OFG Bancorp Q2 2025 Earnings Report

OFG Bancorp EPS Results

• Actual EPS: $1.15
• Consensus EPS: $1.05
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $1.08

OFG Bancorp Revenue Results

• Actual Revenue: $182.20 million
• Expected Revenue: $181.50 million
• Beat/Miss: Beat by +$704.00 thousand
• YoY Revenue Growth: +1.60%

OFG Bancorp Announcement Details

• Quarter: Q2 2025
• Date: 7/17/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 17, 2025
• Conference Call Time: 10:00AM ET

OFG Bancorp (NYSE:OFG), a financial holding company, provides a range of banking and financial services. It operates through three segments: Banking, Wealth Management, and Treasury. The company offers checking and savings accounts, and individual retirement accounts; certificate of deposits, as well as time deposit products; commercial, consumer, auto leasing, and mortgage lending services; credit cards; cash management; financial planning and insurance services; and corporate and individual trust, and retirement services. In addition, it provides securities brokerage and investment advisory services, including various investment alternatives, such as tax-advantaged fixed income securities, mutual funds, stocks, and bonds to retail and institutional clients; and separately-managed accounts and mutual fund asset allocation programs. Further, the company engages in the insurance agency and reinsurance businesses; administration and servicing of retirement plans; and various treasury-related functions with an investment portfolio consisting of mortgage-backed securities, obligations of U.S. government sponsored agencies, and U.S. Treasury securities and money market instruments. Additionally, it offers money management and investment banking services; and engages in the asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings. The company provides investment brokerage, transactional, international trade financing, residential mortgage, and consumer finance services. OFG Bancorp was founded in 1964 and is headquartered in San Juan, Puerto Rico.

OFG Bancorp Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: OFG reported record assets of over $12 billion and record loans exceeding $8 billion, delivering $1.15 in diluted EPS, up 6.5% year-over-year on a 1.5% rise in core revenue.
• Positive Sentiment: The board authorized a new $100 million stock buyback and repurchased shares during the quarter, reflecting strong capital generation and balance sheet strength.
• Positive Sentiment: Digital adoption surged, with nearly all teller transactions and 70% of loan payments via self-service channels, driving 4% net new customer growth and the launch of an Oriental Marketplace and a U.S. government money market fund.
• Neutral Sentiment: Loan originations jumped 38% sequentially to $784 million and core deposits rose 1.4% quarterly, while net interest margin dipped to 5.31% due to elevated liquidity but is expected to expand as loan growth continues.
• Positive Sentiment: Credit quality remained stable with net charge-offs down to 0.64%, non-performing loans at 1.19%, and a CET1 ratio of 13.99%, underscoring strong risk management and capital adequacy.

Presentation

[Operator]

Good morning. Thank you for joining OFG's Bancorp Conference Call. My name is Margo, and I'll be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors Maritza Arresmendi, Chief Financial Officer and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks.

[Operator]

It can be found on the homepage of the OFG website under the Second Quarter twenty twenty five secondtion. This call may feature certain forward looking statements about management's goals, plans and expectations. These statements are subject to risks and uncertainties outlined in the Risk Factors section of the OFG's SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards.

[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.

[José Fernández, CEO & Chairman at OFG Bancorp]

Good morning and thank you for joining us. We are pleased to report our second quarter results. To start, let's go to Page three of the presentation. It was another strong quarter ending with record assets of more than $12,000,000,000 and record loans of more than $8,000,000,000 We had excellent financial results generating earnings per share diluted of $1.15 for a 6.5 percent increase year over year on a 1.5% increase in total core revenue with a high return on average assets and equity. Operating execution was highlighted by strong loan origination and core deposit flows.

[José Fernández, CEO & Chairman at OFG Bancorp]

Credit reflected stable economy in Puerto Rico and high levels of liquidity held by individuals and businesses. We announced a new $100,000,000 buyback stock buyback authorization and bought back more shares supported by our strong capital generation and balance sheet. Please turn to Page four. We continue to see strong momentum with our omni channel digital platform, Our strategic investments in technology and innovation through our digital first strategy is paying off. We're growing accounts and building deeper customer relationships.

[José Fernández, CEO & Chairman at OFG Bancorp]

During the second quarter, nearly all of our routine teller retail customer transactions and deposits as well as 70% of retail loan payments were made through our digital and self-service channels. This was being driven by continued year over year growth in digital enrollment, digital loan payments, virtual teller utilization and 4% new net customer growth. In the second quarter, we introduced two new products and services. We launched our Oriental Marketplace, an online feature that gives our customers exclusive discounts on travel, restaurants and retail products. And we also introduced a U.

[José Fernández, CEO & Chairman at OFG Bancorp]

S. Government money market fund, a new addition to our DGI family of funds to provide customers with another convenient investment option. Now here's Maritza to go over the financials in more detail.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Thank you, Jose. Please turn to Page five to review our financial highlights. All comparisons are to the first quarter unless otherwise noted. Core revenues totaled $182,000,000 Looking at the key components, total interest income was $194,000,000 an increase of $5,000,000 This mainly reflects higher average balances of loans and cash and $1,500,000 from one additional business day. Total interest expense was $42,000,000 an increase of $2,000,000 This mainly reflects higher average balances of core deposits and higher average balances of borrowings and brokered deposits and $400,000 from one additional business day.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Total banking and financial service revenues were $30,000,000 an increase of $1,000,000 This mainly reflects increases in mortgage banking activities and wealth management. Looking at non interest expenses, they totaled $94,800,000 up $1,400,000 This is in line with our continued outlook of 95,000,000 to $96,000,000 in quarterly non interest expenses in 2025. Compared to the first quarter, the second quarter reflected 1,400,000 less in seasonal payroll taxes and foreclosed real estate costs. Keep in mind, in the first quarter included a $3,100,000 incentive payment from a business partner. Income tax expense was $14,100,000 with a tax rate of 21.37.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

That reflects an anticipated rate of 24.9% for the year and the benefit in the second quarter of $1,700,000 in discrete items. Looking at some other metrics, tangible book value was $27.67 per share. During the quarter, we bought back 186,000 shares. Efficiency ratio was 52%, return on average asset was 1.73% and return on average tangible common equity was 17%. Now please turn to Page six to review our operational highlights.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Total assets were $12,200,000,000 up 9% from a year ago and 4% from the first quarter. Average loan balances were $8,000,000,000 up close to 2% from the first quarter. End of period loans held for investment totaled $8,200,000,000 up 7% from a year ago and up $328,000,000 from the last quarter. The sequential increase mainly reflects our strategy to grow commercial lending in The U. S.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

And Puerto Rico. Loan yield was 7.91% down eight basis points. New loan origination of $784,000,000 was up 38% from the first quarter and 33% from a year ago. Second quarter originations reflect increases in all lending channels in both Puerto Rico and The U. S.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

The commercial pipeline continues to look strong. Average core deposits were $9,700,000,000 up close to 1%. End of period balances of $9,900,000,000 increased $139,000,000 or 1.4% quarter over quarter and $291,000,000 or 3% year over year. The sequential growth reflects increased commercial and government deposits and reduced retail balances. In addition, it reflects increased time and saving deposits and reduced demand deposits.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Core deposit cost was even with the first quarter at 1.42%. Excluding public funds, cost of deposit was 0.99% compared to 1% last quarter. Average borrowings and brokered deposits were $672,000,000 compared to $570,000,000 The aggregate rate paid was 4.11% down 21 basis points. End of period balances were $732,000,000 compared to $421,000,000 The second quarter reflected $200,000,000 in a new two year federal home loan ban advance at four point one three percent and $82,500,000 in additional brokered deposits. We use these funds to increase liquidity in addition to higher deposits as part of our strategy to grow commercial loans.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Cash at $852,000,000 was up 20% reflected some of the new wholesale funding pending continued loan growth. Investments totaled $2,800,000,000 remaining relatively unchanged. This reflects the prepayments mostly offset by purchases of $50,000,000 of mortgage backed securities yielding 5.55% and Ginnie Mae securitization of our own mortgage lending. Net interest margin was 5.31% compared to 5.42%. Excluding the new Federal Home Loan Bank, NIM would have been around the higher end of our 5.3% to 5.4% range.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

All these being equal, as loan growth continues, we should see NIM expand from the second quarter level. Please turn to Page seven to review our credit quality and capital strength. Credit quality continues to be stable. Net charge offs totaled $13,000,000 down $7,600,000 from the first quarter. Net charge off rate was 0.64%, down 41 basis points sequentially.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

Year over year, the net charge off rate was down 15 basis points. Provision for credit losses was $21,700,000 down $4,000,000 The second quarter included $70,200,000 for increased volume, 3,700,000.0 for specific reserve for commercial loans and $700,000 due to the alignment of model assumptions and risk weighted factors mainly in Puerto Rico. Looking at other credit metrics, the early and total delinquency rates were 2.463.59% respectively. And the non performing loan rate was 1.19. Looking at other capital metrics, our CET ratio was 13.99%, stockholders' equity totaled $1,300,000,000 up $39,000,000 and tangible common equity ratio decreased 10 basis points to 10.2%.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

To summarize the quarter, net interest income increased due to loan growth in particularly our strategy to grow commercial loans. We saw continued deposit growth driven by commercial and government balances. Net interest margin was towards the lower end of our expected range reflecting our decision to put more liquidity in place to fund future strategic growth in commercial loans. Credit quality continues to reflect the solid economic environment in Puerto Rico for both consumers and businesses. Non interest expense were in line with our expected range and should continue to do so.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

With a strong CET1 ratio and earnings power, we put a new 100,000,000 share buyback in place to return capital to stockholders and we continue to acquire shares in the open market. Now here's Jose.

[José Fernández, CEO & Chairman at OFG Bancorp]

Thank you, Maritza. Please turn to Page eight. The Puerto Rico economy continues to show stable growth despite concerns about global macroeconomic and geopolitical events. The situations remain the same. Wages and employment are at historically high levels.

[José Fernández, CEO & Chairman at OFG Bancorp]

The business environment is constructively positive. The economy continues to grow and the outlook is positive. Turning to OFG, our continuous improvement culture and our digital first strategy is proving to be highly effective. New services are proving are providing customers with better insights to better manage their finances. New tools are giving us the ability to further streamline processes and become more efficient.

[José Fernández, CEO & Chairman at OFG Bancorp]

The end result is continued value creation and differentiation in the marketplace. Loan growth and credit trends are solid and our risk management capabilities are strong. We continue to execute our plan strategically and thoughtfully, growing market share by creating value and helping our customers achieve progress, all this supported by a very strong capital position. As always, we could not have achieved these results without the hard work of all our team members. We are very thankful to them and optimistic for the future.

[José Fernández, CEO & Chairman at OFG Bancorp]

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

[Operator]

Thank you. We'll take our first question from Timur Braziler. Please go ahead.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hi, good morning.

[José Fernández, CEO & Chairman at OFG Bancorp]

Good morning, Timur. Maybe

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

starting off on the margin, that's good commentary that you think margin starts to expand off of these levels. I'm just wondering, maybe from a deposit standpoint, those costs seem to tick higher a little bit in the second quarter. I guess as you look out into the back end of the year, is it just the better loan growth trajectory that drives margin higher? I guess can you just talk to the interplay between expected loan growth and maybe what the deposit competition is doing on the island?

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. So thank you for your question, Timur. I'll take stab at it first and then I'll let Maritza give you additional color. So when you on the point on deposit costs ticking higher, remember that the government deposits are tied to variable rate treasury bill kind of formula. And during the quarter, you have that those fluctuations kind of trend up and down. So this quarter, we have a little bit of that noise there. That's why you're seeing a little bit of that uptick on the cost of deposits. But let just also step back also and give you a little bit of our thoughts on deposits and how we see customer deposits moving forward. Because what you have seen throughout the last year and a half is that our net new account growth in retail customers has continued to grow particularly in checking during as I said the past year and a half.

[José Fernández, CEO & Chairman at OFG Bancorp]

So that's one of the key drivers for us. Also you have to look at the changes that we have implemented within our value proposition and our differentiation for retail customers. We have added a couple of new targeted products, deposit products and services. We have expanded as you know, the self-service capabilities and also the digital capabilities. We have provided additional insights for our customers to help them manage their finances.

[José Fernández, CEO & Chairman at OFG Bancorp]

So we're adding additional tools for them to help them achieve financial health. And we're starting to see we're in the early innings, but we're starting to see some of the loan only clients starting to add relationships and deepening their relationship with us by opening checking and savings accounts with us. So and I'm speaking particularly from auto and mortgage and as well as small and mid sized commercial clients, owners and employees. So that's a little bit of a context on why we are seeing good momentum across the board on the deposits, particularly on the retail side. So when you put all this together, the overall retail customer deposits will continue to grow in the second half.

[José Fernández, CEO & Chairman at OFG Bancorp]

We expect that to continue and also into 2026. And then I'd like to add also the commercial side. It's a little trickier, right? Because as I said, we have government deposits that are variable rate and tied to treasury bills. But we also have some larger clients that have ins and outs during the quarter that might kind of give us a little bit volatility on the commercial side.

[José Fernández, CEO & Chairman at OFG Bancorp]

But all in all, we're really happy with the path that we're taking on our deposit growth as well as the cost of deposits. From a competition, what we're seeing we're seeing a little bit more competition from a small commercial bank that has operations in Florida that they're kind of positioning themselves as higher yielding, kind of paying CDs. We're also seeing some competition from U. S. Credit unions that have been doing the same for the last couple of years.

[José Fernández, CEO & Chairman at OFG Bancorp]

But all in all, I would say that the competition is pretty rational on the growth side. Manifa, is there anything you want to add on the margin?

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

I'm not sure if Timon, if that clear up your your question or you need more color on on other aspects of the NIM?

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

No. I I think that's helpful. Thank you. Maybe switching to the loan growth, pretty impressive here, it seems like both in Puerto Rico and on the Mainland. I'm just wondering the cadence there.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Did you see a real pickup early in the quarter and then maybe that tapered off towards the back end of the quarter? Was that growth consistent throughout the quarter? And just maybe give us a lay of the land for borrower appetite both in Puerto Rico and then maybe on your Mainland operations as well.

[José Fernández, CEO & Chairman at OFG Bancorp]

For sure. Yes. So yes, we had a really strong quarter on loan growth this second quarter. So what drove it is what drove it, it was primarily a very strong pipeline coming into the second quarter in both Puerto Rico and The U. S.

[José Fernández, CEO & Chairman at OFG Bancorp]

And we mentioned in our last earnings call that we felt that we had a very strong pipeline and some credits were kind of pushed into the second quarter. So that's number one. In addition to that, this quarter, we also saw an increase in commercial line utilization from some larger commercial clients. Third, Puerto Rico's economy continues to be doing well and it's in solid shape. Clearly, the Puerto Rico paradigm shift Puerto Rico economy paradigm shift continues to play out and businesses are building up their capabilities and infrastructure.

[José Fernández, CEO & Chairman at OFG Bancorp]

Some industries are consolidating. Puerto Rico is investing in its infrastructure, etcetera, etcetera. You've heard me talk about it in the last year and a half or so or two years. So we continue to see solid pipeline for commercial loans. Consumers are in good shape.

[José Fernández, CEO & Chairman at OFG Bancorp]

So we expect loan balances to grow for the full year 2025 now closer to the 5%, 6% versus the 3%, 4% that we previously guided. So things continue to be moving in the right direction. And in spite of all the global geopolitical and all the uncertainty created by all the things that you guys know better than I do, I think Puerto Rico remains resilient and building a big, big hole in the economy that was created after ten years of a kind of a 20% economic contraction. So sometimes the economy's numbers, are correct, show a very slow moving economy. But if you put it in the context of building up a hole or filling up a hole that was created after ten years of aggregate 20% contraction, really the economy is doing pretty strong from the consumer and the commercial side.

[José Fernández, CEO & Chairman at OFG Bancorp]

So being a bank and having a strong capital base with a very prudent and a risk culture, it's this is what we got. And we're really excited to be able to continue to grow and deploy our capital for our customers.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Great. Thank you. I'll step back.

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. Thank you for your questions, Timur.

[Operator]

We'll next go to Kelly Manto with KBW. Please go ahead.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good morning. Thanks for the question. I would love to circle back to this concept of margin. Looking at your balance sheet, looks like Ruth, you called out the FHLB and wholesale funding you put on, it looks like liquidity was somewhat elevated during the quarter. Just thinking through the expectations of margin, how you're thinking about funding and moving the balance sheet ahead from here, can just help us with some of the dynamics of the moving parts of maybe the timing of the wholesale funding and how to think about threading that with liquidity and loan growth ahead given your expectations? Thank you.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

So as I just saw it in the quarter, Kelly, the driver was a volume factor for the NII to continue expanding. That's something that we have consistently sharing with market that NIM probably will range between 5.3 to 5.4%. And compared to prior year's NIM, there is a contraction, but volume will be the driver on the NII and that's what happened this quarter. And as we continue to see loan growth as a good dynamic here that Jose was mentioning, we decided to accelerate and put funding to the books with a good rate because at the end it's 4.13. Have margin if we put it in cash, but we wanted to anticipate that liquidity at that moment.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

We were opportunistic. And now we have flexibility to continue investing going forward with the opportunities. As I mentioned before, we have a great pipeline, good potential. We wanted to have that flexibility, and that's why we decided to put that into into work. Okay?

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Got it.

[José Fernández, CEO & Chairman at OFG Bancorp]

And specifically to to your very specific question about the timing of those, it was halfway through the through the quarter that that we made those that that call we we saw the pipeline. We're seeing the loan originations, we see the line utilization levels inching up and that's when we decided, but because we also saw the good rate like Maritza mentioned from our perspective.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. That's helpful. And then, I mean, the story of the quarter is you guys just had such strong loan growth. I'm just wondering how are spreads holding up? Any kind of like competitive dynamics there? Because

[José Fernández, CEO & Chairman at OFG Bancorp]

Yep.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Jose Rafael, you said, you know, you now are expecting a bit higher loan growth for the year. Just wondering, I mean, I I understand some of the dynamics and the push into 2Q, but it really was remarkable. So I'm hoping you can discuss some of the pricing dynamics there and kind of how where that business is coming from?

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. So pricing dynamics different than deposits. The market is much more competitive on the lending side. And we're seeing particularly on the commercial side, we're seeing a little bit more pricing pressure and that's part of also what we're seeing. That's mostly on the pricing side.

[José Fernández, CEO & Chairman at OFG Bancorp]

In terms of loan growth, well, auto had a little bit of a benefit this quarter because of the announcement of the tariffs. And like it happened in The States too, there was a little bit of a let me go out and buy the car before tariffs come in type of thing. But we're still seeing a pretty steady loan origination pipeline there from the car dealers in spite of some stabilization in the auto sales in Puerto Rico. On the as I mentioned, the Puerto Rico commercial, we see still a good pipeline and it's very well diversified from industries as well as from the type of kind of loans that they're seeking. Some of them are part of a consolidation strategy in the industry.

[José Fernández, CEO & Chairman at OFG Bancorp]

Some of it is building infrastructure, as I mentioned in my prepared remarks, etcetera. On the mortgage, we really have inched up in the last several quarters. And this quarter, we did a $22,000,000 more than in the first half of this year, we've done $22,000,000 more than the first half of last year. And it's mostly driven by stabilization in the real estate prices where they've gone up and they remain relatively stable at those levels. And our ability also to look at the non conforming market and be able to offer alternatives that are relatively more competitive than in the past.

[José Fernández, CEO & Chairman at OFG Bancorp]

So that's also another area where we're looking to focus on. And then lastly, on The U. S. Loan business that we have, again, we had a little bit of accumulated pipeline from the first quarter. But we also we are also seeing some good, well diversified C and I.

[José Fernández, CEO & Chairman at OFG Bancorp]

It's also industry diversified. It's nationwide and it's focusing on the small and mid market segment in The U. S. And the economy in The U. S.

[José Fernández, CEO & Chairman at OFG Bancorp]

Remains resilient also and in spite of all the things that are going out there. So again, it's a pretty good economic picture that we're seeing in spite of all the clouds and we're on the lookout. We're not going to we're going to be relentless in looking for opportunities to grow, but we're going to also be making sure that we don't become complacent. And that's why Cesar and his team on the risk side are keeping a close eye on all the risks to make sure that we keep the focus on both sides. So that's my view on the loan side Kelly.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. I will step back. Thank you very much.

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. You're welcome Kelly. Thanks for your question.

[Operator]

We'll take our very next question from Brett Rabatin with Hovde Group. Please go ahead.

[Brett Rabatin, Director - Research at Hovde Group]

Hey, good morning, everyone. Hi, Good I wanted to start I'm I'm good, Jose. Wanted to start with just talking about what's going on with the with the power grid here recently and and the the new Fortress contract. Can you give us any color on your vantage point? What's going on with energy in Puerto Rico? And just I know we've talked about this before, but just any update would be helpful.

[José Fernández, CEO & Chairman at OFG Bancorp]

Sure. Sure. So what's going on right now is they're trying to bring in natural gas to fill in some generators that would potentially cover the grid in case of higher demands during the summer, which will happen. And that way minimize or mitigate some of the potential shutdowns that the system is having or the kind of turndowns that the system is having. So that's the objective of the well documented contract that the fiscal board has canceled.

[José Fernández, CEO & Chairman at OFG Bancorp]

But Brett, I look at this as I've said in the past, is a long journey for energy in Puerto Rico. It is year five or so. They're still in bankruptcy. There are two privateers. The government is in the middle.

[José Fernández, CEO & Chairman at OFG Bancorp]

So they're in the ring and they're throwing punches at each other and sometimes they pat themselves in the back, depends on the perspective. So it's going to be noisy. But at the end, it's not making any impact on the economy. It's having an effect on the economy, but it's not if we wouldn't have this issue, the economy will be doing a lot better because it will reduce a lot of uncertainty from the business side and the consumer side. But it's the economy is in such strong base right now that even all this noise is precluding businesses and consumers from holding back.

[José Fernández, CEO & Chairman at OFG Bancorp]

It's becoming a little bit of a kind of part of doing business until things just get resolved and it's going take a while.

[Brett Rabatin, Director - Research at Hovde Group]

Okay. That's helpful. And then from a credit I'm sorry?

[José Fernández, CEO & Chairman at OFG Bancorp]

I hope that helps.

[Brett Rabatin, Director - Research at Hovde Group]

Yes. That's helpful. And then from a credit quality perspective, know, the delinquencies in the early stage auto ticked back up from being really low last quarter, but charge offs were really low this quarter. And I know The USA portfolio didn't have any charge offs, but just wanted to get your thoughts on the charge off levels in 2Q and if that was an anomaly or if this is kind of a new level of benchmark to think about for credit for you guys.

[José Fernández, CEO & Chairman at OFG Bancorp]

Yeah. I'll let Cesar give you the specifics on that.

[César Ortiz-Marcano, Chief Risk Officer at OFG Bancorp]

Let me clarify. The first quarter always benefit in delinquencies and nonperforming loan statistics because these are seasonal positive quarter because of tax refunds, end of holiday season, etcetera. So we always expect a tick up in the second quarter and third quarter from the first quarter because of that seasonality. But when we compare it to last year's same quarter, it's much better. So it's a new vintage coming in, better vintages coming in that we adjusted back in 2022.

[César Ortiz-Marcano, Chief Risk Officer at OFG Bancorp]

So those new vintages with better credit performance are going to continue coming in into the statistics. So that's going to continue stabilizing and getting hopefully better charge off rates and non performing loan and delinquency rates than previous vintages. So that's basically the outcome.

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. Thank you, Cesar.

[Brett Rabatin, Director - Research at Hovde Group]

Okay. So if I heard that correctly, it sounds like the outlook from here is net debt improved, just kind of given the vintages and the recent performance.

[José Fernández, CEO & Chairman at OFG Bancorp]

Correct. Correct.

[Brett Rabatin, Director - Research at Hovde Group]

Correct. Okay. Alright. Great. Appreciate all the color.

[José Fernández, CEO & Chairman at OFG Bancorp]

Thank you. Have a great day. And

[Operator]

we'll go next again to Kelly Mata with KBW. Please go ahead. Kelly, your line is open. Please go ahead.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hi. Thanks for letting me jump back on. I apologize if you answered this more directly. If so, I may have missed it. But on government deposits, I think last quarter you talked about a billion left that had signed on a couple of months to stay and that was kind of the determining factor for kind of where you would end up in the margin range.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Just wondering if you have an update as to your expectations for the potential of those deposits to remain with OFG at least for here now?

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. So the expectation is relatively the same as in past quarters. It's an ongoing kind of every three, four months and we feel that we're going to see this deposit kind of rollover in several more quarters.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. That's helpful. And then maybe if you could touch on expenses, I don't think we addressed that yet. You guys did an excellent job controlling expenses and you mentioned you've been investing a lot in the tech and certain efficiencies to just drive customer experience. Just wondering if you could provide a high level update as to what other sort of investments are in the works and how you think about balancing your investment in the business and your ability to serve your customers ahead with capital return to investors given your strong capital position?

[José Fernández, CEO & Chairman at OFG Bancorp]

Yes. Well, that's a great question, Kelly. We how do we do it? Every day we push for efficiencies. And certainly technology is helping out.

[José Fernández, CEO & Chairman at OFG Bancorp]

And I think we look at efficiencies from the back office and we see processes that can be simplified and we see areas where technology after the process has been simplified can come in and be a lot more efficient for us. We are not yet seeing some of those efficiencies, but we are expecting to see them in the years to come in the next year or so. And that's part of the push that we're constantly addressing internally. So because we have to continue to invest in technology, we need to continue to invest for the improvement of the customer experience. We need to continue to create value for our customers, not only on the retail side, but also on the commercial side.

[José Fernández, CEO & Chairman at OFG Bancorp]

Look, we have formidable competitors that are really, really aggressive in their investments. They have deeper pockets. So we need to play it both ways. We need to invest, but we need to be very much intentional in eking out efficiencies constantly on all our processes. And that's why what we're asking internally is also to continue to transform our culture to one where we have to be a lot more focused on change management and challenging each other to do better.

[José Fernández, CEO & Chairman at OFG Bancorp]

And that's the best I can share with you, Kelly, because otherwise, I would have said it's just an art. And it's sometimes a picture and sometimes it's an awful picture, but it's an art. It takes a team to work and a team to be buying in into what we need to achieve. And we are very happy to have that team in oriental right now and excited to continue to grow and to show value to our customers and shareholders as well.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Last very little ticky tacky question from me for Maritza is the tax rate guidance that you provided in the earnings release, you did have the tax benefit in 1Q. I was wondering if that was including or excluding that. I just wanted to get clarification so I can model the second half of the year ahead.

[Maritza Arizmendi Díaz, CFO at OFG Bancorp]

The excuse me. The expectation that we share with you is 24.9 for the year, and and does it doesn't have any discrete items included within that. I'm not sure if that's your question, but is a is a flat rate for the year without any any benefits.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

So excluding that 1,700,000 benefit you had in okay. Perfect. Thank you so much. Awesome. Thank you. I will step back. Thank you, guys. Great quarter.

[José Fernández, CEO & Chairman at OFG Bancorp]

Yeah. Thank you. Thank you. Thank you for your questions, Kelly.

[Operator]

At this time, there are no further questions. I will now turn the call back over to Jose Rafael Fernandez for closing remarks.

[José Fernández, CEO & Chairman at OFG Bancorp]

Thank you, operator. Thanks again for to all our team members and thanks to all our stakeholders who have listened in. Looking forward to see you next quarter. Have a great day.

[Operator]

Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. You may now disconnect.

Participants

Executives

• José Fernández, CEO & Chairman
• Maritza Arizmendi Díaz, CFO
• César Ortiz-Marcano, Chief Risk Officer

Analysts

• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)
• Brett Rabatin, Director - Research at Hovde Group