OFG Bancorp

Good morning. Thank you for joining OFG's Bancorp conference call. My name is Margo, and I'll 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 second 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 the 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 any 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. Please go ahead.

Good morning and thank you for joining us. We are pleased to report our second quarter results. To start, let's go to page three of the presentation. It was another strong quarter, ending with record assets of more than $12 billion and record loans of more than $8 billion. We had excellent financial results generating earnings per share diluted of $1.15 for a 6.5% increase year over year on a 1.5% increase in total core revenue with a high return on average assets and equity. Operating execution was highlighted by strong loan origination and core deposit flows. Credit reflected stable economy in Puerto Rico and high levels of liquidity held by individuals and businesses. We announced a new $100 million stock buyback authorization and bought back more shares supported by our strong capital generation and balance sheet. Please turn to page four. We continue to see strong momentum with our omni-channel digital platform. Our strategic investments in technology and innovation through our digital first strategy is paying off. We're growing accounts and building deeper customer relationships. During the second quarter, nearly all of our routine teller retail customer transactions and deposits, as well as 70% of retail loan payments were made through our detail and sales service channels. This was being driven by continued year over year growth in detail enrollment, digital loan payments, virtual teller utilization, and 4% new net customer growth. In the second quarter, we introduced two new products and services. We launched Oriental Marketplace, an online feature that gives our customers exclusive discounts on travel, restaurants, and retail products. And we also introduced a U.S. government money market fund in new addition to our DGI family of funds to provide customers with another convenient investment option. Now, here's Maritza to go over the financials in more detail.

Thank you, Jose. Please turn to page five to review our financial highlights. All comparisons are to the first quarter, unless otherwise noted. Core revenues total $182 million. Looking at the key components, total interest income was $194 million, an increase of $5 million. This mainly reflects higher average balances of loans and cash, and $1.5 million from one additional business day. Total interest expense was $42 million, an increase of $2 million. This mainly reflects higher average balances of core deposits and higher average balances of borrowings and brokered deposits, and $0.4 million from one additional business day. Total banking and financial service revenues were $30 million. an increase of $1 million. This mainly reflects increases in mortgage banking activities and wealth management. Looking at non-interest expenses, they total $94.8 million, up $1.4 million. This is in line with our continued outlook of $95 to $96 million in quarterly non-interest expenses in 2025. Compared to the first quarter, the second quarter reflected $1.4 million less in seasonal payroll taxes and for close real estate costs. Keep in mind, in the first quarter included a $3.1 million incentive payment from a business partner. Income tax expense was $14.1 million with a tax rate of 21.37%. That reflects an anticipated rate of 24.90% for the year and the benefits in the second quarter of $1.7 million in discrete items. Looking at some other metrics, tangible book value was $27.67 per share. During the quarter, we bought back 186,000 shares. Efficiency ratio was 52 percent, return on average asset was 1.73 percent, and return on average tangible common equity was 17 percent. Now, please turn to page six to review our operational highlights. Total assets were $12.2 billion, up 9 percent from a year ago and 4 percent from the first quarter. Average loan balances were $8 billion, up close to 2% from the first quarter. End of period loans held for investment total $8.2 billion, up 7% from a year ago, and up $328 million from the last quarter. The sequential increase mainly reflects our strategy to grow commercial lending in the US and Puerto Rico. Loan yield was 7.91%, down eight basis points. New loan origination of $784 million was up 38% from the first quarter and 33% from a year ago. Second quarter originations reflect increases in all lending channels in both Puerto Rico and the US. The commercial pipeline continues to look strong. Average core deposits were $9.7 billion, up close to 1%. End of period balances of $9.9 billion increased $139 million, or 1.4%, quarter over quarter, and $291 million, or 3%, year over year. The sequential growth reflects increased commercial and government deposits and reduced retail balances. In addition, it reflects increased time and saving deposits and reduced demand deposits. Core deposit cost was even with the first quarter at 1.43%. Excluding public funds, cost of deposit was 0.99% compared to 1% last quarter. Average borrowing and brokerage deposits were $672 million compared to $570 million. The aggregate rate paid was 4.11% down 21 basis points. End of period balances were $732 million compared to $421 million. The second quarter reflected $200 million in a new two-year federal home loan ban advance at 4.13% and $82.5 million in additional brokerage deposits. We used this fund to increase liquidity in addition to higher deposits as part of our strategy to grow commercial loans. Cash at $852 million was up 20%, reflected some of the new wholesale funding pending continued loan growth. Investment totaled $2.8 billion, seemingly relatively unchanged. This reflected repayments mostly offset by purchases of $50 million of mortgage-backed securities yielding 5.55% and Gini made securitization of our own mortgage lending. Net interest margin was 5.31% compared to 5.42%. Excluding the new Federal Home Loan Bank, NIM would have been around the higher end of our 5.30% to 5.40% range. All these being equal, As loan growth continues, we should see NIEM expand from the second quarter level. Please turn to page 7 to review our credit quality and capital strengths. Credit quality continues to be stable. Net charge-off total $13 million, down $7.6 million from the first quarter. Net charge-off rate was 0.64%, down 41 basis points sequentially. Year-over-year, the net charge-off rate was down 15 basis points. Provision for credit losses was $21.7 million, down $4 million. The second quarter included $70.2 million for increased volume, $3.7 million for specific reserve for commercial loans, and $.7 million due to the alignment of model adoption and risk weighting factors mainly in Puerto Rico. Looking at other credit metrics, the early and total delinquency rates were 2.46% and 3.59%, respectively. And the non-performing loan rate was 1.19%. Looking at other capital metrics, our CET ratio was 13.99%. Stockholders' equity totaled $1.3 billion, up $39 million. and tangible common equity ratio decreased 10 basis points to 10.20%. To summarize the quarter, net interest income increased due to loan growth, in particular our strategy to grow commercial loans. We saw continued deposit growth driven by commercial and government balances, Net interest margin was toward the lower end of our expected range, reflecting our decision to put more liquidity in place to fund future strategic growth in commercial loans. Credit quality continues to reflect the solid economic environment in Puerto Rico for both consumers and businesses. Non-interest expense were in line with our expected range and should continue to do so. With a strong CET1 ratio and earnings power, we put a new $100 million share buyback in place to return capital to stockholders, and we continue to acquire shares in the open market. Now here's Jose.