OFG Bancorp

Good morning. Thank you for joining OFG Bancorp's conference call. My name is Madison. I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arizmendi, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the first quarter 2025 section. This call may feature certain forward-looking statements about management's goals, plans, and expectations. These statements are subject to risks and uncertainties. Outlined in the risk factors section of OFG's SEC filings, actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call. As a result of developments that occur afterwards, all lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez.

Good morning and thank you for joining us. We are pleased to report our first quarter results. As we look at page three of our presentation, it was another strong start to the year with solid overall performance. We had consistent financial results generating earnings per share diluted of $1. This was driven by excellent operating execution and loan and deposit growth. Consumer credit reflected higher seasonal customer liquidity in Puerto Rico. And we bought back shares and raised our dividend supported by our strong capital generation and balance sheet. Please turn to page four. Our strategic investment in technology through our Digital First strategy continues to drive innovation. This is freeing up our people to build stronger customer relationships through our island-wide branch network. Looking at the numbers, 96% of all routine retail customer transactions, 97% of retail deposit transactions, and 68% of retail loan payments were made through our digital and self-service channels. This has been driven by year-over-year growth of 12% in digital enrollment 21% in digital loan payments, 40% in virtual teller utilization, and close to 5% customer growth. During the quarter, we launched three digital tools, all first in Puerto Rico. Our Omnichannel online mobile app that provides customers with a fast, easy, and seamless banking experience across all digital points. Smart Banking Insights, that offers advice to help customers achieve greater financial progress. This reinforces our innovative position in the banking market in Puerto Rico with intelligent and personalized solutions and tools, and Apple Pay for both debit and credit cards. This is new in the local banking industry, giving our customers another option for easy and secure in-store, in-app, and online purchases. I'd like to add that our self-service portal, which we launched in 2023, was nominated for a Banking Tech Award for Best Use of Technology in Consumer Banking, which is another first for a Puerto Rican bank. As you can imagine, we're very proud of all these accomplishments. Now here's Maritza to go over the financials in more detail. Then I'll come back and provide our outlook for Puerto Rico and OFG.

Thank you, Jose. Please turn to page five to review our financial highlights. All comparisons are to the fourth quarter, unless otherwise noted. Core revenues total $178 million. Looking at key components, total interest income was $189 million, a decline of $941,000. This mainly reflects two fewer business days which negatively affected interest income by $3 million. Partially upsetting these were higher balances and yields on investment securities and higher loan balances. Total interest expense was $40 million, a decline of $874,000. This mainly reflects the two fewer business days and higher average balances of core deposits at a lower rate were partially upset by higher average balances of borrowings and brokerage deposits. Total banking and financial service revenues were $29 million, a decrease of $3.6 million. The fourth quarter included $4.8 million combined in annual insurances and favorable MSR valuation change. Excluding that, total banking and financial service revenues increased for the quarter. Looking at non-interest expense, they totaled $93.5 million, down $6.3 million. First quarter compensation included $1.6 million in increase in seasonal FICA expenses and merit raises. General and administrative expenses included a $3.1 million volume incentive payment from business partners. It also included $1.2 million in higher electronic banking volume and related costs as compared to the last quarter. Note that the fourth quarter included $4.8 million in early retirement, business licensing, and annual performance incentives. Taking all these factors into consideration, we were in line with our guidance of 95 to $96 million in quarterly non-interest expense in 2025. Income tax expense was $13.9 million. The tax rate was 23.34%. That reflects an anticipated rate of 26.14% for the year and the benefit of $1.7 million in discrete items. The annual book value was 26.66 cents per share. During the quarter, we bought back $23.4 million of shares and raised our dividend 20%. Looking at our performance metrics, efficiency ratio was 52.42%, return on average assets was 1.56%, And return on tangible common equity was 15.28%. Please turn to page 6 to review our operational highlights. Total assets were $11.7 billion, up 5% from a year ago and 2% from the fourth quarter. Average loan balances were $7.8 billion, up close to 1%. Health for Investment totaled $7.9 billion, up 4.2% from a year ago, and up $60 million, $61 million from the last quarter. The sequential increase mainly reflects growth in auto and consumer loans, U.S. and Puerto Rico commercial loans, and repayments of residential mortgages. Growth of Puerto Rico commercial loans included a higher level of line of credit utilization. Loan yield was 7.99% down two basis points. New loan origination of $559 million was down 9.3% from the fourth quarter, but up 4.2% from a year ago. First quarter originations reflected seasonal declines in Puerto Rico commercial lending, partially upset by an increase in U.S. commercial. We continue to have a strong commercial pipeline at this time. Average core deposits were $9.6 billion, up close to 1%. End of period balances of $9.8 billion increased $308 million or 3.3% quarter-over-quarter, and $211 million, or 2.2%, year-over-year. The sequential increase reflects growth in retail, commercial, and government deposits. It also reflects growth in savings, time deposits, and demand deposits. Core deposit cost was 1.42%, down four basis points from the fourth quarter. Excluding public funds, cost of deposits was 1% compared to 0.96% last quarter. Average borrowing and brokerage deposits were $517 million compared to $426 million. The aggregate trade rate was 4.32%, down 8 basis points. End of period balances were $421 million compared to $557 million. During the first quarter, $145 million in short-term repurchase agreement and federal home loan bank advances matured. Separately, a two-year $200 million federal home loan bank advance was renewed at 4.14%, compared to previous rate of 4.52%. Cash at $710.6 million was up 20%, and investment total $2.8 billion, up 2%. During the first quarter, we acquired $100 million of mortgage-backed securities, yielding 5.40%. Net interest margin was 5.42% compared to 5.40%. First quarter NIMS benefited slightly from the investment securities portfolio and lower cost of government deposits. Please turn to page seven to review our credit quality and capital strength. Credit quality continues to be stable. Net charge-off totaled $20 million, up $4.5 million. The first quarter included a $2.9 million partial charge-off of a previously reserved commercial loan as compared to the fourth quarter, which included $2.6 million in recoveries from the sale of previously charged-off auto and consumer loans. First quarter auto net charge-offs were unchanged, 1.63 percent. Consumer net charge-off ratio increased 62 points to 4.34 percent. And there were continued recoveries in mortgage and Puerto Rico commercial loans. Total net charge of rate was 1.05% of 23 basis points sequential. Year over year, it wasn't changed. Provision for credit losses was $25.7 million, down $4.5 million. The first quarter included $17.4 million for increased volume, $4.8 million for specific reserve for three commercial loans, and $3.5 million to the effect of auto current loss given default trends post-pandemic. Looking at other credit metrics, the early and total delinquency rates were 2.19% and 3.49% respectively, both down from the fourth quarter. The non-performing loan rate was 1.11%. Looking at other capital metrics, Our CDP-1 ratio was 14.27%, stockholders' equity totaled $1.3 billion, up about $41 million, and the tangible common equity ratio increased 11 basis points to 10.30%. To summarize the first quarter, net interest income remained stable as growth in loan balances and a declining deposit cost largely neutralized the impact of two fewer days. Loan growth continued to do well in auto and consumer and U.S. and Puerto Rico commercial. Retail and commercial deposit balances increased as we continue to deepen consumer relationship and grow our client base. Net interest margin was slightly higher than expected from higher yielding investment securities and lower cost of government deposits Credit quality continues to be well managed. The trends are stable, reflecting the solid economic environment in Puerto Rico. Non-interest expenses were in line when you remove the effect of the specific items in the fourth and first quarter. Results also benefited from a lower tax rate and share counts. Regarding capital allocation, in addition to buying back shares, the dividend was increased, and our CEP ratio provides us with a strong foundation during volatile or challenging times. Now, here's Jose.