Q2 2024 OFG Bancorp Earnings Call

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Operator: Good morning. Thank you for joining OFG Bancorp's conference call. My name is Savannah.

Operator: Good morning. Thank you for joining OFG Bancorp's conference call.

Operator: I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors, Maritza Erezmendi, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks, and it can be found on the homepage of the OFG website under the second quarter 2024 section. This call may include certain forward-looking statements about management's goals, plans, and expectations. These statements are subject to risks and uncertainties outlined in the Risk Factors section of the OFG's SEC filing.

Operator: Actual results may differ materially from those currently anticipated. We disclaim any obligation to update the information disclosed in this call as a result of developments that occur afterward. All lines have been placed on mute to prevent background noise.

Operator: After the speaker's remarks, there will be a question and answer session, and instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez.

Savannah: Good morning. Thank you for joining OFG Bancorp's conference call. My name is Savannah. I will be your operator today.

Operator: My name is Savannah. I will be your operator today.

Operator: Our speakers are Jose Raphael Fernandez, Chief Executive Officer and Chairman of the Board of Directors. Maritza Ares Mende, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer.

Speaker Change: Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of Board of Directors.

Speaker Change: Maritza Erezmendi, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks, and it can be found on the homepage of the OFG website under the second quarter 2024 section.

Operator: A presentation of companies' today's remarks, and it can be found on the homepage of the OFG website under the 2nd quarter 2024 section. This call may feature certain forward-looking statements about management goals, plans, and expectations. These statements are subject to risk and opportunities out in the risk factor section of the OFG's SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update the information disclosed in this call as a result of developments that occur afterward.

Speaker Change: This call may feature certain forward-looking statements about management's goals, plans, and expectations. These statements are subject to risks and uncertainties outlined in the Risk Factors section of the OFG's SEC filings.

Speaker Change: Actual results may differ materially from those currently anticipated. We disclaim any obligation to update the information disclosed in this call as a result of developments that occur afterward.

Operator: All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question-and-answer session. Instructions will be given at that time.

Speaker Change: All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez.

Jose Raphael Fernandez: 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 second quarter 2024 results, which demonstrate the strength of our strategies and franchise, both in line with our short-term and long-term plans. Performance for the quarter was exceptional. We generated consistent growth through increased loans, deposits, and non-interest income, and stable credit quality. Our detailed first strategy continues to help us expand our retail and business relationships, and we deployed close to half of our 50 million dollars share buyback program, purchasing 24.3 million dollars of OFG shares in the open market.

Jos Rafael Fernndez: Good morning, and thank you for joining us. We are pleased to report our second quarter 2024 results, which demonstrate the strength of our strategies and franchise, both in line with our short-term and long-term plans. The performance for the quarter was exceptional. We generated consistent growth through increased loans, deposits, and non-interest income, and stable credit quality. Our digital-first strategy continues to help us expand our retail and business relationships, and we deployed close to half of our $50 million share buyback program, purchasing $24.3 million of OFG shares in the open market. At the same time, Puerto Rico's economy continued to grow and steadily decoupled from mainland economic uncertainty.

Jos Rafael Fernndez: Good morning and thank you for joining us.

Jos Rafael Fernndez: We are pleased to report our second quarter 2024 results, which demonstrate the strength of our strategies and franchise, both in line with our short-term and long-term plans.

Speaker Change: Performance for the quarter was exceptional. We generated consistent growth through increased loans, deposits, and non-interest income, and stable credit quality.

Jos Rafael Fernndez: Our digital-first strategy continues to help us expand our retail and business relationships, and we deployed close to half of our $50 million share buyback program, purchasing $24.3 million of OFG shares in the open market.

Jose Raphael Fernandez: At the same time, Puerto Rico's economy continued to grow and steadily be coupled from mainland economic uncertainties. I want to thank the entire OFG team for their commitment to our mission and purpose, which is to make progress possible for customers, employees, shareholders, and the communities we serve.

Jos Rafael Fernndez: At the same time, Puerto Rico's economy continued to grow and steadily decoupled from mainland economic uncertainties.

Jos Rafael Fernndez: I want to thank the entire OFG team for their commitment to our mission and purpose, which is to make progress possible for our customers, employees, shareholders, and the communities we serve. Please turn to page 3 for a summary of our second quarter results. Looking at the income statement, earnings per share diluted increased more than 16% year over year to $1.08 on a more than 5% increase in total core revenues to $179.4 million.

Speaker Change: I want to thank the entire OFG team for their commitment to our mission and purpose, which is to make progress possible for our customers, employees, shareholders, and the communities we serve.

Jos Rafael Fernndez: The net interest margin was 5.51%, the provision was $15.6 million, non-interest expenses were $93 million, and pre-provision net revenues were close to $87 million. Turning to the balance sheet, total assets were $11.3 billion, up 12% from a year ago, and 1% less than last quarter. Customer deposits totaled $9.6 billion, including strong commercial deposit growth. Loans held for investment totaled $7.6 billion, and new loan production was a solid $589 million. Investments were level with the first quarter at $2.5 billion, and cash, at $740 million, was down slightly from last quarter.

Jose Raphael Fernandez: Please turn to page three for a summary of our second quarter results. Looking at the income statement, earnings per share diluted increased more than 16% year over year to $1.8. On a more than 5% increase in total core revenues to $179.04 million. Net interest margin was 5.51 per cent; provision was $15.6 million. Non-interest expenses were $93 million and pre-provision net revenue total close to $87 million. Turning to the balance sheet, total assets were $11.3 billion, up 12% from a year ago and 1% less than last quarter. Customer deposits were $9.6 billion, including strong commercial deposit growth.

Speaker Change: Please turn to page 3 for a summary of our second quarter results.

Speaker Change: Looking at the income statement, earnings per share diluted increased more than 16% year-over-year to $1.08 on a more than 5% increase in total core revenues to $179.4 million.

Speaker Change: Net interest margin was 5.51%, provision was $15.6 million, non-interest expenses were $93 million, and pre-provision net revenues total close to $87 million.

Jos Rafael Fernndez: Turning to the balance sheet, total assets were $11.3 billion, up 12% from a year ago and 1% less than last quarter.

Jos Rafael Fernndez: Customer deposits were $9.6 billion, including strong commercial deposit growth. Loans held for investment totaled $7.6 billion, and new loan production was a solid $589 million.

Jose Raphael Fernandez: Lones helped for investment total $7.6 billion and new loan production was a solid $589 million. Investments were level with the first quarter at $2.5 million and cash at $740 million. was down slightly from last quarter. Looking at capital, the CET-1 ratio was 14.29%.

Jos Rafael Fernndez: Investments were level with the first quarter at $2.5 billion and cash at $740 million.

Jos Rafael Fernndez: Looking at capital, the CET1 ratio was 14.29%. Now, let's turn to page 4 for an update on our Digital First strategy. As of the second quarter, 94% of all routine retail customer transactions, 96% of retail deposit transactions, and 66% of retail loan payments were made through our digital and sales service channels. This has been driven by year-over-year growth of 13% in digital enrollment, 69% in digital loan payments, 26% in virtual teller utilization, and 4% in customer growth.

Jos Rafael Fernndez: was down slightly from last quarter. Looking at capital, the CET1 ratio was 14.29%.

Jose Raphael Fernandez: Let's turn to page 4 for an update on our digital first strategy. As of the second quarter, 94% of all routine retail customer transactions, 96% of retail deposit transactions, and 66% of retail loan payments were made to our digital and sales service channels. This has been driven by year-over-year growth of 13% in digital enrollment, 69% in digital loan payments, 26% in virtual teleutilization, and 4% in customer growth. During the second quarter, we launched the elite deposit account for retail customers, a combined checking and savings account that rewards customers for expanding their relationship with our rental.

Jos Rafael Fernndez: Let's turn to page 4 for an update on our Digital First strategy.

Speaker Change: As of the second quarter, 94% of all routine retail customer transactions, 96% of retail deposit transactions, and 66% of retail loan payments were made through our digital and self-service channels.

Speaker Change: This is being driven by year-over-year growth of 13% in digital enrollment, 69% in digital loan payments, 26% in virtual teller utilization, and 4% in customer growth.

Jos Rafael Fernndez: During the second quarter, we launched the Elite Deposit Account for Retail Customers, a combined checking and savings account that rewards customers for expanding their relationship with Oriental. This represents a unique value proposition in our market. Elite offers an exclusive combination of benefits, in particular cash back on loan payments and full digital account opening and funding. For small business commercial clients, we upgraded Oriental Biz, a complete cash management platform easily accessible through mobile devices with access to remote check deposits. Small businesses now have a complete set of tools to manage their finances anywhere, anytime. We are very excited with the customer reception so far for both products.

Speaker Change: During the second quarter, we launched the Elite Deposit Account for Retail Customers, a combined checking and savings account that rewards customers for expanding their relationship with Oriental.

Jose Raphael Fernandez: This represents a unique value proposition in our market. Elite offers an exclusive combination of benefits, in particular cash back on loan payments and full digital account opening and funding. For small business commercial clients, we upgraded Oriental Business, a complete cash management platform easily accessible through mobile devices with access to remote check deposit. Small businesses now have a complete set of tools to manage their finances anywhere, anytime. We are very excited with the customer reception so far of both products. Our strategy is to continue to take advantage of our unique positioning in the Puerto Rico market.

Speaker Change: This represents a unique value proposition in our market. Elite offers an exclusive combination of benefits, in particular cash back on loan payments and full digital account opening and funding.

Speaker Change: For small business commercial clients, we upgraded Oriental Biz, a complete cash management platform easily accessible through mobile devices with access to remote check deposits.

Speaker Change: Small businesses now have a complete set of tools to manage their finances anywhere, anytime.

Speaker Change: We are very excited with the customer reception so far of both products.

Jos Rafael Fernndez: Our strategy is to continue to take advantage of our unique position in the Puerto Rico market. This includes leveraging our technology investments, our entrepreneurial culture, and our client-centric challenger approach. All this to provide customers with products and services that incentivize them to deepen their relationship with us. And we focus on doing it in a way that is fast, easy, agile, and delivers added value. Now, here's Maritza to go over the financials in more detail.

Speaker Change: Our strategy is to continue to take advantage of our unique position in the Puerto Rico market. This includes leveraging our technology investments, our entrepreneurial culture, and our client-centric challenger approach.

Jose Raphael Fernandez: This includes leveraging our technology investments, our entrepreneurial culture, and our client-centric challenger approach. All these to provide customers with product and services that incentivizes them to deepen their relationship with us. We focus on doing it in a way that is fast, easy, agile, and that delivers added value.

Speaker Change: All this to provide customers with products and services that incentivizes them to deepen their relationship with us. We focus on doing it in a way that is fast, easy, agile, and delivers added value.

Maritza Ares Mende: Now, here's Marita to go over the financials in more detail. Thank you for saying, please turn to page 5 to review our financial highlight. Starting with the components of core revenues, total Internet income was $188 million. More than 2% or more than 4 million dollars from the first quarter. That mainly reflected higher income from loans due to higher average balances and yields, and 2.1 million dollars from recovery of a known approval US commercial loan paid in full. Total Internet expense was $40 million and increased of $1 million from the first quarter. This reflected higher average core deposits and a seven basis point increase in rates, partially offset by lower average wholesale funding and rates.

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

Maritza Arizmendi Diaz: Thank you, Jose. Please turn to page 5 to review our financial highlights. Starting with the components of core revenues, total interest income was $188 million, up more than 2% or more than $4 million from the first quarter. That mainly reflected higher income from loans due to higher average balances and yields and $2.1 million from recovery of a non-accrual U.S. commercial loan paid in full. Total interest expense was $40 million, an increase of $1 million from the first quarter.

Maritza: Thank you, Jose. Please turn to page 5 to review our financial highlights.

Maritza: Starting with the components of core revenues, total interest income was $188 million, up more than 2% or more than $4 million from the first quarter.

Maritza: That mainly reflected higher income from loans due to higher average balances and yields, and $2.1 million from recovery of a non-actual U.S. commercial loan paid in full.

Maritza: Total interest expense was $40 million, an increase of $1 million from the first quarter. This reflected higher average core deposits and a seven basis point increase in rates, partially offset by lower average wholesale funding and rates.

Maritza Arizmendi Diaz: This reflected higher average core deposits and a seven basis point increase in rates, partially offset by lower average wholesale funding and rates. Total banking and financial service revenues were $32 million, an increase of $2 million from the first quarter, with higher banking service, wealth management, and mortgage banking revenues. Banking service revenues included $600,000 in prepayment fees on U.S. loans. Wealth management revenues included $500,000 in annual recognition of certain commercial insurance fees.

Maritza Ares Mende: Total banking and financial service revenues were $32 million and increased of $2 million from the first quarter. With higher banking service, work management, and mortgage banking revenue. Banking and service revenues included $600,000 in payment fees on U.S. loans, wealth management included $500,000 in annual recognition of certain commercial insurance fees. Looking at not interest expenses, they totaled $93 million, up $1.6 million from the first quarter. Expenses included $1.3 million in higher electronic banking fees due to increased business activity. $1.1 million in different categories of professional services, due to improve, service to improve business processes. And $400,000 in higher FDIC insurance, now that original is more than $10 billion in assets.

Maritza: Total banking and financial service revenues were $32 million, an increase of $2 million from the first quarter, with higher banking service, wealth management, and mortgage banking revenues.

Maritza: Banking service revenues included $600,000 in prepayment fees on U.S. loans. Wealth management included $500,000 in annual recognition of certain commercial insurance fees.

Maritza Arizmendi Diaz: Looking at non-interest expenses, they totaled $93 million, up $1.6 million from the first quarter. Expenses included $1.3 million in higher electronic banking fees due to increased business activity. $1.1 million in different categories of professional services due to improved Service to improve business processes and $400,000 in higher FDIC insurance now that Oriental is more than $10 billion in assets. This was partially offset by $1.4 million due to higher gain on sales of pre-possessed properties and lower compensation expenses related to reduced FICA payroll expenses.

Maritza: Looking at non-interest expenses, they totaled $93 million, up $1.6 million from the first quarter.

Maritza: Expenses included $1.3 million in higher electronic banking fees due to increased business activity. $1.1 million in different categories of professional services due to improved

Maritza: Service to improve business processes.

Maritza: and $400,000 in higher FDIC insurance now that Oriental is more than $10 billion in assets.

Maritza Ares Mende: This was partially upset by $1.4 million due to higher gain on sale of pre-processed properties. And lower compensation expenses related to reduced fee gas payroll expenses. The second quarter efficiency ratio was 61.81%, a 68 basis point improvement for the second from the first quarter. As revenues continues to expand, we are incrementally investing in our digital first strategy by adding new technology and investing in people. We expect to average $92 million of non-interest expenses per quarter the rest of this year, with the efficiency ratio remaining level with the second quarter. Other performance metrics remain high. Pre-term on average assets was 1.82%.

Maritza: This was partially offset by 1.4 million dollars due to higher gain on sale of pre-possessed properties and lower compensation expenses related to reduced FICA payroll expenses.

Maritza Arizmendi Diaz: The second quarter efficiency ratio was 61.81%, a 68 basis points improvement from the first quarter. As revenues continue to expand, we are incrementally investing in our digital first strategy by adding new technology and investing in people.

Maritza: The second quarter efficiency ratio was 61.81%, a 68 basis points improvement from the first quarter.

Speaker Change: As revenues continue to expand, we are incrementally investing in our digital first strategy by adding new technology and investing in people.

Maritza Arizmendi Diaz: We expect to average $90 to $92 million of non-interest expense per quarter the rest of this year, with the efficiency ratio remaining level with the second quarter. Other performance metrics remain high. Return on average assets was 1.82%, and return on average tangible common equity was 18.24%. And thank you, as book value per share continues to climb, to $24.18 from $0.63 in the first quarter. Please turn to page 6 to review our operational highlights.

Speaker Change: We expect to average 90 to 92 million dollars of non-interest expense per quarter the rest of this year, with the efficiency ratio remaining level with the second quarter.

Speaker Change: Other performance metrics remained high. Return on average assets was 1.82%, return on average tangible common equity was 18.24%, and tangible book value per share continued to climb.

Maritza Ares Mende: Pre-term on average time you will come on equity was 18.24%, and time you will book value per share continue to climb. To $24 and 18 cents, up 63 cents from the first quarter.

Speaker Change: to $24.18 of $0.63 from the first quarter.

Maritza Ares Mende: Please turn to pay 6 to review our operational highlights. Average loan balances were $7.6 billion, increasing 1% from the first quarter. End of period balances of loans help for investment increase 1.3% or $100 million. This reflected sequential growth in Puerto Rico commercial, oro and consumer loans, partially upset by regular pay downs of residential mortgage and repayment of approximately $66 million of U.S. Commercial loans. Year over year, second quarter loans help for investment increase more than 7%. Now year was 80.15%. Up 70% from the first quarter. This included the previously mentioned U.S. Loan recovery represented 11 basis points.

Speaker Change: Please turn to page 6 to review our operational highlights. Average loan balances were $7.6 billion, increasing 1% from the first quarter.

Maritza Arizmendi Diaz: Average loan balances were $7.6 billion, increasing 1% from the first quarter. End-of-period balances of loans held for investment increased 1.3% or $100 million. Year over year, second quarter loans held for investment increased more than 7%. Non-yield was 80.15%, up 70 basis points from the first quarter. This included the previously mentioned U.S. loan recovery represented 11 basis points. Additionally, new loan origination increased $52 million from the first quarter. Production increased sequentially across all categories, led by a strong quarter for Oro. We have a strong line in commercial and continue to anticipate auto production will moderate.

Speaker Change: End-of-period balances of loans held for investment increased 1.3% or $100 million.

Speaker Change: This reflects the sequential growth in Puerto Rico commercial, auto, and consumer loans partially offset by regular pay downs of residential mortgages and prepayment of approximately $66 million of U.S. commercial loans.

Speaker Change: Year over year, second quarter loans held for investment increased more than 7%.

Speaker Change: No yield was 80.15%, up 70 basis points from the first quarter. This included the previously mentioned U.S. loan recovery, represented 11 basis points.

Maritza Ares Mende: New loan origination increased $52 million from the first quarter. Production increased sequentially across all categories, led by a strong quarter for ORO. We have a strong line in commercial and continues to anticipate ORO production will moderate. However, score debosied were 9.6 billion dollars, up 67 million dollars from the first quarter. End of period balances increased 59 million dollars, or 0.6 percent. This reflected a 100 a 125 million dollar increase in commercial deposits. Partially upset by a decline of 53 million dollars in retail deposits and a 12 million dollars decline in government deposits. Core debosied were 154 basis points, up 7 basis points from the first quarter.

Speaker Change: New loan origination increased $52 million from the first quarter.

Speaker Change: Production increased sequentially across all categories led by a strong quarter for Oro. We have a strong line in commercial and continue to anticipate Oro production will moderate.

Maritza Arizmendi Diaz: Average core deposits were $9.6 billion, up $67 million from the first quarter. Annual period balances increased $59 million, or 0.6%. This reflected a $125 million increase in commercial deposits, partially offset by a decline of $53 million in retail deposits and a $12 million decline in government deposits. Of course, the bosses were 154 basis points, up 7 basis points from the first quarter.

Speaker Change: Average core deposit was $9.6 billion, up $67 million from the first quarter. End of period balances increased $59 million, or 0.6%.

Speaker Change: This reflected a $125 million increase in commercial deposits, partially offset by a decline of $53 million in retail deposits and a $12 million decline in government deposits.

Speaker Change: Core deposits were 154 basis points, up 7 basis points from the first quarter.

Maritza Ares Mende: That's the smallest additional increase over the last 5 quarters. Excluding public funds, the cost of development was 87 basis points compared to 82 basis points. Average balance and broker deposit were 221 million dollars compared to 280 million dollars in the first quarter. The June period balances was 211 million dollars. The rate stayed on hold, responding decreased 18 basis points to 4.62 percent in the second quarter. Investment securities held a study from the first quarter at 2.5 billion dollars. During the second quarter, a 200 million dollar Treasury note yielded 3.3 percent that maturity made. What replaced with 200 million dollars of government-insured mortgage-backed securities yielded 5.6 percent.

Maritza Arizmendi Diaz: That's the smallest sequential increase over the last five quarters; excluding public funds, the cost of deposit was 87 basis points compared to 82 wages. Average borrowing and brokered deposits were $221 million compared to $280 million in the first quarter. The June 30th balance was $201 million.

Speaker Change: That's the smallest sequential increase over the last five quarters. Excluding public funds, cost of deposit was 87 basis points compared to 82 basis points.

Speaker Change: Average borrowing and brokered deposits were $221 million, compared to $280 million in the first quarter.

Speaker Change: The June 30th balance was $201 million. The rate paid on wholesale funding decreased 18 basis points to 4.62% in the second quarter.

Maritza Arizmendi Diaz: The rate paid on wholesale funding decreased 18 basis points to 4.62% in the second quarter. Investment securities held steady from the first quarter at $2.5 billion. During the second quarter, a $200 million Treasury note yielding 3.3% that matured in May was replaced with $200 million of government-insured mortgage-backed securities yielding 5.6%. With this, we extended asset duration at a higher gear to lower our asset sensitivity.

Speaker Change: Investment securities held steady from the first quarter at $2.5 billion.

Speaker Change: During the second quarter, a $200 million Treasury note yielding 3.3% that matured in May was replaced with $200 million of government-insured mortgage-backed securities yielding 5.6%.

Maritza Ares Mende: With this, we extended asset duration at a higher yield to lower asset sensitivity. Net interest margin was 5.51 percent. Excluding the U.S. loan recovery, net interest margin was 5.44 percent.

Speaker Change: With this, we extended asset duration at a higher year to lower our asset sensitivity.

Maritza Arizmendi Diaz: The net interest margin was 5.51%. Excluding the U.S. loan recovery, the net interest margin was 5.44%. Please turn to page 5 to review our credit quality and capital strength.

Speaker Change: Net interest margin was 5.51%. Excluding the U.S. loan recovery, net interest margin was 5.44%.

Maritza Ares Mende: Please turn to page 5 to review our credit qualities and capital strengths. Credit quality continues to be stable. Net charge of total 15 million dollars, down 5 million dollars from the first quarter. The net charge of rate was 79 basis points, down 26 basis points. Auto and consumer net charge of rates were both down sequentially. The auto net charge of rate is now below the last 2 quarters. While there are sometimes delays in payment, the business is well managed. Provision for credit losses total 15.6 million dollars, up 500 thousand dollars from the first quarter. Second quarter provision mainly reflects the loan volume.

Speaker Change: Please turn to page 5 to review our credit quality and capital strengths.

Maritza Arizmendi Diaz: Credit quality continues to be stable. Net charge-off totaled $15 million, down $5 million from the first quarter. The net charge-off rate was 79 basis points, down 26 basis points. Auto and consumer net charge-off rates were both down sequentially. The total net charge-off rate is now below the last two quarters. While there are sometimes delays in payments, the business is well managed.

Speaker Change: Credit quality continues to be stable.

Speaker Change: Net charge-off total $15 million, down $5 million from the first quarter.

Speaker Change: The net charge-off rate was 79 basis points, down 26 basis points. Auto and consumer net charge-off rates were both down sequentially.

Speaker Change: The auto net charge-off rate is now below the last two quarters. While there are sometimes delays in payments, the business is well managed.

Maritza Arizmendi Diaz: Provision for Great Losses, Total, $15.6 million, up $500,000 for the first quarter. Second quarter provision mainly reflected loan volume. Looking at all credit metrics, early and total delinquency rates were up from the first quarter, at 2.81% and 3.71%, respectively. In line with trends we have seen over the last five quarters. The non-performing loan rate of 1.08% was the lowest over the last five quarters.

Speaker Change: Provision for credit losses totaled $15.6 million, up $500,000 for the first quarter. Second quarter provision mainly reflected loan volume.

Maritza Ares Mende: Looking at all the credit metrics, early and total delinquishing rates were up from the first quarter at 2.81 percent and 3.71 percent, respectively. In line with trends, we have seen over the last 5 quarters. The number from the lower rate of 1.08 percent was the lowest over the last 5 quarters. Look at some other capital metrics, total store holders that would be increased, about $2,000,000 from the end of last quarter, and then they will come on at the rate of increase to 10.09%. Our seven four effective tax rate was 28.2% compared to 26.8% in the first quarter.

Speaker Change: Looking at other credit metrics, early and total delinquency rates were up from the first quarter at 2.81% and 3.71% respectively.

Speaker Change: In line with trends we have seen over the last five quarters, the non-performing lower rates of 1.08% were the lowest over the last five quarters.

Maritza Arizmendi Diaz: Looking at some other capital metrics, total stockholder equities increased about $12 million from the end of last quarter, and the tangible common equity ratio increased to 10.09%. Our second quarter effective tax rate was 28.2% compared to 26.8% in the first quarter. We continue to expect a full-year EDR of 29% in 2024. The second quarter included a $800,000 benefit from a tax credit, and the first quarter included a $1.1 million discrete benefit from a stock vested.

Speaker Change: Looking at some other capital metrics, total stockholders equities increased about $12 million from the end of last quarter, and the tangible common equity ratio increased to 10.09%.

Speaker Change: Our second quarter effective tax rate was 28.2% compared to 26.8% in the first quarter. We continue to expect a full year ETR of 29% in 2024.

Maritza Ares Mende: We continue to expect a full year, EDR, of 29% in 2024. The second quarter includes a $800,000 benefit from a tax rate, and the first quarter included a $1.1 million rate, but this was very interesting from the start method.

Speaker Change: The second quarter included a $800,000 benefit from a tax credit, and the first quarter included a $1.1 million discrete benefit from a stock vested.

Maritza Arizmendi Diaz: To sum up, during the second quarter, net interest income continued to grow based on increased volume of interest-earning assets partially offset by lower net interest margins year over year. This mainly reflected higher balances and yields of loans partially offset by higher but moderating core deposit costs. The core deposit trends continue to be positive, benefiting from commercial deposit growth, and loans remain strong. We continue to be on track for 3% to 4% growth this year.

Maritza Ares Mende: To sum up, during the second quarter, net interest income continued to grow, based on increased volume of interest and in assets. Partially offset by lower net interest margin year over year. This mainly reflected higher balances and yields of loans, partially offset by higher, but moderating, poor deposit costs. The poor deposit trends continue to be positive, benefiting from commercial deposit growth. Long remained strong. We continue to be on track for, for, for three to four percent growth this year. Credit quality remains stable and is expected to continue that way. Our net interest margin outlook continues to be a range of 5.45% to 5.55%.

Speaker Change: To sum up, to sum up, during the second quarter,

Speaker Change: Net interest income continues to grow based on increased volume of interest-earning assets partially offset by lower net interest margins year over year.

Speaker Change: This mainly reflected higher balances and yields of loans partially offset by higher but moderating core deposit costs.

Speaker Change: The core deposit trends continue to be positive, benefiting from commercial deposit growth.

Speaker Change: Loans remain strong. We continue to be on track for 3-4% growth this year. Credit quality remains stable and is expected to continue that way.

Maritza Arizmendi Diaz: Credit quality remains stable and is expected to continue that way. Our net interest margin outlook continues to be a range of 5.45% to 5.55%. We expect the full benefit from the most recent change in our investment portfolio in the third quarter. We continue to expect three Federal Reserve Bank rate cuts of 25 basis points each. Our anticipated range of non-interest expense continues to be $90 to $92 million as we invest in technology. While we bought back shares during the second quarter, we remained opportunistic regarding capital allocation, ranging from Puerto Rico and U.S. loan growth to dividends and continued share buybacks. Now, there are six hotels.

Speaker Change: Our net interest margin outlook continues to be a range of 5.45% to 5.55%.

Jose Raphael Fernandez: We expect the food benefit from the most recent change in our investment portfolio in the third quarter. We continue to expect three Federal Reserves, third Reserve Bank rate costs of 25 basis points each. Our anticipated range of non-interest expense continues to be 90 to 90 to 90 million dollars as we invest in technology. While we both back shares during the second quarter, we remain opportunistic regarding capital allocation, ranging from capital from Puerto Rico and US loan growth to dividends and continue share-by-back.

Speaker Change: We expect the full benefit from the most recent change in our investment portfolio in the third quarter.

Speaker Change: We continue to expect three Federal Reserve Bank rate cuts of 25 basis points each.

Speaker Change: Our anticipated range of non-interest expense continues to be $90 to $92 million as we invest in technology.

Speaker Change: While we bought back shares during the second quarter, we remained opportunistic regarding capital allocations, ranging from Puerto Rico and U.S. loan growth to dividends and continued share buybacks. Now, here are six hosts.

Jose Raphael Fernandez: Now here is also. Thank you, Marita.

Maritza: Thank you Maritza

Jos Rafael Fernndez: Please turn to page 8. Our outlook for both Puerto Rico and OFG is positive. As I mentioned earlier, the island's economy is continuing to grow and steadily decouple from mainland economic uncertainty. We're seeing ongoing expansion of infrastructure projects and business investments and strong levels of employment. So we are very optimistic about Puerto Rico and its future. Having said that, we continue to be vigilant regarding the big macro uncertainties, interest rate changes, inflation, possible mainland recession, and ongoing geopolitical conflict. Turning to OFG, we're well positioned to continue to benefit from the growth of loans and deposits in our customer base, although consumer credit trends should continue at current levels.

Jose Raphael Fernandez: Please turn to page eight. Our outlook for both Puerto Rico and OREG is positive. As I mentioned earlier, the island economy is continuing to grow and steadily decouple from mainland economic uncertainty. We're seeing ongoing expansion of infrastructure projects and business investments, and strong levels of employment. So we are very optimistic about Puerto Rico and its future.

Speaker Change: Please turn to page 8. Our outlook for both Puerto Rico and OFG is positive. As I mentioned earlier, the island's economy is continuing to grow and steadily decouple from mainland economic uncertainty.

Speaker Change: We're seeing ongoing expansion of infrastructure projects and business investments and strong levels of employment. So we are very optimistic about Puerto Rico and its future.

Jose Raphael Fernandez: Having said that, we continue to be vigilant regarding the big macro uncertainties, interest rate changes, inflation, possible mainland recession, and ongoing geopolitical conflicts. Turning to OREG, we're well positioned to continue to benefit from the growth of loans, deposits, and our customer base. Consumer credit trends should continue at current levels. Our detailed first strategy is working, so we will continue to invest in and deploy customer innovations to build out our differentiated business model. Overall, we look forward to a strong second half of 2024.

Speaker Change: Having said that, we continue to be vigilant regarding the big macro uncertainties, interest rate changes, inflation, possible mainland recession, and ongoing geopolitical conflicts.

Speaker Change: Turning to OFG, we are well positioned to continue to benefit from the growth of loans deposits on our customer base.

Jos Rafael Fernndez: Our digital first strategy is working, so we will continue to invest in and deploy customer innovations to build out our differentiated business model. Overall, we look forward to a strong second half of 2024. In addition, we'll be celebrating our 60th anniversary in business and our 30th year of OFG shares trading on the New York Stock Exchange. In closing, I want to emphasize that our results could not have been achieved without the hard work and dedication of all our team members, including our board of directors. We are thankful for them, and we are excited for what's to come. With that, we end our formal presentation. Operator, please start the Q&A. Thank you. And if you have a question,

Speaker Change: Consumer credit trends should continue at current levels. Our digital first strategy is working, so we will continue to invest in and deploy customer innovations to build out our differentiated business model.

Operator: Thank you. And if you have a question at this time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Our first question will come from Timur Braziler with Wells Fargo. Please go ahead.

Jose Raphael Fernandez: In addition, we will be celebrating our 60th anniversary in business and our 30th year of OREG shares trading on the nearest of exchange.

Speaker Change: Overall, we look forward to a strong second half of 2024. In addition, we'll be celebrating our 60th anniversary in business and our 30th year of OFG shares trading on the New York Stock Exchange.

Jose Raphael Fernandez: In closing, I want to emphasize that our results could not have been achieved without the hard work and dedication of all our team members, including our board of directors. We are thankful to them, and we are excited for what's to come.

Speaker Change: In closing, I want to emphasize that our results could not have been achieved without the hard work and dedication of all our team members, including our board of directors. We are thankful to them, and we are excited for what is to come.

Jose Raphael Fernandez: With this, we end our formal presentation.

Operator: Operator, please start the Q&A. Thank you, and if you have a question at this time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two.

Speaker Change: With this we end our formal presentation. Operator, please start the Q&A.

Speaker Change: Thank you, and if you have a question at this time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Our first question will come from Timur Braziler with Wells Fargo.

Operator: Our first question will come from Timur Braziler with Wells Fargo. Please go ahead.

Timur Braziler: Good morning. Good morning, Timur.

Speaker Change: Please go ahead.

Timur Braziler: Maybe starting out on the remaining six asset repricing opportunity, appreciate the comments on the 200 million of treasury maturities reinvested during the quarter. I guess what do the cadence look like for the remainder of the year, both for planned bond maturities and fixed loan maturities? Timur, in terms of our investment portfolio, we really do not have any immediate second half of the year specific maturities. We do have repayments of our mortgage book or mortgage back securities book of around 20 to 22 million dollars a month. So our way of looking at this is we have that the opportunity of kind of maintaining our treasury book.

Timur Felixovich Braziler: Hi, good morning.

Timur Felixovich Braziler: Maybe starting out on the remaining six-asset repricing opportunity, I appreciate the comments on the $200 million of Treasury maturities reinvested during the quarter. I guess what the cadence will look like for the remainder of the year, both for planned bond maturities and fixed loan maturities?

Timur: Good morning, Timur.

Timur Felixovich Braziler: Maybe starting out on the remaining six asset repricing opportunity, I appreciate the comments on the 200 million of Treasury maturities reinvested during the quarter. I guess what's the cadence

Timur Felixovich Braziler: look like for the remainder of the year, both for planned bond maturities and fixed loan maturities?

Jos Rafael Fernndez: So Timur, in terms of our investment portfolio, we really do not have any immediate second half of the year specific maturities. However, we do have repayments of our mortgage book, our mortgage-backed securities book, of around $20 to $22 million a month. So our way of looking at this is we have the opportunity to maintain our treasury book, when I call it treasury, I mean investment book, as part of our asset and liability management approach.

Speaker Change: So, Timur, in terms of our investment portfolio, we really do not have any immediate second half of the year specific maturities. We do have...

Timur: repayments of our mortgage.

Speaker Change: mortgage-backed securities book of around $20 to $22 million a month. So our way of looking at this is we have the opportunity of kind of

Jose Raphael Fernandez: When I call it treasury, I mean investment book as part of our asset management, asset and liability management approach. In terms of the loans, we really do not have any fixed rate loan maturity large ones, as I should say, coming up. So from our perspective, the second half of the year, it's about loan origination and how we continue to generate good origination levels at a good yield, and on the treasury side or investment side be very opportunistic, as we have been in the past. When we had lots amounts of cash and we decided not to go a long duration.

Speaker Change: [inaudible]

Jos Rafael Fernndez: In terms of loans, we really do not have any fixed-rate loan maturity large ones, I should say, coming up. From our perspective, the second half of the year is about loan origination and how we continue to generate good origination levels at a good yield and, on the treasury side or investment side, be very opportunistic as we have been in the past when we had large amounts of cash, and we decided not to go long duration.

Speaker Change: [inaudible]

Speaker Change: The second half of the year is about loan origination and how we continue to generate good origination levels at a good yield.

Speaker Change: on the treasury side or investment side be very opportunistic as we have been in the past when we had.

Jos Rafael Fernndez: So we are now benefiting from those decisions that we made a couple of years ago, and we have been doing it in the last several months, investing for longer duration and having less asset sensitivity than we had last year, significantly less.

Jose Raphael Fernandez: So we are now benefiting from those decisions that we made a couple of years ago, and we have been doing it in the last several months, investing longer duration and having less assets sensitivity than we had last year, significantly less.

Speaker Change: [inaudible]

Timur Braziler: Thanks for that.

Jos Rafael Fernndez: Got it. Thanks for that. And then maybe just looking at the deposit base, the large public fund deposit that came in in the fourth quarter, is that just in the run rate now, or is there still an expectation that a larger slug of that is going to come out? Because it seems like it's been embedded in that base maybe longer than initially expected.

Speaker Change: Got it.

Timur Braziler: And then maybe just looking at the deposit base, the large public fund deposit that came in in the fourth quarter, is that just in the run rate now or is there still an expectation that a larger slug of that is going to come out because it seems like it's been embedded in that base maybe longer than initially expected. It's played out very nicely, and we look forward to continue to expand it. Okay, that's all great color.

Speaker Change: Thanks for that. And then maybe just looking at the deposit base, the large public fund deposit that came in in the fourth quarter.

Speaker Change: Is that just in the in the run rate now or is there still an expectation that a larger slug of that is is going to come out because it seems like it's been embedded in that base may be longer than initially expected.

Jos Rafael Fernndez: That's a great point, Timur, and thank you for bringing it up. We have been predicting that the deposit would probably mostly flow out in the second half of this year. Now we have been updated from the government account that at least until September. So we will be having the deposit in our books at least until September, and that's already included in some of the guidance that Maritza gave throughout her comments in terms of net interest margin as well as cost of funds. So that deposit is collateralized. So it also has a little bit of a, you know, the second question. Your second question has a little bit of a relationship to the first question.

Speaker Change: That's a great point, Timur, and thank you for bringing it up. We have been guiding that the deposit would probably mostly flow out in the second half of this year.

Speaker Change: Now we have a...

Speaker Change: been updated from the government account at least until September . So we will be...

Speaker Change: the deposit in our books, at least until September , and that's already included in some of the guidance that Maritza gave throughout her comments in terms of net interest margin as well as...

Speaker Change: [inaudible]

Jos Rafael Fernndez: Part of our cautiousness in terms of the investment book has a lot to do with the $1 billion deposit that is collateralized with pretty much investment securities. So those are kind of a little bit of the things that we're kind of managing in the next three or four months, and we'll keep everyone updated on how that deposit plays out. The good thing is that that deposit is variable; it's indexed. So in the next three months, we will have a lower cost of that deposit if the Fed delivers on what the market is expecting and the three interest rate cuts that they're forecasting that they will do in the second half of the year. So we'll keep everyone updated with that, but for now, we're basically managing the relationship with a great customer of ours for a long time.

Speaker Change: relationship to the first question. Part of our

Speaker Change: over a cautiousness in terms of the investment book has a lot to do with

Speaker Change: [inaudible]

Speaker Change: [inaudible]

Speaker Change: The Plot.3 interest rates cuts that they're forecasting that they will do in the second half of the year. So we'll keep everyone updated with that. But for now, we're basically managing the relationship. It's a great customer of ours for a long time.

Jos Rafael Fernndez: And then just last question for me is on the credit front, really nice results this quarter, good commentary for expectations on the back end of the year. Maybe just give us an update as to what's happening with the Puerto Rico consumer and some of the volatility maybe we saw over the last, you know, 3-4 quarters. Has much of that abated now, or do you feel like the seasoning, some of the higher COVID-related spend, has not worked its way through the system? Just give us an update as to what's happening on the ground in Puerto Rico from a credit standpoint.

Speaker Change: Great. And then just last question for me is on the credit front.

Speaker Change: You know, really nice results this quarter. Good commentary for expectations on the back end of the year. Maybe just give us an update as to what's happening with the Puerto Rico consumer and some of the volatility maybe we saw over the last, you know,

Speaker Change: three, four quarters. Has much of that abated now or do you feel like the seasoning, some of the higher COVID-related spend has not worked its way through the system? Just give us an update as to what's happening on the ground in Puerto Rico from a credit standpoint.

Jos Rafael Fernndez: Sure, so I'll give you some kind of macro-perspective on Puerto Rico, and I'll ask Cesar to give you some specifics about our consumer loan books. On the big picture, Timur, most of the COVID incentives and all the cash that came in have been flushed through, and what the economy is seeing from the consumer is a consumer that is also benefiting from higher wages. And the minimum wage being increased here, I mentioned in other calls where the magnitude, percentage-wise, of that increase in Puerto Rico is significantly larger than in the States.

Speaker Change: Sure, so I'll give you some big picture, kind of macro Puerto Rico perspective and I'll ask Cesar to give you some specifics about our consumer loan books.

Speaker Change: From the big picture, Timur, most of the COVID incentives and all the cash that came in, it's flushed through. What the economy is seeing from the consumer is a consumer that is also benefiting from higher wages.

Speaker Change: and the minimum wage being increased here, I mentioned in the other calls where the magnitude percentage-wise of that increase in Puerto Rico is significantly larger than in the States.

Speaker Change: So the impact is also larger. So we see higher wages, we see lower unemployment levels. So all that is what's kind of keeping the consumer healthy in terms of their finances.

Jos Rafael Fernndez: So the impact is also larger. So we see higher wages, we see lower unemployment levels. So all that is what's kind of keeping the consumer healthy in terms of their finances. So now for our auto and consumer kind of perspective in terms of the loan book, I'll let Cesar give you some details.

Speaker Change: So now for our auto and consumer kind of perspective in terms of the loan book, I'll let Cesar give you some details.

Cesar A. Ortiz: So let's start with Alto, which has the bigger portfolio. We continue to see a stabilizing non-performing loan rate just on Alto. First quarter is usually a better seasonal quarter than the rest of the year because of the tax season. We discussed this last quarter. So the second quarter, with the holidays in place, the customer tends to slow down in terms of collections.

Cesar: Those four outdoors, but...

Cesar: Let's start with the bigger portfolio. We continue to see a stabilizing...

Cesar: Non-Performing Long Wages on Auto

Cesar: First quarter is usually a better season quarter than the rest of the year because of the tax season. We discussed this last quarter.

Cesar: So, the second quarter, with the holidays in place, the customer tends to slow down in terms of collections, while the non-performing loans continue to be positive and stable.

Cesar A. Ortiz: But non-performing loans continue to be positive and stable for both portfolios, consumer and Alto. So we remain positive on the outlook for credit. Remember also that we converted the Alto portfolio from a subprime, say 64% prime portfolio three years ago, and now it's 84% prime and super prime portfolio, which is improving the charge of levels too. So we are seeing charge of levels stabilizing and improving too. So again, we're positive on the outlook for the retail portfolios.

Cesar: For both portfolios, consumer and auto, so...

Cesar: So, we remain positive on the outlook for credit. Remember also that we converted the out-of-portfolio from a sub-prime, say, 64 percent.

Cesar: [inaudible]

Cesar A. Ortiz: On the other hand, commercial portfolios are also benefiting from the macroeconomics of Puerto Rico. We continue to see good opportunities in the pipeline but also good behavior in terms of credit in the commercial portfolio, both small businesses and corporate portfolios.

Cesar: On the other hand, commercial portfolios are also, you know, benefiting from the macroeconomics of Puerto Rico. We continue to see good opportunities in the pipeline, but also good behavior in terms of the credit in the commercial portfolio, both small businesses and corporate portfolios.

Timur Felixovich Braziler: Great. Thanks for all that color. I appreciate it.

Speaker Change: Thanks for all that color, I appreciate it.

Operator: Thank you. Thank you for your questions, Timur.

Brett D. Rabatin: Our next question will come from Brett Rabatin with Huvde Group. Please go ahead.

Speaker Change: Thank you. Thank you for your questions, Timur.

Speaker Change: Our next question will come from Brett Rabatin with Huvde Group.

Brett D. Rabatin: Hey, good morning everyone. Good morning, Brett. I wanted to start off on the loan growth outlook for the back half of the year, and I missed, I couldn't quite hear the numerical guidance for the back half of the year, and wanted just to see what the outlook was specifically on the commercial side. You know, auto has obviously been a strong driver here for the past year, but just wanted to hear if the commercial activity in Puerto Rico specifically, you know, might be stronger, and just how you guys think about

Speaker Change: Please go ahead.

Brett D. Rabatin: Hey, good morning everyone.

Brett D. Rabatin: Good morning, Brett.

Brett D. Rabatin: Wanted just to start off on the loan growth outlook for the back half of the year and I missed

Speaker Change: I couldn't quite hear the numerical guidance for the back half of the year.

Speaker Change: and wanted just to see what the outlook was specifically on the commercial side.

Speaker Change: Auto's obviously been a strong driver here the past year, but just wanted to hear if the commercial activity in Puerto Rico specifically might be stronger and just how you guys think about that portfolio.

Jos Rafael Fernndez: Yes, so the first part of the question: we expect 3 to 4% loan growth for the full year. Thus, the second half of the year will be impacted positively by our commercial pipelines. We have seen some delay in some of the closings of some loans that we had in the pipeline in June, in the June quarter, but we expect them to be closing in the September quarter, and we still have a very strong pipeline.

Speaker Change: Yep, so the first part of the question, we expect 3-4% loan growth for the full year. So the second half of the year will be impacted.

Speaker Change: positively by our commercial pipelines. We have seen some delay in some of the closings of some loans that we had in the pipeline in June .

Speaker Change: in the June quarter, but we expect them to be closing in the September quarter and we still have a very strong pipeline. We are seeing a lot of activity in Puerto Rico in the commercial side, small as well as mid and larger type of credits.

Jos Rafael Fernndez: We are seeing a lot of activity in Puerto Rico on the commercial side, small as well as mid and larger types of credits. We're really encouraged by small businesses and their origination levels. We've had consecutive record origination levels for three quarters in a row, and these are mostly, I would say, fixed-rated loans that are small. We're growing our small business clients through the small business account that I mentioned in my comments, and it's giving us the opportunity to expand those relationships and deepen those relationships.

Speaker Change: We're really encouraged with the small business and their origination levels. We've had consecutive record origination levels, three quarters in a row, and these are...

Speaker Change: Mostly, I would say fixed-rated loans that are small. We're growing our small business.

Speaker Change: clients through the SmallBiz account that I mentioned in my comments. And it's giving us the opportunity to expand those relationships and deepen those relationships on the larger type of sectors that we have.

Jos Rafael Fernndez: On the larger types of sectors that we have, we do have a very strong pipeline, and we had a great quarter. We think that the second half of the year is going to drive our loan growth for the rest of the year. We do expect OTO to taper down a little bit from the levels that we saw in the second quarter.

Speaker Change: We do have a very strong pipeline and we had a great quarter. We think that the second half of the year is commercial.

Speaker Change: As a whole, it's going to drive our long growth for the rest of the year. We do expect auto to taper down a little bit from the levels that we saw in the second quarter.

Brett D. Rabatin: Okay, that's helpful. And then on capital, you know, any thoughts on the buyback from here and just, you know, capital levels are obviously robust, but I know you kind of keep them that way in Puerto Rico. Yeah.

Speaker Change: and then on on capital you know any any thoughts on the buyback from here and just you know capital levels are obviously robust but I know you kind of keep them that way in Puerto Rico

Jos Rafael Fernndez: So, you know, the way we look at capital, we first go to loans. We're seeing a great opportunity here in Puerto Rico. We've kind of stayed a little bit timid on the U.S. given the uncertainties in that market in the last, let's say, 12 months, and that's why you're seeing that portfolio kind of stay steadily downward. But, you know, first for us, capital deployment goes to loans and growing relationships and taking advantage of the economic situation in Puerto Rico and helping our customers and the communities. That's number one.

Speaker Change: Yeah, so, you know, the way we look at capital, we first go to loans. We're seeing a great opportunity here in Puerto Rico.

Speaker Change: We've kind of stayed a little bit timid on the U.S. given the uncertainties in that market in the last, let's say, 12 months, and that's why you're seeing that portfolio kind of stay steadily downwards.

Speaker Change: First, for us, capital deployment goes to loans and growing the relationships and taking advantage of the economic situation in Puerto Rico and helping our customers and the communities. That's number one. Then we take a look at capital from a dividend perspective, and as you saw, our results are pretty strong and we are pretty confident about the overall outcome.

Jos Rafael Fernndez: Then we take a look at capital from a dividend perspective, and as you saw, our results are pretty strong, and we are pretty confident about the overall prospects of OFG. So, we will continue to look at dividends as well as the buyback. We executed, you know, I am happy to say that we executed 50% of our buyback program in the past quarter, and as you can imagine, the cost of that, the average cost of the shares that we bought out was extremely critical to us, for sure. So, we're really happy with the way we've managed capital, and we recognize that we have excess capital. So, our earnings are going to be significantly returned to shareholders on a consistent basis.

Speaker Change: perspective of OFG, so we will continue to look at the dividends as well as the buyback.

Speaker Change: We executed, you know, I am happy to say that we executed 50% of our buyback program in the past quarter and, as you can imagine, the

Speaker Change: The cost of that, the average cost of the shares that we bought at was extremely high.

Speaker Change: [inaudible]

Brett D. Rabatin: Okay, if I could sneak in one last one just on the expense guidance. If I heard it correctly, it was $92 million a quarter for the back half. I wanted to confirm that.

Speaker Change: If I could sneak in one last one just on the expense guidance. If I heard it correctly, it was $92 million a quarter for the back half. I wanted to confirm that.

Brett D. Rabatin: You know, I know it's way too early to think about 25 guidance, but essentially, you know, has the platform been invested in to the point where you don't have new initiatives that you need to do on technology or other things that might lead to a lift in expenses maybe in 25, relatively, and the Path of 24.

Speaker Change: I know it's way too early to think about 25 guidance,

Speaker Change: Has the platform been invested to the point where you don't have new initiatives that you need to do on technology or other things that might lead to a lift in expenses maybe in 25 relative to...

Jos Rafael Fernndez: So the big picture, and I'll let Maritza give you the details. The big picture is that I don't think we can say we're going to stop investing in technology because it's, it's kind of a stable stake and table stakes for everyone. So, and it's part of our strategy right now. We have a different business strategy in our market here in Puerto Rico that requires us to have fewer branches but also makes sure that we're at the front end of the investments in technology.

Speaker Change: the path of 24.

Speaker Change: So big picture and I'll let Maritza give you the details. The big picture is that

Speaker Change: You know, I don't think we can say we're going to stop investing in technology because it's a...

Speaker Change: It's kind of a table stakes for everyone, and it's part of our strategy, right? We have a different...

Maritza: business strategy in our market here in Puerto Rico that requires us to have less branches, but also making sure that we're at the front end of the investments in technology. So that has its...

Maritza: Good site and it's...

Jos Rafael Fernndez: So that has its benefits. Good sites and not so good sites because we need to invest in technology. But I have to add one more thing, and that is its people and its culture. And I think the way we have led the bank in the last couple of decades is how do we make sure that our culture is an entrepreneurial culture with a dynamic, agile kind of approach to business and looking out for opportunities but also to transform the way we do banking.

Speaker Change: Not so good science because you we need to invest in technology, but I have to add one more thing and that is

Speaker Change: It's people and the culture. And I think the way we have led the bank in the last couple of decades is how do we make sure that our culture is an entrepreneurial culture with a dynamic, agile kind of approach to business and to look out for the opportunities, but also to transform the way we do banking. And we're really proud of what we have accomplished so far, and that will require us to not lower the guard, and we're going to have to continue to invest in technology. Having said that...

Jos Rafael Fernndez: And we're really proud of what we have accomplished so far, and that will require us not to lower the guard, and we're going to have to continue to invest in technology. Having said that, I'll let Maritza give you a little bit of her take on experience in 2024, and for 2025. I agree with you, it's a little too early for us to give you guidance.

Speaker Change: I'll let Maritza give you a little bit of...

Maritza: a heartache on expenses in 2024, and for 2025, I agree with you, it's a little too early for us to give you guidance. So, the guidance we share with you in the prepared remarks is that we're expecting $90 to $92 million dollar range in expenses.

Maritza Arizmendi Diaz: The guidance we share with you in the prepared remarks is that we are expecting $90 to $92 million in expenses. This quarter was a little bit higher than that because of some specific, particularly as we continue investing in improving processes, so we did have some higher expenses over that range, but we expect that this will be the average range for the next two quarters as the timing of this investment will define if it is $90 or $92, but we wanted to share that with you, okay?

Maritza: This quarter, particularly, was a little bit higher than that because of some specific, particularly we continue investing in improving processes, so we did have some higher expenses over that range, but we expect that this will be the average range for the next two quarters as timing of this investment will define if it is 90 or 92, but we wanted to share that with you, okay?

Jos Rafael Fernndez: And, Brett, if I could add one more thing in terms of technology and investments and net interest expenses. I don't know if you realize this, but... We have the capability to open retail and commercial accounts digitally, from Soup to Nuts, and right now, around 20% of our retail customers open their checking accounts digitally.

Maritza: And if I could add one more thing in terms of technology and investments and interest expenses.

Speaker Change: I don't know if you realize this, but...

Speaker Change: We have the capability to open

Speaker Change: retail and commercial accounts digitally

Speaker Change: from Soup to Nuts.

Speaker Change: retail customers open their checking accounts digitally.

Jos Rafael Fernndez: So around 14% or 13% of commercial, small commercial clients do so. That's a differentiator in this market. And that's how we view this. The reason why it's a differentiator is because we have steadily been investing in the technologies that are required. So I'm not emphasizing this to hedge expenses going forward. I'm just emphasizing this to make the point that we have a differentiated strategy that has played out very nicely, and we look forward to continuing to expand it.

Speaker Change: around

Speaker Change: 14 or 13% commercial, small commercial clients do so.

Speaker Change: That's a differentiator in this market, and that's how we view this. The reason why it's a differentiator is because we have steadily been investing in the technologies that are required. So I'm not emphasizing this.

Speaker Change: To hedge expenses going forward, I'm just emphasizing this to make the point that we have a differentiated strategy. And I think it's important.

Speaker Change: It's played out very nicely and we look forward to continue to expand it.

Brett D. Rabatin: Okay. That's all great, Keller. Thanks so much. Thank you. Yes.

Timur Braziler: Thanks so much. Thank you.

Operator: Thank you.

Speaker Change: Okay. That's all great, Keller. Thanks so much. Thank you. Yep, thank you.

Kelly Ann Motta: And our next question will come from Kelly Motta for KBW.

Kelly Motta: And our next question, will we come from K-Leonado?

Kelly Motta: Please go ahead. Hi, good morning. Thanks for the question.

Speaker Change: And our next question will come from Kelly Motta for KBW.

Kelly Ann Motta: Hi, good morning. Thanks for the question. Hi Kelly.

Speaker Change: Please go ahead.

Kelly Motta: Hi, Kelly. Hi, capital is really strong, and you guys, well-timed on the Vivek and such. Just wondering if you look ahead, given your kind of low mid-single digit loan growth outlook organically, wondering if there's any opportunities to utilize some of your capital to maybe bolt on a business or portfolio, just wondering if we could get an update on any thoughts around something of that nature? Yeah, at this time we, Kelly, do not have anything that we're looking at organically. That's what you're referring to in terms of a book of loans or portfolio or a business.

Kelly Ann Motta: Hi, good morning. Thanks for the question.

Jos Rafael Fernndez: Capital is really strong, and you guys have been well-timed on the buyback and such. Just wondering, as you look ahead, given your kind of low-mid-single-digit loan growth outlook organically, if there's any opportunities to utilize some of your capital to maybe bolt on a business or portfolios? Just wondering if we could get an update on any thoughts around something of that nature.

Kelly Ann Motta: Well-timed on the buyback and such. Just wondering, if you look ahead, given your kind of low, mid, single-digit loan growth outlook organically, wondering if there's any opportunities to utilize some of your capital to maybe bolt on a business or portfolios. Just wondering if we could get an update on any thoughts around something of that nature.

Jos Rafael Fernndez: At this time, Kelly, we do not have anything that we're looking at inorganically. That's what you're referring to in terms of a book of loans or a portfolio or a business. We are growing our customers organically at a clip of 4%, and we're deploying our strategy to deepen the relationships with pretty much all of our existing customers because we have a great opportunity there to deepen those relationships and extract more and more business from them.

Kelly Ann Motta: Yeah, at this time we, Kelly, we do not have anything that we're looking at inorganically. That's what you're referring to in terms of a book of loans or a portfolio or a business.

Jose Raphael Fernandez: We are growing our customers organically, a clip of 4%, and we're deploying our strategy to deepen the relationships of pretty much our existing customers, because we have a great opportunity there to deepen those relationships and extract more and more business from them. So, no, we do not have anything to deploy the, let's call it excess capital, but we do have dry power. So we will be opportunistic, and we will have the excess capital to take advantage immediately of an annual opportunity that presents to ourselves.

Kelly Ann Motta: We are growing our customers organically at a clip of 4%, and we're deploying our strategy to deepen the relationships of pretty much our existing customers because we have a great opportunity there to deepen those relationships and extract more and more business from them. So, no, we do not have anything to deploy the, let's call it, excess capital. But we do have dry powder, so we will be opportunistic and we will have the excess capital to take advantage immediately of any opportunity that presents to ourselves.

Jos Rafael Fernndez: So, no, we do not have anything to deploy the, let's call it, excess capital. But we do have dry power, so we will be opportunistic, and we will have the excess capital to take advantage immediately of any opportunity that presents itself to us.

Kelly Ann Motta: Awesome. Thanks a lot.

Kelly Motta: Awesome. Thanks a lot. And clearly, it was another great quarter for you guys. You guys continue to execute very nicely.

Speaker Change: Awesome, thanks a lot.

Jos Rafael Fernndez: And clearly, it was another great quarter from you guys. You guys continue to execute very nicely. Just from a high level, Jose Rafael, I'm wondering, you know, as you look ahead beyond just this year, like what makes you the most excited about OFG? And, you know, maybe where do you see the greatest opportunities to gain share or build out a business? Just wondering if you could give us any insight into that from a high level.

Speaker Change: Clearly it was another great quarter from you guys. You guys continue to execute very nicely.

Jose Raphael Fernandez: Just on a high level, Jose Rafael, wondering, you know, as you look ahead beyond just this year, like what, what makes you the most excited at FOFG and, you know, maybe where do you see the greatest opportunities to gain share or or build out a business? Just wondering if you could give us any insight into that from a high level. Sure. To me, the outlook for the next three to five years and what gets me excited and the team excited is deploying our strategy, Kelly. It's working. We're seeing it. Our customers are net customers growing.

Jos Rafael Fernndez: Just from a high level, José Rafael, I'm wondering, you know, as you look ahead beyond just this year, like, what makes you the most excited at OFG and, you know, maybe where do you see the greatest opportunities to gain share or build out a business? Just wondering if you could give us...

Jos Rafael Fernndez: To me, the outlook for the next three to five years and what gets me excited and the team excited is deploying our strategy, Kelly. It's working. We're seeing it.

Speaker Change: Any insight into that from a high level?

Jos Rafael Fernndez: Sure. To me, the outlook for the next three to five years and what gets me excited and the team excited is deploying our strategy, Kelly. It's working. We're seeing it. Our customers, our net customer is growing.

Jos Rafael Fernndez: Our customers, our net customer base is growing. It's not going to happen in one month or one quarter, but we are steadily executing on our strategy and steadily executing on our business development approach, and it's working, and it's building. That is really exciting for us. For us, banking has become boring, but that's great because in the past, our strategy in Puerto Rico when the macros were not as good as they are right now, they were really bad, the strategy was acquisitions, and we did three, and we were very happy with those three acquisitions.

Jose Raphael Fernandez: It's not going to happen in one month or one quarter, but we are steadily executing on our strategy and steadily executing on our business. It's a development approach, and it's working, and it's building. So, you know, that that is really exciting for us. And to for us, you know, banking has become boring, but that's great because in the past we are strategy in Puerto Rico when the macros were not as good as they are right now. They were really bad. The strategy was acquisitions, and we did three, and we're very happy with those three acquisitions now.

Jos Rafael Fernndez: It's not going to happen in one month or one quarter, but we are steadily executing on our strategy and steadily executing on our business.

Jos Rafael Fernndez: and we are really excited about the prospects for the next three to five years.

Jos Rafael Fernndez: Now, it's about blocking and tackling and executing on a differentiated strategy, and that really keeps me going and keeps our executive team and the whole bank going, and so we're really excited about the prospects for the next three to five years.

Kelly Motta: It's about blocking on tackling and executing on a differentiated strategy, and that really keeps me going and keeps our executive team and the whole bank going on. So, we're really excited about the prospects for the next three to five years. Great, well, we love boring when it's working so well.

Kelly Ann Motta: Great. Well, we love boring when it's working so well. Maybe the last question for me, maybe for Maritza: I appreciate the color around the margin.

Kelly: Great, well, we love boring when it's working so well. Maybe last question for me.

Kelly Motta: Maybe, maybe last question from me. Maybe for Maritza, I appreciate the color around margin. I think you reiterated 545 to 555. Just wondering, within that range, what do you think are the biggest drivers that could get you to the top end versus the bottom end? Is it, the cause kind of stabilizing? Is it a function of putting on new growth at higher rates? And on the top end of that, just trying to ballpark, you know, the greatest variance between both ends of that range? Thanks for the question. And I think this course is like that. What is the driver?

Kelly: Maybe for Maritza, I appreciate the...

Maritza Arizmendi Diaz: I think you reiterated 545 to 555. I'm just wondering, within that range, what do you think are the biggest drivers that could get you to the top end versus the bottom end? Is it deposit cost kind of stabilizing? Is it a function of putting on new growth at higher rates and on the top end of that? Just trying to ballpark, you know, the greatest variance between both ends of that range.

Maritza: Margin, I think you reiterated, 545 to 555.

Speaker Change: I'm just wondering, within that range, what do you think are the biggest drivers that

Speaker Change: [inaudible]

Maritza Arizmendi Diaz: Thanks for the question. And I think this quarter reflected what is the driver, the loan growth, and higher deals. Our loan book, excluding the recovery, is about 8%. And every quarter, we're growing an inch on the proportion of that loan book in the total balance sheet. So that's combined with the fact that the cost of funds is stabilizing and not growing at the same pace as prior quarters. That will make us move to the upper range of what I – of the range that we're managing.

Maritza: Thanks for the question, and I think this question reflects what is the driver, the loan growth, the higher deals, you know, our loan book excluding the recovery.

Maritza Ares Mende: I mean, the long growth, the higher geals, you know, our long build, excluding the recovery, is about 8%. So, so, you know, and everybody, we're growing an inch on the proportion of that long build in the total balance sheet. So, that's combining with the fact that a cause of fun is our stabilizing and not growing at the same pace as at higher quarters. I think that that will make us move to the upper range of what I, of the range that we're mining. But, you know, we're mining in different variables, and market rate is one that we are looking at, and we are fixing three gods.

Speaker Change: is about 8%, and every quarter we're growing an inch on the proportion of that loan book in the total balance sheet.

Speaker Change: So that, combining with the fact that COSA funds are stabilizing and not growing at the same pace as private quarters, that would make us move to the...

Maritza Arizmendi Diaz: But as I – you know, we're managing different variables. The market rate is one that we are looking at, and we are expecting pre-cost. And within that range that I provide you, that is another factor. But I think loan growth will be the main driver.

Speaker Change: [inaudible]

Maritza Ares Mende: And within that, a range that I provide you that is another factor. But I think long growth will be the main right. And Kelly also, in the last eight or ten months, we have kind of gone longer duration and fixed investment, fixed rate investment mortgage tax securities, which has allowed us to reduce significantly our assets and security. I think you, you'll get the thank you and you'll get the update, but for our assets and security, I'll reduce quite a bit and it's less or less of a, you know, on an environment where interest rates are going to be going down as the fetids kind of signaling.

Speaker Change: And within that range that I provide you, that is another factor, but I think long growth will be the main driver.

Jos Rafael Fernndez: And Kelly also, in the last 8 or 10 months, we have kind of gone longer duration and fixed investment, fixed rate investment mortgage-backed securities, which has allowed us to significantly reduce our asset sensitivity. I think you'll get the thank you, and you'll get the update, but our asset sensitivity in an environment where interest rates are going to be going down, as the Fed is kind of signaling, I think we're also well positioned to manage that.

Kelly: And Kelly also...

Kelly: In the last 8 or 10 months, we have...

Kelly: [inaudible] the

Kelly: [inaudible]

Kelly: [inaudible]

Maritza Ares Mende: I think we're also well positioned to manage that.

Operator: Great, I'll step back. Thanks for the questions. Yeah, thank you for your questions, Kelly. And again, if you would like to ask a question, please press star one on your telephone keypad.

Kelly Ann Motta: Great, I'll step back. Thanks for the question. Thank you for your questions.

Operator: Thank you for your questions, Kelly.

Kelly: Thank you for your questions, Kelly.

Operator: And again, if you would like to ask a question, please press star 1 on your telephone keypad. And at this time, there are no further questions. I will turn the call back to management for closing remarks. Thank you, operator.

Speaker Change: And again, if you would like to ask a question, please press star one on your telephone keypad.

Operator: And at this time, there are no further questions.

Jose Raphael Fernandez: I will turn the call back to the management for closing remarks. Thank you, operator. Thanks again to all our team members and to all our stakeholders for listening today. Looking forward to catching up with you guys at the end of the third quarter. Have a great day.

Speaker Change: And at this time, there are no further questions. I will turn the call back to management for closing remarks.

Jos Rafael Fernndez: Thank you, operator. Thanks again to all our team members and to all our stakeholders for listening today. Looking forward to catching up with you guys at the end of the third quarter. Have a great day. And this will conclude today's conference. Thank you for your participation, and you may now disconnect.

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Operator: And this will conclude today's conference. Thank you for your participation, and you may now disconnect.

Speaker Change: And this will conclude today's conference. Thank you for your participation and you may now disconnect.

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