OFG Bancorp

Good morning. Thank you for joining OFG Bancorp's conference call. My name is Chloe, and 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 third 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 factor 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 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.

Good morning and thank you for joining us. We are pleased to report our third quarter results. Let's go to page three of the presentation. We had a strong quarter with earnings per share diluted of $1.16, up 16% year over year, on a 5.6% increase in total core revenue. Loans and core deposit balances increased year over year, with particular growth in commercial loans, which has been a strategic focus, as auto loans moderated something we have been anticipating for a while. Performance metrics continue to be strong, credit was solid, capital continued to grow, and we repurchased $20.4 million of common shares. Business activity remains strong in Puerto Rico with a continued outlook for growth. Please turn to page four. Our Digital First strategy is making significant strides, expanding our positioning as leaders in banking innovation in Puerto Rico. As a result of our Digital First strategy, we're gaining strong momentum in both adoption and new accounts. During the third quarter, nearly all our routine retail customer transactions were made through our digital and self-service channels. This is driven by continued year-over-year growth in digital enrollment at 8%, digital loan payments at 5%, virtual teller utilization at 25%, net new customer growth at 4.6%. All this is being enhanced by two related strategies. The first is our innovative product service offerings. Last year, we introduced the Libre account for the mass market and the Elite account for the mass affluent. Both offer reward programs unique to Puerto Rico and have been successful in attracting deposits from new and existing customers. The number of Libre new customers increased 17% year over year. 27% of Libre accounts have been opened digitally versus 19% last year. And new Libre accounts generated a 14% increase in related deposits. The Elite account continues to lead the market as a unique alternative for clients who want to maximize their financial progress. We have also enhanced our Oriental Biz account suite making treasury management easier and secure for small businesses, driving higher new account openings and deposits. The second strategy is leveraging AI. Customers now receive tailored insights based on cash flows and payment habits, helping them monitor their budgets and access value-added tools to improve their finances directly from their mobile phones. We are providing an average of nine insights per month per account. Customer feedback has been running 93% positive. This quarter, we also launched internal initiatives to apply AI to boost efficiency across all banking operations and make it faster and easier to solve our customer questions and needs. All this has directly contributed to our increased market share in retail deposits and positions OFG for continued success in the coming years. Now here's Maritza to go over the financials in more detail.

Thank you, Jose. Let's turn to page five to review our financial highlights. All comparisons are to the second quarter, unless otherwise noted. Core revenues total $184 million, driven by solid performance across key areas. Total interest income was $200 million, an increase of $6 million. This mainly reflects higher balances of loans and investments, and $1.6 million from one additional business day. Total interest expense was $45 million, an increase of $3 million. This mainly reflects higher average balances of core deposits, higher average balances of wholesale funding, and $0.5 million impact from the extra business day. total banking and financial services revenues were $29 million, a decrease of $1 million. This mainly reflects a decline in mortgage banking revenues due to a change in MSR valuation. Compared to a year ago, when we were first subject to reduce interchange fees under Durbin, total banking and financial services revenues were up $3 million, or 11%. Our income category was $2.2 million. This included gains from OFG Ventures' investment in FinTech focus funds. Looking at non-interest expenses, they totaled $96.5 million of $1.7 million. This reflected a strategic investment of $1.1 million in technology, people, and process improvement. $1.1 million tried to increase business activity and marketing, and an $800,000 reduction in foreclosed real estate costs. Income tax expenses was $9.5 million with a tax rate of 15.53%. This reflects a benefit of $2.3 million in discrete items during the quarter and an anticipated rate of 23.06% for the year. Look at some other metrics. Tangible book value was $28.92 per share. Efficiency ratio was 52%. Return on average asset was 1.69%. And return on tangible common equity on average tangible common equity was 16.39%. Now, let's turn to page six to review our operational highlights. Total assets were $12.2 billion, up 7% from a year ago, and steady compared to the second quarter. Average loan balances were $8 billion, up close to 2% from the second quarter. End of period loans held for investment totaled $8.1 billion. Sequentially, loans declined $63 million, or 0.8%, mainly due to repayment of commercial lines of credit funded in the second quarter. Year by year, loans increased 5%, reflecting our strategy to grow commercial lending in Puerto Rico and the US. Loan yield was 7.90%, down one basis point. New loan origination was $624 million, As Jose mentioned, this reflected, in part, moderation in auto loans that we have been anticipating, and unexpected easing of auto sales after a surge of pre-tariff purchasing in the second quarter. Year over year, originations were up 9%, and the commercial pipeline continues to look good. Average core deposits were $9.9 billion, up close to 1%. End of period balance, $1.8 billion, decreased $76 million, or 0.8%. This reflected increased retail and government balances and reduced commercial deposits. By account type, it reflected increased savings deposits and reduced demand and time deposits. Compared to the year-ago quarter, core deposits were up $287 million, or 3%. Core deposit cost was 1.47%, up 5 basis points. Excluding public funds, cost of deposit was 103 basis points compared to 99 basis points in the second quarter. The increase in cost mainly reflects higher average balances in savings accounts within the upper pricing tiers. Investment total $2.9 billion, up $154 million. This reflected purchases of $200 million of mortgage-backed securities yielding 5.32%, partially offset by repayments. Cash at $740 million declined 13%, reflecting the new securities purchases. Average borrowings and brokerage deposits totaled $769 million, compared to $672 million. The aggregate rate paid was 4.11%, level with the second quarter. End of period balances were $746 million, compared to $732 million. The third quarter reflected increased variable rate borrowings and decreased brokerage deposits. Net interest margin was 5.24% compared to 5.31%. This quarter, NIMS reflected increased interest income from the securities portfolio, a slightly higher cost of deposits, and increased variable rate borrowings. Please turn to page 7 to review our credit quality and capital strengths. Credit quality continues to be stable. Provision for credit losses was $28.3 million, up $7 million. Reflected, $13.5 million for increased loan volume, $5.6 million for specific reserves on two commercial loans, the impact of two items from our annual assumptions update, $4.3 million from updated repayment assumptions in commercial loan and residential mortgage portfolio, and $2.9 million for microeconomic factors. Provision also included $1.3 million due to the auto-qualitative adjustment related to the seasonal increase in early delinquency not captured in the model. Net charge-off totaled $20 million, up $7.4 million. Total net charge-off rate was 1% up 36 basis points sequentially. This includes $3.6 million from one of the two commercial loans mentioned before. Year-over-year, the net charge-off rate improved in consumer and auto portfolios, and there was a higher recovery rate in mortgage. Looking at other credit metrics, the early and total delinquency rates were up from the second quarter, but in line with the rate range over the past year. The non-performing loan rate was 1.22%. On the capital side, our CET ratio was 14.13%. Stockholders' equity total, $1.4 billion, up $41 million. And the tangible common equity ratio increased 35 basis points to 10.55%. Now to summarize the third quarter. Net interest income continued to grow, reflecting our strategy of an increased volume of loans, in particular commercial, more than offsetting our lower needs. We continue to anticipate annual loan growth in the range of 5 to 6%. While deposits were down sequentially, they increased year over year. We continue to expect annual growth driven by both retail and commercial accounts. Net interest margin was 5.32% for the nine months, in line with our target range of 5.30 to 5.4 for the year. During the fourth quarter, we anticipate a range of 5.10 to 5.20%. credit quality remains stable, reflecting the strong economic environment in Puerto Rico. Third quarter non-interest expense were a little above our range, but we continue to anticipate there will be between $95 to $96 million a quarter. As I mentioned, we now anticipate our effective tax rate for the year to be 23.06% compared to our previous expectation of 24.9%. Ninety percent. Capital continues to build, and we anticipate continuing to buy back shares on a regular basis.