OFG Bancorp Stock

Good morning, everyone. Thank you for joining OFG Bancorp's conference call. My name is Bo and I will be your operator today. Our speakers today 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 home page of the OFG website under the Second Quarter 2026 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. [Operator Instructions]

I would now like to turn the call over to Mr. Fernandez. Please go ahead, sir.

Good morning, and thank you for joining us. We are pleased to report our second quarter results. We had another all-around outstanding quarter with good momentum in all areas. Let's go to Page 3 of our presentation. We continue to show strong financial performance. Earnings per share increased 21% year-over-year on 4% growth in total core revenues.

This was driven by consistent loan growth, core deposit strength, stable credit quality and effective balance sheet management. We saw continued solid and steady momentum across all our businesses, supported by disciplined execution, excellent customer engagement and our differentiated operating model.

During the quarter, we launched a new branding campaign highlighting our strategic and financial evolution into a digital bank with a human touch. One that combines innovative technology and our customer-focused culture. With healthy consumer and business liquidity, wage growth and historically low [ unemployment ], Puerto Rico's economy continues to be resilient.

Please turn to Page 4. Our core digital strategy is focused on three key areas of execution. The first area is offering value to customers through innovative account products that meet their specific needs. [ Levered ] for the mass market, a [ lead ] for the mass affluent and [ my base ] for small businesses. The second focus is technology. Our omnichannel platform allows customers to interact with us seamlessly across all our digital channels. This is driving digital [ adoption ], generating efficiencies and savings.

In turn, this enables us to reinvest in new ways to serve our customers and transform our branches into places for relationship building as opposed to transaction processing. The third focus is intelligent banking. We're leveraging data to provide real-time personalized insights with unique value, helping customers better manage their finances. Overall, this approach differentiates OFG in the marketplace, drives higher digital adoption levels and most importantly, deepens customer relationships. All [ this ] translates into consistent steady growth of the business.

Please turn to Page 5. The results continue to show up in our key performance indicators. Most retail customers are doing almost all routine and deposit transactions and loan payments through our digital and self-service channels. During the second quarter, we saw year-over-year growth of 4% in net new retail and commercial customers, 11% in active digital users, 6% in digital loan payments and 3% in virtual teller [ use ].

Combined with our increased level of service, our products and people are delivering added value to our customers every day. Year-to-date, as of June, 28% of [ liver ] accounts were opened digitally. We're the only bank in Puerto Rico with this full digital capabilities. More than 1.1 million personalized smart banking insights have been delivered monthly with more than 90% positive feedback from customers. And more than 68,000 customers have accessed our [ live ] remote tellers during times when the rest of the banks in Puerto Rico are closed.

Now I'd like to pass the call to Maritza to go over the financials in more detail.

Thank you, Jose. All comparisons are to the first quarter unless otherwise noted. Now let's turn to Page 6. Our financial performance was very strong this quarter. EPS climbed to $1.39. Efficiency ratio was 54%. Return on average assets rose to 1.93%, and return on average tangible common equity increased to almost 18%. Loans to the [ portion ] ratio was 85% and the payout ratio was 25%, which reflects the higher income in this quarter versus the first quarter.

Let's turn to Page 7 to review our income statement highlights. Core revenues increased $4.5 million to $190 million. Total interest income was $197 million, an increase of $3 million. This reflected higher average balances of loans at higher average rates, which more than offset slightly lower income from cash and securities. The quarter included $4.1 million from three [ paid ] in full commercial loans. This compares to $3.3 million from [ Asia ] alone paying in full in the first quarter.

There was one additional day in the quarter. This increased interest income by about $1.6 million. Total interest expense was $40 million, a decrease of $0.5 million. This reflected lower average balances of broker [ CDs ] and [ borrowings ], which more than offset the cost of higher average balances of core deposits. The [ adidas ] increased interest expense by about $0.4 million. Total banking and financial service revenues increased $1 million to $33 million. Reflecting higher banking service and wealth management revenues, which included $1 million in annual insurance and annuity fees.

Noninterest expense increased $8.1 million to $103 million. This included $5.8 million in business operational charges, while the [ first ] quarter included $1 million in capital market [ readiness ] and registration costs and the benefit of $3.6 million in a business-related volume incentives. Income tax was $15.7 million, reflecting an anticipated ETR of 22.64% for the year and the benefit of some [ discrete ] items.

Now let's turn to Page 8 to review our balance sheet highlights. Average loan balances grew $78 million to $8.2 billion, [ and ] end-of-period balances grew $62 billion or 0.8% due to increases in Puerto Rico commercial and consumer loans. New loan production was $750 million, an increase of $146 million or almost 24%, reflecting increases in Puerto Rico commercial, residential mortgage and consumer lending. Production in the year ago period was slightly higher due to the spike in the auto sales from the [ threat ] of [ Aris ] in the second quarter of 2025. Average core deposit balances grew $145 million to $9.7 billion with end-of-period balances of $85 million or 0.9%, reflecting over commercial and retail deposit growth.

Regarding our large government deposits, $400 million [ into ] 3 and 6 months time deposits with approximately $175 million remaining in the demand deposit category. Average cash balances fell $45 million, but increased $109 million end of period as a result of deposit growth and repayments from the investment portfolio. Average investment fell $84 million and $92 million end of period due to principal pay downs in the mortgage-backed securities. And average borrowings and broker deposits fell $133 million, [ and ] increased $49 million end of period, reflecting our liquidity management.

Now let's turn to Page 9 to review net interest margin. Loan yields increased 3 basis points to [ 7.90% ] excluding the 3 loan repayments in the second quarter and the one in the first quarter, loan yield was 7.7% compared to [ 1 ] to 7.71%. Core deposits cost was level at 1.29%, reflecting growth of $92 million in noninterest-bearing deposits to $2.7 billion. Excluding public funds, cost of deposits was 98 basis points compared to 1%. Net interest margin increased 9 basis points to 5.45%.

Now let's turn to Page 10. Capital continued to build. CET1 ratio increased to 14.07%. Total stockholders' equity rose to $1.4 billion. TCE ratio continued to climb to 10.9% and tangible book value continued to expand to $31.12 per share. Looking at share buybacks. If you recall, we bought a large number of shares in the first quarter. Cesar will provide more detail about credit in a moment, but let me summarize a little bit where we are at midpoint this year.

We continue to expect low single-digit loan growth for the year, with commercial more than offsetting the anticipated decline in [ auto ], though [ otohas ] been slightly stronger than expected. We continue to anticipate deposit growth, excluding the large government deposits, benefiting from our [ Libra Eli ] and [ maybes ] accounts as well as growth of commercial and government clients.

On our last call, we expected net interest margin to range from 5.10% to 5.20% this year. Now we expect NIM to range from 5.25% to 5.35% in the second half of 2025. This is in line with the 5.30% NIM we had in the second quarter and 5.25% in the first quarter, excluding the loan [ pay ] downs. Our second half outlook in corporate deposit growth and the relocation of the government of the large government deposits. We continue to anticipate no records this year with the Fed cutting rates once next year. We remain on track to keep expenses in a range of $380 million to $385 million this year. Our estimated tax rate for the year continues to be 22.6% not including discrete items.

And while we are not active buying back shares in the second quarter, our strategy has not changed. We have $194 million in remaining authorization and we will continue to be selective and opportunistic [ balance ] shareholder returns and disciplined growth. Now here, Cesar.

Thank you, Maritza. Please turn to Page 11. All comparisons are to the first quarter unless otherwise noted. Credit reflected disciplined execution, proactive risk management and continued improvement in overall portfolio quality. Net charge-offs increased $7.4 million and were 1.0% of average loans. At the same time, nonperforming loans fell $53.6 million to 0.81% of average loans. This reflected the successful sale of the stand-alone telecom exposure discussed in previous quarter and of another nonperforming commercial relationship.

These actions reduce concentration and [ tail ] risk and improve their commercial portfolio's overall risk profile and long-term credit quality. Retail net charge-off rates improved in auto and consumer and remained stable in mortgage. Auto decreased to 1.11%, an improvement on 41 basis points. Consumer improved to 3.78%, down 62 basis points. Provision for credit losses fell $9.5 million to $13 million. This primarily reflected $14.7 million for increased loan volume and $1.9 million in commercial loan recoveries.

This compares to the first quarter which [ includes ] $17.5 million for increased loan volume, $3.7 million for increased allowance for [ retailing ] loans and $1 million for newly classified small commercial loans. Looking at other credit metrics, early and total delinquency rates were 2.5% and 3.7% respectively reflecting typical seasonality we continue [ normization ] across consumer portfolios. This mix of modest early-stage delinquency and stable back-end losses continued to demonstrate the resiliency of underlying portfolio quality.

Despite some [ bombarding ] early-stage delinquencies, the stability in net charge offs reinforces the strength of recent vintages and the quality of new originations. Credit should remain stable in the second half, in line with seasonal trends which show declines in the first half and increases in the second half and then decline again in the first half of the next year.

Here's Jose to wrap it up.

Thank you, Cesar. Please turn to Page 12. The Puerto Rico economy remains resilient in addition to what I said earlier, [ favorable ] reconstruction funding, infrastructure projects and private investment continue to support economic activity, manufacturing expansion and new onshoring initiatives reinforce the long-term growth outlook. Having said that, we remain very attentive to evolving macroeconomic conditions, including, in particular, interest rate outlook and geopolitical developments.

Within this environment, OFG is well positioned to grow. Our digital at the core strategy continues to create more personalized customer experience, simplify how we operate and support sustainable market share growth. We continue to invest in people, technology and AI to enhance capability and drive long-term operating efficiencies. We see a healthy commercial pipeline and stable [ credit ] trends supported by strong risk management and balance sheet discipline.

Together with Puerto Rico's favorable operating environment, our agile and disciplined execution positions us well to continue to navigate evolving market conditions and pursue attractive growth opportunities.

With this, we end our formal presentation. Operator, let's start the Q&A.

[Operator Instructions] We'll go first this morning to Kelly Motta with KBW.

Congrats to the team on a great quarter. Maybe kicking it off on the margin, you materially raised your NIM outlook for the second quarter in a row. I think I caught that maybe $500 million of the government deposits moved into [ CDs ]. Just wondering what your new [ $525 ] to [ $535 ] outlook assumes in terms of these the longevity of these deposits sticking around on balance sheet and ex that some of the underlying dynamics you're seeing in terms of new loan originations and incremental cost of core funding?

Kelly, before I let Maritza give you the details. You hit it on the nail when talking about margin -- the government deposit is the one that is kind of the variable that we kind of do not control much. But the good news is that this is a long-term relationship that we have at the bank for many years. And we have been able to methodically diversify the deposit into wealth management as we saw last year.

And now we are terming out a little bit on the CDs. So we can help the client optimize it's liquidity as well as the yields as they take a little bit longer look at the deposits. So we feel much more confident about our margin guidance, and that's why you're seeing us resetting it in this call.

So I'll let Maritza go into the details, but you hit it on the nail when you address the government deposits.

Yes. Thank you, [ Kelly ], for the question. The reality is that we completed that relocation end of June. So we were able to assess what -- [ for ] the next half of the year. And now we will not need to go to the market to replace that funding and provide us with additional spread. So that's why we are increasing the guidance.

We continue to be asset sales feet slightly asset sensitive. And since we are not expecting changes in the market rates at least in this year, we are expecting a more stable type of NIM that resemble what we saw during the first 2 quarters, 25% the first quarter without the recoveries of 5.3% in the second quarter without the special recoveries that are nonrecurrent.

So that's why our guidance is -- has been increased.

Another point that I'd like to add to is that we're also seeing higher loan balances and particularly from the commercial side. And that's something that we're very happy with, and we continue to see a very strong pipeline that should support the single-digit loan growth that Maritza mentioned in her prepared remarks.

Got it. That's helpful. I guess maybe I'll switch to loan growth. I just to keep the thread here. Clearly, Puerto Rico is still operating at a really nice level here. Wondering if this increase in commercial [ is ] you're starting to see tailwinds from -- I know it's really early, but from onshoring or any other color as to what seems like a better operating environment overall that you're seeing here?

Yes. Kelly, good point also. We've been talking about the Puerto Rico economy for several -- I would say, 2 or 3 or even more years now since the economy is doing a lot better than in my, let's say, my first 17 years as CEO. So when we look at it, it certainly provides a lot of confidence to operate a bank when you have a stable, steady, consistent economy. And the metrics that we're seeing continue to reflect [ a ] low unemployment, high liquidity levels on the [ console ] side.

We're seeing great interest on businesses to expand because there is demand out there for them to do so. We're not yet seeing the benefits of the onshoring as you alluded to yet, but there's still -- [ there ] a pipeline of [ $3 ] million or so billion dollars of projects coming through in the next several years that all funds continue to flow in. So we're -- I think we're benefiting from that environment -- economic environment that I can understand why there is some, let's say, trepidation about Puerto Rico's economy given our history, but as we keep on passing quarter after quarter, what we're seeing, and you saw it this quarter on the consumer credits, we're seeing a different type of economy, a different type of environment that it's supported by real investments.

And I think then you add to that, that we're -- there's a 3-bank market here. We kind of run the financial market in the island. And then you look at the third pillar that I look at, and that is who we are, and OFG has a unique strategy. OFG has positioned itself in a very different way, investing in technology, leveraging the digital early on and deploying it very effectively, thanks to a great team that we have, and that is showing the results.

So what we're seeing is all the wheels running at 150 miles per hour in the right direction, and we're executing. And so we feel extremely happy and confident that what we're bringing to the market is differentiating and we're seeing it in growth. So that's kind of how overall I see from [ 36,000 ] feet what's going on for us here at.

Got it. Last one and then I'll step back. It looks like credit was a highlight. It did look like though some early DQs picked up, wondering if maybe you can provide some color as to what you're seeing there.

Yes. I'll let Cesar give you the details. I'll tell you, we -- we sold the credit that was nonperforming or nonaccrual that definitely sends a message to investors that we really -- when we need to act, we act, and that's what we did. We worked on it for the last 3 or 4 months, and we successfully sold that credit. So that's the main kind of large ticket item. But in general, when we're seeing, and as I mentioned earlier, the credit on the consumer side is pretty steady. And I'll let Cesar give you some details there on the consumer.

The consumer, you see nonperforming levels similar or better than last year for both our auto and consumer lending. We are seeing vintages that are already better [ bet ] than when we adjusted the undergirding standard back in 2022. So the vintages are taking over now [ a ] better vintage in terms of credit on the rating standards. So that is starting to equate into the formula. So we are positive in terms of the outlook for these portfolios. Even though, as you know, the second half of the year seasonality start kicking up those delinquency trends.

And we are seeing also the gas prices even though they improved significantly from prior quarter. We're still seeing them above the 1 liter, which is the equivalent of your[ $4 ] to the gun in the states. So seeing the portfolios, we are positive in terms of what we're seeing in the behavior and the customer continues to pay very well during this quarter. But we expect that seasonality to start seeing or reflecting in the numbers for the next half of the year.

We'll go next now to Manuel Navas with Piper Sandler.

And just to stay on credit for a moment. Does that mean that low loss reserve ticked down on the payoff or the sale of the telecom loans and the U.S. exposure. Should it kind of tick up a little bit as across the back half of the year and then improve again in the first half of next year? Is that the general direction you expect for seasonality?

Do you see that [ seasonality ] Yes, in the reserves to definitely.

Okay. I appreciate that. One quick modeling question. Maybe there's a lot of noise, but what was the June NIM? I know that there were some movements in the public funds, so maybe it's not all represented there, but what was kind of the June [ in ] entering the back half of the year?

Thanks for the question because at the end, as I mentioned before, we did the relocation [ Miton ]. So the month of June reflects [ and ] it was around 5.26% June NIM.

Okay. I appreciate that. And then just kind of -- can you level set on the buyback. You had pretty aggressive in the first quarter. You took a step back this quarter, just kind of thought process on near-term expectations on the buyback from here?

Yes. Nothing has changed. We did have a higher than -- higher purchases in the first half -- in the first quarter, as we pointed out, this quarter, we saw a lot of activity in the market in terms of our loan origination, et cetera. So we're just being patient also. But that -- when we look forward, we still have $194 million of the approved buyback, and we are planning on executing it as we see our our stock undervalued versus our peers. So we will continue to be out there and be methodical about our acquisition of our stock or purchase of our stock.

We go next now to Arren Cyganovich with Truist Securities.

Sorry. Sorry, I was muted. The brand marketing campaign that you launched in 2Q, any kind of early feedback on that, it seems like you're really trying to push the digital focus and let folks know that you're leaning into that from your side?

Yes, it's a brand evolution. We felt that this is the right time for us to tell the market in a more direct way the capabilities that we have for them to benefit from. And it launched early in the mid -- early June. So it's too early to share any specifics. But early indicators show that it's been well received. So -- but in the end, it's for us to make sure that we start evolving our brand to communicate who we really are aligned with the capabilities that we have built throughout the last couple of years. So that's kind of the motivation behind it. Really excited for the rest of the year and next year's results.

Got it. And the $5.8 million of charges that were referenced, was that related to this branding? Or was it due to something else?

No. The $5.8 million is -- it's basically operational charges. So they were due to operational errors, and we took the charge. The problem has been corrected and the charge is nonrecurring. So -- so really, it's passing the page.

Okay. And then lastly, the net charge-offs were elevated in the quarter related to the loan sales. if you were to exclude those previously reserved loans from that number, what would the net charge-off rate look like?

The consolidated net charge will be [ 0.72% ] without the Liberty charge-offs. I'm the telecom [ charge ].

Arren, you strike that name out of the script [ lease ] .

[Operator Instructions] We'll go next now to [ Kyle German ] with StoneX.

This is [ Kyle German ] on for Brett Rabatin. i just wanted to touch on credit really quick. On the U.S. commercial side, net charge-off rate has bounced around quite a bit. I was wondering how you would characterize the health of the U.S. commercial portfolio?

During -- backing -- 2 years ago, we derisked a lot of that portfolio. We released around the $30 million of loans that we saw at higher rates when we saw the economy of the United States potentially coming into a [ recession ] back in summer of 2 years ago. So right now, that portfolio is behaving much, much better than than previous years. And we're seeing a stabilization on the portfolio. We are measuring risk rating, internally measuring risk rating on that portfolio. So -- and those risk ratings are very stable. So I will say that, that portfolio right now is healthy.

Yes. We're very happy with the performance. And as you know, it serves as somewhat of a geographic diversification for us outside of Rico. So playing its role.

Then moving on to loan yields. So they were up a few basis points to 7.9%/. I was wondering how much fixed rate repricing tailwind is still ahead of you? And what are the new commercial loans coming in on today relative to the back book?

Yes. So 7.9% was with -- including the recovery, but if we exclude the recoveries on both quarters, the [ Golan ] was 7.7% this quarter versus 7.71%. So it's pretty stable. The yields on the commercial book, it would be different because the U.S. have a different price than than Puerto Rico. But if we plan all together, they are around 7.25% including a small business within that. That's the new entry price.

And then variable versus [ fixed ], it's a little bit like, I would say, 60% variable, 40% fixed, give or take, so on the commercial side. Remember, we also have the auto book, which is fixed rate and it yields around 8.5% or so. So that's a different bucket.

We'll take a follow-up question now from Manuel Navas with Piper Sandler.

I was sorry to jump back on. I just want to follow up a little bit on some of the deposit trends. It seems like you speak to your three accounts doing quite well. Could you just kind of add some color on those? And maybe it's also on the commercial side. So just kind of add color on your -- the strength in your deposit growth.

Yes. So on the retail side, the deposit accounts are driven by a higher net customer growth. I mean we're seeing not only the existing clients where we're starting to see a deepening of that relationship, but more importantly, we're growing customers at 4% a year, and that is adding to our growth on the deposit side on the retail side. We're also seeing a bit on the retail side on CDs, so we're starting to see clients kind of trying to move into CDs in some cases.

The -- I'm referring here more to the mass market lever account. On the Elite account, which is more the mass affluent. There, what we're seeing is a pretty steady consistent flow of deposits coming in, not necessarily has a significant customer growth level, but it's a steady inflow of deposits, which we feel very happy with as it kind of helps to target both markets, the mass market as well as the affluent with the Elite.

And then on the commercial side, similar on the small business, similar to what I mentioned on the retail, it's mostly driven by new customers, new account openings, driving the commercial small business growth. And I think the team is doing a great job, but bringing those customers in with deposits and then working on deepening the relationships towards cash management and potentially lending in some cases. So that's kind of how high level we see the three accounts that we are focusing on, and it makes our life extremely focused, because we don't get distracted with several other accounts that we need to deal with.

On the corporate side, what we call it corporate, which is a larger commercial, that is relationship driven. And it's an area where our team goes out and [ established ] a very good relationship and starts bringing the loans many times and then the deposits flow with it. So we're seeing all those efforts working in tandem and the [ old ] show for it.

I appreciate that. With some of the movements you've had, where do you expect kind of deposit costs to go? I mean on a core basis, it was down 2 basis points in the quarter. There are some movements with the public funds. Where can the kind of deposit costs go from here?

Yes. Well, given what we said about the large deposit where we're kind of fixing it, and we kind of are taking it out of the, let's say, hopefully, of the potential conversation going forward because it doesn't complicate our margin guidance. We're seeing deposit costs going forward in the next 2 quarters, relatively at the same level that we have in the first half of the year. Again, given the expectation of rates remaining on the short end, where they are. So that's kind of our outlook for the second half on those.

And we'll take a follow-up question now from Kelly Motta at KBW.

My question got answered in that. So I'm going to step back.

[Operator Instructions] And it appears we have no further questions this morning. Mr. Fernandez, I'd like to turn things back to you, sir, for any closing comments.

Thank you, operator. Thanks again to all our team members for an outstanding quarter, and thanks to all our shareholders who have listening. Looking forward to our next call. Have a great day.

Ladies and gentlemen, this conclude OFG Bancorp's conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.

Good morning. Thank you for joining OFG Bancorp's conference call. My name is Nikki. I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of Board of Directors; Maritza Arizmendi, Chief Financial Officer; and Cesar Ortiz, Chief Risk Officer.

The presentation accompanies today's remarks. It can be found on the home page of the OFG website under the First Quarter 2026 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. [Operator Instructions]

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. Let's go to Page 3 of our presentation. We started the year with a strong financial performance. Earnings per share diluted were up 26% year-over-year on 4% growth in total core revenues. This was driven by ongoing loan growth, high-quality credit performance, core deposit strength, expense and proactive balance sheet management. Loans grew 5% year-over-year and new loan production grew 9%.

Reported core deposits declined 1%. Excluding the previously announced $500 million government deposit transfer, core deposits grew more than 4% year-over-year. This demonstrates how our strategies and operating model continue to deliver, supported by momentum in our businesses and disciplined execution across the franchise. We further our commitment to capital management, repurchasing $44.5 million of common shares and increasing the dividend 17%. Despite growing geopolitical uncertainties and their effect on energy prices, Puerto Rico economy continues to grow and businesses and consumers' balance sheets are solid with high liquidity levels.

Please turn to Page 4. Our core digital strategy consists of three main pillars: The first is our service offerings. We are targeting specific customer segments with accounts that meet their needs. Libre for the mass market, Elite for the mass affluent and My Biz for small businesses. This targeted approach is driving strong market adoption and deeper customer relationship. The second pillar is technology. Our omni-channel platform allows customers to interact with us seamlessly across all touch points. This is driving continued digital adoption, resulting in efficiency and savings that we reinvest in new ways to serve our customers. The third pillar is intelligent banking. We're leveraging data and real-time insights to help customers better manage their finances, while increasingly seeing real customer connections being built through our digital channels.

Please turn to Page 4 (sic) [ Page 5 ]. As proof of our success, we're driving innovation year-over-year. Retail digital enrollments are up by 10%, digital loan payments, 5% and virtual teller usage up by 7%. Net new retail and commercial customers each grew by close to 3%. The added benefit is that this enables us to free up more of our teams to provide personal value-added services, focus on sales to expand our market share and develop new digital products and services.

Now here's Maritza to go over the financials in more detail.

Thank you, Jose. Let's turn to Page 6 to review our financial highlights. All comparisons are to the fourth quarter unless otherwise noted. Core revenues at $186 million were approximately level. Total interest income was $194 million, a decrease of $3 million. This reflected lower average balances of cash and investment securities at lower average yields. This was partially offset by higher average balances of loans at higher average yield. First quarter interest income included $3.3 million from a PCD loan paid in full. There were two fewer days in the first quarter. This negatively affected interest income by about $3.1 million.

Total interest expense was $40 million, a decrease of $4 million. This reflected lower average balances of core deposits at lower average yields. This was partially offset by higher average balances of brokered CDs and borrowings at lower average yields. The two fewer days reduced interest expense by approximately $1 million.

Total banking and financial service revenues were $32 million, a decrease of $0.6 million. This reflected favorable MSR valuation of about $1.3 million, while the fourth quarter included $2.3 million in annual insurance commission recognition.

The other income category was $0.2 million compared to a loss of $1.1 million. The change reflected the absence of several previously reported items from the fourth quarter. Noninterest expense totaled $95 million, down $10.3 million from the fourth quarter. The first quarter included $1 million in merit raises, $0.7 million in payroll tax costs, $1 million in costs related to our capital markets readiness and registration process, $3.6 million in business-related volume incentives compared to $3.1 million a year ago and $2.5 million in planned cost savings.

The fourth quarter included net $6.8 million in previously reported expense items. Income tax was $14.9 million compared to a benefit of $8.5 million in the fourth quarter. The first quarter ETR was 21.60%.

Looking at some other metrics. Tangible book value was $30.14 per share. Efficiency ratio was 51%. Return on average assets was 1.78%, and return on average tangible common equity was 16.4%.

Now let's turn to Page 7 to review our operational highlights. Average loan balances were $8.2 billion, up $50 million from the fourth quarter. This reflected increases in Puerto Rico and U.S. commercial loans, partially offset by lower balances in residential mortgage, auto and consumer. Loan yield was 7.87%, up 14 basis points. Excluding the first quarter loan recovery, loan yield was 7.71%, down 2 basis points from the fourth quarter. New loan production was $609 million. This mainly reflected an increase in auto loan production. Year-over-year, new loan production increased 9%, primarily reflecting increases in new commercial loans with auto moderating as anticipated. Average core deposit balances were $9.6 billion, down 4% from the first quarter. This reflected the $500 million government deposit transfer to wealth management early in the first quarter. By the end of the quarter, this was partially offset by increases in retail and commercial deposits totaling more than $150 million across all categories, demand, savings and to a lower extent, time deposits. Core deposit cost was 1.29%, down 13 basis points. This was mainly due to the previously mentioned government deposit withdrawal, combined with lower average rates.

Excluding public funds, cost of deposit was 1% compared to 1.02%. Also reported average noninterest-bearing deposits totaled $2.7 billion in the first quarter, an increase of 1.41% sequentially and 4.55% year-over-year. Investment totaled $2.8 billion, down $55 million. This reflected principal paydowns and maturities. This was partially offset by purchases of $49.2 million of mortgage-backed securities and residential mortgage securitization of $23.5 million. Average borrowings and brokerage deposits totaled $929 million compared to $787 million in the fourth quarter. The aggregate rate paid was 3.98%, down 5 basis points. By the end of the first quarter, balances were down to $747 million due to intentional runoff compared to $897 million in the fourth quarter. End of period cash at $636 million was 39% lower due to the government deposit transfer.

Net interest margin was 5.36%, reflecting the previously mentioned $3.3 million interest recovery and lower cost of deposits and borrowings.

Cesar will provide more detail on our credit quality in a moment, but first, let me summarize the quarter. We demonstrated year-over-year loan growth and production in line with expectations and continue to expect low single-digit growth with our expanding presence in commercial more than offsetting a decline in auto. Our Digital First strategy is continuing to lead to more customer and digital and debit card transactions. Digital First also helped grow deposits in line with our strategies. We continue to anticipate growth this year with our Libre, Elite and My Biz accounts.

We now expect net interest margin to range from 5.10% to 5.20%. This updated range assumes no additional rate cuts in 2026 compared to two cuts previously expected and incorporates the exit of the large remaining government deposits later this year. Noninterest expense were maintained within our expected run rate. We remain on track to keep expenses in a range of $380 million to $385 million this year. Based on our first quarter results, the estimated tax rate for 2026 is anticipated with 22.3%, excluding any discrete items. We were very active returning capital to shareholders. We will continue to be selective and opportunistic, balancing shareholder returns with disciplined growth. Now here, Cesar.

Thank you, Maritza. Please turn to Page 8. Before getting into the details, let me start with the key highlights for the quarter. Our thesis that customer -- higher customer liquidity in the first quarter drives better credit metrics was reinforced. We saw that most clearly across the retail portfolios, where early stage and total delinquency trends improved sequentially, consistent with normal seasonality. Net charge-offs totaled $21 million, down $5.5 million, reflecting normal portfolio activity with continued improvement in retail loss trends. Net charge-offs reflected $3.9 million from a final settlement of a previously reserved U.S. loan, while the fourth quarter included $4.8 million related to a non-performing loan sale. The net charge-off rate was 1.05%, an improvement of 27 basis points from the fourth quarter. The auto net charge-off rate declined sequentially to 1.52%, an improvement of 29 basis points. The consumer net charge-off rate also improved to 4.40%, 15 basis points better from the fourth quarter. Provision for credit losses was $22.5 million, down $9 million from the fourth quarter. This reflected $17.5 million from increased loan volume, $3.7 million in added reserves for a previously reserved commercial loan and $1 million for newly classified small commercial loans. Allowance coverage remained strong at 2.48% of loans and reserve levels continue to appropriately reflect the risk profile of the portfolio.

Looking at other retail credit metrics. Early and total delinquency rates declined meaningfully from the fourth quarter to 2.2% and 3.4%, respectively. These improvements were broad-based across the retail portfolio with auto, consumer and mortgage, all showing better early-stage performance. The non-performing loan rate was 1.47%, down 12 basis points. Retail nonperforming loan rates improved sequentially in auto and consumer while remaining stable in mortgage. Overall, retail credit behavior was consistent with the seasonal improvement we typically see in the first quarter, supported by higher customer liquidity and strong employment conditions in Puerto Rico.

Turning to commercial. The non-performing loan rate declined to 2.36% from 2.50% last quarter, reflecting sequential improvement. Commercial asset quality outside of one specific credit continues to perform as expected. As we discussed last quarter, the commercial portfolio continues to include a single name telecommunication exposure that moved to non-accrual late last year. This exposure remains well understood and idiosyncratic and does not represent a broader trend within the commercial portfolio.

Overall, credit continues to perform well. While we remain mindful that there are various geopolitical and economic headwinds that may increase the cost of living or inflationary pressures in Puerto Rico, the first quarter performance benefited from strong employment conditions and higher seasonal customer liquidity. Credit metrics remain well controlled and within our risk appetite and the portfolio is performing in line with our expectations and risk framework. Here's Jose to wrap up.

Thank you, Cesar. Please turn to Page 9. The Puerto Rico economy continues to perform well. Business and consumer liquidity levels are strong and unemployment is at historically low levels. Public reconstruction funds, private investments and new onshoring projects continue producing economic tailwinds. And as Cesar mentioned, we are closely watching geopolitical macroeconomic uncertainties and their impact on the island, particularly with higher energy prices and overall inflation.

Against this economic backdrop, OFG remains very well positioned. Our digital (sic) [ Digital First ] strategy is driving unique customer experiences, attracting deposits and growing our customer base steadily. Our culture of continued improvement and investments in people, technology and automation are producing tangible efficiencies. We continue to have a solid commercial loan pipeline, stable credit trends and strong risk management and disciplined asset liability. All these factors combined with Puerto Rico's level of business activity positions us well for continued growth.

Before I end my prepared remarks, I want to highlight the recognition we received in the first quarter, where we were honored with a 2026 Gallup Exceptional Workplace Award. For us, this recognition goes well beyond employment engagement scores. It reinforces a culture we've been intentionally building for many years, one that emphasizes agility, openness to challenge and innovation. At OFG, our teams are encouraged to question how things have always been done to move quickly in responding to customer and market needs and to continuously improve how we operate. That mindset enables faster decision-making, more innovation across our digital and operating platforms and better execution in a dynamic environment.

This recognition highlights how our people, culture and strategy are united by a shared sense of purpose, driving meaningful progress for all our stakeholders. It is this commitment to purpose that empowers us to consistently achieve strong long-term results while making a positive impact across all our stakeholders. With this, we end our formal presentation. Operator, please open the call for Q&A.

[Operator Instructions] We'll take our first question from Brett Rabatin with StoneX.

Wanted to start just on the margin, even excluding the $3.3 million that would have made it about 5.24%. That was obviously better than anticipated. And when I look at the cost of deposits, if I heard correctly, 1% excluding the government deposits in the quarter. It seems like things turned out better than expected on the margin. And I know the guidance is for a slightly lower level from here. But just any thoughts on the potential positives for the margin relative to the guidance, whether it be loan pricing or any other factors? It seems like you're probably getting close to a bottom here on funding costs.

So Brett, before I let Maritza give you the specifics. Let's just be clear here. For us to provide guidance on the margin is a little tricky given the uncertainty on when, and how much of the large government deposit will exit, and how those funds will be replaced. So when we give a guidance on the NIM, we're using the most conservative guidance possible because we just really don't want to promise something that we really don't want to not deliver on. So bear that in mind, we still have a significant deposit from the government that has been telegraphed to us that it will depart some time. We don't know if it's tomorrow, if it's next year.

So replacing those deposits, we certainly bet that our business teams, the commercial team as well as the retail team, as they did this first quarter, will deliver and deliver substantially better than what we expected in the first quarter. It definitely has a lot to do with the economic background that we are living in Puerto Rico. And sometimes, we undermine that in our own forecast given the 22 or 23 years that we've operated in the island. But bear that in mind before I pass -- now I'll pass the answer to Maritza, so she can give you the specific details.

Yes, thanks Jose for that color. And we need that for the first quarter, definitely, the fact that deposits increased at a higher rate than expected. It was a very good momentum for us. The reality is that going forward, we don't see thinking about the rate scenario that we're managing with no cuts, we don't see much of a flexibility to push down more the cost of deposits. So we will continue to see deposits at the same level as we saw during the first quarter. And the other element that we -- is embedded within the range that I provide is the asset composition because we will continue to see gradually commercial book being -- having a higher proportion as auto continues to go down, as I shared with you in the prepared remarks. .

So that means we also have some impact on the loan yield that during this quarter went down 2 basis points. So we are seeing the asset sensitivity and the liability sensitivity somehow compensating between the two of them and since the NIM that we saw during the quarter going -- keeping it stable, maybe 5 basis points down, 5 basis points up, but that's why we're giving the 5.10% to 5.20% range guidance. So for the quarter, if we exclude the recovery, it was 5.25%, and we will need to manage liquidity through the year, as Jose was mentioning. So that's why we're giving that base case scenario as a range.

And you guys know us, we're going to be conservative on our guidance in all the guidance that we provide. We've been doing that for many years. So that's kind of where we stand, Brett.

Okay. And can you remind me, Jose Rafael, how much of the government deposit piece is left? And it sounds like you're unsure of the timing, but just any thoughts on.

Around $600 million on the one deposit. Remember, the other $500 million went to our broker dealer. So we're getting a little bit of a fee there. So that's where it stands right now.

Okay. And then on credit quality, I heard the comments and totally, if you look at the numbers, it makes sense. There's some seasonality related to early-stage delinquencies, but there was some nice improvement this quarter. Was there anything else that might have been driving the improvement other than seasonality in customers having higher liquidity during 1Q. Are you seeing any other broad-based things that were improving credit?

Well, back in 2022 at the late stage of 2022, we adjusted -- we improved the underwriting standards to make sure that we didn't book [indiscernible] because that was record-breaking period. So we didn't -- we wanted to make sure that we use that moment to improve our portfolio quality. So now we're seeing the results of those improvements in the credit quality where the auto portfolio is 91% prime. So we are starting to see the benefits in the credit metrics of those adjustments that we did back in the 2022 year.

Yes. When you think about it, Brett, the seasonality of the vintage that is coming due in '26 is one that already has 80-plus percent in prime. So we expect to have lower loss content in the vintages that are becoming seasoned in the next couple of years. So that's part of an additional kind of element of our -- of the consumer credit portfolio.

Yes.

Yes.

Okay. And then just last one for me around just the broad macro. I saw this morning that construction in Puerto Rico was slightly off in January, maybe February, but all this stuff going on with higher oil prices, inflation. Just wanted to hear anything you're seeing in terms of macro and Puerto Rico and maybe opportunities or challenges?

Yes. So you heard me before talk about Puerto Rico economy, and it remains very constructive, very positive. Puerto Rico is probably in its best economic position in many, many, many decades. So if you think about it, right now, Puerto Rico has only 30% debt to GDP. Puerto Rico is -- has the lowest levels of unemployment in 70-some years. Puerto Rico receives around $4 billion to $6 billion in reconstruction funds a year, and will continue to receive them for the next 5 to 7 years. Puerto Rico is benefiting from onshoring of medical devices, pharmaceutical and leveraging that infrastructure that has been in place for many years. Remember, Puerto Rico's manufacturing is around 45% of the entire economy in the island. So that is also helping. .

So I think Puerto Rico, going back to our history, we are back on the limelight in terms of our geopolitical, geographic positioning. And you saw it when the military went into Venezuela. It all came from Puerto Rico, and they're hiring -- they're increasing their military presence in the island. So when you look at all that, it's just a very good economic backdrop that will certainly have to face threats, and those threats will come from the geopolitical that is going on around the world and the inflationary pressures and the United States potentially going into a recession and we'll get some of those effects. Puerto Rico is in a much stronger position today than several decades ago to embark in those challenges.

So when you think of the quarter-to-quarter or month-to-month changes in economic data points and stuff, yes, they're real. But at the same time, what we're seeing on the ground is high levels of liquidity, strong interest in building infrastructure, strong private investments, and we're meeting with commercial clients. I had lunch yesterday with commercial clients that are really putting money to play in the island in different industries. And I think the next several years in Puerto Rico are going to continue to be pretty steady growth. And that's what we're seeing, Brett.

We're seeing a pretty solid positive economic environment that is not exempt of threats, and it's not exempt of risk. But I think we've been managing them for many years, and we're confident that we'll continue to grow our client base, we'll continue to grow our loans and our deposits. We have been doing in the last several decades being very strategic, being very intentional. And again, as I said, highlighting our team, our people are really focused on trying to be the challenger bank in the island and gaining market share out of it. So that's kind of my $0.10 that turned out to be more than $0.25.

We will move next with Arren Cyganovich with Truist Securities.

The deposit growth surprised me to the upside with the government deposit that you had guided coming out. You had pretty strong growth in the quarter to cover that where I thought it would actually come into the borrowing side. Maybe you could talk a little bit about -- you mentioned that Libre, Elite and My Biz all contributed. Are you seeing any particular growth in any one of those particular products? And were you doing anything special to kind of drive that growth in the first quarter?

Yes. Very -- I agree with you 100%. The three products are the driving force for us as an offering, very targeted, very focused. We don't have 50 different deposit accounts. We have one for mass, one for mass affluent and one for small business, and that's how we keep our focus of our team members. And we also have excellent, excellent benefits for each of those accounts. And that is what's driving the adoption and driving the account opening and driving the customer growth. So it's all across the board.

What we saw with Libre in this quarter and Elite on the retail side showed increase in deposits. Libre is noninterest-bearing, mostly a digital account type of thing, where you can open it online if you want to. So we continue to see great adoption there, growing client base on a monthly basis steadily.

On the mass affluent, we also saw great growth too in terms of deposits. We continue to see steadily -- those are higher balances. We continue to see steadily the penetration of different services within the Elite. What I mean by that is, we are seeing more and more Elite customers, deepening the relationship on the lending side with our -- within Oriental, with OFG.

And then on My Biz, it's our flagship. Our team members go out there, and they -- we do have a very good solid cash management offering and the platform is very, very good and solid compares to the one that banks in the states have. So customers are starting to identify all those benefits, and we're seeing the results. Certainly, all of that has to do with the economy, too. So there's a lot of liquidity, so that helps. But I don't want to underestimate the power of our strategy, and how we're executing on it.

Great. That's helpful. Slide 5, you've always kind of talked about the Digital First aspect of your banking and the statistics are pretty impressive. What are you doing, or any particular new investments that you're looking at from the technology side where you can kind of continue to improve upon those statistics?

So we've made investments throughout the last several years. And some of what you're seeing today is the deployment of those -- or the benefits of those investments. And we continue to invest. And right now, the biggest focus for us as we finalize our data kind of management and making sure that we have the data readily accessible for us to be able then to continue to extract insights for our customers and to improve their lives and give them value add. And that's something that we're already doing, and we are expanding that. And we have a team working on it for many years now. And that's something that we're focusing on.

I think the benefits of artificial intelligence are, first and foremost, on the efficiency side. And when you hear Maritza talk about expenses. You see the guidance being flat versus last year, as we talked about in the fourth quarter, we continue to see good opportunities for us to leverage AI and bring efficiencies to the bottom line for '27 and beyond.

And then the other side is value add to our customers, how do we make their lives simple. And those are the things that we're investing in right now. And it's tricky, and we're probably going to hit a good investment here or there in terms of the deployment to our customers, and we might miss some. But that's kind of how we operate. We do bet on the innovation. We think banking will require innovation going forward and Puerto Rico is way behind on that innovation curve and OFG is the one who's driving that innovation in Puerto Rico.

We will move next with Kelly Motta with KBW.

Just a real quick one, just a guidance clarification from Maritza that 5.10% to 5.20% margin, just wanted to clarify, is that for the full year or the balance of 2026 quarters?

It's for the full year. And I already shared a little bit on how we're seeing and why we're seeing that range and Jose also provided -- how tricky is to forecast the timing of the big government deposits transfer. So that considered that and the fact that we are not seeing costs during the year, so...

Got it. That's really helpful. And then similarly, I thought a real strength of the quarter was the core deposits. I know Puerto Rico has, I believe, a government tax rebate. Just wondering if you saw any positive impacts from that in 1Q? Or if not, just if you could help us out with the timing of where you expect that.

That's usually at the end of the quarter. We saw a little bit at the end of the quarter, certainly. And I think that plays out throughout the first half of the year. So we see the child tax credit. We also see the tax refunds in general, and that plays out throughout the first half of the year.

Great. That's really helpful. And then maybe to turn to capital. You guys announced the pretty meaningful dividend raise earlier in the quarter and you guys were also more active the buyback with a new authorization out. Capital looks very healthy here. Can you remind us any guideposts or thoughts around the capital side of things?

Yes. Everything starts with how do we deploy our capital and capital management. We want to deploy it first and foremost in our business here in Puerto Rico. So if there are some opportunities for us to deploy it in a growing balance sheet, we will certainly do that. And that's kind of the first level of thinking. We also certainly see the buyback as a way for us to continue to return capital to shareholders. We're methodical about it and opportunistic and we've shown it in the first quarter and we'll continue to be so during the rest of the year.

And the dividend, we look at it also and we feel very confident about the earnings power that we have, and how we manage the capital with a 14 -- close to 14% CET1. I think it was a little lower this year -- this quarter given the buybacks, but it's around 13.75% CET1. And we feel that part of our capital management strategy is to deploy back capital to shareholders, and we will continue to do so, Kelly.

Okay. Great. That's helpful. Maybe last ticky-tacky question for me, just modeling based. I appreciate the color on margin, you had the interest recovery. Just looking at your average balance sheet, it looks like there was a jump up in PCD interest income. Just to confirm, was that where that interest recovery came in?

Yes, yes, yes. It was very full of a loan that was within [indiscernible].

We will move next with Manuel Navas with Piper Sandler.

How much do the taking out of fed rate cuts help that NIM guide? And if we did get one rate cut, what would you expect the impact to be?

Well, thank you, Manuel. We continue to be asset sensitive, but the reality is that around 50 basis point cost will have a very low impact, less than 1%. But the reality is that we are taking that into consideration in this new guidance because we were expecting 2 cuts midyear and then at the end of the year, and that's no longer impacting the commercial book. So that's why it is impacting positively the guidance that we provide, and we move it like 10 basis points, not necessarily fully related to the change in the expectation on rate cuts. But also it's a combination with the fact that the funding mix is better than expected because of the inflows that we received during the first quarter is encouraging us with the perspective that we had for the rest of the year. So we are expecting to core deposit to continue growing, so that will help funding mix in front of the potential exit of the government deposits, and that's what is embedded with that guidance.

I appreciate that. So the success you're having with the new account types as long as they keep growing, they can replace borrowings and that should only benefit your funding? Is that kind of [ working ] that you're driving home?

Yes. And it also has another component that we don't talk about it often, but it's also the large commercial book and business that we have. We do have some good size commercial accounts that have been long-standing clients of ours that also are benefiting from higher liquidity levels too.

Great. And on that front, I know your loan growth is commercial led this year, a little bit less on the auto side. How do the pipelines look? Any update to the mix of loan growth from last quarter. It seems like it seems pretty consistent, but just trying to check in on any seasonal improvement in growth.

Yes. We do have a pretty good pipeline, and we are continuing to stick with our guidance of low single digits simply because -- not because we don't feel comfortable with the commercial pipeline, but more importantly, because we are modeling a reduction on the auto business, auto loan book that it's hard to predict given the landscape here in Puerto Rico. But we're very happy with the business on the commercial side. We continue to grow it. We continue to have a very strong pipeline, Manuel.

And I guess my last question is on credit. Is this kind of improvement in past dues, which is somewhat seasonal, could that drive a bit lower net charge-off levels for the year. I think we're looking at close to 1% plus.

We talked about the 1% last quarter, too. I don't want to project this quarter because it's a better quarter because of the seasonality, as you mentioned. So I'll stick to my 1% through the year. And hopefully, it's going to be better because we mentioned already the improvements of the FICO quality of the portfolio, which may equate into a better charge-off rate. But as of now, I would say 1%.

[Operator Instructions] At this time, there are no further questions. I will now turn the call back over to Mr. Fernandez for closing remarks.

Thank you, operator. Thanks again to all our team members, and thank you to all our shareholders who are listening. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning. Thank you for joining OFG Bancorp's conference call. My name is Nikki, 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 home page of the OFG website under the Fourth 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.

[Operator Instructions] 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 fourth quarter and 2025 results.

Let's go to Page 3 of the presentation to review the fourth quarter. Earnings per share diluted were up 17% year-over-year on 2% growth in total core revenues. This was driven by disciplined core operations and a favorable tax benefit. Asset quality and credit metrics were sound and well controlled throughout the quarter. During the quarter and year, in line with our strategies, we saw increased commercial loans and broad acceptance of our flagship mass-market Libre accounts and mass affluent Elite deposit account. Performance and credit metrics remain strong. Capital continued to grow, and we repurchased $40 million of common shares in the fourth quarter. Maritza will go into more detail on these numbers shortly.

Please turn to Page 4. We accomplished many of our strategic and financial goals last year. Earnings per share increased 8.3% on a 2.8% increase in total core revenues. Total assets grew 8.4% to a record $12.5 billion. Core deposits grew 5% to $9.9 billion. Loans grew 5.3% to $8.2 billion with commercial loans growing to $3.5 billion, now representing 43% of our loan book. In addition, new loan production increased 11.5% to $2.6 billion. We repurchased close to $92 million of shares and increased our dividend 20%. Business activity is robust in Puerto Rico. The outlook for economic growth is positive, and businesses and the consumers are resilient. Having said all that, one of our biggest strategic and financial accomplishments of 2025 was the progress we made with our Digital First strategy.

Please turn to Page 5. Over the last 2 years, we have clearly emerged as a leader in banking innovation in Puerto Rico. Our digital focus gives us a differentiated approach and provides customers with a unique enhanced experience. In 2024, we introduced the Libre account for the mass market and the Elite account for the mass affluent market. Both Libre and Elite have been successful in attracting deposits from new and existing customers. In addition, we enhanced our Oriental Biz account suite, making treasury management easier and more secure for small businesses, driving a 5% increase in commercial customers during 2025. We have further enhanced the customer experience through technology. In 2025, we launched our omnichannel platform. This provides customers with a seamless banking experience anywhere they choose to interact transforming the branch into a place for building customer relationships. With our intelligent banking model, customers now receive tailored insights based on cash flows and payment habits, helping them access and monitor their finances with real-time value-added tools to improve their financial life from their mobile phones.

Please turn to Page 6. All this has directly contributed to our increased market share in retail deposits and a 4% growth in retail customers. To put this into perspective, we have provided data showing our progress over the last 2 years. As you can see, OFG is well positioned for continued success in the coming years.

Now, here is Maritza to go over the financials in more detail.

Thank you, Jose. Let's turn to Page 7 to review our financial highlights. All comparisons are to the third quarter unless otherwise noted. Core revenues totaled $185 million, an increase of $1.4 million. Total interest income was $197 million, a decrease of $3 million. This reflected higher average balances of loans and cash at lower average yields. This was partially offset by higher average balances of investment securities at slightly higher yields. Total interest expense was $44 million, a decrease of $1 million. This reflected higher average balances of the brokered and borrowings at lower average rates. Total banking and financial service revenues were $33 million, an increase of $3.4 million. This mainly reflected increased wealth management revenues due to $2.3 million in annual insurance commission recognition.

The other income category was a loss of $1.1 million compared to a profit of $2.2 million in the third quarter. The change reflected $6.1 million for accelerated amortization of technology-related assets. Gains of $3.9 million on the sale of nonperforming loans and $1.1 million on sale of real estate. Please note that the third quarter benefited from gains from OFG ventures investment in fintech funds. Looking at noninterest expenses. They totaled $105 million up $8.5 million from the third quarter. This reflected $3.3 million in professional services fees related to performance-based advisory costs. This was part of the cost savings renegotiation of our technology services contract. $2.5 million of business rightsizing and $1 million related to the previously mentioned accelerated amortization of technology-related assets.

Compared to the third quarter, there were $1.7 million in increased costs related to an additional accumulation of performance bonuses, expanded marketing activities and the sales of foreclosed assets. For 2026, we currently expect that total noninterest expense to be between $380 million to $385 million. Income tax was a benefit of $8.5 million due to 2 discrete items. $12.9 million from the expiration of a tax agreement from the 2019 acquisition of Scotia in Puerto Rico and USVI operations and $3.9 million from a release in valuation allowance of deferred tax assets at the holding company level. Excluding discrete benefits, the estimated tax rate for 2025 was 21.8%. Looking at some other metrics. Tangible book value was $29.96 per share, efficiency ratio was 56.7%. Return on average assets was 1.8%, and return on tangible average and return on average tangible common equity was 17.2%.

Now let's turn to Page 8 to review our operational highlights. Average loan balances were $8 million, up slightly from the third quarter. This reflected increases in Puerto Rico commercial loans, partially offset by lower balances in auto and residential mortgage. Loan yield was 7.73%, down 70 basis points. This was mainly due to the effect from variable rate commercial loans from the Fed's 50 basis point rate cost in the fourth quarter. New loan production was $606 million compared to $624 million. This reflected decreases in Puerto Rico and U.S. commercial and consumer lending, partially offset by increases in auto and residential mortgage lending. Average core deposit balances were $9.9 billion, up almost 1% from the third quarter. This reflected increase in retail, commercial and government balances. By account size, each reflected increase in demand, time and saving deposits.

Core deposit cost was 1.42%, down 5 basis points. This was mainly due to lower cost of government deposits. Excluding public funds, cost of deposit was 102 basis points compared to 103 basis points in the third quarter. Investments totaled $2.8 billion, down $96 million. This reflected principal paydowns and maturities and it was partially offset by purchases of $25 million of mortgage-backed securities and residential mortgage securitization of $21 million. Average borrowings and brokerage deposits were $787 million compared to $769 million in the third quarter. The aggregate rate pay was 4.03%, down 8 basis points from the third quarter. End-of-period balances were $897 million compared to $746 million. This reflected increased broker deposits for liquidity management. End of period cash at $1 billion was 41% higher reflecting increased core and brokerage deposits. Net interest margin was 5.12% within the range we had expected.

Please turn to Page 9 to review our credit quality and capital strength. Credit quality continues to be resilient. Provision for credit losses was $31.9 million, up $4 million from the third quarter. This reflected $21 million for increased loan volume, $5.1 million for a specific reserve on a Puerto Rico telecommunications commercial loan, $2.4 million related to the U.S. macroeconomic factors and $1.7 million in charge-offs from the sale of nonperforming loan. Net charge-offs totaled $27 million, up $6.7 million. Net charge-offs included $4.8 million related to the sale of nonperforming loans, of which $3.1 million had been previously reserved.

Looking at other credit metrics. We observed the typical seasonal pattern of higher delinquency and nonperforming levels during the year-end period. Despite this, overall credit quality remains within expected ranges. [ Early ] delinquency rate was 2.8%, down from the third quarter and down year-over-year. Total delinquency rate was 4.18%, up from the third quarter, but down year-over-year. The nonperforming loan rate was 1.59% due to the move to nonaccrual classification of the Puerto Rico telecommunication loan that I mentioned. On the capital side, our CET1 ratio was 13.97%, as stockholders equity totaled $1.4 billion, up $15 million and the tangible common equity ratio decreased 8 basis points to 10.47%.

To summarize the year, loans and core deposits both grew about 5% in 2025. This year, we expect loans to continue to grow in low single digits. We also expect retail and commercial deposits to increase with [ Libre Plus ], Elite Oriental Biz and our digital offerings driving customer growth. As for the Puerto Rico -- as for the large Puerto Rico government deposits, $500 million moved this month to our Wealth Management business as an advisory account. The remaining $600 million is sustained as a variable rate core deposits. Net interest margin was 5.27% for 2025. Looking ahead, net interest margin should range between 4.95% to 5.05% in 2026. That takes into account 2 more 25 basis point cuts, the effect of the partial exit of the government deposits and the incremental cost of funding to replace it. Noninterest expense totaled [ $389 million ] in 2025. We currently expect them to be between $380 million to $385 million this year. Credit should remain steady, reflecting the strong economic environment in Puerto Rico. Our effective tax rate for 2026 should be around 23%, excluding any possible discrete items. Capital should continue to build, enabling us to continue to return capital to shareholders through dividends and buy back shares on a regular basis.

Now here's Jose.

Thank you, Maritza. Please turn to Page 10. The Puerto Rico economy continues to be steady with a sustainable long-term outlook. Liquidity solid, businesses and consumers remain resilient and unemployment is low. Public reconstruction funds and private investments are providing economic tailwinds, manufacturing investments are continuing from multinational companies seeking onshoring solutions, particularly in the pharmaceutical and medical devices sectors. Having said that, we always have to closely monitor all the global macroeconomic and political uncertainties these days and their political impact on Puerto Rico.

Turning to OFG. The success of our differentiated positioning has been evident over the last several years, we will continue to focus on the client experience with enhanced product tailoring strategies, our [ Libre Plus ] and Elite accounts offer AI insights and tools not available elsewhere in Puerto Rico, commercial loan and deposit account growth is benefiting from deeper relationships and services and credit and asset quality that are sound and well controlled. The technology investments we make and our continuous improvement culture are starting to produce tangible efficiencies. All of these give us confidence in sustainable long-term growth across our core businesses. As always, we could not have achieved these results without the hard work of our dedicated team members. We are very thankful to them and excited about our future.

With this, we end our formal presentation. Operator, let us start the Q&A.

[Operator Instructions] We'll take our first question from Kelly Motta of KBW.

Maybe to just kick it off with credit, just given that provisions were a bit elevated for the second quarter now. Can you provide additional color into the larger Puerto Rico charge-off this quarter as well as there was some movement in NPLs with some sales. Can you provide more color as to what was done there and what migrated back in?

Kelly, this is Jose. I'll let Cesar take that question.

So the charge-offs that you're looking in the quarter are the result of a sale that we perform of that released $17 million in nonperforming loans during the quarter, and that released tier charge-offs, et cetera, but the result at the end of the day was a gain of $3.9 million that we reported. Offset, of course, by the entry of a loan -- telecommunications loan that was recorded as nonaccrual and nonperforming during this quarter. So that's basically the movement in nonperforming during the quarter in commercial. So when you look at it, it's $45 million on the communication loan minus the $17 million on the sale of the NPL, and that's why you see the increase in NPLs in the quarter, and particularly on the commercial. So it's only 1 loan, and it's not something that is across the portfolio. We just see this as very idiosyncratic.

Yes. And just to add, and I share a little bit on my prepared remarks, there was a charge-off related to the sales of about $4.8 million, and a big portion of it was already -- it was about $3.1 million that was already said.

Got it. And then on loan growth, I mean, you've been talking about auto being more competitive in prior calls. In terms of your outlook, for low single-digit loan growth ahead. Can you provide additional color in terms of what's the driver of that? Is the expectation that auto will be kind of more muted like the past 2 quarters?

Yes, that's a great point. We see auto starting to stabilize at these levels. As again, in Puerto Rico, you also are starting to see a stabilization in the new car sales. So we look at auto balances to be down in the year between 2% and 3%. We also see commercial loans up 5%, 6% during the year both Puerto Rico and U.S. So with that kind of a setup, we see consumers going up a bit. Mortgage also is trending down, but less than in years past. We see low single digits as a reasonable target for us for loan growth overall.

Got it. Last question, if I can just sneak it in, is on your expenses, [ $380 million to $385 million ] relative to your operating is relatively flat year-over-year. Can you provide like your confidence in that and the drivers of those increased efficiencies?

Well, yes, thank you for your question, Kelly. The range reflects our continuous investment in technology and people, capabilities, talent to continue driving the Digital First strategy that we are deploying constantly in the bank. And we have seen certain efficiencies like this year, we have -- if you look at our full-time equivalent employees, there are less [ 30 ] people, 660 all to well. So we continue to expect that number to go down but we need to continue to reinvesting. That's why we see expenses to continue to be flat this year. But we're thinking that by the end of the year, we will start seeing some of that savings and the 2027 and 2028, we see savings to accelerate. And we will see that more in a time you will wait for 2027, 2028.

It's something that we've always kind of been very cognizant of these investments in technology, they certainly have enhanced the customer experience in a significant way and is providing us the ability to grow and differentiate ourselves but it also has a very intentional effort to bring efficiencies to the bank. And this is the first year where we are seeing in 2026. We're seeing the expense range is flattening out. And it has everything to do with a little bit of what we've done in the past, but it's been more importantly on the culture of continuous improvement and how do we look at processes to simplify them, make them more agile and really try to eliminate interactions and processes that are very manual and very -- with very little value add, try to convert them into technologies and use the blockchain and all the technology, all the robotics and all, we're starting to use all those things, and we feel more confident in our expense ranges in '26, for sure. And we will continue to work hard to bring additional expense reductions in '27 and '28. Maritza mentioned.

Our next question comes from Arren Cyganovich of Truist.

Jose, I was wondering if you could talk a little bit about what you're viewing is the best strategic initiatives or your focus on strategic initiatives for 2026? Maybe relative to 2025, it seems like you're making a good push on the deposit side and, of course, always investing in technology.

Yes. Thank you, Arren. So we will continue to enhance our retail efforts. It's not something that we're going to decelerate. So we will continue to invest in enhancing the customer experience and adding additional functionality to our omnichannel platform and drive additional benefits for our customers on the retail side, and you'll see some of those playing out throughout 2026. But in 2026, our focus is going to be much more on commercial. And we are -- we see a good opportunity. As you saw, we grew 5%, our customer -- commercial customers last year. And I think we have an opportunity here to continue to translate the same strategies that we have done in terms of technology and digital translated as it is appropriate on the commercial side.

And it's going to be a journey. It's going to be 3 years or so for us to be able to deploy all this and all that stuff. But that's where we're going to be putting more effort. We see an opportunity for us to keep growing our commercial business. And we think the Puerto Rican economy is supporting that. And as asset bank feel compelled to invest in small and midsized clients and help them grow because that's critical for the growth of our economy here in Puerto Rico. We're really focused on the Puerto Rico market, and we feel that we have a great opportunity there.

And on capital return, I think Maritza said that you should expect capital to build sort of to return capital to shareholders. I'm just trying to balance the 2, what's the expectations for capital return for 2026?

I think the fourth quarter capital actions that we took in terms of the buyback I think it's going to become more -- given our valuation, right, given the way the market is following our stock and given the multiples that they are assigning to us versus our peers, we feel the best use of our capital after loan growth and balance sheet growth is buying back shares. And so we will continue to be very intentional there. We certainly will also look at the dividend. But again, we see some differentiation in the valuation there, and we feel that it's the best way to reward our shareholders by buying back shares.

Great. And then just lastly, some clarification on your answer about expenses, the expense reductions in '27 and '28. Is that more so thinking about the efficiencies that you're going to get from the actions you're making this year and I guess I'm just thinking like is it actually going to go down? Or are you going to -- are going down and some erosion top of that?

I don't want to put the car in front of the horses, right? But I'll tell you, we're working very hard to bring additional efficiencies during 2026 that will play out in '27 and '28. We will give you more details as we execute on those initiatives. But as Maritza mentioned, we are looking at FTEs and where can we redeploy our people talent to more customer-facing and value-add building relationships type of talent versus having FTEs sitting behind a desk in operations and servicing and pushing papers and dealing with Excel spreadsheets to manage different functions.

And I can give you an example. We have been able to optimize the entire fraud management processes just simply by using robotics and being able to eliminate several FTEs that were basically managing fraud on a daily basis. And those are some of the small examples that we can provide. And I'm sure many banks in the U.S. and in Puerto Rico are also doing the same. We're trying hard to bring down expenses, not without investing in technology, investing in our people and continuing to do the right thing for the long term of our franchise, which is critical for us. It's important.

We will move next with Brett Rabatin of Hovde Group.

I wanted to start on the margin and just on the fourth quarter, I wanted to get a little better color on the linked quarter change in the loan yields, which had been fairly stable up until this quarter. So does the 17 basis point linked quarter change, I was just hoping to figure out how much of that was large nonaccrual loan and any other comments on the loan portfolio yield change linked quarter?

Thank you, Brett, for your question. And remember that we are asset sensitive and we continue to be asset sensitive and this quarter, as I mentioned in my prepared remarks, the loan yield went down basically because of first 50 basis point cost during the quarter, but also we have the full effect of the September '25 basis cuts. So that's one of the main drivers for the reduction in the NIM. And we were able to compensate that to our government deposits variable rate because it also gets a reduction there. But it reflects our asset sensitive position.

I think also, you're also on the loan side, you're starting to see -- since we have moved our auto originations to higher -- significantly higher quality, we have been able to -- we are also seeing a slight decrease in the yield coming in on the auto lending side. And that's just a testament to the credit quality that we're bringing in, better credit quality.

Okay. That's helpful. And then just thinking about the margin guidance for '26. It was nice to see that the funding costs, which were up a little bit in 3Q, moved back down in the fourth quarter. Is the margin guidance for '26, does that reflect some additional leverage to lower funding costs from here? One of the key things that's always been a question is Puerto Rico has lower cost deposits from Mainland, how much can those go down as rates go down, given they're already fairly competitively priced?

Yes. The reality is when you look forward for this year, 2026, we will have a change in our funding mix because the $50 million exit -- $500 million exiting the bank now moving to the wealth management business, and we will replace that with wholesale funding, and that carries a higher cost of about 25 basis points to 40 basis points depends on the term of that wholesale funding. But the reality is that we will have that change and that's part of the impact of the NIM.

But when you look at 2026, 2026, we have the full effect of the 75 basis point cost that happened in the last part of 2025, you will have all that full effect, plus we are also foreseeing 2 additional costs during 2025. And we are at a sensitive. We have more assets repricing than deposit side. And that's why we are giving that indicative in the margin, okay? That's guidance. And when you look at 2024 versus 2025, it reflects that. We had a margin in 2024 of 5.43%. This year, it was 5.27%. It was about [ 16 ] basis point reduction, and it's related to the rent cost at 100 basis points late 2024 and this year, 75 basis points end of 2025.

Brett. And I could also add and as you saw this quarter and you saw throughout 2025, core deposits, excluding government, went up on the retail side as well as on the commercial side. And that is also something that we expect to help mitigate what Maritza just said, right? Because the more core funding that we bring in is going to be cheaper than wholesale funding. So we -- our margin guidance is the margin guidance, and that's how we see it, but we're going to be working hard to beat that margin guidance as you guys can expect. So we'll update everybody in the first quarter when we talk again.

Okay. If I could ask one last one. The other thing I was hoping to figure out was if you look at Slide 20, and as the auto portfolio net charge-off rate. It was a little bit higher in the fourth quarter as were NPLs. And just wanted to see if the higher level in 4Q, if that seems to be an anomaly or year-end cleanup of the portfolio or what have you versus something maybe you're seeing with the book?

Yes. Cesar can take that one.

This is like Maritza mentioned before, it's typical that the seasonality of the portfolio starts very low in terms of delinquencies and nonperforming loans in the first quarter of the year, and then it take us up until fourth quarter. And in the fourth quarter, at the upper level of that equation. The net charge-offs, if you compare this next charge-offs, we also already compared to last year, same period last year. And what you see there is 1.63% last year, but that was benefited because we sold a charge-off portfolio. Without that sale, that number would have been 1.86%, and we are right now at 1.81% this quarter. So it is a positive sign, but again, the seasonality of this portfolio will result in an increased delinquency in this quarter, but we expect that benefit in the next quarter. You're going to see a positive effect on all those metrics.

It's just end of the year seasonality. And we'll keep you guys updated in the first part of the year and see if that turns around again. But that's what we've seen in the last 3 years. We'll be watching closely in the first part of this year to see if that replicates again.

Our next question comes from Timur Braziler with Wells Fargo.

Maybe bigger picture on the credit -- can you hear me?.

Operator, we can't hear Timur.

Can you hear me now?

Timur, we are able to hear you. One moment, please. Apologies for the interruption, speakers are you able to hear us?

Is this better?

Now I can hear you.

Okay. Perfect. Sorry about that. Maybe just a bigger picture on credit. If we look at kind of 1% full year charge-off rate, is that kind of a good proxy for where we are in this post-pandemic cycle? And then if you look at the allowance ratio, year-over-year, you added a little bit over $25 million to allowance, you built that to almost 2.46% of loans. I guess how do we think about the allowance build in 2025, what that might portend for charge-off activity in 2026? And then what does a stabilized level of credit activity look like going forward here?

Well, I think that the 1% range that you mentioned in -- it's within what we can expect here in net charge-offs. If we look at 2025 without any specifics of the sales or any particular case, that should be a good run rate. When we think about how we build the reserve, please be mindful that there is some specific reserve at the end of this year related to the telecommunication loan. So that's very, very isolated case, very specific. So setting that aside, I think that we will continue monitoring credit and building reserve as needed, but 1% net charge-off delinquency remaining at the level that we're managing this year. Maybe we won't be reserved at the same level because of the specific that we have this quarter. But definitely, it could be about flat from what we have right now excluding any specific case that we have managed during the year, okay?

Got it. And then the telecom credit this quarter. Was there anything incremental that happened in 4Q that drove the activity? Or is this just really recalibration or maybe what the other banks were talking about in the third quarter, and you guys kind of catching up to that same level of reserving in the fourth quarter?

No, it's basically we received financials every period. So last period, they didn't warranted right away nonaccrual status but this period, it repeated the deterioration of the -- on the financials. So basically, we decided yes, this is a deterioration that merits the nonaccrual status.

Yes. And the entities loan that is continue to pay. [indiscernible] so what we're doing is being prudent. And given the specific situation of the company that comes from the outcome of the merger, we decided to put it in nonaccrual.

Got it. That's great color. And then just last for me. You guys have had really good success rolling out some of these retail deposit products during the course of 2025 that have been differentiated from what the [ island ] typically sees. I'm just wondering from a competitive standpoint, what's been the reaction? And as you think about Puerto Rico, ex public fund deposits during 2026, during 2027. Does it feel like the competitive nature is shifting now? And do you still think you can maybe get those lower with these rate cuts? Or is the competitive nature such that even with these rate cuts, the cost of the corn Puerto Rico deposits are likely continuing to rise here?

Yes. I think the competitive landscape is slowly but surely intensifying. I think each institution has its own drivers, right? And some of the drivers that come in from the reinvestment in the investment portfolio at a higher yield gives flexibility to be more competitive and more aggressive on some of the CD offerings and stuff like that. So I'm not saying that we are going out crazy here in the market in Puerto Rico in terms of deposits, but it's slightly and slowly but surely getting more intense in terms of deposit competition.

Also be aware that we have credit unions, U.S. credit unions that are and have been for the last 3 or 4 years, very aggressive. They remain so. And that is also part of the equation here in Puerto Rico, these tax expense credit unions, they have another lever there that allows them to be more aggressive on the deposit side. So that -- our strategy is to target the mass and the mass affluent. We have come up with the products. We have come up with the differentiation in terms of our platforms and technology and the way we do the business. That's the formula that we're using, and it's paying off. I'm sure our friendly and larger competitors are also doing their thing, and I'm sure they're going to be very, very competitive throughout. So it's just now blocking and tackling and trying to achieve organic growth on the loan side and on the deposit side, and it's exciting for us at this juncture how we are well positioned to achieve both.

We will move next with [ Manuel Navas ] with Piper Sandler.

I just wanted to follow up on that last question. Has there been any price response from other players on the island from your new Libra and Elite products? And where are those having the most success? Happy to hear a little bit more on those 2 products as well.

So there's no need to be -- to have a price response because we're not paying high yields. So I don't know where the idea that we're kind of bringing in higher yields or so. It really -- it actually Libre account is a noninterest-bearing account. I don't know where that comes from. But Elite, it does pay 1.28% average cost of funds on the balances that we have and that is the way we approach the mass affluent and it's paying off and it's doing well because it's not about the rate only. It's about the -- what we offer as a product and what is the value proposition that we bring into the equation here. And it's not only a rate, it's more than a rate. It's the functionality, is the accessibility, is the every day, every time, anywhere, wherever you are and the fast, the agile way we service our customers in any interaction that they have with us that brings us the ability to attract, deepen and expand relationships across the markets that we operate, which is here in Puerto Rico. So reaction from the competition? 0. There's no increase in competition in terms of rates here. What we're seeing is more on a targeted basis, CD rates. And that's what I mentioned earlier, Manuel.

All right. I appreciate that. And it is pretty early innings, but you're seeing that deeper relationship. Are you seeing younger clientele in these accounts as well, given they're a little bit more digital forward?

Actually, that's a good point, Manuel. Even Puerto Rico's demographics, what we're seeing is that I'll share this information. 75% of the accounts that we're opening on the Libre account are new customers. 40% of those are 29 years or younger. And to us, that is extremely positive because it allows us to build a long-term relationship and build a long-term franchise with them. So it's exciting times for us. That's kind of the crux of the matter. You actually pointed out one of the great things that is going on in the last couple of years.

I appreciate that extra color. Going back to the NIM for a moment, as you're targeting a little different auto client and commercial loans are adjusting. What are kind of some of your new yields coming on, especially in those 2 categories in auto and commercial?

So commercial, remember, our commercial originations are 50% fixed, 50% viral. And the rates are depending on the type and the size of the commercial loan, but it ranges between, let's say, 275 to 350 basis points above the term that we're lending at. So that's kind of -- I'm giving you a range and you can get on the lower end when it's a larger account, a larger loan or if it's a small business or a larger commercial account or loan. So that's on the commercial side. On the auto side, I think the yields are in the 8 handle, 8 and change. It is coming from the higher 8 levels. It's now stabilizing around [ 830 or 840 ] or something like that, between [ 830 and 850 ]. And it's all about certainly competition, but also us originating close to 90% of our loans in prime and super prime levels.

Okay. That's really helpful. And then I guess, just my last question is -- is there a level -- I appreciate the commentary around the buyback. The pace was a little accelerated in the fourth quarter. Do you think we stay at this fourth quarter pace and is there any price sensitivity or where is there some price activity on repurchases?

I'll repeat what I said earlier, Manuel, because we don't have the price target. We do see the market being kind of penalizing us a bit in terms of the multiples that the pricing was at. So I think -- we kind of look at the market in general, we see where we can deploy our capital in terms of loan growth. This year, we're probably going to grow single digits, as I said earlier, low single digits because of what I mentioned earlier on the auto. So we might have more ability to deploy capital through buybacks throughout the year, but we don't have a set number or a set stock price to go after. It's just part of our natural ongoing capital management strategies.

[Operator Instructions] And at this time, there are no further questions. I will now turn the call back over to management for closing remarks.

Thank you, operator, and thanks again to all our team members. Thanks to all our shareholders who have listened in, looking forward to our next call. Have a great day.

Thank you. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.

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 José Rafael Fernández, 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 home page 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 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.

[Operator Instructions] I would now like to turn the call over to Mr. Fernández.

Good morning, and thank you for joining us. We are pleased to report our third quarter results. Let's go to Page 3 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 4. 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 of 25%, net new customer growth at 4.6%.

All this is being enhanced by 2 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 9 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 is Maritza to go over the financials in more detail.

Thank you, José. Let's turn to Page 5 to review our financial highlights. All comparisons are to the second quarter unless otherwise noted.

Core revenues totaled $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 1 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 reduced interchange fees under [ Derby ], total banking and financial services [ revenues ] were up $3 million or 11%.

Other income category was $2.2 million. This included gains from OFG Ventures investment in fintech focus [ funds ].

Looking at noninterest expenses, they totaled $96 million -- $96.5 million, up $1.7 million. This reflected a strategic investment of $1.1 million in technology, people and process improvements, $1.1 million [ to ] increase business activity and marketing, and an $800,000 reduction in foreclosed real estate cost.

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.

Looking at some other metrics. Tangible book value was $28.92 per share. Efficiency ratio was 52%. Return on average assets was 1.69%, and return on tangible common equity -- on average tangible common equity was 16.39%.

Now let's turn to Page 6 to review our operational highlights. Total assets were $12.2 billion, up 7% from a year ago and a 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-over-year, loans increased 5%, reflecting our strategy to grow commercial lending in Puerto Rico and the U.S.

Loan yield was 7.90%, down 1 basis point. New loan origination was $624 million. As José mentioned, this reflected in part moderation in auto loans that we have been anticipating and an expected easing of our 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 [indiscernible] [ $0.8 ] 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 costs mainly reflects higher average balances in savings accounts within the upper pricing tiers.

Investments totaled $2.9 billion, up $154 million. This reflected purchases of $200 million of mortgage-backed securities, yielding 5.3%, partially offset by repayments.

Cash at $740 million declined 13%, reflecting the new securities purchases. Average borrowings and broker 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, NIM 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 strength. Credit quality continues to be stable. Provision for credit losses was $28.3 million, up [indiscernible] reflected $13.5 million for increased loan volume, $5.6 million for specific reserves on 2 commercial loans, the impact of 2 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 macroeconomic factors. Provision also included $1.3 million due to the auto qualitative adjustments related to the seasonal increase in early delinquency not captured in the model.

Net charge-offs 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 1 of the 2 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 range over the past year. The nonperforming loan rate was 1.22%.

On the capital side, our CET ratio was 14.13%; stockholders' equity totaled $1.4 billion, up $41 million. And the tangible common equity ratio increased 35 basis points to 10.55%.

Now to summarize the quarter -- 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 NIM. 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 9 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 noninterest expense were a little above our range, but we continue to anticipate that will be between $95 million 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 24.90%. Capital continue to build, and we anticipate continuing to buy back shares on a regular basis.

Now here's José.

Thank you, Maritza. Please turn to Page 8. The Puerto Rico economy continues to perform well. Wages and employment remain at historically high levels. Consumer and business liquidity is solid. The economy also going to boost this summer from a surge in tourism. More importantly, new developments in onshoring confirmed Puerto Rico's position as a world leader in medical device and pharmaceutical manufacturing.

Turning to OFG. We will continue to pursue our differentiated, unique customer-centric strategies. Our Libre and Elite accounts and our Oriental Biz commercial accounts are helping to grow core deposits and loans. Our commercial pipeline and credit trends are solid, and our risk management capabilities and asset liability management discipline are strong. Combined with the level of business activity, all this continues to position OFG well for growth and expanded market share.

Having said that, we continue to be watchful regarding all the global macroeconomic and geopolitical uncertainties.

As always, we could not have achieved these results without the hard work of our dedicated team members. We are thankful to them and excited about the future.

With this, we end our formal presentation. Operator, let's start the Q&A.

[Operator Instructions] We will take our first question from Arren Cyganovich with Truist.

Maybe you could talk a little bit about the deposits in the quarter. The cost of your deposits rose modestly. Is that driven by the competitive environment? Maybe you could talk a little bit about the dynamics impacting that?

Yes. First of all, welcome to our call, your first call with OFG. And thank you for covering us at Truist. So appreciate that.

To answer your question regarding the higher deposit cost, it's really driven by our strategy. When we talk about the Libre account, which is mass, we talk about the Elite account, which is mass affluent, we really are strategically positioning ourselves to attract mass affluent clients through that account paying a little higher rate, and that's kind of the short-term cost of it, but also betting on a long-term strategy of deepening that relationship with the customer. And that's how that product is structured.

So what you're starting to see is a little bit of a higher cost on the savings side because we're being very successful with our strategy. We're really happy with the results. And we'll continue to leverage the added features that we're adding to our deposit customers in terms of the insights and the predictive insights that we provide through AI, which are unique to each customer. And that's actually something that no other bank in Puerto Rico offers, and it's giving us great momentum for us to attract new customers and potential for deepening.

So that's a little bit of what's driving some of that higher customer cost on the savings side.

Okay. That helps. And then in terms of the commercial loan originations, those were solid, but you had some paydowns on lines of credit. Maybe you could talk about the dynamics for commercial and outlook for commercial loan growth ahead.

Sure. So as Maritza pointed out in her remarks, part of the what occurred in the third quarter was the repayment of some of the commercial lines that were drawn in the second quarter. So that's a little bit of what drove the balances to be -- to go down.

But going forward, we have a very solid pipeline. We continue to see great business activity in Puerto Rico and Oriental going after the those opportunities. So we're very confident about our commercial pipeline in the fourth quarter and starting to build the 2026 pipeline also.

We'll take our next question from Timur Braziler with Wells Fargo.

Just a follow-up on paying up for some of the savings account deposits, can you just maybe talk us through what type of rate is being required to win some of those balances? And as you think about from a competitive landscape, where are you really targeting to take some market share here?

Yes. So as I explained earlier a little bit, just we go after the mass market with a 0 cost account. It's a checking account. And we drive the growth through our uniqueness in terms of the offering.

On the Elite account, we -- average cost is around 1% plus, let's say, 1.5% on average, let's just say. And it's targeting the mass affluent. And again, it's us driving value add and focusing on the customer just to attract those customers to OFG and be able to deepen those relationships as we build trust with them. And that is again playing very nicely for us on our strategy.

And the key here is deepening, right? And how do we be -- are able to deepen that relationship through debit card utilization, auto loans, mortgage loans, wealth management, et cetera, which we offer throughout. And that's kind of what's driving that higher cost on the savings side and that's -- there's nothing else to it.

Got it. And then maybe 2 questions around credit. The first, if you could just provide any kind of additional color on the 2 commercial loans. And then looking at that commercial portfolio, on the Mainland in particular, 2 out of the last 3 quarters, we saw some pretty large charge-offs out of that portfolio. Can you just maybe speak a little bit more broadly about what you're seeing within Mainland CRE?

Yes. So let me answer your second question first. On the Mainland portfolio, we do see some very good opportunities for us to continue to build the book and use it as a geographic diversification. We do small -- participations on the small and midsized commercial lending with some partners, and that strategy continues to play out.

On the second -- on the first part of your question, where you've seen some charge-offs in the last several quarters, it's part of our way of managing risk within that portfolio. And it's actually -- started like a couple of years ago when we started to feel pressure in the U.S. economy and felt that we should reduce some of those risks and it requires some charge-offs. So that's kind of -- we don't see that as a -- we see it more idiosyncratic than being more market-wide, and feel comfortable with our team and the efforts that we're doing.

Now in particular to this quarter, the 2 commercial loans, one is a U.S. loan and one is a Puerto Rico loan. The U.S. loan, it's a $5 million loan where we basically took a provision and the charge-off this quarter because we sold it. And the second loan is a Puerto Rico commercial loan. It's a company that acquired a large -- did a large acquisition. They're having some operating and financial weaknesses and we're proactively provisioning for that loan.

So these are idiosyncratic. We don't see them as being market-related.

Okay. And then just lastly on auto loans, the pickup in charge-offs there. It's kind of more in line where it had been 3Q, 4Q, 1Q. Is this kind of just getting back to that type of rate? I know you've been calling for origination sales down in auto for quite some time. We finally got that there. Just maybe talk a little bit more about just broader auto trends both from a growth standpoint and then from a credit standpoint.

So I'll talk about the growth and I'll pass it to Cesar to talk about the credit. On the growth side, we were expecting the slowdown. I think on the auto lending side, what we're seeing is we see the bottoming coming in right now in terms of loan originations and we might see slightly higher in the fourth quarter. But these are more normal levels in our view and we feel comfortable with the originating levels that we're having right now, Timur.

Cesar, can you talk about the credit?

Yes. On the charge-offs, what we're seeing is seasonal dynamics of the retail portfolio. We're usually at the lowest levels at the first quarter and then gradually those statistics come up and they peak towards the fourth quarter. So what we saw quarter-over-quarter was a modest increase on charge-offs and all the statistics. But when we compare it to last same period last year, we see a better trend. So we're optimistic based on those comparisons. .

We will take our next question from Kelly Motta with KBW.

Maybe circling back to the Q4 margin guidance -- sorry, 5.10% to 5.20%. Wondering, Maritza, what that -- what the Fed funds assumption is in that given that you guys are asset-sensitive, one.

And then two, maybe you could talk a little bit about I think we -- on the last quarter call, you were calling for some margin expansion, provided we got some loan growth, all else equal, just with the margin being down, kind of if there was anything in that that differed from your expectations maybe 3 months ago that drove that?

First, I think one point when we look back at the quarter and the inflows into the deposits that have been better than expected in the savings account, that is one of the deviations from our original estimate. So that's the answer to that.

So the second part relates to what we are expecting in the fourth quarter. And the reality is that we are asset-sensitive, and the last cut was end of September. So we will have most of that impact during the fourth quarter. The repricing, the full effect would be on the cash, and in the variable rate portfolio that we have in the commercial, that is half of it. So that's why we are reviewing our guidance towards 5.10% to 5.20%, and always depending on the funding mix. So right now, everything remaining equal, is mostly related to the 25 basis point cut.

And I don't know if you realize too, but we do have the inflows and outflows throughout the quarter of large deposits. And that is also part of what creates a little bit of the quarter volatility. But as Maritza [indiscernible] fourth quarter guidance as the one that she mentioned 5.10% to 5.20%.

Does that -- just to clarify, does that 5.10% to 5.20% contemplate any additional cuts here in the fourth quarter?

Well, we are expecting a 50 basis point cut, but since it won't be outstanding most of the quarter, most of this impact relates to the 25 basis point that was made late September.

But yes, we are modeling 50 basis points reduction in Fed funds in the fourth quarter.

Great. That's really helpful. Maybe one for you, José. You've highlighted the investments you're making in AI to drive some efficiencies ahead, and that drove expenses a bit higher. I know that over time to generate greater revenues or recognize better improvement on the expense side. So maybe if you could talk a bit more about that and kind of like the cadence because I know it takes some time to realize that. So how you're strategically approaching.

Yes. Thank you. Not only -- just to clarify, we are making the investments, but we're also delivering on the features and the benefits for our customers on the value proposition that we provide. And it's unique and no other bank in Puerto Rico is actually today providing any insights to their customers based on their cash flows and their payments and whatnot. So that's a very big differentiation that we're going to continue to drive forward.

Now regarding the investments that we're making in technology, we will continue to make those investments, but we are also starting to see opportunities for us to bring efficiencies in our banking operations. And we will be guiding you guys into the expenses of 2026 in the fourth quarter. But we're starting to see opportunities for us to bring efficiencies and be able to pass those efficiencies as part of our investment in technology. So we're very cognizant of the investments that we're making in technology, but we are equally cognizant of the importance of bringing efficiencies. And we're seeing it in the operating side of the bank, particularly with people efficiencies.

That's really helpful. Maybe last question for me. You guys were more active on the buyback this quarter, given capital is strong, you're generating a ton of earnings. Like what's the go-forward outlook? And can you remind us of capital priorities here, including M&A?

Sure. I mean capital is strong. We feel that we have a great opportunity to fund loan growth, and that's our priority. But we're seeing -- we're going to be a lot more active on the buyback in the fourth quarter and into 2026 because the earnings momentum that we have and the earnings power that we're having puts us in a great spot in terms of capital management.

Also backed up by a Puerto Rico economy that remains pretty good and it's driving infrastructure investments. We mentioned the onshoring benefits that are starting to become somewhat of a reality. It will take some time, but it's moving along. We're also seeing Puerto Rico well positioned geographically given the current geopolitical challenges in the Caribbean and Puerto Rico being the hub for that. All those things give us confidence on the Puerto Rico economy and certainly is going to drive our business forward.

So from a capital management perspective, loan growth, number one, buybacks and dividends #2 and #3 because we really are in a good spot right now.

We'll move next to Anya Pelshaw with Hovde.

Asking questions on behalf of Brett here. So I know you guys already talked about loan growth, but I was hoping you could expand on any payoff activity that might also affect commercial in the future.

I'm sorry, I could not understand well your question. Can you repeat it?

Yes. You've already talked about loan growth, but could you expand and talk about any payoff activity that might also affect commercial from here?

Yes. Payoffs is hard to predict. But what we are seeing is there's usually some small seasonality on the lines of credit in the third quarter given some clients that we have that receive funds, federal funds either for construction services or education, and they kind of -- they get a line of -- they draw on the line of credit in the second quarter and then they get the funding in the third quarter and pay them off. That's usually on the third quarter. But we are not expecting any significant variability on the draws on the lines of credit in the fourth quarter.

And you've talked about charge-offs a little bit. But is there anything else you guys might be seeing as far as credit quality goes?

As I mentioned, we're not seeing anything apart from a couple of idiosyncratic credit commercial loans that I mentioned earlier. The rest on the consumer book and the auto book, we're not seeing anything that concerns us. We're seeing, again, supported by an economy that has a lot of activity, so -- and liquidity in the system. So we're not seeing anything that drives us to be concerned on credit.

[Operator Instructions] At this time, there are no further questions. I will now turn the call back over to management for closing remarks.

Thank you, operator. Thanks again to all our team members. Thank all our stakeholders who have listened in...

My apologies. We do have a follow-up from Timur.

Got in there at the last second. José, you made a comment on new onshoring investments in Puerto Rico. Can you just maybe talk us through what those have been and maybe how that's progressed in the Trump 2.0 administration?

Well, what we know is what we hear and listen and read in the papers. We are seeing around 10 or 11 multinationals that are already announcing investments in Puerto Rico. Some of them are medical devices, others are pharmaceuticals. We're seeing solar panels, we're seeing textiles. So it's a little bit broader than what we have seen in the past.

But again, it points out to Puerto Rico's positioning in terms of manufacturing, that we've been for many years, and is an opportunity for these companies to expand their production lines. Some of them have already operations. There's 1 or 2 that are going to -- that have announced new operations in Puerto Rico. But the majority are existing companies that are announcing investments in additional production lines in the island.

So overall, I think it's all driven because of the onshoring benefits that provide the tariffs, the tariff threats and all the tariffs that have been imposed, and Puerto Rico being a U.S. jurisdiction and being a manufacturing hub for medical devices and pharmaceuticals is just the right hub for those companies to invest further in the island. So it's something new for Puerto Rico because we haven't seen this in several decades. And for the first time, we're starting to see those announcements. So it's encouraging.

And that will drive indirect benefits because there's a lot of hires with well-paid employees. It also drives indirect suppliers to these companies and all that. So it has a trickle-down effect to the economy that is pretty positive. So we're encouraged with that.

Again, this is not flowing in now, but it's a great way of starting to see the light at the end of the tunnel when federal funds start to fade away and we have some private investments coming in. So to us, it's a win-win.

Well, thank you, everybody, for the call. I appreciate everyone participating, and looking forward to the fourth quarter results. Have a great day.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.