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OFG Bancorp Reports 1Q19 Results

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OFG Bancorp (NYSE:OFG) reported results for the first quarter ended
March 31, 2019.

Highlights 1Q19 vs. 1Q18

  • Net revenues increased 7.7% to $99.3 million from $92.2 million.
    Increased interest income from Originated Loans and Investment
    Securities and Cash more than offset pay downs of Acquired Loans.
  • Net income available to shareholders increased 62.4% to $21.8 million
    from $13.5 million. Results reflect increased operating leverage,
    reduced provision and elimination of dividends on Series C preferred
    stock following its conversion.
  • Earnings per share diluted of $0.42 compared to $0.30, a 40% increase.
  • Book value per common share increased 3.0% to $18.30. Tangible Book
    Value per common share expanded 5.4% to $16.56.
  • Loans increased 6.5% to $4.40 billion, while deposits grew 1.3% to
    $4.90 billion.
  • New loan origination of $276.4 million included a 41.4% increase in
    commercial loans due to the success of Oriental's strategic targeting
    of small business customers.
  • Net Interest Margin of 5.37%, a 15 basis points increase, while both
    credit quality and the efficiency ratio improved.
  • Return on Average Assets increased 33 basis points to 1.42%, Return on
    Average Tangible Common Equity expanded 259 basis points to 10.32%,
    and capital metrics continued at new multi-year highs.

CEO Comment

"After the rebound we saw in 2018, our first quarter of 2019 reflected
strong steady growth," said José Rafael Fernández, President, Chief
Executive Officer, and Vice Chairman of the Board.

"This was achieved due to the continued effectiveness of our retail and
commercial strategies in meeting the economic shift that has occurred in
Puerto Rico, as a more positive outlook among both businesses and
consumers has taken hold.

"Financially, we generated higher net revenues with stable non-interest
expenses, resulting in a 40% year over year increase in earnings per
share. Our key performance metrics moved in the right direction as
return on assets, return on equity, net interest margin and efficiency
ratio came in at levels similar to top performing mainland banks of our
size in recent periods.

"Strategically, we continued to advance our retail and commercial
channel differentiation through superior service, convenience and
technology, where we ask customers to Vive la Diferencia (Live
the Difference). We are encouraged by the noticeable increase in small
business loan production and another quarter of more than 3% year over
year customer growth.

"Thanks to our entire OFG team for their commitment and dedication, and
to all our retail and commercial customers for their support and
loyalty."

Conference Call

A conference call to discuss OFG's 1Q19 results, outlook and related
matters will be held today at 10:00 AM Eastern Time. Dial (888) 562-3356
or (973) 582-2700. Use conference ID 989-5529. The call can also be
accessed live on OFG's website at www.ofgbancorp.com.
A webcast replay will be available shortly thereafter.

Income Statement

Unless otherwise noted, the following compares data for the first
quarter 2019 to the first quarter 2018.

  • Interest Income: Increased 13.9% or $11.5 million to $94.7
    million. Originated Loans increased $13.0 million due to higher
    average balances and yield. Investment Securities increased $2.0
    million due to higher average balances and higher yields on cash
    equivalents and investment securities. Acquired Loans declined $3.5
    million.
  • Interest Expense: Increased 40.8% or $3.8 million to $12.9
    million, reflecting higher average deposit and borrowing balances and
    rates. The cost of customer deposits increased 6 basis points.
  • Net Interest Margin: Excluding cost recoveries, core NIM grew
    to 5.34% from 5.18%. The increase reflected higher yield on originated
    commercial loans and cash balances and a larger proportion of higher
    yielding commercial and auto loans in the originated portfolio. This
    was partially offset by a higher cost of borrowings.
  • Net Interest Income: Increased 10.5% or $7.8 million to $81.8
    million primarily due to increased earning assets coupled with the 15
    basis point increase in NIM.
  • Total Provision for Loan and Lease Losses: Decreased 20.8% or
    $3.2 million to $12.2 million due to a reduction in provision for
    originated loans partially offset by a small increase in provision for
    acquired loans. Provision for originated loans was $3.6 million lower
    than 1Q18, which included $2.0 million for three commercial loans
    placed in non-accrual.
  • Total Banking and Wealth Management Revenues: Declined 3.8% or
    $0.7 million to $17.6 million primarily due to lower MSR valuations in
    mortgage banking. Banking service revenues and wealth management
    remained at similar levels.
  • Total Non-Interest Expenses: Remained approximately level at
    $52.2 million, resulting in a 401 basis point improvement in the
    Efficiency Ratio to 52.50%. Compared to the previous quarter, total
    non-interest expenses were marginally higher. This reflected
    seasonally higher compensation expenses primarily due to FICA
    payments, higher credit expenses due to the semi-annual payment of
    local property taxes, and lower losses on the sale of repossessed
    assets.
  • Effective Tax Rate: 33.0% compared to 32.1%.
  • Dividends on Preferred Stock: Declined 53.0% to $1.6 million
    from $3.5 million due to the 4Q18 conversion of Series C Preferred to
    common.

Balance Sheet

Unless otherwise noted, the following compares data at March 31, 2019
to March 31, 2018.

  • Total Loans: Increased 6.5% or $268.0 million to $4.40 billion
    as originated loans increased 13.1% or $421.9 million, while acquired
    loans declined $151.1 million. Compared to the year ended December 31,
    2018, loans remained relatively flat, reflecting seasonal pay down of
    commercial lines of credit and loan prepayments.
  • Loan Production: 1Q19 new loan production totaled $276.4
    million compared to $309.4 million. Auto and consumer lending remained
    high at $120.2 million and $40.8 million, respectively; commercial
    lending at $60.5 million had a strong performance due to new or
    expanded business with small business customers; OFG USA loan
    participations of $31.7 million were similar to the last two trailing
    quarters; and residential mortgage lending totaled $23.1 million.
  • Total Investments and Cash and Cash Equivalents: Increased 5.9%
    or $97.7 million to $1.76 billion, with Cash and Cash Equivalents up
    39.3% or $143.6 million and Total Investments down 3.5% or $45.9
    million. Compared to December 31, 2018, investments and cash increased
    1.9% or $32.0 million. On January 1, 2019, OFG adopted ASU 2017-12,
    reclassifying all of its MBS from held-to-maturity to
    available-for-sale.
  • Customer Deposits (excluding brokered): Increased 2.0% or $87.0
    million to $4.45 billion. Demand deposits increased 4.7% or $100.3
    million and savings accounts remained approximately level, while time
    deposits declined 1.6% or $15.8 million. Compared to December 31,
    2018, customer deposits increased 1.4% or $62.9 million.
  • Total Borrowings and Brokered Deposits: Increased 20.7% or
    $171.3 million to $1.00 billion. Repurchase agreement funding
    increased 57.5% or $157.6 million, FHLB advances and other borrowings
    increased 83.6% or $37.1 million, while brokered deposits declined
    4.9% or $23.4 million. Compared to December 31, 2018, borrowings and
    brokered deposits declined 8.7% or $95.3 million.
  • Total Stockholders' Equity: Increased 7.8% or $74.3 million to
    $1.02 billion, reflecting increased retained earnings and legal
    surplus and reduced accumulated other comprehensive loss. Compared to
    December 31, 2018, stockholders' equity increased 2.1% or $21.3
    million.

Credit Quality

Unless otherwise noted, the following compares data on the originated
loan portfolio at March 31, 2019 to March 31, 2018.

Credit quality remained strong with minor variations in key metrics. Non-performing
loan rate at 3.37% fell 45 basis points. Allowance for loan losses
declined 2.9% to $94.0 million, and as a percentage of loans, the
allowance at 2.51% was down 41 basis points. Early and total delinquency
rates, at 3.61% and 6.33% were up 41 and 8 basis points, respectively.
Net Charge-Offs increased 15.1% to $12.5 million, but as a percentage of
loans, the net charge off rate remained at 1.32%.

Capital Position

Capital continued to be significantly above regulatory requirements
for a well-capitalized institution.
March 31, 2019 ratios improved
across the board: Leverage at 14.64% increased 57 bps year over year and
42 bps from the year ended December 31, 2018, Common Equity Tier 1 at
17.09% increased 257 and 31, Tier 1 Risk-based at 19.49% increased 49
and 29, Total Risk-based Capital at 20.77% increased 48 and 29, and
Tangible Common Equity at 13.05% increased 183 and 29.

Financial Supplement & Conference Call Presentation

OFG's Financial Supplement, with full financial tables for the quarter
ended March 31, 2019, and its 1Q19 Conference Call Presentation 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 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; (vii) the pace and magnitude of Puerto Rico's economic recovery;
(viii) the potential impact of damages from future hurricanes and
natural disasters in Puerto Rico; (ix) the fiscal and monetary policies
of the federal government and its agencies; (x) changes in federal bank
regulatory and supervisory policies, including required levels of
capital; (xi) the relative strength or weakness of the commercial and
consumer credit sectors and the real estate market in Puerto Rico; (xii)
the performance of the stock and bond markets; (xiii) competition in the
financial services industry; and (xiv) 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, 2018, 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. Visit us at www.ofgbancorp.com.

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