Q2 2026 OFG Bancorp Earnings Call

July 21, 2026

Speaker #1: Please stand by. Your meeting is about to begin. Good morning, everyone. Thank you for joining OFG Bancorp's conference call. My name is Beau, and I will be your operator today.

Operator: Please stand by. Your meeting is about to begin. 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 José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arizmendi, Chief Financial Officer, and César Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the Q2 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: 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 José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arizmendi, Chief Financial Officer, and César Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the Q2 2026 section.

Speaker #1: Our speakers today are José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors; Maritza Arismendi, Chief Financial Officer; and César Ortiz, Chief Risk Officer.

Speaker #1: 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.

Operator: 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.

Speaker #1: 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.

Speaker #1: We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. All lines have been placed on mute to prevent any background noise.

Operator: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez. Please go ahead, sir.

Speaker #1: 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. Fernández.

Speaker #1: Please go ahead, sir.

Speaker #2: 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.

José Rafael Fernández: Good morning. Thank you for joining us. We are pleased to report our Q2 results. We had another all-around outstanding quarter with good momentum in all areas. Let's go to page three 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.

Speaker #2: Let's go to page three 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.

Speaker #2: 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.

José Rafael Fernández: 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.

Speaker #2: 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 with our customer-focused culture.

Speaker #2: With healthy consumer and business liquidity, wage growth, and historically low unemployment, Puerto Rico's economy continues to be resilient. Please turn to page four. 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.

José Rafael Fernández: With healthy consumer and business liquidity, wage growth, and historically low unemployment, Puerto Rico's economy continues to be resilient. Please turn to page four. 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. Libre for the mass market, Elite for the mass affluent, and MyBiz for small businesses. The second focus is technology. Our omni-channel 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.

José Rafael Fernández: Libre for the mass market, Elite for the mass affluent, and MyBiz for small businesses. The second focus is technology. Our omni-channel platform allows customers to interact with us seamlessly across all our digital channels. This is driving digital adoption, generating efficiencies, and savings.

Speaker #2: Libre for the mass market, Elite for the mass affluent, and MyBiz for small businesses. The second focus is technology. Our omnichannel platform allows customers to interact with us seamlessly across all our digital channels.

Speaker #2: 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.

José Rafael Fernández: 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.

Speaker #2: 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.

José Rafael Fernández: 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 five. 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 Q2, 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 Libre accounts were opened digitally. We're the only bank in Puerto Rico with these full digital capabilities.

Speaker #2: All this translates into consistent steady growth of the business. Please turn to page five. The results continue to show up in our key performance indicators.

Speaker #2: Most retail customers are doing almost all routine and deposit transactions and loan payments through our digital and sales 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.

José Rafael Fernández: Most retail customers are doing almost all routine and deposit transactions and loan payments through our digital and self-service channels. During the Q2, 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.

Speaker #2: 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 Libre accounts were opened digitally. We're the only bank in Puerto Rico with these full digital capabilities.

José Rafael Fernández: 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 Libre accounts were opened digitally. We're the only bank in Puerto Rico with these full digital capabilities.

Speaker #2: 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.

José Rafael Fernández: More than 1.1 million personalized smart banking insights have been delivered monthly with more than 90% positive feedback from customers. 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.

Speaker #2: Now, I'd like to pass the call to Maritza to go over the financials in more detail.

Speaker #3: Thank you, José. All comparisons are to the first quarter unless otherwise noted. Now, let's turn to page six. Our financial performance was very strong this quarter.

Maritza Arizmendi Díaz: Thank you, José. All comparisons are to Q1 unless otherwise noted. Now, let's turn to page six. 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 deposit ratio was 85%, and the payout ratio was 25%, which reflects the higher income in this quarter versus Q1. Let's turn to page seven 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 3 paid-in-full commercial loans.

Speaker #3: 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%.

Speaker #3: Loans to deposit 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 seven.

Speaker #3: To review our income statement highlights. Core revenues increased 4.5 million dollars to 190 million dollars. Total interest income was 197 million dollars, and increase of 3 million dollars.

Speaker #3: 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 dollars from three paying full commercial loans.

Speaker #3: This compares to 3.3 million dollars from a similar loan paying in full in the first quarter. There was one additional date in the quarter.

Maritza Arizmendi Díaz: This compares to $3.3 million from a similar loan paid in full in Q1. There was 1 additional day in the quarter. This increased interest income by about $1.6 million. Total interest expense was $40 million, a decrease of $25 million. This reflected lower average balances of brokered CDs and borrowings, which more than offset the cost of higher average balances of core deposits. The added day 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. Non-interest expense increased $8.1 million to $103 million. This included $5.8 million in business operational charges, while Q1 included $1 million in capital markets readiness and registration costs, and the benefit of $3.6 million in a business-related volume incentive.

Speaker #3: 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 brokered CDs and borrowings, which more than offset the cost of higher average balances of core deposits.

Speaker #3: The added date increased interest expense by about 0.4 million dollars. Total banking and financial service revenues increased 1 million dollars to 33 million dollars.

Speaker #3: Reflecting higher banking service and wealth management revenues, which included $1 million in annual insurance and annuity fees. Non-interest expense increased $8.1 million to $103 million.

Speaker #3: This included 5.8 million dollars in business operational charges while the first quarter included 1 million dollars in capital markets readiness and registration costs and the benefit of 3.6 million dollars in a business-related volume incentive.

Maritza Arizmendi Díaz: 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 eight 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 tariffs in Q2 of 2025. Average core deposit balances grew $145 million to $9.7 billion, with end-of-period balances up $85 million, or 0.9%, reflecting government, commercial, and retail deposit growth.

Speaker #3: 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 eight to review our balance sheet highlights.

Speaker #3: Average loan balances grew 78 million dollars to 8.2 billion dollars and end of period balances grew 62 billion dollars or 0.8% due to increases in Puerto Rico commercial and consumer loans.

Speaker #3: New loan production was 750 million dollars and increase of 146 million dollars or almost 24%, reflected increases in Puerto Rico commercial, residential mortgage, and consumer lending.

Speaker #3: Production in the year-ago period was slightly higher due to the spike in auto sales from the 12th of tariff in the second quarter of 2025.

Speaker #3: Average core deposit balances grew 145 million dollars to 9.7 billion dollars with end of period balances up 85 million dollars or 0.9%. Reflecting government, commercial, and retail deposit growth.

Maritza Arizmendi Díaz: Regarding our large government deposit, $400 million moved into 3 and 6-month 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 repayment from the investment portfolio. Average investment fell $84 million, and $92 million end of period due to principal paydowns in the mortgage-backed securities. Average borrowings and brokered deposits fell $133 million and increased $49 million end of period, reflecting our liquidity management. Now, let's turn to page nine to review net interest margin. Loan yield increased 3 basis points to 7.90%. Excluding the 3 loan repayments in Q2 and the 1 in Q1, loan yield was 7.70%, compared to 7.71%. Core deposit cost was level at 1.29%, reflecting growth of $92 million in non-interest-bearing deposits to $2.7 billion.

Speaker #3: Regarding our large government deposit, 400 million dollars moved into three and six month time deposits, with approximately 175 million dollars remaining in the demand deposit category.

Speaker #3: Average cash balances fell 45 million dollars. But increased 109 million dollars end of period, as a result of deposit growth and repayment from the investment portfolio.

Speaker #3: Average investment fell 84 million dollars and 92 million dollars end of period, due to principal pay downs in the mortgage-backed securities. And average borrowings and broker deposits fell 133 million dollars and increased 49 million dollars end of period, reflecting our liquidity management.

Speaker #3: Now, let's turn to page nine to review net interest margin. Loan yield increased three basis points to 7.90%. Excluding the three loan repayments in the second quarter and the one in the first quarter, loan yield was 7.70% compared to 7.71%.

Speaker #3: Core deposit cost was level at 1.29%, reflecting growth of $92 million in non-interest-bearing deposits to $2.7 billion. Excluding public funds, cost of deposits was 98 basis points compared to 1%.

Maritza Arizmendi Díaz: Excluding public funds, cost of deposit was 98 basis points compared to 1%. Net interest margin increased 9 basis points to 5.45%. 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 10.90%, 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 Q1. Cesar will provide more detail about credit in a moment. 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 unanticipated decline in auto, though auto has been slightly stronger than expected.

Speaker #3: Net interest margin increased 9 basis points to 5.45%. Now, let's turn to page 10. Capital continued to build. CET-1 ratio increased to 14.07%. Total stockholders' equity rose to $1.4 billion.

Speaker #3: DCE ratio continued to climb to 10.90%. Intangible book value continued to expand to $31.12 per share. Looking at share buybacks.

Speaker #3: 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.

Speaker #3: We continue to expect low single-digit loan growth for the year, with commercial more than offsetting the unanticipated decline in auto. However, auto has been slightly stronger than expected.

Speaker #3: We continue to anticipate deposit growth, excluding the large government deposit. Benefiting from our Libre Elite and MyBiz accounts, as well as growth of commercial and government clients.

Maritza Arizmendi Díaz: We continue to anticipate deposit growth, excluding the large government deposit, benefiting from our Libre, Elite, and MyBiz 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. We expect NIM to range from 5.25% to 5.35% in H2 2026. This is in line with the 5.30% NIM we had in Q2 and 5.25% in Q1, excluding the loan paydowns. Our H2 outlook incorporates deposit growth and the relocation of the large government deposits. We continue to anticipate no rate cuts this year with the Fed cutting rates once next year. We remain on track to keep expenses in a range of $380 to $385 million this year. Our estimated tax rate for the year continues to be 22.6%, not including discrete items.

Speaker #3: 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 2026.

Speaker #3: 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.

Speaker #3: Our second half outlook incorporates deposit growth and the relocation of the government of the large government deposits. We continue to anticipate no rate cuts this year, with the Fed cutting rates once next year.

Speaker #3: We remain on track to keep expenses in a range of $380 to $385 million this year. Our estimated tax rate for the year continues to be 22.6%, not including discrete items.

Speaker #3: And while we are not active buying back shares in the second quarter, our strategy has not changed. We have 194 million dollars in remaining authorization and we will continue to be selective and opportunistic balance sheet shareholders' returns and discipline growth.

Maritza Arizmendi Díaz: While we are not active buying back shares in Q2, our strategy has not changed. We have $194 million in remaining authorization. We will continue to be selective and opportunistic balancing shareholder returns and disciplined growth. Here's Cesar.

Speaker #3: Now, here's Cesar.

Speaker #4: 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.

César A. Ortiz-Marcano: Thank you, Maritza. Please turn to page 11. All comparisons are to the Q1s 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, non-performing loans fell $53.6 million to 0.81% of average loans. This reflected the successful sale of the standalone telecom exposure discussed in previous Q and of another non-performing commercial relationship. These actions reduce concentration and tail risk and improve the 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 of 41 basis points. Consumer improved to 3.78%, down 62 basis points. Provision for credit losses fell $9.5 million to $13 million.

César Ortiz-Marcano: Thank you, Maritza. Please turn to page 11. All comparisons are to the Q1s 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, non-performing loans fell $53.6 million to 0.81% of average loans. This reflected the successful sale of the standalone telecom exposure discussed in previous Q and of another non-performing commercial relationship. These actions reduce concentration and tail risk and improve the 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 of 41 basis points. Consumer improved to 3.78%, down 62 basis points. Provision for credit losses fell $9.5 million to $13 million.

Speaker #4: Nature jobs increased $7.4 million and were 1.0% of average loans. At the same time, non-performing loans fell $53.6 million to 0.81% of average loans.

Speaker #4: This reflected the successful sale of the standalone telecom exposure discussed in the previous quarter, and of another non-performing commercial relationship. These actions reduced concentration and tail risk and improved the commercial portfolio's overall risk profile and long-term credit quality.

Speaker #4: Retail net charge of rates improved in auto and consumer and remained stable in mortgage. Auto decreased to 1.11% and improvement on 41 basis points.

Speaker #4: 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.

César A. Ortiz-Marcano: This primarily reflected $14.7 million for increased loan volume and $1.9 million in commercial loan recoveries. This compares to Q1, which included $17.5 million for increased loan volume, $3.7 million for increased allowance for the telecom loan, 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 with continued normalization across consumer portfolios. This mix of modest early-stage delinquency and stable back-end losses continues to demonstrate the resiliency of underlying portfolio quality. Despite some movement in early-stage delinquencies, the stability in net charge-offs reinforces the strength of recent vintages and the quality of new originations.

César Ortiz-Marcano: This primarily reflected $14.7 million for increased loan volume and $1.9 million in commercial loan recoveries. This compares to Q1, which included $17.5 million for increased loan volume, $3.7 million for increased allowance for the telecom loan, 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 with continued normalization across consumer portfolios. This mix of modest early-stage delinquency and stable back-end losses continues to demonstrate the resiliency of underlying portfolio quality. Despite some movement in early-stage delinquencies, the stability in net charge-offs reinforces the strength of recent vintages and the quality of new originations.

Speaker #4: This compares to the first quarter, which included 17.5 million dollars for increased loan volume 3.7 million dollars for increased allowance for the telecom loan and 1 million dollars for newly classified small commercial loans.

Speaker #4: Looking at other credit metrics, early and total delinquency rates were 2.5% and 3.7%, respectively, reflecting typical seasonality with continued normalization across consumer portfolios. This mix of modest early-stage delinquency and stable backend losses continued to demonstrate the resiliency of underlying portfolio quality.

Speaker #4: Despite some movement in early-stage delinquencies, the stability in nature jobs 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, then declines again in the first half of the next year.

César A. Ortiz-Marcano: Credit should remain stable in H2, in line with seasonal trends, which show declines in H1 and increases in H2, and then declines again in H1 of the next year. Here's José to wrap it up.

César Ortiz-Marcano: Credit should remain stable in H2, in line with seasonal trends, which show declines in H1 and increases in H2, and then declines again in H1 of the next year. Here's José to wrap it up.

Speaker #4: Here's also, to wrap it up.

Speaker #2: Thank you, Cesar. Please turn to page 12. The Puerto Rico economy remains resilient. In addition to what I said earlier, federal reconstruction funding, infrastructure projects, and private investment continue to support economic activity.

José Rafael Fernández: Thank you, César. Please turn to page 12. The Puerto Rico economy remains resilient. In addition to what I said earlier, federal 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 Detail 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 scalability 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.

Speaker #2: 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, the interest rate outlook and geopolitical developments.

Speaker #2: Within this environment, OFG's 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.

Speaker #2: 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.

Speaker #2: 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.

José Rafael Fernández: 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.

Speaker #2: With this, we end our formal presentation. Operator, let's start the Q&A.

Speaker #1: Certainly, Mr. Fernandez, thank you. Ladies and gentlemen, at this time, if you do have any questions or comments, please press star one. If you find your question has been addressed, you may remove yourself from the queue by pressing star two.

Operator: Certainly, Mr. Fernandez. Thank you. Ladies and gentlemen, at this time, if you have any questions or comments, please press star one. If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that's star one for questions. We'll go first this morning to Kelly Motta with KBW.

Speaker #1: Once again, that's star one for questions. We'll go first this morning to Kelly Matta with KBW.

Speaker #5: Hi, good morning. Thanks for the question, and congrats to the team on a great quarter.

Kelly Motta: Hi, good morning. Thanks for the question, congrats to the team on a great quarter.

José Rafael Fernández: Thank you, Kelly.

Speaker #2: Thank you, Kelly.

Kelly Motta: Maybe kicking it off on the margin, you materially raised your NIM outlook for the Q2 in a row. I think I caught that maybe $500 million of the government deposits moved into CDs. Just wondering what your new 5.25 to 5.35 outlook assumes in terms of the longevity of these deposits sticking around on balance sheet and X that some of the underlying dynamics you're seeing in terms of new loan originations and incremental cost of core funding. Thank you.

Speaker #5: 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.

Speaker #5: Just wondering what your new 525 to 535 outlook assumes in terms of the longevity of these deposits sticking around on the balance sheet, and, X, some of the underlying dynamics you're seeing in terms of new loan originations and incremental cost of core funding.

Speaker #5: Thank you.

Speaker #2: 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 do not control much. But the good news is that this is a long-term relationship that we have had at the bank for many years, and we have been able to methodically diversify the deposit into wealth management, as we saw last year. Now we are terming out a little bit on the CDs so we can help the client optimize liquidity as well as yields, as they take a little bit longer look at the deposit.

José Rafael Fernández: 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. The good news is that this is a long-term relationship that we have at the bank for many years. We have been able to methodically diversify the deposit into wealth management as we saw last year. Now we are terming out a little bit on the CDs, so we can help the client optimize its liquidity as well as the yields, as they take a little bit longer look at the deposit. We feel much more confident about our margin guidance, and that's why you're seeing us resetting it in this call.

Speaker #2: So we feel much more confident about our margin guidance and that's what 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 addressed the government deposit.

José Rafael Fernández: I'll let Maritza go into the details, you hit it on the nail when you addressed the government deposit.

Speaker #3: Yeah, and thank you, Kelly. Kelly, for the question and the reality is that we completed that relocation end of June. So we were able to assess what would be the impact for the next half of the year and now I will not need to go to the market to replace that funding and provide us with some additional spread.

Maritza Arizmendi Díaz: Thank you, Kelly, for the question. The reality is that we completed that relocation end of June, we were able to assess what will be the impact for the next H2. Now we will not need to go to the market to replace that funding and provide us with some additional spread. That's why we are increasing the guidance. We continue to be asset sensitive, slightly asset sensitive. Since we are not expecting changes in the market rates, at least this year, we are expecting a more stable type of NIM that resemble what we saw during the first two quarters, 5.5 the Q1 without the recoveries, and 5.30 the Q2 without the special recoveries that are non-recurring. That's why our guidance has been increased.

Speaker #3: So that's why we are increasing the guidance. We continue to be asset sensitive, a slightly asset sensitive and since we are not expecting changes in the market rates at least this year we are expecting a more stable type of NIM that resemble what we saw during the first two quarters, 525 the first quarter without the recoveries and 5.30 the second quarter without the special recoveries that are non-recovery.

Speaker #3: So that's why our guidance is has been increased.

Speaker #2: Another point that I’d like to add too is that we’re also seeing higher loan balances, particularly from the commercial side. 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.

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

Speaker #5: Got it. That's helpful. I guess maybe I'll switch to loan growth, just to keep the thread here. Clearly, Puerto Rico is still operating at a really nice level here.

Kelly Motta: Got it. That is helpful. I guess maybe I will switch to loan growth then just to keep the thread here. Clearly, Puerto Rico is still operating at a really nice level here. Wondering if this increase in commercial, if you are starting to see tailwinds from, I know it is really early, but from onshoring or any other color as to what seems like a better operating environment overall that you are seeing here. Thank you.

Speaker #5: I'm wondering if this increase in commercial—if 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?

Speaker #5: Thank you.

Speaker #2: Yep, yep. Kelly, good point also. We've been talking about the Puerto Rico economy for several—I would say two or three 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.

José Rafael Fernández: Yep. Kelly, good point also. We have been talking about the Puerto Rico economy for several, I would say two or three or even more years now, since the economy is doing a lot better than in my, let us say my first 17 years as CEO. When we look at it certainly provides a lot of confidence to operate a bank when you have a stable, steady, consistent economy. The metrics that we are seeing continue to reflect the same. Low unemployment, high liquidity levels on the consumer side. We are seeing great interest on businesses to expand because there is demand out there for them to do so. We are not yet seeing the benefits of the onshoring, as you alluded to yet, but there is still there a pipeline of $3 billion or so of projects coming through in the next several years. Federal funds continue to flow in.

Speaker #2: 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.

Speaker #2: And the metrics that we're seeing continue to reflect the same. Low unemployment, high liquidity levels on the consumer side. We're seeing great interest on businesses to expand because there's demand out there for them to do so.

Speaker #2: We're not yet seeing the benefits of the onshoring, as you alluded to, but there's still a pipeline of $3 billion or so of projects coming through in the next several years.

Speaker #2: Federal funds continue to flow in, so I think we're benefiting from that environment, that economic environment. I can understand why there is some, let's say, trepidation about Puerto Rico's economy given our history.

José Rafael Fernández: I think we are benefiting from that economic environment that I can understand why there is some, let us say, trepidation about Puerto Rico’s economy given our history. As we keep on passing quarter after quarter, what we are seeing, and you saw it this quarter on the consumer credits, we are seeing a different type of economy, a different type of environment that it is supported by real investments. I think you add to that there is a three-bank market here where we kind of run the financial market in the island. You look at the third pillar that I look at, and that is who we are. 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.

Speaker #2: 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 is supported by real investments. And I think, then you add to that, that there's a three-bank market here, where 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.

Speaker #2: 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 in the results.

José Rafael Fernández: That is showing the results. What we are seeing is all the wheels running at 150 miles per hour in the right direction, and we are executing. We feel extremely happy and confident that what we are bringing to the market is differentiating, and we are seeing it in growth. That is kind of how overall I see from 36,000 feet what is going on for us here at OFG.

Speaker #2: 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.

Speaker #2: So that's kind of how, overall, I see from 36,000 feet what's going on for us here at OFG.

Speaker #5: 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 ticked up.

Kelly Motta: Got it. Last one, I'll step back. It looks like credit was a highlight. It did look like though some early DQs ticked up. Wondering if maybe you could provide some color as to what you're seeing there. Thank you.

Speaker #5: Wondering if maybe you could provide some color as to what you're seeing there. Thank you.

Speaker #2: Yep. I'll let Cesar give you the details. I'll tell you, we saw the credit that was non-performing or non-accrual. That definitely sends a message to the investors that when we need to act, we act.

José Rafael Fernández: Yep. I'll let César give you the details. I'll tell you, we sold the credit that was non-performing or non-accrual. That definitely sends a message to investors that when we need to act, we act. That's what we did. We worked on it for the last 3 or 4 months, and we successfully sold that credit. That's the main kind of large ticket item. In general, when we're seeing, as I mentioned earlier, the credit on the consumer side is pretty steady. I'll let César give you some details there on the consumer.

Speaker #2: And that's what we did. We worked on it for the last three or four months, and we successfully sold that credit. So that's the main kind of large-ticket item.

Speaker #2: 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.

Speaker #4: Do you see non-performing levels for consumers similar to or better than last year for both auto and consumer lending? We are seeing vintages that are already better than when we adjusted the undergraduate standard back in 2022.

César A. Ortiz-Marcano: The consumer, you see non-performing levels similar or better than last year for both auto and consumer lending. We are seeing vintages that are already better vintages than when we adjusted the underwriting standard back in 2022. The vintages that are taking over now are better vintages in terms of credit on the grading standard. That is starting to equate into the formula. We are positive in terms of the outlook for these portfolios, even though, as you know, the H2 of the year, seasonality start kicking up those delinquency trends. 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 gallon in the States.

César Ortiz-Marcano: The consumer, you see non-performing levels similar or better than last year for both auto and consumer lending. We are seeing vintages that are already better vintages than when we adjusted the underwriting standard back in 2022. The vintages that are taking over now are better vintages in terms of credit on the grading standard.

Speaker #4: So, the vintages that are taking over now are better vintages in terms of credit on the granting standard. So that is starting to equate into the formula.

César Ortiz-Marcano: That is starting to equate into the formula. We are positive in terms of the outlook for these portfolios, even though, as you know, the H2 of the year, seasonality start kicking up those delinquency trends. 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 gallon in the States.

Speaker #4: So we are positive in terms of the outlook for these portfolios, even though, as you know, in the second half of the year, seasonality starts kicking up those delinquency trends. We are also seeing that gas prices, even though they improved significantly from the prior quarter, are still above $1 per liter, which is equivalent to your $4 per gallon in the States.

Speaker #4: So, seeing the portfolios, we are positive in terms of what we're seeing in their behavior, and the customers continue to pay very well during this quarter.

César A. Ortiz-Marcano: Seeing the portfolios, we are positive in terms of what we're seeing in the behavior, and the customers continues to pay very well during this quarter. We expect that seasonality to start seeing or reflecting in the numbers for the next H2 of the year.

César Ortiz-Marcano: Seeing the portfolios, we are positive in terms of what we're seeing in the behavior, and the customers continues to pay very well during this quarter. We expect that seasonality to start seeing or reflecting in the numbers for the next H2 of the year.

Speaker #4: But we expect that seasonality to start showing or reflecting in the numbers for the next half of the year.

Speaker #5: Great. Thank you. I will step back next quarter again.

Kelly Motta: Great. Thank you. I will step back next quarter again.

Speaker #2: Yep. Thank you, Kelly.

José Rafael Fernández: Yep. Thank you, Kelly.

Speaker #1: Thank you. We'll go next now to Manuel Navas with Piper Sandler.

Operator: Thank you. We'll go next now to Manuel Navas with Piper Sandler.

Speaker #6: Hey, just to stay on credit for a moment. Does that mean that loan loss reserve ticked down on the payoff or the sale of the telecom loans and the US exposure?

Manuel Navas: Hey, just to stay on credit for a moment. Does that mean that the loan loss reserve ticked down on the payoff or the sale of the telecom loans and the US exposure? Should it kind of tick up a little bit as across the H2 of the year and then improve again in the H1 of next year? Is that the general direction you expect with seasonality?

Speaker #6: Should it kind of tick up a little bit across the back half of the year, and then improve again in the first half of next year?

Speaker #6: Is that the general direction you expect for seasonality?

Speaker #4: You should see that seasonality, yes, in the reserves too. Definitely.

César A. Ortiz-Marcano: You should see that seasonality, yes, in the reserves, too. Definitely.

César Ortiz-Marcano: You should see that seasonality, yes, in the reserves, too. Definitely.

Speaker #6: Okay, I appreciate that. One quick modeling question. Maybe there's a lot of noise, but what was the June minimum? 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 minimum entering the back half of the year?

Manuel Navas: 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 was some movement in the public funds, so maybe it's not all represented there. What was kind of the June NIM entering the H2?

Speaker #7: Yeah, thanks for the question. As I mentioned before, we did the relocation in mid-June, so the month of June reflects that, and it was around $5.26 million in June.

José Rafael Fernández: Thanks for the question because at the end, as I mentioned before, we did the relocation mid-June, the month of June reflects that, and it was around 5.26 June NIM.

Speaker #6: Okay, I appreciate that. And then, can you just kind of level set on the buyback? You were pretty aggressive in the first quarter.

Manuel Navas: Okay. I appreciate that. Can you level set on the buyback? You had pretty aggressive in the Q1. You took a step back this quarter. Just kind of thought process on near-term expectations on the buyback from here.

Speaker #6: You took a step back this quarter. Just wanted your thought process on near-term expectations for the buyback from here.

Speaker #2: Yep. Nothing has changed. We did have 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, etc.

José Rafael Fernández: Yep. Nothing has changed. We did have higher purchases in Q1, as we pointed out. This quarter, we saw a lot of activity in the market in terms of our loan origination, et cetera. We're just being patient also. When we look forward, we still have $194 million of the approved buyback, and we are planning on executing it as we see our stock undervalued versus our peers. We will continue to be out there and be methodical about our acquisition of our stock or purchase of our stock.

Speaker #2: So we're just being patient also, but when we look forward, we still have $194 million of the approved buyback, and we are planning on executing it as we see our stock undervalued versus our peers.

Speaker #2: So, we will continue to be out there and be methodical about our acquisition of our stock, or purchase of our stock.

Speaker #6: I appreciate that. I'll step back and take you.

Manuel Navas: I appreciate that. I'll step back and to queue.

Speaker #2: Yep. Thank you, Manuel.

José Rafael Fernández: Yep. Thank you, Manuel.

Speaker #1: Thank you. We'll go next now to Aaron Saganovich with Truist Securities.

Operator: Thank you. We go next now to Aaron Saganovich with Truist Securities.

Operator: Thank you. We go next now to Arren Cyganovich with Truist Securities.

Speaker #8: Sorry, sorry. I was muted. Thanks. The brand marketing campaign that you launched in Q2—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.

Aaron Saganovich: Sorry, I was muted. Thanks. The brand marketing campaign that you launched in Q2, 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.

Arren Cyganovich: Sorry, I was muted. Thanks. The brand marketing campaign that you launched in Q2, 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.

Speaker #2: 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.

José Rafael Fernández: Yeah. 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. It launched early June, so it's too early to share any specifics. Early indicators show that it's been well received. In the end, it's for us 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. That's kind of the motivation behind it. Really excited for the rest of the year's and next year's results.

Speaker #2: And it launched in early to mid-June. So it's too early to share any specifics, but early indicators show that it's been well received.

Speaker #2: So, 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. That's kind of the motivation behind it.

Speaker #2: Really excited for the rest of the years and next year's results.

Speaker #8: Got it. And the $5.8 million of charges that were referenced—was that related to the branding, or was it due to something else?

Aaron Saganovich: Got it. The $5.8 million of charges that were referenced, was that related to this branding, or was it due to something else?

Arren Cyganovich: Got it. The $5.8 million of charges that were referenced, was that related to this branding, or was it due to something else?

Speaker #2: No. The $5.8 million is basically operational charges. They were due to operational errors, and we took the charge. The problem has been corrected, and the charge is non-recurring.

José Rafael Fernández: No, the $5.80 is basically operational charges. They were due to operational errors, and we took the charge. The problem has been corrected, and the charge is non-recurring. Really it's passing the page.

Speaker #2: So really, it's passing the page.

Speaker #8: 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?

Aaron Saganovich: Okay. 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?

Arren Cyganovich: Okay. 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?

César A. Ortiz-Marcano: Well, the consolidated net charge-off will be 0.72% without the Liberty charge-offs. The telecom charge-offs.

César Ortiz-Marcano: Well, the consolidated net charge-off will be 0.72% without the Liberty charge-offs. The telecom charge-offs.

Speaker #2: So, the consolidated net charge-off would be 0.72% without the Liberty charge-offs—the telecom charge-off.

Speaker #8: Okay. Thank you. Thanks, everyone. I appreciate it.

Aaron Saganovich: Okay. Thank you. Thanks, everyone. Appreciate it.

Arren Cyganovich: Okay. Thank you. Thanks, everyone. Appreciate it.

Speaker #4: Yeah. Aaron, can you strike that name out of the script, please?

José Rafael Fernández: Yeah. Aaron, you strike that name out of the script, please.

José Rafael Fernández: Yeah. Arren, you strike that name out of the script, please.

Speaker #8: Yeah. I didn't hear it.

Aaron Saganovich: Yeah, I didn't hear it.

Arren Cyganovich: Yeah, I didn't hear it.

Speaker #1: Thank you. And just a quick reminder, everyone: press *1 for questions this morning. We’ll go next now to Kyle Gearman with StoneX.

Operator: Thank you. Just a quick reminder, everyone, star one for questions this morning. We'll go next now to Kyle Gierman with StoneX.

Speaker #9: Hi, this is Kyle Gearman on for Rabbiton. Congrats on the quarter.

Kyle Gierman: Hi, this is Kyle Gierman on for Brett Ravitzin. Congrats on the quarter.

Speaker #2: Thank you.

José Rafael Fernández: Thank you.

Speaker #9: So, I just wanted to touch on credit really quickly. On the U.S. commercial side, that charge-off rate has bounced around quite a bit.

Kyle Gierman: Just wanted to touch on credit really quick. On the US commercial side, net charge-off rate has bounced around quite a bit. I was wondering how you would characterize the health of the US commercial portfolio.

Speaker #9: I was wondering how you would characterize the health of the U.S. commercial portfolio.

Speaker #2: During back in two years ago, we derisked a lot of that portfolio; we released $130 million of loans that we saw as higher risk.

César A. Ortiz-Marcano: Back in two years ago, we de-risked a lot of that portfolio. We released around $30 million of loans that we saw at higher risk when we saw the economy of the United States potentially coming into a recession back in summer of two years ago. Right now, that portfolio is behaving much, much better than previous years. We're seeing that stabilization on the portfolio. We are measuring risk rating internally, measuring risk rating on that portfolio. Those risk rating are very stable. I will say that that portfolio right now is healthy.

César Ortiz-Marcano: Back in two years ago, we de-risked a lot of that portfolio. We released around $30 million of loans that we saw at higher risk when we saw the economy of the United States potentially coming into a recession back in summer of two years ago. Right now, that portfolio is behaving much, much better than previous years. We're seeing that stabilization on the portfolio. We are measuring risk rating internally, measuring risk rating on that portfolio. Those risk rating are very stable. I will say that that portfolio right now is healthy.

Speaker #2: When we saw the economy of the United States potentially coming into a recession back in the summer of two years ago, right now that portfolio is behaving much, much better than previous years, and we're seeing a stabilization in the portfolio.

Speaker #2: We are measuring risk rating internally, measuring risk rating on that portfolio. So and those risk rating are very stable. So I would say that that portfolio right now is healthy.

Speaker #4: Yep. We're very happy with the performance, and as you know, it serves as somewhat of a geographic diversification for us outside of Puerto Rico.

José Rafael Fernández: Yeah. We're very happy with the performance, and as you know, it serves as somewhat of a geographic diversification for us outside of Puerto Rico, playing its role.

Speaker #4: So playing its role.

Speaker #9: Thank you. That brings me to loan yield. I saw 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 at today relative to the back book?

Kyle Gierman: Thank you. Moving on to loan yields, saw 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?

Speaker #2: Yeah. So 7.9 was with including the recovery, but if we exclude the recoveries on both quarters, the G loan was 7.7 this quarter versus 7.71.

César A. Ortiz-Marcano: Yeah. 7.9 was including the recovery, but if we exclude the recoveries on both quarters, the yield on loan was 7.7 this quarter versus 7.71. It's pretty stable. The yields on the commercial book, it would be different because the US have a different price than Puerto Rico. If we blend all together, they are around 7.25%, including small business within that. That's the new entry price.

César Ortiz-Marcano: Yeah. 7.9 was including the recovery, but if we exclude the recoveries on both quarters, the yield on loan was 7.7 this quarter versus 7.71. It's pretty stable. The yields on the commercial book, it would be different because the US have a different price than Puerto Rico. If we blend all together, they are around 7.25%, including small business within that. That's the new entry price.

Speaker #2: So it's pretty stable. The yields on the commercial book it would be different because the US have a different price than Puerto Rico but if we plan all together there are around 7.25% including small business within that.

Speaker #2: That's the new entry price.

Speaker #4: 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.

José Rafael Fernández: Variable versus fixed, it's a little bit like, I would say 60% variable, 40% fixed, give or take. On the commercial side. Remember, we also have the auto book, which is fixed rate, and it yields around eight and a half or so. That's a different bucket.

Speaker #4: 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.

Kyle Gierman: Thank you for taking my questions. I'll step back.

Speaker #9: And then you were taking my questions. I'll step back.

Speaker #4: Yep. Thank you. Thank you, Kyle.

José Rafael Fernández: Yep. Thank you. Thank you, Kyle.

Speaker #1: Thank you. We'll take a follow-up question now from Manuel Navas with Piper Sandler. Manuel, your line is open. You might be on mute.

Operator: Thank you. We'll take a follow-up question now from Manuel Navas with Piper Sandler. Manuel, your line is open. You might be on mute.

Speaker #10: I was. Thank you. Sorry—sorry to jump back on. I just want to follow up a little bit on some of the deposit trends.

Manuel Navas: I was. Thank you. Sorry to jump back on. I just wanted 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? Maybe it's also on the commercial side. Just kind of add color on the strength in your deposit-

Speaker #10: It seems like you speak to your three accounts doing quite well. Could you just kind of add some color on those? And maybe also on the commercial side.

Speaker #10: So just kind of add color on the strength in your deposit growth.

Speaker #2: Yep. So, on the retail side, the deposit accounts are driven by 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.

José Rafael Fernández: Yeah

Manuel Navas: growth.

José Rafael Fernández: Yeah. On the retail side, the deposit accounts are driven by a higher net customer growth. 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 a 4% a year, 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. We're starting to see clients kind of trying to move into CDs in some cases. I'm referring here more to the mass market Libre 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.

Manuel Navas: growth.

Speaker #2: 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.

José Rafael Fernández: We're starting to see clients kind of trying to move into CDs in some cases. I'm referring here more to the mass market Libre 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.

Speaker #2: I'm referring here more to the mass market Libre accounts. On the Elite account, which is more the mass affluent, what we're seeing is a pretty steady, consistent flow of deposits coming in.

Speaker #2: It 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 mass affluent with the elite.

José Rafael Fernández: It not necessarily has a 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 mass affluent with the Elite. Then on the commercial side, 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. I think the team is doing a great job at bringing those customers in with the deposits and then working on deepening the relationships towards cash management and potentially lending in some cases. That's kind of how high level we see the three accounts that we are focusing on, it makes our life extremely focused because we don't get distracted with several other accounts that we need to deal with.

Speaker #2: 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.

Speaker #2: Driving the commercial small business growth. I think the team is doing a great job at bringing those customers in with the deposits, and then working on deepening the relationships towards cash management and potentially lending in some cases.

José Rafael Fernández: I think the team is doing a great job at bringing those customers in with the deposits and then working on deepening the relationships towards cash management and potentially lending in some cases. That's kind of how high level we see the three accounts that we are focusing on, it makes our life extremely focused because we don't get distracted with several other accounts that we need to deal with.

Speaker #2: So that's kind of how, at a high level, we see the three accounts that we are focusing on. It makes our life extremely focused because we don't get distracted with several other accounts that we need to deal with.

Speaker #2: On the corporate side, where we call it corporate, which is larger commercial, that is relationship driven and it's an area where our team goes out and establishes very good relationships and starts bringing the loans many times, and then the deposits flow with it.

José Rafael Fernández: On the corporate side, what we call a corporate, which is a larger commercial, that is relationship-driven. It's an area where our team goes out and establishes very good relationship and starts bringing the loans many times and then the deposits flow with it. We're seeing all those efforts working in tandem and the results show for it.

Speaker #2: So we're seeing all those efforts working in tandem, and the results show for it.

Speaker #10: I appreciate that. With some of the movements you've had, where do you expect deposit costs to go? I mean, on a core basis, it was down two basis points in the quarter.

Manuel Navas: I appreciate that. With some of the movements you've had, where do you expect deposit costs to go? On a core basis, it was down 2 basis points last quarter. There's some movements with the public funds. Where can deposit costs go from here?

Speaker #10: There are some movements with the public funds. Where can deposit costs go from here?

Speaker #4: Yeah. Well, given what we said about the large deposit, 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.

José Rafael Fernández: 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 H1 of the year. Again, given the expectation of rates remaining on the short end where they are. That's kind of our outlook for H2 on those.

Speaker #4: We're seeing deposits costs going forward in the next two quarters relatively at the same level that we have in the first half of the year.

Speaker #4: Again, given the expectation of rates remaining on the short end where they are, that's kind of our outlook for the second half on those.

Speaker #10: I appreciate that. Thank you so much.

Manuel Navas: I appreciate that. Thank you so much.

Speaker #4: Yep. You're welcome.

José Rafael Fernández: Yep, you're welcome.

Speaker #1: And we'll take a follow-up question now from Kelly Matta at KBW.

Operator: We'll take a follow-up question now from Kelly Motta at KBW.

Speaker #11: Hey, my question got answered in that, so I'm going to step back. Thank you.

Kelly Motta: Hey. My question got answered in that, so I'm going to step back. Thank you.

Speaker #4: Thank you.

José Rafael Fernández: Thank you.

Speaker #1: Thank you, Ms. Matta. And again, ladies and gentlemen, just a final reminder: STAR 1 please, for any further questions. We will pause for just one moment.

Operator: Thank you, Ms. Mata. Again, ladies and gentlemen, just a final reminder, star one please for any further questions. We'll pause for just one moment. 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.

Operator: Thank you, Ms. Motta. Again, ladies and gentlemen, just a final reminder, star one please for any further questions. We'll pause for just one moment. 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.

Speaker #1: And it appears we have no further questions this morning. Mr. Fernández, I'd like to turn things back to you, sir, for any closing comments.

Speaker #2: Thank you, operator. Thanks again to all our team members for an outstanding quarter and thanks to all our shareholders who have listened in looking forward to our next call.

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

Speaker #2: Have a great day.

Speaker #1: Thank you. Again, ladies and gentlemen, this will conclude OFG Bancorp's conference call. Again, thanks so much for joining us, everyone. We wish you all a great day.

Operator: Thank you again, ladies and gentlemen. This will conclude OFG Bancorp's conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.

Q2 2026 OFG Bancorp Earnings Call

Request DemoDemo

OFG

Earnings