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OFG Bancorp Reports 2Q13 Results

  OFG Bancorp Reports 2Q13 Results

Business Wire

SAN JUAN, Puerto Rico -- July 22, 2013

OFG Bancorp (NYSE: OFG) reported today results for the second quarter ended
June 30, 2013.

2Q13 Financial Summary

  *Income available to common shareholders increased to $34.1 million, or
    $0.68 per share diluted, compared to $13.8 million, or $0.34 per share, in
    the second quarter of 2012, and $17.7 million, or $0.37 per share, in the
    first quarter of 2013.
  *Net Interest Margin was 5.56% compared to 4.71% in the preceding quarter.
  *Second quarter results reflect the positive impact of a $37.0 million
    reduction in tax provisions stemming from the increase in deferred tax
    assets as a result of enactment during the quarter of amendments to the
    Puerto Rico Income Tax Code (the “Tax Code Amendments”), and a $2.1
    million recovery from the sale of a claim in the Lehman Brothers
    bankruptcy.
  *The quarter’s results also reflect the negative impact of $21.0 million in
    additional provision for loan and lease losses due to reclassification to
    held-for-sale of $59.0 million of non-performing residential mortgage
    loans, $7.1 million in additional amortization of the FDIC Indemnification
    Asset from stepped up cost recoveries on certain loan pools, and $5.3
    million in planned integration expenses.
  *For the six months ended June 30, 2013, income available to common
    shareholders increased to $51.8 million, or $1.05 per share diluted,
    compared to $23.2 million, or $0.57 per share, in the year ago period.

CEO’s Comment

“The second quarter was an excellent one for OFG Bancorp,” said José Rafael
Fernández, President, Chief Executive Officer and Vice Chairman of the Board.
“Our results, both organic and with the quarter specific items, were strong.”

“Strategically, Oriental is growing in Puerto Rico as a major player with a
solid track record for consistent, quality service in retail and commercial
banking and financial services. Operationally, we are demonstrating our
ability to smoothly integrate OFG and the former BBVA-PR businesses into a
larger, more effective platform.

“During the quarter, we saw record levels of loan income and production,
wealth management and banking fee income, and retail and commercial deposits.
Reclassifying substantially all non-performing residential loans that Oriental
originated prior to 2009 as held-for-sale has increased our ability to further
enhance our already strong credit quality.

“Taking into consideration our higher tax rate, the DTA benefit, and the
increase in provision related to moving the non-performing loans to
held-for-sale, our original guidance of $1.40 GAAP EPS is now $1.55. Second
half core business indicators look promising, with continued growth virtually
across the board.”

2Q13 Income Statement Analysis

Net Interest Income

  *Interest income from loans increased 14.0% from the preceding quarter, to
    a record $114.6 million, while interest income from investments of $11.2
    million declined 14.8%. The foregoing results reflect OFG's strategic
    decision last year to focus its growth on higher yielding loans and
    sharply reduce the size of its investment portfolio when interest rates
    were at record low levels.
  *Deposit interest expense of $10.0 million declined 4.8% from the preceding
    quarter, reflecting continued reductions in the cost of deposits on larger
    balances. Due to reduced reliance on wholesale funding, interest expense
    from borrowings of $10.5 million was 1.0% less than the preceding quarter.
  *Consequently, net interest income increased 13.8% from the preceding
    quarter, to $105.4 million.
  *Excluding the previously mentioned net impact of $21.0 million for
    reclassifying non-performing loans (NPLs) to held-for-sale, the provision
    for loan and lease losses was $17.7 million compared to $8.6 million in
    the preceding quarter. The increase is primarily due to higher levels of
    loan production, lower collateral value on certain loans, and a reserve on
    an impaired loan.

Non-Interest Income

  *Total bank and wealth management revenues increased 3.0% from the
    preceding quarter, to a record $24.0 million, reflecting the expansion of
    services to OFG’s larger client base.
  *Trust assets managed at June 30, 2013 of $2.6 billion increased 1.7% from
    the preceding quarter and broker dealer assets gathered of $2.8 billion
    were up 1.1%, both reflecting organic growth and higher market values of
    customer assets.
  *Non-core, non-interest items totaled ($16.1) million compared to ($12.1)
    million in the first quarter of 2013. The difference includes the
    aforementioned $7.1 million in additional net amortization of the
    shared-loss indemnification asset related to the 2010 FDIC-assisted
    Eurobank acquisition.
  *Non-core, non-interest items also included the previously mentioned $2.1
    million gain from the sale of OFG’s claim in the Lehman Brothers
    bankruptcy.

Non-Interest Expenses & Taxes

  *Operating expenses of $63.5 million increased from $61.3 million from the
    preceding quarter. The increase primarily reflects the $2.0 million impact
    for the first and second quarters’ application of the new 1.0% tax on
    gross revenues which was part of the Tax Code Amendments.
  *Merger and restructuring costs totaled $5.3 million as compared to $5.5
    million in the preceding quarter, which included $3.7 million for the
    previously disclosed termination of an external loan servicing contract in
    the first quarter of 2013. Total integration expenses are projected to be
    around $8.5 million in 2013.
  *Income tax benefit of $31.9 million includes three items: (i) the
    previously mentioned $37.0 million benefit from an increase in OFG’s
    Deferred Tax Asset as a result of the Tax Code Amendments, which raised
    corporate income taxes to 39% from 30%; (ii) second quarter 2013 income
    taxes at OFG’s effective rate of 35.5%; and (iii) an amount to bring the
    first quarter 2013’s effective rate up to 35.5%, from the previously
    reported 25.2%.

June 30, 2013 Balance Sheet Analysis

Loans & Deposits

  *The non-covered loan portfolio declined $200.2 million, to $4.6 billion,
    from the first quarter of 2013 primarily due to the early pay down of some
    commercial loans and reclassification of the aforementioned NPLs to
    held-for-sale.
  *Consolidated loan production increased 19.0% from the preceding quarter,
    to a record $327.0 million. The foregoing reflects production increases of
    41.0% in commercial loans, 31.3% in residential mortgage loans, and 17.8%
    in consumer loans. Auto loan production declined 6.2%, reflecting seasonal
    trends.
  *Net loans covered under loss share agreements with the FDIC continued to
    pay down, declining 2.7%, from the first quarter of 2013, to $369.4
    million.
  *Deposits increased 2.9% from the preceding quarter, to a record $5.7
    billion. Despite the consolidation of eight branches during the quarter,
    retail deposits increased 6.7% and commercial deposits increased 8.7% from
    the first quarter of 2013.

Investment Securities & Borrowings

  *Investment securities totaled $1.9 billion, down 9.2% from the first
    quarter of 2013, while borrowings of $1.7 billion were down 17.9%. The
    declines reflect OFG’s strategic decision of relying less on investment
    securities financed through wholesale funding as a source of net interest
    income.

Stockholders’ Equity

  *Total stockholders’ equity of $870.9 million was level with the first
    quarter of 2013 as growth in retained earnings largely offset a reduction
    in accumulated other comprehensive income from lower unrealized gains on
    investment securities. On a per common share basis, tangible book value of
    $13.49 compares with $13.46 in the first quarter of 2013.

Other 2Q13 Highlights

  *Credit quality, excluding acquired and covered loans, remained strong.
    Excluding the impact of reclassifying NPLs to held-for-sale, net credit
    losses of $5.0 million compare to $3.4 million in the preceding quarter.
    NPLs of $88.5 million declined from $130.5 million in the preceding
    quarter primarily due to moving non-performing residential mortgage loans,
    which were originated prior to 2009, to held-for-sale. The allowance for
    loan and lease losses as a percentage of loans held for investments
    increased to 2.57% from 2.89% in the preceding quarter. Credit quality of
    the acquired BBVA PR loans was in line with expectations.
  *Regulatory capital ratios improved across the board and continue to be
    above requirements for a well-capitalized institution.
  *Compared to the preceding quarter, tangible common equity to total
    tangible assets of 7.32% increased from 7.13%, leverage capital ratio of
    8.54% increased from 8.07%, tier 1 risk-based capital ratio increased to
    13.79% from 13.01%, and total risk-based capital ratio increased to 15.83%
    from 15.03%.

Conference Call

A conference call to discuss OFG’s results for the second quarter of 2013,
outlook and related matters will be held Tuesday, July 23, 2013 at 10:00 AM
Eastern Time. The call will be accessible live via a webcast on OFG’s Investor
Relations website at www.ofgbancorp.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 2Q13 can be found on the Webcasts, Presentations &
Other Files page, on OFG’s Investor Relations website at www.ofgbancorp.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 56 financial centers. Investor information can be found
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.

Contact:

Puerto Rico:
OFG Bancorp
Alexandra López, 787-522-6970
allopez@ofgbancorp.com
or
US:
Anreder & Company
Steven Anreder, 212-532-3232
steven.anreder@anreder.com
or
Gary Fishman, 212-532-3232
gary.fishman@anreder.com