
    previously charged-off loans and reduced need for provisioning on the
    existing portfolio. Provision for acquired loans declined $0.7 million
    due to improved performance in the former BBVA PR portfolio.
  • Net Interest Margin: Excluding cost recoveries, core NIM was
    5.21% compared to 5.25%. OFG's continued high NIM reflected higher
    yield on originated commercial loans and cash balances due to the
    effect of the September Federal Reserve Board rate hike. It also
    reflected higher proportion of higher yielding commercial and auto
    loans in the originated portfolio.
  • Total Banking and Wealth Management Revenues: Increased 4.4% or
    $0.8 million to $19.3 million. Banking service revenues increased $0.4
    million due to higher transaction volume from continued strength of
    the local economy and year-end holiday shopping. Wealth Management
    increased $0.8 million due to $1.3 million from the receipt of
    seasonal insurance commissions, partially offset by lower
    broker-dealer commissions. Mortgage banking declined $0.4 million due
    to lower MSR valuation.
  • Other Non-Interest Income: Totaled $5.0 million due to a cash
    payment from OFG's insurance company covering Hurricane Maria's impact
    on operations.
  • Total Non-Interest Expenses: Increased 1.5% or $0.8 million to
    $51.7 million. This reflected a variety of items, such as one
    additional payroll date and year-end accrual for performance related
    compensation, lower appraisal of foreclosed real estate, lower rent
    and occupancy costs, and the absence of municipal tax payments made in
    3Q18.
  • Effective Tax Rate: 4Q18 included a non-cash expense of $4.1
    million reflecting the net impact of changes required as a consequence
    of the new Puerto Rico tax reform legislation. The tax reform reduces
    the corporate tax rate by 1.5% in 2019 which necessitated a Deferred
    Tax Asset write-down. Due to other provisions in the tax reform OFG
    does not expect significant changes on its 2019 ETR. The 2018 ETR was
    33.6%.

Balance Sheet

Unless otherwise noted, the following compares data at December 31,
2018 to September 30, 2018.

  • Total Loans Net: Increased 1.8% or $78.6 million to $4.43
    billion. Originated loans increased 3.0% or $107.7 million. Acquired
    loans declined $30.5 million. New loan production totaled $323.0
    million, with auto lending at $123.8 million, commercial lending at
    $92.1 million, consumer lending at $42.1 million, residential mortgage
    lending at $33.4 million, and OFG USA loan participations at $31.7
    million.
  • Total Investments: Declined 2.0% or $26.5 million to $1.28
    billion due to repayments of mortgage backed securities.
  • Cash and Cash Equivalents: Average balances increased 33.7% or
    $109.6 million to $434.7 million, while quarter-end cash declined
    17.7% or $96.7 million to $450.1 million.
  • Customer Deposits (excluding brokered): Average balances
    increased 1.0% or $45.8 million to $4.46 billion, while quarter-end
    deposits decreased 3.8% or $175.1 million to $4.38 billion, mainly
    related to fluctuations in insurance companies' deposits.
  • Total Borrowings: Average balances increased 8.1% or $40.7
    million to $543.9 million, while quarter-end borrowings increased
    16.9% or $82.4 million to $570.4 million.
  • Total Stockholders' Equity: Increased $30.0 million or 3.1% to
    $999.9 million, reflecting increased retained earnings and legal
    surplus and reduced accumulated other comprehensive loss.

Credit Quality

Unless otherwise noted, the following compares data on the originated
loan portfolio at December 31, 2018 to September 30, 2018.

  • Credit quality: Remained strong with minor variations in key
    metrics. Non-performing loan rate, at 3.28%, was down 17 basis points.
    Allowance for loan losses remained level at $95.2 million. As a
    percentage of loans, the allowance, at 2.54%, was down 8 basis points.
    Early and total delinquency rates, at 3.34% and 6.36%, respectively,
    were up 2 and 17 basis points.
  • Net Charge-Offs: The rate fell 20 basis points to 1.19% and
    actual net charge-offs dropped 12.2% or $1.5 million. Both metrics
    reflected the $1.8 million recovery on the sale of previously
    charged-off loans.

Capital Position

Unless otherwise noted, the following compares data at December 31,
2018 to September 30, 2018.

  • Capital continued to be significantly above regulatory requirements
    for a well-capitalized institution:
    This reflected earnings growth
    as well as the conversion of Series C into common stock.
  • Capital Ratios: Metrics improved across the board, with
    Leverage at 14.22%, Common Equity Tier 1 at 16.78%, Tier 1 Risk-based
    at 19.20%, and Total Risk-based Capital at 20.48%, and Tangible Common
    Equity at 12.76%.

Financial Supplement

OFG's Financial Supplement, with full financial tables for the quarter
and year ended December 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) changes to the
financial condition of 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 55th 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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