OFG Bancorp Reports 1Q13 Results

  OFG Bancorp Reports 1Q13 Results

Business Wire

SAN JUAN, Puerto Rico -- April 25, 2013

OFG Bancorp (NYSE: OFG) today reported results for the first quarter ended
March 31, 2013. OFG changed its name today from Oriental Financial Group Inc.

1Q13 Financial Summary

  *The acquisition of Banco Bilbao Vizcaya Argentaria, S.A.’s Puerto Rico
    operations (BBVA PR) on December 18, 2012, the deleveraging of the
    investment securities portfolio, and continued organic growth transformed
    OFG’s profitability in line with its strategic direction.
  *Return on assets (ROA) was 0.95%, return on equity (ROE) was 10.14%, and
    the efficiency ratio stood at 56.1% – all of which represent improvements
    from both the year ago and preceding quarters.
  *Income available to common shareholders increased to $17.7 million, or
    $0.37 per share diluted, compared to $9.5 million, or $0.23 per share
    diluted, in the year ago quarter, and a loss of $23.3 million, or ($0.53)
    per share, in 4Q12.
  *Interest income from loans increased 153.4% from the year ago quarter and
    109.8% from the preceding quarter, while net interest margin (NIM)
    expanded to 4.65% from 2.60% in 1Q12 and 2.95% in 4Q12.

CEO’s Comment

“We are off to an excellent start for the year,” said José Rafael Fernández,
President, Chief Executive Officer and Vice Chairman of the Board.

“Our first quarter 2013 results demonstrate OFG’s much improved earnings
capability and quality. By the end of last year, we had transformed our
balance sheet. In the first quarter we transformed our income statement. We
expect results to continue to benefit from our more diversified business
portfolios as well as increased scale and leadership in our market.

“With 1Q13 earnings meeting expectations, we are on track to achieve our
initial guidance of $1.40 GAAP EPS for 2013. Operations are moving in line
with our plan. The loan portfolio is performing well. Credit quality remains
strong. The pipeline for loan generation is building as expected, and
integration is moving ahead smoothly.

“ROA, ROE and the efficiency ratio were on, or moving towards, our targets of
more than 1.00% and 12.00%, and the low 50% range, respectively. Capital is
growing, and we are realizing the anticipated benefits of the acquisition.”

1Q13 Income Statement Analysis

Net Interest Income

  *Interest income from loans totaled $100.5 million, up 153.4% from the year
    ago quarter and 109.8% from the preceding quarter, while interest income
    from investments of $13.1 million declined 56.6% from the year ago quarter
    and 20.3% from the preceding quarter. The changes primarily reflect OFG’s
    significantly larger and higher yielding loan assets, along with the
    sharply reduced size of the investment securities portfolio.
  *Deposit interest expense of $10.5 million rose 14.9% from the year ago
    quarter and 38.6% from the preceding quarter. The increases reflect OFG’s
    significantly larger deposit base and balances, partially offset by
    continued reductions in the cost of deposits. 1Q13 cost of deposits
    includes a benefit of $3.4 million from purchase accounting premium
    amortization related to higher-priced CDs upon their scheduled maturities
    during the quarter.
  *Due to the deleveraging, interest expense from borrowings of $10.6 million
    was 51.5% lower than the year ago quarter and 24.1% lower than the
    preceding quarter. Also during 1Q13, OFG used available cash to pay off a
    $200 million repurchase agreement at maturity and to extinguish prior to
    maturity a former BBVA PR subordinated note of $50 million.
  *Consequently, net interest income (after provision for loan and lease
    losses) of $84.0 million increased 191.4% from the year ago quarter and
    118.4% from the preceding quarter, and NIM of 4.65% increased 205 basis
    points (bps) from the year ago quarter and 170 bps from the preceding
    quarter. NIM was higher than initial guidance primarily due to the
    previously mentioned benefit from deposit premium amortization.

Non-Interest Income

  *Total bank and wealth management revenues of $23.2 million were up 102.2%
    from the year ago quarter and 58.1% from the preceding quarter. The
    increase reflects a full quarter of OFG’s larger fee generating
    businesses, particularly as related to banking service fees and mortgage
    banking activities, as well as overall organic growth.
  *Trust assets managed at quarter end of $2.6 billion increased 9.4% from a
    year ago and 3.2% from the end of last year, while broker dealer assets
    gathered of $2.8 billion were up 35.7% year over year and 2.6% from the
    end of last year. The increases primarily reflect organic growth and
    higher market values of customer assets.
  *Non-core, non-interest items totaled ($13.9) million. This compares to
    $1.3 million in the year ago quarter and ($34.0) million in 4Q12. 1Q13
    included a $1.1 million gain from the aforementioned early extinguishment
    of the $50 million subordinated note. 1Q13 also included $12.9 million in
    net amortization of the shared-loss indemnification asset related to the
    FDIC-assisted Eurobank acquisition in 2010. The FDIC amortization was
    greater than in 4Q12 due to continued improvements in the performance of
    certain loan pools.

Non-Interest Expenses & Taxes

  *Non-interest expenses of $64.9 million, which reflect a full quarter of
    OFG’s expanded operations, increased from $39.5 million in 4Q12 and from
    $29.0 million in 1Q12.
  *1Q13 expenses included an accrual of $3.8 million towards the planned
    early termination of a contract with the third party servicer of certain
    loans acquired in the previously mentioned FDIC assisted transaction. With
    the BBVA PR acquisition, OFG now has the staff and expertise to perform
    these functions.
  *1Q13 expenses also included $1.7 million in integration costs. The
    integration program continues in line with plans to expense approximately
    $8 million in such costs in 2013.
  *The effective tax rate was 25.2% versus 15.4% in the year ago quarter,
    primarily due to a greater proportion of taxable income from loans versus
    tax exempt income from investment securities.

March 31, 2013 Balance Sheet Analysis

Loans & Deposits

  *Total net loans of $5.2 billion were up 215.3% from a year ago and up
    slightly from December 31, 2012. The non-covered loan portfolio of $4.8
    billion was up 305.6% year over year and 1.0% from the end of 2012. Net
    loans covered by the FDIC loss-share (certain former Eurobank loans)
    continued to pay down, declining to $379.7 million, a decrease of 17.8%
    from a year ago and 3.9% from the end of last year.
  *Consolidated loan production of $275.1 million was up 149.7% from the year
    ago quarter and 86.4% from the preceding quarter. On a sequential quarter
    basis, production of auto loans of $100.9 million was up 404.6%, consumer
    loans of $22.9 million increased 142.9%, commercial loans of $74.0 million
    gained 31.5%, and residential mortgage loans of $77.1 million advanced
  *Deposits of $5.6 billion increased 140.0% from a year ago and were 2.2%
    lower from the end of last year. The year over year increase reflects the
    addition of BBVA PR deposits as well as organic growth. The quarter over
    quarter decline primarily reflects the previously mentioned reduction of
    certain higher priced CDs.

Investment Securities & Borrowings

  *Investment securities totaled $2.0 billion, down 43.8% from a year ago and
    8.3% from the end of 2012. The year over year decline reflects the
    significant reduction in size of the portfolio due to the deleveraging in
    the second half of 2012, while the quarter over quarter decline was due to
    certain prepayments.
  *Borrowings of $2.1 billion were down 37.5% from a year ago and 15.0% from
    the end of last year, due to the previously mentioned deleveraging and
    1Q13 reduction in wholesale funding.

Stockholders’ Equity

  *Total stockholders’ equity of $870.2 million was up 26.3% from a year ago
    and 0.8% from the end of last year. The year over year increase was due to
    capital raises related to the BBVA PR acquisition, and higher retained
    earnings and other comprehensive income. The quarter over quarter growth
    primarily was due to increased retained earnings.
  *On a per common share basis, book value of $15.44 increased 0.9% and
    tangible book value of $13.73 increased 1.1% from the end of last year.

Other 1Q13 Highlights

  *Credit quality remained strong. Total provision for loan and lease losses,
    net, was $8.6 million, down 15.4% from the year ago quarter and up $4.2
    million from the preceding quarter. The sequential increase reflects
    significantly higher loan production and larger loan portfolio for the
    full quarter. Net credit losses of $3.4 million increased only about
    $730,000 from the year ago and preceding quarters. Credit quality of the
    acquired BBVA PR loans was in line with expectations.
  *Regulatory capital ratios continue to be above requirements for a
    well-capitalized institution. Compared to the end of last year, tangible
    common equity to total assets of 7.20% increased from 6.74%, leverage
    capital ratio of 8.07% increased from 6.42%, tier 1 risk-based capital
    ratio increased to 13.24% from 12.94%, and total risk-based capital ratio
    increased to 15.26% from 15.15%.

Conference Call

A conference call to discuss OFG’s results, outlook and related matters will
be held Friday, April 26, 2013 at 9:00 AM Eastern Time. The call will be
accessible live via a webcast on OFG’s Investor Relations website at
www.orientalfg.com. A webcast replay will be available shortly thereafter.
Access the webcast link in advance to download any necessary software.

Full Financial Tables

Full financial tables for 1Q13 can be found on the Webcasts, Presentations &
Other Files page, on OFG’s Investor Relations website at www.orientalfg.com.

About OFG Bancorp

Now in its 49th 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 full range of commercial,
consumer and mortgage banking services, as well as financial planning, trust,
insurance, investment brokerage and investment banking services, primarily in
Puerto Rico, through 64 financial centers. Investor information can be found
at www.orientalfg.com and will soon be available at www.ofgbancorp.com.

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)
difficulties in integrating the acquired Puerto Rico operations of Banco
Bilbao Vizcaya Argentaria, S.A (BBVA PR) into OFG’s operations; (ii) the
amounts by which our assumptions related to the acquisition fail to
approximate actual results; (iii) the rate of growth in the economy and
employment levels, as well as general business and economic conditions; (iv)
changes in interest rates, as well as the magnitude of such changes; (v) the
fiscal and monetary policies of the federal government and its agencies; (vi)
changes in federal bank regulatory and supervisory policies, including
required levels of capital; (vii) the relative strength or weakness of the
consumer and commercial credit sectors and of the real estate market in Puerto
Rico; (viii) the performance of the stock and bond markets; (ix) competition
in the financial services industry; (x) possible legislative, tax or
regulatory changes; and (xi) difficulties in combining the operations of any
other acquired entity.

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, 2012, 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.


Puerto Rico:
OFG Bancorp
Alexandra López, 787-522-6970
Anreder & Company
Steven Anreder (steven.anreder@anreder.com)
Gary Fishman (gary.fishman@anreder.com)
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