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CEO's Message

CEO's Message

Letter to Shareholders from OFG Bancorp’s 2016 Annual Report
By José Rafael Fernández, President, CEO and Vice Chairman of the Board

To Our Shareholders:

The year 2016 was a very successful one for OFG Bancorp.

●  Our performance was consistent, and in line with targets we set at the beginning of the year.
●  We made great strides toward becoming the premier retail bank in Puerto Rico, while in commercial we grew our client base, particularly among small and medium sized businesses.
●  We lead the market in digital banking capabilities, with a growing array of advanced technology, providing our customers a rich experience without sacrificing the personal touch that is synonymous with our brand.
●  The year, in a nutshell, was full of notable achievements ranging from financial, risk and efficiency perspectives, to an expanding client base with high levels of customer satisfaction.

We achieved all this despite the intensely challenging economic environment in Puerto Rico. Over the years, OFG Bancorp has demonstrated notable resilience due to our disciplined approach to the business, and we have grown our franchise, while strengthening our capital base.

Looking ahead, the business climate we face will depend on many factors, including actions of the Federal Fiscal Board (PROMESA), charged with bringing economic stability and financial recovery to Puerto Rico.

Regardless, we remain steadfast in our commitment to our core values, and in our drive to achieve strong business results. 2016 was a case in point. Our performance included:

●  Solid net income of $45.3 million, or $1.03 per fully diluted share.
●  Tangible book value per common share increased to $15.08, underscoring further enhancement of our strong capital profile.
●  Tangible common equity ratio at 10.33%, a new high in the last five years.
●  Originated loan balances, especially the higher yielding consumer categories, and interest income continued to grow.
●  New auto loan production increased 9.2%, further consolidating our significant market share.
●  Our proactive credit servicing capabilities reduced delinquency levels and improved asset quality. In 2016, we assumed the servicing of our originated mortgages, which had been outsourced.
●  The efficiency ratio declined to a favorable low of 55.36%.
●  Return on average assets and core net interest margin increased steadily, ending the year at 0.96% and 4.89%, respectively.
●  The sale of a participation in a utility (PREPA) credit enabled us to eliminate our major credit exposures related to the Puerto Rico central government.
●  We ended the year with approximately $6 billion in interest earning assets.
●  If any single measure highlights the growth of our franchise in 2016, it is our second consecutive year of 5%+ growth in our customer base, increasing deposits by more than $153 million. We thank our customers for recognizing our service excellence and commitment to our communities in Puerto Rico.

The following efforts highlight the innovative customer facing services we deployed to differentiate ourselves in terms of the value we add to our clients:

●  Online account opening, so that a customer need not stand in a line to do business with us
●  Mobile mortgage application tracking, enabling clients to easily determine where they are in the process
●  Retail and business mobile check deposits
●  ATM surcharge-free accounts
●  Complete retail and business mobile banking apps
●  Contigo (Together), a program that facilitates offerings all our banking services to employees of corporate clients
●  Cardless ATM withdrawals and mobile person-to-person payments

Our goal is to exploit technology to bring the utmost convenience to our customers, while we use our team to provide valuable financial advice to manage their money and wealth.

We at OFG will remain at the forefront in Puerto Rico as a brand that challenges status quo, continuously elevating financial services to higher levels. We will also continue to be prudent in managing our business and maximizing the value to our stakeholders.

The uncertain economic outlook and the impact of yet to be determined government austerity measures are future considerations, for sure. However, for more than a decade, we have demonstrated our ability to grow the business and capital levels; maintain credit strength, efficiency and profitability; and successfully focus on our goals, despite a complicated economic environment.

With the support of our Board of Directors, dedicated employees, customers and you, we are firmly resolved to maintain our impressive performance and develop opportunities for further growth as OFG moves forward.