EX-99 2 ofg8kexhibit993q2019.htm EXHIBIT 99  

Exhibit 99

 

OFG Bancorp Reports 3Q19 Results

SAN JUAN, Puerto Rico, October 21, 2019 – OFG Bancorp (NYSE: OFG) today reported results for the third quarter ended September 30, 2019.

Highlights 3Q19 vs. 3Q18

• Net income available to shareholders of $5.8 million, or $0.11 per share fully diluted, reflects the impact of several strategic transactions, compared to $19.6 million, or $0.42 per share fully diluted, in 3Q18. Book value per common share grew 3.1% to $18.84. Tangible Book Value per common share expanded 5.4% to $17.11.

• 3Q19 included $40.5 million pre-tax from items that negatively affected results, primarily due to the decision to sell mostly non-performing loans, partially offset by $13.0 million pre-tax from items that benefited results, such as the sale of available-for-sale mortgage-backed securities (MBS) and of fully charged-off loans, and the adjustment to the qualitative factors of the allowance for loan and lease losses.

• Excluding the above items, 3Q19 adjusted net income available to shareholders was $24.9 million, or $0.48 per share fully diluted.*

• Loans at September 30, 2019 increased 1.2% to $4.41 billion. Average core deposits rose 3.4% to $4.56 billion, while non-core funding was reduced 41.7% by quarter end. New loan origination of $291.4 million reflected Oriental Bank’s success in targeting small business customers and our growing consumer banking business. Net Interest Margin remained strong at 5.35%, total delinquency rate improved, and capital metrics continued to climb to new multi-year highs.

Conference Call

A conference call to discuss 3Q19 results, outlook and related matters will be held today at 10:00 AM Eastern Time. Phone (888) 562-3356 or (973) 582-2700. Use conference ID 619-9357. The call can also be accessed live on www.ofgbancorp.com.  Webcast replay will be available shortly thereafter.

CEO Comment

“Our core operations continue to deliver excellent results,” said José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board.

“During the quarter, we took advantage of market conditions and sold MBS and fully charged off loans at a profit, and we also decided to sell a good portion of our remaining non-performing loans.

This further strengthens our liquidity and balance sheet to continue our growth strategy and prefunds our $560 million acquisition of Scotiabank’s operations in PR and USVI.

“Our strategies are proving highly effective in capturing the positive economic shift taking place in Puerto Rico. Small business, auto and consumer loan production; core deposit growth, credit quality, and capital; and number of net new clients confirm the success of our customer focused approach to banking – Fácil, Rápido, Hecho. As a result, we generated a 14% year over year increase in adjusted earnings per share.

“With our NPL sales, we reduced 3Q19 non-performing loans 40% year over year, to 2% of originated loans, which will enable us to free up resources, reduce NPL related expenses, and increase operating flexibility. Combined with the sale of MBS, we have close to $1 billion in cash to fund our growth plans, including our acquisition of Scotiabank’s PR and USVI operations. The MBS sales also enabled us to reduce high cost brokered CDs and borrowings.

“Looking ahead, Oriental will further consolidate its position as the premier retail bank on the island. Upon closing the Scotiabank acquisition, we become the second largest bank in Puerto Rico in core deposits, branches, automated and interactive teller machines, mortgage servicing, and insurance brokerage, and the third largest bank in US Virgin Islands.

“As always, thanks to our team for their commitment and dedication, and to all our retail and commercial customers for their support and loyalty.”

3Q19 Items

• The following resulted in a net $32.0 million increase in the provision for loan losses:

• Increase of $39.0 million primarily from deciding to sell $95.0 million unpaid principal balance in non-performing commercial and mortgage loans, both acquired and originated. These are expected to be sold in 4Q19.

• Decrease of $2.4 million from the proceeds of the sale of $26.0 million of previously charged off auto and consumer loans.

• Decrease of $4.5 million from the adjustment to qualitative factors of the allowance for loan and lease losses, reflecting sustained favorable macroeconomic conditions in Puerto Rico.

• The sale of $322.0 million of low-yielding MBS resulted in a $3.5 million pre-tax gain in other income, and the continued reduction of higher cost brokered CDs and repurchase agreement funding.

• Non-interest expenses were reduced $1.0 million as a result of three items discussed in the “Income Statement” section below.

Current Expected Credit Losses (CECL)

We have substantially completed the model development process for CECL implementation.

• For the originated book, which accounts for 84% of total gross loans, we are estimating an increase in the current allowance of around 16% to 23%. This will be phased-in through regulatory capital in 2020 through 2022.

• For the acquired book, which represents 16% of total gross loans, we expect its allowance will be enough to cover CECL implementation. Any adjustment will be made through the allowance and loan balances with no impact in capital.

The final impact of CECL will depend on the circumstances at the date of adoption such as asset quality, macro-economic conditions and economic perspective, and continued refinement in 4Q19.

Income Statement

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

• Interest Income fell $0.5 million, to $93.7 million. Continued originated loan growth (+7.2%) and higher yield (+11 basis points) was mostly offset by continued pay downs of acquired loans and 2Q19 and 3Q19 MBS sales. Interest income increased $5.9 million from originated loans and $2.4 million from cash equivalents, and declined $4.2 million from acquired loans and $4.6 million from investment securities.

• Interest expense increased 9.1% or $1.1 million to $12.9 million. Core deposit costs increased $2.4 million due to higher average balances excluding non-interest bearing deposits (+4.0%) and rate (+25 basis points). Brokered deposit costs fell $0.4 million due to lower average balances (-31.1%) and higher rate (+47 basis points). Borrowing costs fell $0.9 million due to lower average balances (-32.4%) and higher rate (+22 basis points).

• Net Interest Margin, excluding cost recoveries, increased 7 basis points to 5.33% from 5.26%. The increase reflected higher yield on originated loans (+11 basis points) and cash balances (+18 basis points); a higher proportion of originated loans and cash in interest-earning assets (76.8% compared to 64.9%); and the reduction in higher cost brokered CDs and borrowings, partially offset by the higher cost of core deposits.

• Total provision for Loan and Lease Losses increased $29.2 million, to $43.8 million, which includes the previously mentioned net $32.0 million increase in provision, and a decline of $2.8 million, reflecting improved asset quality.

• Total Banking and Wealth Management Revenues increased $0.1 million to $18.5 million due to higher wealth management and banking service revenues, partly offset by lower mortgage banking revenues.

• Total Non-Interest Expenses declined $0.2 million to $50.7 million, primarily reflecting three items: $1.5 million credit for FDIC insurance assessment, $1.0 million credit from Puerto Rico Treasury for employee retention after hurricane Maria, and $1.6 million in Scotiabank acquisition related expenses.

• Due to a higher proportion of exempt income, the Effective Tax Rate for the quarter was 12.0% compared to 34.7%. Estimated Effective Tax Rate for the year is 30.15%.

• 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 September 30, 2019 to September 30, 2018.

• Total Loans increased 1.2% or $54.2 million to $4.41 billion as originated loans increased 4.8%, or $172.1 million, and acquired loans declined 18.2%, or $144.4 million. Compared to June 30, 2019, total loans declined 1.5% or $67.3 million with originated loans down 0.6%, or $24.1 million, and acquired loans down 9.0%, or $64.1 million, both reflecting 2Q19 and 3Q19 loan sales.

• Loan Production totaled $291.4 million compared to $347.0 million in the year-ago quarter. Auto and consumer lending remained strong at $141.5 million and $48.3 million, respectively, while residential mortgage lending totaled $23.8 million. Commercial lending at $65.6 million reflected continued growth of small business customers, while OFG USA added $12.2 million in commercial lending.

• Cash and Cash Equivalents increased 76.1%, or $416.1 million, to $962.9 million. Compared to June 30, 2019, cash increased 42.1%, or $285.5 million. The increases reflect the sale of MBS, NPLs and fully charged off loans.

• Total Investments declined 59.4%, or $776.4 million, to $529.7 million. Compared to June 30, 2019, investments declined 39.2%, or $341.0 million. The decreases reflect sales of MBS in 2Q19 and 3Q19.

• Customer Deposits (excluding brokered) increased 0.7% or $31.6 million to $4.59 million. Compared to June 30, 2019, deposits increased 0.7% or $33.0 million. The increases reflect Oriental’s larger retail customer and funding base.

• Borrowings declined 37.3%, or $182.1 million, to $305.9 million. Compared to June 30, 2019, borrowings declined 14.3%, or $50.9 million. Brokered deposits declined 45.7%, or $242.5 million, to $288.4 million. Compared to June 30, 2019, brokered deposits declined 25.8%, or $100.0 million. The declines reflect the maturity of brokered CDs and repayment of repurchase agreement funding.

• Total stockholders’ equity increased 8.2% or $79.2 million to $1.05 billion. Compared to June 30, 2019, stockholders’ equity increased $4.2 million. The increases reflect growth of retained earnings and legal surplus and reduced other comprehensive loss.

Credit Quality

Unless otherwise noted, the following compares data on the originated loan portfolio at September 30, 2019 to September 30, 2018.

• Most credit quality metrics improved. Non-performing loan rate at 2.00% fell 145 basis points. Allowance for loan and lease losses declined 17.00%, to $79.1 million. As a percentage of loans, ALLL at 2.09% fell 53 basis points. The decrease in the NPL rate and ALLL reflects the previously mentioned sale and transfer to held-for-sale of NPLs.

• Early and total delinquency rates, at 3.64% and 5.39% were up 32 and down 80 basis points, respectively.

• Net Charge-Offs increased $22.0 million to $34.4 million. As a percentage of loans, the NCO rate increased to 3.57% from 1.38%. NCOs were affected by $15.9 million from the previously

mentioned increase in provision attributable the decision to sell certain non-performing loans. As a result, NCOs are expected to decline in 4Q19.

Capital Position

Capital continued to be significantly above regulatory requirements for a well-capitalized institution, with September 30, 2019 ratios improving across the board.

Financial Supplement & Conference Call Presentation

OFG’s Financial Supplement, with full financial tables for the quarter ended September 30, 2019, and 3Q19 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, 9-2 and 10 in OFG’s above-mentioned Financial Supplement for reconciliation of GAAP to non-GAAP Measures and Calculations. OFG has attached to this news release Table 10: “Reconciliation of GAAP to Non-GAAP with adjustments to exclude the impact of significant events” for the quarters ended September 30, 2019 and June 30, 2019.

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 55^th 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 Error! Hyperlink reference not valid.www.ofgbancorp.com.

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Contacts

Puerto Rico: Idalis Montalvo (idalis.montalvo@orientalbank.com) at (787) 777-2847

US: Steven Anreder (sanreder@ofgbancorp.com) and Gary Fishman (gfishman@ofgbancorp.com) at (212) 532-3232

a) During 2Q 2019 and 3Q 2019, the Company sold $350 million and $322 million available-for-sale mortgage-backed securities, respectively, and recognized a gain in the sale of $4.8 million and $3.5 million, respectively.

b) During 3Q 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during 4Q 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.

c) During 2Q 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in 3Q 2019, increasing the provision by an additional $2.3 million.

d) During 3Q 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.

e) During 2Q 2019, the Company entered into an agreement with Scotiabank to acquire its Puerto Rico and US Virgin Islands operations, subject to customary closing conditions. During 2Q2019 and 3Q2019, $1.0 million and $1.6 million, respectively, were incurred in related expenses.

f) During 3Q 2019, the Company recognized an FDIC insurance assessment credit received amounting to $1.5 million.

g) During 3Q 2019, the Company received an additional $1 million credit from Puerto Rico Treasury for employee retention after hurricane Maria.

h) During 3Q 2019, the Company had a reduction in provision for loan losses of $4.5 million as a result of the adjustment to the qualitative factors, related to sustained favorable macroeconomic conditions in Puerto Rico.

i) Income tax effect reflects estimated income tax annual rate at September 30, 2019 and June 30, 2019 of 30.51% and 32.12%, respectively.

OFG Bancorp

Financial Supplement

The information contained in this Financial Supplement is preliminary and based on data available at the time of the earnings presentation, and investors should refer to our September 30, 2019 Quarterly Report on Form 10-Q once it is filed with the Securities and Exchange Commission.

Table of Contents

Pages

OFG Bancorp (Consolidated Financial Information)

Table  1:

Financial and Statistical Summary - Consolidated

2

Table  2:

Consolidated Statements of Operations

3

Table  3:

Consolidated Statements of Financial Condition

4

Table  4:

Information on Loan Portfolio and Production

5

Table  5:

Average Balances, Net Interest Income and Net Interest Margin

6-7

Table  6:

Loan Information and Performance Statistics (Excluding Acquired Loans)

8-9

Table  7:

Allowance for Loan and Lease Losses

10

Table  8:

Accretable Yield on Loans Accounted for Under ASC 310-30 (Loans Acquired

with Deteriorated Credit Quality, Including those by Analogy)

11

Table  9:

Reconciliation of GAAP to Non-GAAP Measures and Calculation of Regulatory

Capital

12-13

Table  10:

Reconciliation of GAAP to Non-GAAP with adjustments to exclude the impact

of quarter-specific items

14

Table  11:

Notes to Financial Summary, Selected Metrics, Loans, and Consolidated

Financial Statements (Tables 1-10)

15

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OFG Bancorp (NYSE: OFG)
Table 1: Financial and Statistical Summary - Consolidated
			2019			2019			2019			2018			2018			2019			2018
(Dollars in thousands, except per share data) (unaudited)			Q3			Q2			Q1			Q4			Q3			YTD			YTD
Earnings
Net interest income			$	80,710		$	81,085		$	81,789		$	82,035		$	82,277		$	243,584		$	233,859
Non-interest income, net (core)	(2)			18,542			18,074			17,553			19,260			18,446			54,169			55,079
Non-interest expense				50,727			51,452			52,152			51,719			50,941			154,331			155,362
Pre-provision net revenues	(21)			52,161			52,581			47,293			54,574			49,956			152,035			134,334
Provision for loan and lease losses				43,770	(a)(b)(c)		17,705	(c)		12,249			11,300	(f)		14,601			73,724	(a)(b)(c)		44,808
Net income before income taxes				8,391			34,876			35,044			43,274			35,355			78,311			89,526
Income tax expense				1,008			10,897			11,574			18,530			12,255			23,479			29,860
Net income			$	7,383		$	23,979		$	23,470		$	24,744		$	23,100		$	54,832		$	59,666
Common Share Statistics
Earnings per common share - basic	(3)		$	0.11		$	0.44		$	0.43		$	0.47		$	0.45		$	0.97		$	1.12
Earnings per common share - diluted	(4)		$	0.11		$	0.43		$	0.42		$	0.45		$	0.42		$	0.97		$	1.07
Average common shares outstanding				51,345			51,330			51,305			49,628	(d)		43,996			51,327			43,975
Average common shares outstanding and equivalents				51,772			51,680			51,626			51,602			51,464			51,695			51,344
Cash dividends per common share			$	0.07		$	0.07		$	0.07		$	0.07	(e)	$	0.06		$	0.21		$	0.18
Book value per common share (period end)			$	18.84		$	18.76		$	18.30		$	17.90	(d)	$	18.27		$	18.84		$	18.27
Tangible book value per common share (period end)	(5)		$	17.11		$	17.03		$	16.56		$	16.15	(d)	$	16.23		$	17.11		$	16.23
Balance Sheet (Average Balances)
Loans	(6)		$	4,539,046		$	4,514,030		$	4,504,725		$	4,460,002		$	4,400,637		$	4,519,393		$	4,294,178
Interest-earning assets				5,981,757			6,034,338			6,152,202			6,170,455			6,055,085			6,055,475			5,906,945
Total assets				6,433,658			6,496,423			6,605,328			6,619,026			6,514,532			6,511,171			6,360,715
Total deposits				4,921,259			4,880,114			4,890,630			4,987,446			4,934,468			4,897,447			4,853,613
Interest-bearing deposits				3,827,212			3,782,211			3,791,083			3,866,842			3,854,642			3,800,302			3,793,078
Borrowings				340,194			459,802			562,152			543,920			503,268			453,236			439,810
Stockholders' equity				1,061,541			1,037,057			1,017,546			983,015			973,838			1,038,869			962,187
Common stockholders' equity				979,671			955,187			935,676			881,971			807,968			956,999			796,317
Performance Metrics
Net interest margin	(7)			5.35%			5.39%			5.39%			5.27%			5.39%			5.38%			5.29%
Return on average assets	(8)			0.46%			1.48%			1.42%			1.50%			1.42%			1.12%			1.25%
Return on average tangible common stockholders' equity	(9)			2.58%			10.32%			10.32%			11.67%	(d)		10.94%			7.67%			9.30%
Efficiency ratio	(10)			51.11%			51.89%			52.50%			51.06%			50.58%			51.83%			53.77%
Full-time equivalent employees, period end				1,436			1,417			1,394			1,392			1,365			1,436			1,365
Credit Quality Metrics
Excluding acquired loans:	(1)
Allowance for loan and lease losses			$	79,089		$	89,952		$	94,035		$	95,188		$	95,236		$	79,089		$	95,236
Allowance as a % of loans held for investment				2.09%			2.35%			2.51%			2.54%			2.62%			2.09%			2.62%
Net charge-offs			$	34,427	(a)(b)(c)	$	12,564		$	12,486		$	10,885	(f)	$	12,402		$	59,477	(a)(b)(c)	$	38,695
Net charge-off rate	(11)			3.57%	(a)(b)(c)		1.32%			1.33%			1.18%			1.38%			1.75%	(a)(b)(c)		1.20%
Early delinquency rate (30 - 89 days past due)				3.64%			3.51%			3.61%			3.34%			3.32%			3.64%			3.32%
Total delinquency rate (30 days and over)				5.39%			6.07%			6.33%			6.36%			6.19%			5.39%			6.19%
Capital Ratios (Non-GAAP)	(12)
Leverage ratio				15.41%			15.20%			14.64%			14.22%	(d)		13.93%			15.41%			13.93%
Common equity Tier 1 capital ratio				17.98%			17.48%			17.09%			16.78%	(d)		14.38%			17.98%			14.38%
Tier 1 risk-based capital ratio				20.43%			19.87%			19.49%			19.20%	(d)		18.55%			20.43%			18.55%
Total risk-based capital ratio				21.71%			21.14%			20.77%			20.48%	(d)		19.84%			21.71%			19.84%
Tangible common equity ("TCE") ratio				14.07%			13.71%			13.05%			12.76%	(d)		10.88%			14.07%			10.88%
(a) During 3Q 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(b) During 3Q 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during 4Q 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(c) During 2Q 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in 3Q 2019, increasing the provision by an additional $2.3 million.
(d) During the 4Q 2018, the Company converted all of its outstanding 8.750% non-cumulative convertible perpetual preferred stock, series C into OFG Bancorp common stock. Each share of the 84,000 series C preferred stock was converted into 86.4225 shares of common stock.
(e) During the 4Q 2018, the Company increased the regular cash dividend per common share to $0.07 from $0.06.
(f) During the 4Q 2018, the Company received $1.8 million proceeds from the sale of fully charged-off originated auto and consumer loans.
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OFG Bancorp (NYSE: OFG)
Table 2: Consolidated Statements of Operations
			Quarter Ended															Nine-Months Ended
			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
(Dollars in thousands, except per share data) (unaudited)			2019			2019			2019			2018			2018			2019			2018
Interest income:
Loans	(1)
Non-acquired loans			$	74,303		$	72,978		$	71,298		$	70,747		$	68,387		$	218,580		$	189,557
Acquired BBVAPR loans				9,090			9,603			10,247			10,935			12,144			28,939			37,308
Acquired Eurobank loans				2,379			2,499			2,574			2,642			3,485			7,452			10,192
Total interest income from loans				85,772			85,080			84,119			84,324			84,016			254,971			237,057
Investment securities				7,883			9,175			10,591			10,782			10,121			27,649			28,256
Total interest income				93,655			94,255			94,710			95,106			94,137			282,620			265,313
Interest expense:
Deposits
Core deposits				8,256			7,465			6,214			6,396			5,877			21,935			16,806
Brokered deposits				2,298			2,526			2,835			3,003			2,728			7,659			6,748
Total deposits				10,554			9,991			9,049			9,399			8,605			29,594			23,554
Borrowings				2,391			3,179			3,872			3,672			3,255			9,442			7,900
Total interest expense				12,945			13,170			12,921			13,071			11,860			39,036			31,454
Net interest income				80,710			81,085			81,789			82,035			82,277			243,584			233,859
Provision for loan and lease losses, excluding acquired loans	(1)			23,564	(b)(c)(d)		8,481			11,333			10,842			13,420			43,378	(b)(c)(d)		41,213
Provision (recapture) for acquired BBVAPR loan and lease losses	(1)			19,135	(b)(c)(d)		7,446	(d)		1,567			(998)	(f)		875			28,148	(b)(c)(d)		2,485
Provision for acquired Eurobank loan and lease losses	(1)			1,071	(c)(d)		1,778	(d)		(651)	(e)		1,456			306			2,198	(c)(d)		1,110
Total provision for loan and lease losses, net				43,770			17,705			12,249			11,300			14,601			73,724			44,808
Net interest income after provision for loan and lease losses				36,940			63,380			69,540			70,735			67,676			169,860			189,051
Non-interest income:
Banking service revenues				10,813			10,776			10,465			11,234			10,797			32,054			32,404
Wealth management revenues				6,611			6,669			5,882			7,246			6,407			19,162			18,688
Mortgage banking activities				1,118			629			1,206			780			1,242			2,953			3,987
Total banking and financial service revenues				18,542			18,074			17,553			19,260			18,446			54,169			55,079
Other income, net				3,636	(a)		4,874	(a)		103			4,998	(g)		174			8,613	(a)		758
Total non-interest income, net				22,178			22,948			17,656			24,258			18,620			62,782			55,837
Non-interest expense:
Compensation and employee benefits				20,500			19,875			20,341			19,322			18,495			60,716			57,202
Occupancy, equipment and infrastructure costs				7,307			7,511			7,746			7,762			8,388			22,564			25,322
Net loss on sale of foreclosed real estate and other repossessed assets				794			21			1,070			1,834			1,210			1,885			2,828
General and administrative expenses				20,031			21,482			20,699			20,963			20,112			62,212			62,958
Total operating expenses				48,632			48,889			49,856			49,881			48,205			147,377			148,310
Credit related expenses				2,095			2,563			2,296			1,838			2,736			6,954			7,052
Total non-interest expense				50,727			51,452			52,152			51,719			50,941			154,331			155,362
Income before income taxes				8,391			34,876			35,044			43,274			35,355			78,311			89,526
Income tax expense				1,008			10,897			11,574			18,530	(h)		12,255			23,479			29,860
Net income				7,383			23,979			23,470			24,744			23,100			54,832			59,666
Less:  dividends on preferred stock
Convertible preferred stock				-			-			-			-	(i)		(1,838)			-	(i)		(5,513)
Other preferred stock				(1,628)			(1,628)			(1,628)			(1,628)			(1,628)			(4,884)			(4,883)
Net income available to common shareholders			$	5,755		$	22,351		$	21,842		$	23,116		$	19,634		$	49,948		$	49,270
(a) During 2Q 2019 and 3Q 2019, the Company sold $350 million and $322 million available-for-sale mortgage-backed securities, respectively, and recognized a gain in the sale of $4.8 million and $3.5 million.
(b) During 3Q 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(c) During 3Q 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during 4Q 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(d) During 2Q 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in 3Q 2019, increasing the provision by an additional $2.3 million.
(e) During the 1Q 2019, the provision for acquired Eurobank loans and leases reflected better cashflows than expected.
(f) During the 4Q 2018, the provision for acquired BBVAPR loans reflected better cashflows than expected.
(g) During the 4Q 2018, the Company received a $5.0 million payment from the insurance company for Hurricane María impact on the Bank's operations.
(h) During the 4Q 2018, the Company recognized an aggregate amount of $4.1 million income tax expense as a result of the changes in Puerto Rico Tax Legislation, mainly driven by a reduction of the DTA since Regular Corporate Tax Rate changes from 39% to 37.5%.
(i) During the 4Q 2018, the Company converted of all of its outstanding 8.750% non-cumulative convertible perpetual preferred stock, series C into OFG Bancorp common stock. Each share of the 84,000 series C preferred stock was converted into 86.4225 shares of common stock.
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OFG Bancorp (NYSE: OFG)
Table 3: Consolidated Statements of Financial Condition
			September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in thousands) (unaudited)			2019			2019			2019			2018			2018
Cash and cash equivalents			$	962,887	(a)	$	677,430	(a)	$	509,023		$	450,063		$	546,780
Investments:
Trading securities				41			412			381			360			405
Investment securities available-for-sale, at fair value, with amortized cost of $520,960
(June 30, 2019 - $860,911; March 31, 2019 - $1,248,750; December 31, 2018 - $854,511;
September 30, 2018 - $872,895)
Mortgage-backed securities				505,102	(a)		843,333	(a)		1,225,225	(d)		827,564			834,538
Other investment securities				13,993			14,100			14,244			14,293			14,014
Total investment securities available-for-sale				519,095			857,433			1,239,469			841,857			848,552
Mortgage-backed securities held-to-maturity, at amortized cost
(fair value at December 31, 2018 - $410,353;
September 30, 2018 - $425,066)				-			-			-	(d)		424,740			444,679
Federal Home Loan Bank (FHLB) stock, at cost				10,525			12,821			12,800			12,644			12,461
Other investments				57			3			3			3			3
Total investments				529,718			870,669			1,252,653			1,279,604			1,306,100
Loans, net				4,407,190	(b)(c)		4,474,497			4,401,401			4,431,594			4,352,980
Other assets:
Derivative assets				13			26			110			347			1,265
Prepaid expenses				14,244			11,903			7,830			10,283			13,461
Deferred tax asset, net				112,602			111,147			112,744			113,763			122,934
Foreclosed real estate and repossessed properties				30,488			32,016			34,439			36,754			42,014
Premises and equipment, net				69,754			71,001			69,017			68,892			67,762
Goodwill				86,069			86,069			86,069			86,069			86,069
Right of use assets				19,318			20,419			20,860	(e)		-			-
Accounts receivable and other assets				101,222			108,950			109,045			105,983			117,309
Total assets			$	6,333,505		$	6,464,127		$	6,603,191		$	6,583,352		$	6,656,674
Deposits:
Demand deposits			$	2,228,256		$	2,219,911		$	2,218,186		$	2,191,802		$	2,304,067
Savings accounts				1,206,569			1,200,408			1,231,170			1,187,945			1,216,190
Time deposits				1,154,871			1,136,411			996,519			1,003,271			1,037,858
Brokered deposits				288,362			388,407	(a)		451,226			525,097			530,878
Total deposits				4,878,058			4,945,137			4,897,101			4,908,115			5,088,993
Borrowings:
Securities sold under agreements to repurchase				190,261			240,324	(a)		431,566			455,508			378,237
Advances from FHLB and other borrowings				79,603			80,423			81,397			78,834			73,723
Subordinated capital notes				36,083			36,083			36,083			36,083			36,083
Total borrowings				305,947			356,830			549,046			570,425			488,043
Other liabilities:
Derivative liabilities				1,159			985			439			333			622
Acceptances outstanding				21,796			23,610			25,791			16,937			28,682
Lease liability				21,081			22,179			22,618	(e)		-			-
Accrued expenses and other liabilities				56,388			70,512			87,004			87,665			80,448
Total liabilities				5,284,429			5,419,253			5,581,999			5,583,475			5,686,788
Stockholders' equity:
Preferred stock				92,000			92,000			92,000			92,000	(f)		176,000
Common stock				59,885			59,885			59,885			59,885	(f)		52,626
Additional paid-in capital				620,948			620,368			619,828			619,381	(f)		542,078
Legal surplus				95,783			95,020			92,621			90,167			87,563
Retained earnings				285,854			284,458			268,101	(e)		253,040			236,120
Treasury stock, at cost				(102,936)			(103,171)			(103,196)			(103,633)			(103,706)
Accumulated other comprehensive (loss) income, net				(2,458)			(3,686)			(8,047)			(10,963)			(20,795)
Total stockholders' equity				1,049,076			1,044,874			1,021,192			999,877			969,886
Total liabilities and stockholders' equity			$	6,333,505		$	6,464,127		$	6,603,191		$	6,583,352		$	6,656,674
(a) During 3Q 2019, the Company sold $322 million available-for-sale mortgage-backed securities and recognized a gain in the sale of $3.4 million. During 2Q 2019, the Company sold $350 million available-for-sale mortgage-backed securities and recognized a gain in the sale of $4.8 million, resulting  in the termination before maturity of $191.2 million of securities sold under agreements to repurchase and in a reduction of $62.8 million of brokered CDs.
(b) During 3Q 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during 4Q 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(c) During 2Q 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in 3Q 2019, increasing the provision by an additional $2.3 million.
(d) On January 1, 2019, the Company adopted the Accounting Standard Update ("ASU") No. 2017-12 and reclassified all of its mortgage backed securities from the held-to-maturity portfolio into the available-for-sale portfolio.
(e) On January 1, 2019, the Company adopted the ASU No. 2016-02, under the effective date method, which requires lessees to recognize a right-of-use asset and related lease liability for lease classified as operating leases, prospectively.
(f) During 4Q 2018, the Company converted of all of its outstanding 8.750% non-cumulative convertible perpetual preferred stock, series C into OFG Bancorp common stock. Each share of the 84,000 series C preferred stock was converted into 86.4225 shares of common stock.
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OFG Bancorp (NYSE: OFG)
Table 4: Information on Loan Portfolio and Production
			September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in thousands) (unaudited)			2019			2019			2019			2018			2018
Non-acquired loans held for investment:
Mortgage			$	589,383		$	635,616		$	651,423		$	668,809		$	667,224
Commercial				1,573,629			1,616,973			1,569,551			1,597,588			1,540,027
Consumer				362,358			356,110			350,543			348,980			345,399
Auto				1,266,066			1,218,070			1,167,482			1,129,695			1,084,912
				3,791,436			3,826,769			3,738,999			3,745,072			3,637,562
Less:  Allowance for loan and lease losses				(79,089)			(89,952)			(94,035)			(95,188)			(95,236)
				3,712,347			3,736,817			3,644,964			3,649,884			3,542,326
Deferred loan costs, net				9,608			9,251			8,254			7,740			7,556
Total non-acquired loans held for investment, net				3,721,955			3,746,068			3,653,218			3,657,624			3,549,882
Acquired loans:	(1)
BBVAPR
Accounted for under ASC 310-20
Commercial				2,217			2,249			2,405			2,546			2,778
Consumer				21,461			21,966			22,768			23,988			24,914
Auto				237			996			2,336			4,435			7,494
				23,915			25,211			27,509			30,969			35,186
Less:  Allowance for loan and lease losses				(1,490)			(1,685)			(1,968)			(2,062)			(2,350)
				22,425			23,526			25,541			28,907			32,836
Accounted for under ASC 310-30
Mortgage				439,675			476,081			484,578			492,890			503,861
Commercial				155,653			169,481			176,908			182,319			190,178
Consumer				-			-			-			-			95
Auto				3,883			6,462			9,866			14,403			20,363
				599,211			652,024			671,352			689,612			714,497
Less:  Allowance for loan and lease losses				(51,394)			(45,427)			(42,133)			(42,010)			(43,875)
				547,817			606,597			629,219			647,602			670,622
Total Acquired BBVAPR loans, net				570,242			630,123			654,760			676,509			703,458
Eurobank
Accounted for under ASC 310-30
Mortgage				54,603			61,920			62,649			63,392			64,785
Commercial				46,412			46,421			46,588			47,826			49,262
Consumer				802			867			856			846			895
				101,817			109,208			110,093			112,064			114,942
Less:  Allowance for loan and lease losses				(22,370)			(25,578)			(24,352)			(24,971)			(24,281)
Total Acquired Eurobank loans, net				79,447			83,630			85,741			87,093			90,661
Total acquired loans, net				649,689			713,753			740,501			763,602			794,119
Total loans held for investment				4,371,644			4,459,821			4,393,719			4,421,226			4,344,001
Mortgage loans held for sale				23,504			13,293			7,682			10,368			8,979
Other loans held for sale				12,042			1,383			-			-			-
Total loans, net			$	4,407,190		$	4,474,497		$	4,401,401		$	4,431,594		$	4,352,980
Loan Portfolio Summary:
Loans held for investment:
Mortgage			$	1,083,661		$	1,173,617		$	1,198,650		$	1,225,091		$	1,235,870
Commercial				1,777,911			1,835,124			1,795,452			1,830,279			1,782,245
Consumer				384,621			378,943			374,167			373,814			371,303
Auto				1,270,186			1,225,528			1,179,684			1,148,533			1,112,769
				4,516,379			4,613,212			4,547,953			4,577,717			4,502,187
Less:  Allowance for loan and lease losses				(154,343)			(162,642)			(162,488)			(164,231)			(165,742)
				4,362,036			4,450,570			4,385,465			4,413,486			4,336,445
Deferred loan costs, net				9,608			9,251			8,254			7,740			7,556
Total loans held for investment, net				4,371,644			4,459,821			4,393,719			4,421,226			4,344,001
Mortgage loans held for sale				23,504			13,293			7,682			10,368			8,979
Other loans held for sale				12,042			1,383			-			-			-
Total loans, net			$	4,407,190		$	4,474,497		$	4,401,401		$	4,431,594		$	4,352,980
			2019			2019			2019			2018			2018
(Dollars in thousands) (unaudited)			Q3			Q2			Q1			Q4			Q3
Quarterly loan production	(13)
Mortgage			$	23,805		$	22,196		$	23,097		$	33,373		$	27,869
Commercial				65,635			64,079			60,485			92,088			105,346
US Loan Program				12,224			56,372			31,706			31,667			30,357
Consumer				48,257			47,662			40,877			42,055			42,995
Auto				141,507			136,263			120,199			123,770			140,390
Total			$	291,428		$	326,572		$	276,364		$	322,953		$	346,957
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OFG Bancorp (NYSE: OFG)
Table 5: Average Balances, Net Interest Income and Net Interest Margin
			2019 Q3									2019 Q2									2019 Q1									2018 Q4									2018 Q3
						Interest									Interest									Interest									Interest									Interest
			Average			Income/			Yield/			Average			Income/			Yield/			Average			Income/			Yield/			Average			Income/			Yield/			Average			Income/			Yield/
(Dollars in thousands) (unaudited)			Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate
Interest earning assets:
Cash equivalents			$	734,105		$	4,086		2.21	%		$	481,115		$	2,904		2.42	%		$	388,578		$	2,368		2.47	%		$	434,701		$	2,572		2.35	%		$	327,268		$	1,676		2.03	%
Investment securities				708,606			3,797		2.14	%			1,039,193			6,271		2.41	%			1,258,899			8,223		2.61	%			1,275,752			8,210		2.57	%			1,327,180			8,445		2.55	%
Loans
Non-acquired loans				3,859,035			74,303		7.64	%			3,794,263			72,979		7.71	%			3,764,457			71,298		7.68	%			3,693,398			70,747		7.60	%			3,601,149			68,387		7.53	%
Acquired BBVAPR loans				597,777			9,090		6.08	%			634,598			9,603		6.05	%			654,109			10,247		6.27	%			678,026			10,935		6.45	%			708,306			12,144		6.86	%
Acquired Eurobank loans				82,234			2,379		11.57	%			85,169			2,499		11.74	%			86,159			2,574		11.95	%			88,578			2,642		11.93	%			91,182			3,485		15.29	%
Total loans				4,539,046			85,772		7.50	%			4,514,030			85,081		7.56	%			4,504,725			84,119		7.57	%			4,460,002			84,324		7.50	%			4,400,637			84,016		7.57	%
Total interest-earning assets			$	5,981,757		$	93,655		6.21	%		$	6,034,338		$	94,256		6.27	%		$	6,152,202		$	94,710		6.24	%		$	6,170,455		$	95,106		6.11	%		$	6,055,085		$	94,137		6.17	%
Interest bearing liabilities:
Deposits
NOW accounts			$	1,118,156		$	1,616		0.57	%		$	1,124,670		$	1,730		0.62	%		$	1,119,612		$	1,454		0.53	%		$	1,109,795		$	1,432		0.51	%		$	1,096,023		$	1,196		0.43	%
Savings accounts				1,199,678			2,012		0.67	%			1,180,153			1,882		0.64	%			1,181,024			1,615		0.55	%			1,217,931			1,741		0.57	%			1,211,693			1,571		0.51	%
Time deposits				1,151,248			4,427		1.53	%			1,065,005			3,652		1.38	%			992,331			2,944		1.20	%			1,012,267			3,008		1.18	%			1,027,424			2,896		1.12	%
Brokered deposits				358,130			2,298		2.55	%			412,383			2,526		2.46	%			498,116			2,835		2.31	%			526,849			3,003		2.26	%			519,502			2,727		2.08	%
				3,827,212			10,353		1.07	%			3,782,211			9,790		1.04	%			3,791,083			8,848		0.95	%			3,866,842			9,184		0.94	%			3,854,642			8,390		0.86	%
Non-interest bearing deposit accounts				1,094,047			-		-				1,097,903			-		-				1,099,547			-		-				1,120,604			-		-				1,079,826			-		-	%
Fair value premium amortization and core deposit intangible amortization				-			201		-				-			201		-				-			201		-				-			215		-				-			215		-
Total deposits				4,921,259			10,554		0.85	%			4,880,114			9,991		0.82	%			4,890,630			9,049		0.75	%			4,987,446			9,399		0.75	%			4,934,468			8,605		0.69	%
Borrowings
Securities sold under agreements to repurchase				224,783			1,342		2.37	%			343,370			2,107		2.46	%			444,843			2,785		2.54	%			430,889			2,633		2.42	%			390,225			2,242		2.28	%
Advances from FHLB and other borrowings				79,328			550		2.75	%			80,349			559		2.79	%			81,226			563		2.81	%			76,948			536		2.76	%			76,960			517		2.67	%
Subordinated capital notes				36,083			499		5.49	%			36,083			514		5.71	%			36,083			524		5.89	%			36,083			503		5.53	%			36,083			496		5.45	%
Total borrowings				340,194			2,391		2.79	%			459,802			3,180		2.77	%			562,152			3,872		2.79	%			543,920			3,672		2.68	%			503,268			3,255		2.57	%
Total interest-bearing liabilities			$	5,261,453		$	12,945		0.98	%		$	5,339,916		$	13,171		0.99	%		$	5,452,782		$	12,921		0.96	%		$	5,531,366		$	13,071		0.94	%		$	5,437,736		$	11,860		0.87	%
Interest rate spread						$	80,710		5.23	%					$	81,085		5.28	%					$	81,789		5.28	%					$	82,035		5.17	%					$	82,277		5.30	%
Net interest margin									5.35	%								5.39	%								5.39	%								5.27	%								5.39	%
ASC 310-30 loan cost recoveries:
Acquired BBVAPR loans						$	217								$	241								$	427								$	653								$	1,143
Acquired Eurobank loans							154									189									110									123									829
						$	371								$	430								$	537								$	776								$	1,972
Adjusted excluding cost recoveries (Non-GAAP):
Total interest-earning assets			$	5,981,757		$	93,284		6.19	%		$	6,034,338		$	93,826		6.24	%		$	6,152,202		$	94,173		6.21	%		$	6,170,455		$	94,330		6.07	%		$	6,055,085		$	92,165		6.04	%
Interest rate spread						$	80,339		5.21	%					$	80,655		5.25	%					$	81,252		5.25	%					$	81,259		5.13	%					$	80,305		5.17	%
Net interest margin									5.33	%								5.36	%								5.36	%								5.22	%								5.26	%
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OFG Bancorp (NYSE: OFG)
Table 5: Average Balances, Net Interest Income and Net Interest Margin (Continued)
			2019 YTD									2018 YTD
						Interest									Interest
			Average			Income/			Yield/			Average			Income/			Yield/
(Dollars in thousands) (unaudited)			Balance			Expense			Rate			Balance			Expense			Rate
Interest earning assets:
Cash equivalents			$	535,865		$	9,357		2.33	%		$	313,410		$	4,126		1.76	%
Investment securities				1,000,217			18,292		2.44	%			1,299,357			24,131		2.48	%
Loans
Non-acquired loans				3,806,265			218,580		7.68	%			3,443,834			189,557		7.36	%
Acquired BBVAPR loans				628,622			28,939		6.14	%			756,120			37,308		6.58	%
Acquired Eurobank loans				84,506			7,452		11.76	%			94,224			10,192		14.42	%
Total loans				4,519,393			254,971		7.54	%			4,294,178			237,057		7.38	%
Total interest-earning assets			$	6,055,475		$	282,620		6.24	%		$	5,906,945		$	265,314		6.01	%
Interest bearing liabilities:
Deposits
NOW accounts			$	1,120,807		$	4,800		0.57	%		$	1,069,341		$	3,064		0.38	%
Savings accounts				1,187,020			5,508		0.62	%			1,216,198			4,623		0.51	%
Time deposits				1,070,111			11,024		1.38	%			1,021,707			8,475		1.11	%
Brokered deposits				422,364			7,660		2.42	%			485,832			6,748		1.86	%
				3,800,302			28,992		1.02	%			3,793,078			22,910		0.81	%
Non-interest bearing deposit accounts				1,097,145			-		-				1,060,535			-		-	%
Fair value premium amortization and core deposit intangible amortization				-			602		-				-			644		-
Total deposits				4,897,447			29,594		0.81	%			4,853,613			23,554		0.65	%
Borrowings
Securities sold under agreements to repurchase				336,859			6,234		2.47	%			332,215			5,160		2.08	%
Advances from FHLB and other borrowings				80,294			1,671		2.78	%			71,512			1,339		2.50	%
Subordinated capital notes				36,083			1,537		5.70	%			36,083			1,402		5.19	%
Total borrowings				453,236			9,442		2.79	%			439,810			7,901		2.40	%
Total interest-bearing liabilities			$	5,350,683		$	39,036		0.98	%		$	5,293,423		$	31,455		0.79	%
Interest rate spread						$	243,584		5.26	%					$	233,859		5.22	%
Net interest margin									5.38	%								5.29	%
ASC 310-30 loan cost recoveries:
Acquired BBVAPR loans						$	885									1,553
Acquired Eurobank loans							453									1,752
						$	1,338								$	3,305
Adjusted excluding cost recoveries (Non-GAAP):
Total interest-earning assets			$	6,055,475		$	281,282		6.21	%		$	5,906,945		$	262,009		5.93	%
Interest rate spread						$	242,246		5.23	%					$	230,554		5.14	%
Net interest margin									5.35	%								5.22	%
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OFG Bancorp (NYSE: OFG)
Table 6: Loan Information and Performance Statistics (Excluding Acquired Loans) (1)
			2019			2019			2019			2018			2018
(Dollars in thousands) (unaudited)			Q3			Q2			Q1			Q4			Q3
Net Charge-offs
Mortgage:
Charge-offs			$	16,299	(b)	$	604		$	587		$	1,570		$	1,429
Recoveries				(493)			(316)			(287)			(128)			(139)
Total mortgage				15,806			288			300			1,442			1,290
Commercial:
Charge-offs				8,402	(b)		2,146			1,086			386			3,249
Recoveries				(174)			(177)			(147)			(126)			(119)
Total commercial				8,228			1,969			939			260			3,130
Consumer:
Charge-offs				5,046			4,839			4,121			4,191			4,591
Recoveries				(1,260)	(a)		(327)			(263)			(1,000)			(278)
Total consumer				3,786			4,512			3,858			3,191			4,313
Auto:
Charge-offs				12,331			10,672			11,371			10,843			9,111
Recoveries				(5,724)	(a)		(4,877)			(3,982)			(4,851)			(5,442)
Total auto				6,607			5,795			7,389			5,992			3,669
Total			$	34,427		$	12,564		$	12,486		$	10,885		$	12,402
Net Charge-off Rates
Mortgage				10.14%			0.18%			0.18%			0.88%			0.77%
Commercial				2.06%			0.50%			0.24%			0.07%			0.83%
Consumer				4.00%			4.85%			4.18%			3.47%			4.74%
Auto				2.10%			1.94%			2.54%			2.14%			1.39%
Total				3.57%	(b)		1.32%			1.33%			1.18%			1.38%
Average Loans Held For Investment
Mortgage			$	623,772		$	640,141		$	649,408		$	658,835		$	667,372
Commercial				1,597,902			1,584,362			1,584,246			1,546,166			1,512,661
Consumer				378,967			372,477			369,382			368,083			363,884
Auto				1,258,394			1,197,283			1,161,421			1,120,314			1,057,232
Total			$	3,859,035		$	3,794,263		$	3,764,457		$	3,693,398		$	3,601,149
(a) During 3Q 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(b) During 3Q 2019, the Company decided to sell several non-performing originated loans, which are expected to be sold during 4Q 2019, increasing charge-offs by $15.9 million, $4.4 million in commercial loans and $11.5 million in residential mortgages.
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OFG Bancorp (NYSE: OFG)
Table 6: Loan Information and Performance Statistics (Excluding Acquired Loans) (Continued) (1)
			2019			2019			2019			2018			2018
(Dollars in thousands) (unaudited)			Q3			Q2			Q1			Q4			Q3
Early Delinquency (30 - 89 days past due)
Mortgage			$	21,631		$	24,303		$	26,775		$	26,150		$	25,285
Commercial				4,403			2,738			12,825			5,568			6,871
Consumer				8,550			8,617			7,795			7,285			6,661
Auto				103,346			98,625			87,500			86,039			81,828
Total			$	137,930		$	134,283		$	134,895		$	125,042		$	120,645
Early Delinquency Rates (30 - 89 days past due)
Mortgage				3.67%			3.82%			4.11%			3.91%			3.79%
Commercial				0.28%			0.17%			0.82%			0.35%			0.45%
Consumer				2.36%			2.42%			2.22%			2.09%			1.93%
Auto				8.16%			8.10%			7.49%			7.62%			7.54%
Total				3.64%			3.51%			3.61%			3.34%			3.32%
Total Delinquency (30 days and over past due)
Mortgage:
Traditional, Non traditional, and Loans under Loss Mitigation			$	40,194	(a)	$	70,364		$	78,560		$	82,404		$	83,966
GNMA's buy-back option program				11,403			11,675			12,942			19,721			13,325
Total mortgage				51,597			82,039			91,502			102,125			97,291
Commercial				24,399	(a)		28,762			35,737			27,423			25,191
Consumer				10,912			10,817			9,873			8,983			8,530
Auto				117,566			110,646			99,663			99,533			93,976
Total			$	204,474		$	232,264		$	236,775		$	238,064		$	224,988
Total Delinquency Rates (30 days and over past due)
Mortgage:
Traditional, Non traditional, and Loans under Loss Mitigation				6.82%			11.07%			12.06%			12.32%			12.58%
GNMA's buy-back option program				1.93%			1.84%			1.99%			2.95%			2.00%
Total mortgage				8.75%			12.91%			14.05%			15.27%			14.58%
Commercial				1.55%			1.78%			2.28%			1.72%			1.64%
Consumer				3.01%			3.04%			2.82%			2.57%			2.47%
Auto				9.29%			9.08%			8.54%			8.81%			8.66%
Total				5.39%			6.07%			6.33%			6.36%			6.19%
Nonperforming Assets	(14)
Mortgage			$	21,138	(a)	$	53,534		$	59,665		$	63,717		$	67,236
Commercial				35,601	(a)		44,617			50,376			42,456			42,807
Consumer				4,008			2,208			3,971			3,354			3,116
Auto				15,019			12,024			12,163			13,494			12,185
Total nonperforming loans				75,766			112,383			126,175			123,021			125,344
Foreclosed real estate				11,210			10,954			10,011			9,571			10,295
Other repossessed assets				3,537			2,507			3,574			2,986			4,146
Total nonperforming assets			$	90,513		$	125,844		$	139,760		$	135,578		$	139,785
Nonperforming Loan Rates
Mortgage				3.59%			8.42%			9.16%			9.53%			10.08%
Commercial				2.26%			2.76%			3.21%			2.66%			2.78%
Consumer				1.11%			0.62%			1.13%			0.96%			0.90%
Auto				1.19%			0.99%			1.04%			1.19%			1.12%
Total loans				2.00%			2.94%			3.37%			3.28%			3.45%
(a) During 3Q 2019, the Company identified non-performing originated loans expected to be sold during 4Q 2019, $29 million in mortgage loans and $9 million in commercial loans. These loans were reclassified as held-for-sale at their fair value.
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OFG Bancorp (NYSE: OFG)
Table 7: Allowance for Loan and Lease Losses
			Quarter Ended September 30, 2019
(Dollars in thousands) (unaudited)			Mortgage			Commercial			Consumer			Auto			Total
Non-acquired loans
Balance at beginning of period			$	15,361		$	29,234		$	15,831		$	29,526		$	89,952
(Recapture) provision for loan and lease losses, net				8,836			1,317			3,283			10,128			23,564
Charge-offs				(16,299)			(8,402)			(5,046)			(12,331)			(42,078)
Recoveries				493			174			1,260			5,724			7,651
Balance at end of period			$	8,391		$	22,323		$	15,328		$	33,047		$	79,089
Allowance coverage ratio				1.42%			1.42%			4.23%			2.61%			2.09%
Acquired loans
Acquired BBVAPR loans:
Acquired loans accounted for under ASC 310-20
Balance at beginning of period						$	31		$	1,617		$	37		$	1,685
(Recapture) provision for loan and lease losses, net							7			(102)			(41)			(136)
Charge-offs							(19)			(270)			(52)			(341)
Recoveries							1			203			78			282
Balance at end of period						$	20		$	1,448		$	22		$	1,490
Acquired loans accounted for under ASC 310-30
Balance at beginning of period			$	25,208		$	17,083		$	-		$	3,136		$	45,427
Provision (recapture) for loan and lease losses, net				7,954			11,714			-			(396)			19,272
Allowance de-recognition				(12,704)			(150)			-			(451)			(13,305)
Balance at end of period			$	20,458		$	28,647		$	-		$	2,289		$	51,394
Acquired Eurobank loans:
Balance at beginning of period			$	17,213		$	8,365		$	-		$	-		$	25,578
Provision (recapture) for loan and lease losses, net				953			118			-						1,071
Allowance de-recognition				(4,357)			78			-			-			(4,279)
Balance at end of period			$	13,809		$	8,561		$	-		$	-		$	22,370
Total acquired loans
Balance at beginning of period			$	42,421		$	25,479		$	1,617		$	3,173		$	72,690
Provision (recapture) for loan and lease losses, net				8,907			11,839			(102)			(437)			20,207
Charge-offs				-			(19)			(270)			(52)			(341)
Recoveries				-			1			203			78			282
Allowance de-recognition				(17,061)			(72)			-			(451)			(17,584)
Balance at end of period			$	34,267		$	37,228		$	1,448		$	2,311		$	75,254
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OFG Bancorp (NYSE: OFG)
Table 8: Accretable Yield on Loans Accounted for Under ASC 310-30 (Loans Acquired with Deteriorated Credit Quality, including those by Analogy)
			Quarter Ended September 30, 2019
(Dollars in thousands) (unaudited)			Mortgage			Commercial			Construction			Auto			Consumer			Total
Accretable Yield and Non-Accretable Discount
Acquired BBVAPR loans:
Accretable Yield
Balance at beginning of period			$	217,549		$	32,592		$	2,046		$	43		$	288		$	252,518
Accretion				(5,876)			(1,606)			(773)			(77)			(151)			(8,483)
Change in expected cash flows				-			13,503			1,403			5			151			15,062
Transfers (to) from non-accretable discount				(9,849)			(26,688)			(1,351)			57			(94)			(37,925)
Balance at end of period			$	201,824		$	17,801		$	1,325		$	28		$	194		$	221,172
Non-Accretable Discount
Balance at beginning of period			$	292,258		$	3,191		$	7,713		$	24,083		$	18,810		$	346,055
Change in actual and expected cash flows				(21,356)			(13,089)			(1,735)			44			(118)			(36,254)
Transfers from (to) accretable yield				9,849			26,688			1,351			(57)			94			37,925
Balance at end of period			$	280,751		$	16,790		$	7,329		$	24,070		$	18,786		$	347,726
									Construction &
									Development
			Loans Secured						Secured by
			by 1-4 Family			Commercial			1-4 Family
			Residential			and Other			Residential
			Properties			Construction			Properties			Leasing			Consumer			Total
Acquired Eurobank loans:
Accretable Yield
Balance at beginning of period			$	35,935		$	1,856		$	603		$	-		$	-		$	38,394
Accretion				(1,218)			(1,075)			-			3			(89)			(2,379)
Change in expected cash flows				1,917			550			-			(93)			132			2,506
Transfers (to) from non-accretable discount				(2,518)			(438)			(24)			90			(43)			(2,933)
Balance at end of period			$	34,116		$	893		$	579		$	-		$	-		$	35,588
Non-Accretable Discount
Balance at beginning of period			$	79		$	-		$	1,602		$	-		$	118		$	1,799
Change in actual and expected cash flows				(2,597)			(438)			-			90			(73)			(3,018)
Transfers from (to) accretable yield				2,518			438			24			(90)			43			2,933
Balance at end of period			$	-		$	-		$	1,626		$	-		$	88		$	1,714
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OFG Bancorp (NYSE: OFG)
Table 9: Reconciliation of GAAP to Non-GAAP Measures and Calculation of Regulatory Capital
In addition to disclosing required regulatory capital measures, we also report certain non-GAAP capital measures that management uses in assessing its capital adequacy. These non-GAAP measures include tangible common equity ("TCE") and TCE ratio. The table below provides the details of the calculation of our regulatory capital and non-GAAP capital measures. While our non-GAAP capital measures are widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, they may not be comparable to similarly titled measures reported by other companies.
			2019			2019			2019			2018			2018
(Dollars in thousands) (unaudited)			Q3			Q2			Q1			Q4			Q3
Stockholders' Equity to Non-GAAP Tangible Common Equity
Total stockholders' equity			$	1,049,076		$	1,044,874		$	1,021,192		$	999,877		$	969,886
Less:  Intangible assets				(88,560)			(88,852)			(89,145)			(89,437)			(89,767)
Noncumulative perpetual preferred stock				(92,000)			(92,000)			(92,000)			(92,000)			(176,000)
Noncumulative perpetual preferred stock issuance costs				10,130			10,130			10,130			10,130			10,130
Tangible common equity			$	878,646		$	874,152		$	850,177		$	828,570		$	714,249
Common stock outstanding at end of period				51,347			51,330			51,328			51,294			44,006
Tangible book value (Non-GAAP)			$	17.11		$	17.03		$	16.56		$	16.15		$	16.23
Total Assets to Tangible Assets
Total assets			$	6,333,505		$	6,464,127		$	6,603,191		$	6,583,352		$	6,656,674
Less:  Intangible assets				(88,560)			(88,852)			(89,145)			(89,437)			(89,767)
Tangible assets (Non-GAAP)			$	6,244,945		$	6,375,275		$	6,514,046		$	6,493,915		$	6,566,907
Non-GAAP TCE Ratio
Tangible common equity			$	878,646		$	874,152		$	850,177		$	828,570		$	714,249
Tangible assets				6,244,945			6,375,275			6,514,046			6,493,915			6,566,907
TCE ratio				14.07%			13.71%			13.05%			12.76%			10.88%
Average Equity to Non-GAAP Average Tangible Common Equity
Average total stockholders' equity			$	1,061,541		$	1,037,057		$	1,017,546		$	983,015		$	973,838
Less:  Average noncumulative perpetual preferred stock				(92,000)			(92,000)			(92,000)			(111,174)			(176,000)
Average noncumulative perpetual preferred stock issuance costs				10,130			10,130			10,130			10,130			10,130
Average total common stockholders' equity			$	979,671		$	955,187		$	935,676		$	881,971		$	807,968
Less:  Average intangible assets				(88,701)			(88,995)			(89,291)			(89,580)			(89,933)
Average tangible common equity			$	890,970		$	866,192		$	846,385		$	792,391		$	718,035
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OFG Bancorp (NYSE: OFG)
Table 9: Reconciliation of GAAP to Non-GAAP Measures and Calculation of Regulatory Capital Measures (Continued)
			BASEL III
			Standardized
			2019			2019			2019			2018			2018
(Dollars in thousands) (unaudited)			Q3			Q2			Q1			Q4			Q3
Regulatory Capital Metrics
Common equity Tier 1 capital			$	858,092		$	855,667		$	832,923		$	811,708		$	690,937
Tier 1 capital				974,962			972,537			949,793			928,578			891,807
Total risk-based capital	(15)			1,035,910			1,035,109			1,012,112			990,500			953,543
Risk-weighted assets				4,771,165			4,895,441			4,872,807			4,837,214			4,806,348
Regulatory Capital Ratios
Common equity Tier 1 capital ratio	(16)			17.98%			17.48%			17.09%			16.78%			14.38%
Tier 1 risk-based capital ratio	(17)			20.43%			19.87%			19.49%			19.20%			18.55%
Total risk-based capital ratio	(18)			21.71%			21.14%			20.77%			20.48%			19.84%
Leverage ratio	(19)			15.41%			15.20%			14.64%			14.22%			13.93%
Common Equity Tier 1 Capital Ratio Under Basel III Standardized Approach
Total stockholders' equity			$	1,049,076		$	1,044,874		$	1,021,192		$	999,877		$	969,886
Less:  Noncumulative perpetual preferred stock				(92,000)			(92,000)			(92,000)			(92,000)			(176,000)
Noncumulative perpetual preferred stock issuance costs				10,130			10,130			10,130			10,130			10,130
Unrealized gains on available-for-sale securities, net of income tax				1,742			3,087			7,841			10,972			21,187
Unrealized losses on cash flow hedges, net of income tax				716			599			206			(9)			(392)
				969,664			966,690			947,369			928,970			824,811
Less:    Disallowed goodwill				(86,069)			(86,069)			(86,069)			(86,069)			(86,069)
Disallowed other intangible assets, net	(20)			(1,557)			(1,739)			(1,922)			(2,105)			(2,256)
Disallowed deferred tax assets, net	(20)			(23,946)			(23,215)			(26,455)			(29,088)			(45,549)
Common equity Tier 1 capital				858,092			855,667			832,923			811,708			690,937
Plus:  Qualifying noncumulative perpetual preferred stock				92,000			92,000			92,000			92,000			176,000
Qualifying noncumulative perpetual preferred stock issuance costs				(10,130)			(10,130)			(10,130)			(10,130)			(10,130)
Subordinated capital notes				35,000			35,000			35,000			35,000			35,000
Tier 1 capital				974,962			972,537			949,793			928,578			891,807
Plus tier 2 capital:  Qualifying allowance for loan and lease losses				60,948			62,572			62,319			61,922			61,736
Total risk-based capital			$	1,035,910		$	1,035,109		$	1,012,112		$	990,500		$	953,543
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OFG Bancorp (NYSE: OFG)
Table 10: Reconciliation of GAAP to Non-GAAP with adjustments to exclude the impact of significant events.
The Company prepared its Consolidated Financial Statement using accounting principles generally accepted in the U.S. (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Company’s results on the reported basis, management monitors the “Adjusted net income” of the Company and excludes the impact of certain transactions on the results of its operations. Management believes that “Adjusted net income” provides meaningful information to investors about the underlying performance of the Company’s ongoing operations. “Adjusted net income” is a non-GAAP financial measure. The table below describes adjustments to net income for the quarter ended September 31, 2019 and June 30, 2019.
		Quarter ended September 30, 2019									Quarter ended June 30, 2019
					Income Tax			Impact on						Income Tax			Impact on
(Dollars in thousands) (unaudited)		Pre-tax			Effect (i)			Net Income			Pre-tax			Effect (i)			Net Income
U.S. GAAP net income								$	7,383								$	23,979
Non-GAAP adjustments:
Sale of mortgage-backed securities available-for-sale	(a)	$	(3,498)		$	1,067			(2,431)		$	(4,769)		$	1,532			(3,237)
Non-performing loans transferred to held-for-sale or sold	(b)(c)		38,958			(11,886)			27,072			8,803			(2,828)			5,975
Sale of fully charged-off loans	(d)		(2,382)			727			(1,655)			-			-			-
Merger expenses	(e)		1,556			(475)			1,081			1,000			(321)			679
FDIC insurance assessment credit	(f)		(1,534)			468			(1,066)			-			-			-
Hacienda credit for hurricane Maria	(g)		(1,010)			308			(702)			-			-			-
Environmental factors adjustment	(h)		(4,541)			1,385			(3,156)			-			-			-
Adjusted net income (Non-GAAP)								$	26,527								$	27,396
Less:  dividends on preferred stock									(1,628)									(1,628)
Adjusted net income available to common shareholders (Non-GAAP)								$	24,899								$	25,768
U.S. GAAP earnings per common share - diluted								$	0.11								$	0.43
Non-GAAP adjustments:
Sale of mortgage-backed securities available-for-sale	(a)	$	(0.07)		$	0.02			(0.05)		$	(0.09)		$	0.03			(0.06)
Non-performing loans transferred to held-for-sale or sold	(b)(c)		0.75			(0.23)			0.52			0.17			(0.05)			0.12
Sale of fully charged-off loans	(d)		(0.04)			0.01			(0.03)			-			-			-
Merger expenses	(e)		0.03			(0.01)			0.02			0.02			(0.01)			0.01
FDIC insurance assessment credit	(f)		(0.03)			0.01			(0.02)			-			-			-
Hacienda credit for hurricane Maria	(g)		(0.02)			0.01			(0.01)			-			-			-
Environmental factors adjustment	(h)		(0.09)			0.03			(0.06)			-			-			-
Adjusted earnings per common share - diluted (Non-GAAP)								$	0.48								$	0.50
Adjusted Performance Metrics - Reconciliation to GAAP Financial Measures:								Quarter ended September 30, 2019									Quarter ended June 30, 2019
Net income								$	7,383								$	23,979
Non-GAAP adjustments	(a)(b)(c)(d)(e)(f)(g)(h)								19,144									3,417
Adjusted net income (Non-GAAP)									26,527									27,396
Average assets									6,433,658									6,496,423
Return on average assets									0.46%									1.48%
Adjusted return on average assets (Non-GAAP)									1.65%									1.69%
Net income available to common shareholders								$	5,755								$	22,351
Non-GAAP adjustments	(a)(b)(c)(d)(e)(f)(g)(h)								19,144									3,417
Adjusted net income available to common shareholders (Non-GAAP)									24,899									25,768
Average tangible common equity									890,970									866,192
Return on average tangible common stockholders' equity									2.58%									10.32%
Adjusted return on average tangible common stockholders' equity (Non-GAAP)									11.18%									11.90%
Total non-interest expense								$	50,727								$	51,452
Non-GAAP adjustments, pre-tax	(e)(f)(g)								988									(1,000)
Adjusted total non-interest expense (Non-GAAP)									51,715									50,452
Net interest income									80,710									81,085
Total banking and financial service revenues									18,542									18,074
									99,252									99,159
Efficiency ratio									51.11%									51.89%
Adjusted efficiency ratio (Non-GAAP)									52.10%									50.88%
(a) During 2Q 2019 and 3Q 2019, the Company sold $350 million and $322 million available-for-sale mortgage-backed securities, respectively, and recognized a gain in the sale of $4.8 million and $3.5 million, respectively.
(b) During 3Q 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during 4Q 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(c) During 2Q 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in 3Q 2019, increasing the provision by an additional $2.3 million.
(d) During 3Q 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(e) During 2Q 2019, the Company entered into an agreement with Scotiabank to acquire its Puerto Rico and US Virgin Islands operations, subject to customary closing conditions. During 2Q2019 and 3Q2019, $1.0 million and $1.6 million, respectively, were incurred in related expenses.
(f) During 3Q 2019, the Company recognized an FDIC insurance assessment credit received amounting to $1.5 million.
(g) During 3Q 2019, the Company received an additional $1 million credit from Puerto Rico Treasury on employee retention during hurricane Maria.
(h) During 3Q 2019, the Company had a reduction in provision for loan losses of $4.5 million as a result of the adjustment to the qualitative factor related to sustained favorable macroeconomic conditions in Puerto Rico.
(i) Income tax effect reflects estimated income tax annual rate at September 30, 2019 and June 30, 2019 of 30.51% and 32.12%, respectively.
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OFG Bancorp (NYSE: OFG)
Table 11: Notes to Financial Summary, Selected Metrics, Loans, and Consolidated Financial Statements (Tables 1 - 10)
(1)	We use the term "acquired loans" to refer to loans acquired from the BBVAPR acquisition (December 18, 2012) and loans acquired in the Eurobank FDIC-Assisted acquisition (April 30, 2010), recorded at fair value at acquisition. The majority of these loans acquired are subsequently accounted for based on estimated cash flows expected to be collected over the life of the loans (under the accounting standard known as ASC 310-30). Because the guidance takes into consideration future credit losses expected to be incurred over the life of the loans, there are no charge-offs or an allowance associated with this loans unless the estimated cash flows expected to be collected decrease subsequent to acquisition. In addition, these loans are not classified as delinquent or nonperforming even though the customer may be contractually past due because we expect that we will fully collect the carrying value of these loans. Acquired loans also include loans acquired in the BBVAPR acquisition that were accounted for under the provisions of ASC 310-20, which at the end of the reporting period still have unamortized premium or discount. The fair value of these loans already include a credit mark for losses estimated on these loans.  The allowance for loan and lease losses for these loans considers such marks applied. The accounting and classification of these loans may significantly alter some of our reported credit quality metrics. We therefore supplement certain reported credit quality metrics with metrics adjusted to exclude the impact of these acquired loans.
(2)	Total banking and financial service revenues.
(3)	Calculated based on net income available to common shareholders divided by average common shares outstanding for the period.
(4)	Calculated based on net income available to common shareholders plus the preferred dividends on the convertible preferred stock, divided by total average common shares outstanding and equivalents for the period as if converted.
(5)	Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by common shares outstanding. See "Table 9: Reconciliation of GAAP to Non-GAAP Measures and Calculation of Regulatory Capital Measures" for additional information.
(6)	Information includes all loans held for investment, including all acquired loans. Acquired loans, including those accounted for under ASC 310-30, are disclosed at carrying amount.
(7)	Calculated based on annualized net interest income for the period divided by average interest-earning assets for the period.
(8)	Calculated based on annualized income, net of tax, for the period divided by average total assets for the period.
(9)	Calculated based on annualized income available to common shareholders for the period divided by average tangible common equity for the period.
(10)	Calculated based on non-interest expense for the period divided by total net interest income and total banking and financial services revenues for the period.
(11)	Calculated based on annualized net charge-offs for the period divided by average loans held for investment for the period.
(12)	Non-GAAP ratios. See "Table 9: Reconciliation of GAAP to Non-GAAP Measures and Calculation of Regulatory Capital Measures" for information on the calculation of each of these ratios.
(13)	Production of new loans (excluding renewals).
(14)	Loans accounted for under ASC 310-30 (loans acquired with deteriorated credit quality, including those by analogy), including Eurobank acquired loans, are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses. Therefore, they are not included as non-performing loans.
(15)	Total risk-based capital equals the sum of Tier 1 capital and Tier 2 capital.
(16)	Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on Common equity Tier 1 capital divided by risk-weighted assets.
(17)	Tier 1 risk-based capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.
(18)	Total risk-based capital ratio is a regulatory capital measure calculated based on Total risk-based capital divided by risk-weighted assets.
(19)	Leverage capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by average assets, after certain adjustments.
(20)	Amounts based on transition provisions for regulatory capital deductions and adjustments of 80% for 2019 and 2018.
(21)	Pre-provision net revenues is a non-GAAP measure calculated based on net interest income plus total non-interest income, net, less total non-interest expenses for the period.
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