OFG Bancorp Fourth Quarter 2025 Earnings Call - Digital-first deposit gains and buybacks cushion margin pressure

Operator: Good morning. Thank you for joining OFG Bancorp’s conference call. My name is Nikki, and I will be your operator today. Our speakers are José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arizmendi, Chief Financial Officer, and César Ortiz, Chief Risk Officer. Our presentation accompanies today’s remarks. It can be found on the homepage of the OFG website under the Fourth Quarter 2025 section. This call may feature certain forward-looking statements about management’s goals, plans, and expectations. These statements are subject to risks and uncertainties outlined in the risk factors section of OFG’s SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. All lines have been placed on mute to prevent any background noise.

After the speaker’s remarks, there will be a question-and-answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernández.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Good morning, and thank you for joining us. We are pleased to report our Fourth Quarter and 2025 results. Let’s go to page three of the presentation to review the Fourth Quarter. Earnings per share diluted were up 17% year-over-year on 2% growth in total core revenues. This was driven by disciplined core operations and a favorable tax benefit. Asset quality and credit metrics were sound and well-controlled throughout the quarter. During the quarter and year, in line with our strategies, we saw increased commercial loans and broad acceptance of our flagship mass-market libre account and mass-affluent elite deposit account. Performance and credit metrics remained strong. Capital continued to grow, and we repurchased $40 million of common shares in the Fourth Quarter. Maritza will go into more detail on these numbers shortly. Please turn to page four. We accomplished many of our strategic and financial goals last year.

Earnings per share increased 8.3% on a 2.8% increase in total core revenues. Total assets grew 8.4% to a record $12.5 billion. Core deposits grew 5% to $9.9 billion. Loans grew 5.3% to $8.2 billion, with commercial loans growing to $3.5 billion, now representing 43% of our loan book. In addition, new loan production increased 11.5% to $2.6 billion. We repurchased close to $92 million of shares and increased our dividend 20%. Business activity is robust in Puerto Rico. The outlook for economic growth is positive, and businesses and the consumer are resilient. Having said all that, one of our biggest strategic and financial accomplishments of 2025 was the progress we made with our digital-first strategy. Please turn to page five. Over the last two years, we have clearly emerged as a leader in banking innovation in Puerto Rico.

Our digital focus gives us a differentiated approach and provides customers with a unique, enhanced experience. In 2024, we introduced the Libre account for the mass market and the Elite account for the mass-affluent market. Both Libre and Elite have been successful in attracting deposits from new and existing customers. In addition, we enhanced our Oriental Biz account suite, making treasury management easier and more secure for small businesses, driving a 5% increase in commercial customers during 2025. We have further enhanced the customer experience through technology. In 2025, we launched our omnichannel platform. This provides customers with a seamless banking experience anywhere they choose to interact, transforming the branch into a place for building customer relationships.

With our intelligent banking model, customers now receive tailored insights based on cash flows and payment habits, helping them access and monitor their finances with real-time value-added tools to improve their financial life from their mobile phones. Please turn to page six. All this has directly contributed to our increased market share in retail deposits and a 4% growth in retail customers. To put this into perspective, we have provided data showing our progress over the last two years. As you can see, OFG is well-positioned for continued success in the coming years. Now, here’s Maritza to go over the financials in more detail.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Thank you, José. Let’s turn to page seven to review our financial highlights. All comparisons are to the third quarter unless otherwise noted. Core revenues total $185 million, an increase of $1.4 million. Total interest income was $197 million, a decrease of $3 million. This reflected higher average balances of loans and cash at lower average yields. This was partially offset by higher average balances of investment securities at slightly higher yields. Total interest expense was $44 million, a decrease of $1 million. This reflected higher average balances of deposits and borrowings at lower average rates. Total banking and financial service revenues were $33 million, an increase of $3.4 million. This mainly reflected increased wealth management revenues due to $2.3 million in annual insurance commission recognition. The other income category was a loss of $1.1 million, compared to a profit of $2.2 million in the third quarter.

The change reflected $6.1 million for accelerated amortization of technology-related assets, gains of $3.9 million on the sale of non-performing loans, and $1.1 million on sales of real estate. Please note that the third quarter benefited from gains from OFG Ventures’ investment in fintech funds. Looking at noninterest expenses, they totaled $105 million, up $8.5 million from the third quarter. This reflected $3.3 million in professional services fees related to performance-based advisory costs. This was part of the cost savings renegotiation of a technology services contract, $2.5 million of business sizing, and $1 million related to the previously mentioned accelerated amortization of technology-related assets. Compared to the third quarter, there were $1.7 million in increased costs related to an additional accumulation of performance bonuses, expanded marketing activities, and the sales of foreclosed assets.

For 2026, we currently expect the total non-interest expense to be between $380 million-$385 million. Income tax was a benefit of $8.5 million due to two discrete items: $12.9 million from the expiration of a tax agreement from the 2019 acquisition of Scotiabank Puerto Rico and USVI operations, and $3.9 million from a released evaluation allowance of deferred tax assets at the holding company level. Excluding discrete benefits, the estimated tax rate for 2025 was 21.8%. Looking at some other metrics, tangible book value was $29.96 per share. Efficiency ratio was 56.7%. Return on average assets was 1.81%, and return on tangible average tangible common equity was 17.2%. Now, let’s turn to page eight to review our operational highlights. Average loan balances were $8 billion, up slightly from the third quarter.

This reflected increases in Puerto Rico commercial loans, partially offset by lower balances in auto and residential mortgage. Loan yield was 7.73%, down 70 basis points. This was mainly due to the effect on variable-rate commercial loans from the Fed’s 50 basis point rate cut in the fourth quarter. New loan production was $606 million, compared to $624 million. This reflected decreases in Puerto Rico and U.S. commercial and consumer lending, partially offset by increases in auto and residential mortgage lending. Average core deposit balances were $9.9 billion, up almost 1% from the third quarter. This reflected increases in retail, commercial, and government balances. By account type, it reflected increases in demand, time, and savings deposits. Core deposit cost was 1.42%, down 5 basis points. This was mainly due to lower cost of government deposits.

Excluding public funds, cost of deposit was 102 basis points compared to 103 basis points in the third quarter. Investment totaled $2.8 billion, down $96 million. This reflected principal paid downs and maturities, and it was partially offset by purchases of $25 million of mortgage-backed securities and residential mortgage securitization of $21 million. Average borrowings and brokered deposits were $787 million, compared to $769 million in the third quarter. The aggregate rate paid was 4.03%, down 8 basis points from the third quarter. End-of-period balances were $897 million, compared to $746 million. This reflected increased brokered deposits for liquidity management. End-of-period cash at $1 billion was 41% higher, reflecting increased core and brokered deposits. Net interest margin was 5.12% within the range we had expected. Please turn to page nine to review our credit quality and capital strength. Credit quality continues to be resilient.

Provision for credit losses was $31.9 million, up $4 million from the third quarter. This reflected $21 million for increased loan volume, $5.1 million for a specific reserve on a Puerto Rico telecommunications commercial loan, $2.4 million related to the U.S. macroeconomic factors, and $1.7 million in charge-offs from the sale of non-performing loans. Net charge-offs totaled $27 million, up $6.7 million. Net charge-offs included $4.8 million related to the sale of non-performing loans, of which $3.1 million had been previously reserved. Looking at other credit metrics, we observed the typical seasonal pattern of higher delinquency and non-performing levels during the year-end period. Despite this, overall credit quality remains within expected ranges. Early delinquency rate was 2.8%, down from the third quarter and down year over year. Total delinquency rate was 4.18%, up from the third quarter, but down year over year.

The non-performing loan rate was 1.59% due to the move to non-accrual classification of the Puerto Rico telecommunication loan that I mentioned. On the capital side, our CET1 ratio was 13.97%. Stockholder’s equity totaled $1.4 billion, up $15 million, and the tangible common equity ratio decreased 8 basis points to 10.47%. To summarize the year, loans and core deposits both grew about 5% in 2025. This year, we expect loans to continue to grow in low single digits. We also expect retail and commercial deposits to increase with Libre Plus, Elite, Oriental Biz, and our digital offerings driving customer growth. As for the large Puerto Rico government deposits, $500 million moved this month to our wealth management business as an advisory account. The remaining $600 million is sustained as a variable-rate core deposit. Net interest margin was 5.27% for 2025.

Looking ahead, net interest margin should range between 4.95%-5.05% in 2026. That takes into account two more 25 basis points costs, the effect of the partial exit of the government deposits, and the incremental cost of funding to replace it. Non-interest expense totaled $89 million in 2025. We currently expect them to be between $380 million-$385 million per year. Credit should remain steady, reflecting the strong economic environment in Puerto Rico. Our effective tax rate for 2026 should be around 23%, excluding any possible discrete items. Capital should continue to build, enabling us to continue to return capital to shareholders through dividends and buyback shares on a regular basis. Now, here’s José.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Thank you, Maritza. Please turn to page 10. The Puerto Rico economy continues to be steady with a sustainable long-term outlook. Liquidity is solid. Businesses and consumers remain resilient, and unemployment is low. Public reconstruction funds and private investments are providing economic tailwinds. Manufacturing investments are continuing from multinational companies seeking onshoring solutions, particularly in the pharmaceutical and medical devices sectors. Having said that, we always have to closely monitor all the global macroeconomic and political uncertainties these days and their political impact on Puerto Rico. Turning to OFG, the success of our differentiated positioning has been evident over the last several years. We will continue to focus on the client experience with enhanced product tailoring strategies. Our Libre Plus and Elite accounts offer AI insights and tools not available elsewhere in Puerto Rico.

Commercial loan and deposit account growth is benefiting from deeper relationships and services, and credit and asset quality are sound and well controlled. The technology investments we make and our continuous improvement culture are starting to produce tangible efficiencies. All of these give us confidence in sustainable long-term growth across our core businesses. As always, we could not have achieved these results without the hard work of our dedicated team members. We’re very thankful to them and excited about our future. With this, we end our formal presentation. Operator, let’s start the Q&A.

Operator: Thank you. And if you have a question at this time, please press Star 1 on your telephone keypad. If you wish to remove yourself from the queue, press Star 2. Again, if you would like to ask a question, press Star, then the number 1 on your telephone keypad. We’ll take our first question from Kelly Mota of KBW. Please go ahead. Your line is open.

Kelly Mota, Analyst, KBW: Hey, good morning. Thanks for the question. Maybe to just kick it off with credit, just given that provisions were a bit elevated for the second quarter now, can you provide additional color into the larger Puerto Rico charge-offs this quarter, as well as I know there was some movement in NPLs with some sales. Can you provide more color as to what was done there and what migrated back in? Thank you.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Hi, Kelly. This is José. I’ll let César take that question. So the charge-offs that you’re looking into in the quarter are the result of a sale that we performed that released $17 million in non-performing loans during the quarter. And that release triggered charge-offs, etc., but the result at the end of the day was a gain of $3.9 million that we reported. Offset, of course, by the entry of a loan, telecommunications loan, that was recorded as non-accrual and non-performing during this quarter. So that’s basically the movement in non-performing during the quarter in commercial. So when you look at it, it’s $45 million on the communication loan minus the $17 million on the sale of the MPLs, and that’s why you see the increase in MPLs in the quarter, and particularly on the commercial.

So it’s only one loan, and it’s not something that it’s across the portfolio. We just see this as very idiosyncratic.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Yeah, and just to add, I shared a little bit in my prepared remarks, there was a charge-off related to the sale of about $4.8 million, and a big portion of it was already reserved. It was about $3.1 million that was already reserved.

Kelly Mota, Analyst, KBW: Got it. And then on loan growth, I mean, you’ve been talking about auto being more competitive in prior calls and such. In terms of your outlook for low single-digit loan growth ahead, can you provide additional color in terms of what’s the driver of that? Is the expectation that auto will be kind of more muted like the past two quarters? Thanks.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Yeah, yeah. That’s a great point. We see auto starting to stabilize at these levels. Again, in Puerto Rico, you also are starting to see a stabilization in the new car sales. So we look at auto balances to be down in the year between 2% and 3%. We also see commercial loans up 5%-6% during the year, both Puerto Rico and US. So with that kind of setup, we see consumer going up a bit. Mortgage also is trending down, but less than in years past. We see low single digits as a reasonable target for us for loan growth overall.

Kelly Mota, Analyst, KBW: Got it. Last question, if I can just sneak it in, is on your expenses. 380-385 relative to your operating is relatively flat year over year. Can you provide your confidence in that and the drivers of those increased efficiencies?

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Well, yeah, thank you for your question, Kelly. The range reflects our continuous investment in technology and people, capabilities, talent to continue driving the digital first strategy that we are deploying constantly in the bank, and we have seen certain efficiencies. Like this year, we have, if you look at our full-time equivalent employees, there are 30 less, 30 people.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: 60.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: 60 altogether, no, so we continue to expect that number to go down, but we need to continue reinvesting. That’s why we see expenses to continue to be flat this year, but we’re thinking that by the end of the year, we will start seeing some of that saving, and the 2027 and 2028, we see savings to accelerate, and we will see that more in a tangible way for 2027, 2028.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. It’s something that we’ve always kind of been very cognizant of. These investments in technology, they certainly have enhanced the customer experience in a significant way, and it’s providing us the ability to grow and differentiate ourselves. But it also has a very intentional effort to bring efficiencies to the bank. And this is the first year where we are seeing in 2026, we’re seeing the expense range flattening out. And it has everything to do with a little bit of what we’ve done in the past, but it’s been more importantly on the culture of continuous improvement and how do we look at processes to simplify them, make them more agile, and really try to eliminate interactions and processes that are very manual and with very little value-add, try to convert them into technologies and use the blockchain and all the technology, all the robotics and all.

We’re starting to use all those things, and we feel more confident in our expense ranges in 2026, for sure, and we will continue to work hard to bring additional expense reductions in 2027 and 2028, Maritza mentioned.

Kelly Mota, Analyst, KBW: Great. Thank you so much. I’ll step back. Appreciate the color.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Thank you, Kelly.

Operator: Thank you. Our next question comes from Arren Cyganovich of Truist Securities. Please go ahead. Your line is open.

Arren Cyganovich, Analyst, Truist Securities: Thank you. Good morning. José, I was wondering if you could talk a little bit about what you’re viewing as the best strategic initiatives or your focus on strategic initiatives for 2026, maybe relative to 2025. It seems like you’re making a good push on the deposit side and, of course, always investing in technology.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Thank you, Aaron. So we will continue to enhance our retail efforts. It’s not something that we’re going to decelerate. So we will continue to invest in enhancing the customer experience, adding additional functionality to our omnichannel platform, and drive additional benefits for our customers on the retail side. And you’ll see some of those playing out throughout 2026. But in 2026, our focus is going to be much more on commercial. And we see a good opportunity. As you saw, we grew 5% our commercial customers last year. And I think we have an opportunity here to continue to translate the same strategies that we have done in terms of technology and digital, translate it as it is appropriate on the commercial side. And it’s going to be a journey.

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

Arren Cyganovich, Analyst, Truist Securities: Thanks. And on capital return, I think Maritza said that she expects capital to build to return capital to shareholders. I’m just trying to balance the two. What’s the expectations for capital return for 2026?

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: I think the fourth quarter capital actions that we took in terms of the buyback, I think it’s going to become more given our valuation, right? Given the way the market is valuing our stock and given the multiples that they’re assigning to us versus our peers, we feel the best use of our capital after long growth and balance sheet growth is buying back shares. And so we will continue to be very intentional there. We certainly will also look at the dividend. But again, we see some differentiation in the valuation there, and we feel that it’s the best way to reward our shareholders by buying back shares.

Arren Cyganovich, Analyst, Truist Securities: Great. And then just lastly, some clarification on your answer about expenses, the expense reductions in 2027 and 2028. Is that more so thinking about the efficiencies that you’re going to get from actions you’re making this year?

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: In 2020. Correct. Yes. Yes.

Arren Cyganovich, Analyst, Truist Securities: And then I guess I’m just thinking, is it actually going to go down, or are you going to have some part going down and some growth on top of that?

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: I don’t want to put the car in front of the horses, right? But I tell you, we’re working very hard to bring additional efficiencies during 2026 that will play out in 2027 and 2028. We will give you more details as we execute on those initiatives. But as Maritza mentioned, we are looking at FTEs and where can we redeploy our people, talent to more customer-facing and value-add, building relationships type of talent versus having FTEs sitting behind a desk in operations and servicing and pushing papers and dealing with Excel spreadsheets to manage different functions. And I can give you an example. We have been able to optimize the entire fraud management processes just simply by using robotics and being able to eliminate several FTEs that were basically managing fraud on a daily basis. And those are some of the small examples that we can provide.

I’m sure many banks in the U.S. and in Puerto Rico are also doing the same. We’re trying hard to bring down expenses, not without investing in technology, investing in our people, and continuing to do the right thing for the long term of our franchise, which is critical for us. It’s important.

Arren Cyganovich, Analyst, Truist Securities: Great. Thank you.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. You’re welcome.

Operator: Thank you. We will move next with Brett Rabatin of Hovde Group. Please go ahead. Your line is open.

Brett Rabatin, Analyst, Hovde Group: Hey, good morning, everyone. Wanted to start on the margin and just on the fourth quarter, wanted to get a little better color on the linked quarter change in the loan yields, which had been fairly stable up until this quarter. So just the 17 basis points linked quarter change. Was just hoping to figure out how much of that was the large non-accrual loan and any other comments on the loan portfolio yield change linked quarter.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Yeah. Thank you. Thank you, Brett, for your question. Remember that we are asset sensitive, and we continue to be asset sensitive. This quarter, as I mentioned in my prepared remarks, the loan yield went down basically because of, first, the 50 basis point cut during the quarter, but also we have the full effect of the September 25 basis point cut. So that’s one of the main drivers for the reduction in the NIM. We were able to compensate that through our government deposit variable rate because it also got a reduction there. But it reflects our asset sensitive positioning.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. And I think you’re also on the loan side. You’re starting to see, since we have moved our auto originations to significantly higher quality, we are also seeing a slight decrease in the yield coming in on the auto lending side. And that’s just a testament to the credit quality that we’re bringing in, better credit quality.

Brett Rabatin, Analyst, Hovde Group: Okay. That’s helpful, and then just thinking about the margin guidance for 2026, it was nice to see that the funding costs, which were up a little bit in 3Q, moved back down in the fourth quarter. Is the margin guidance for 2026? Does that reflect some additional leverage to lower funding costs from here? One of the key things that’s always been a question is Puerto Rico has lower cost deposits. The mainlands, how much can those go down as rates go down given they’re already fairly competitively priced?

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Yeah. The reality is when you look forward for this year, 2026, we will have a change in our funding mix because the $50 million exit.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: 500.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: $500 million exiting the bank, now moving to the wealth management business. We will replace that with wholesale funding. That carries a higher cost of about 25-40 basis points depending on the term of that wholesale funding. The reality is that we will have that change. That’s part of the impact of the NIM. When you look at 2026, 2026, we have the full effect of the 75 basis points cuts that happened in the Fed in the last part of 2025. You will have all that full effect. Plus, we are also foreseeing two additional cuts during 2025. We are asset sensitive. We have more assets repricing than the deposit side. That’s why we are giving that indicative in the margin, okay? That guidance. When you look at 2024 versus 2025, it reflects that.

We had a margin in 2024 of 5.43%. This year, it was 5.27%. It was about 16 basis points reduction. And it’s related to the rate cuts that 100 basis points late 2024 and this year, 75 basis points end of 2025.

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

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

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. César, you can take that one.

César Ortiz, Chief Risk Officer, OFG Bancorp: This is, like Maritza mentioned before, it’s typical that the seasonality of the portfolio starts very low in terms of delinquencies and non-performing loans in the first quarter of the year, and then it ticks up until fourth quarter, and at the fourth quarter, it’s at the upper level of that equation, but net charge-offs, if you compare the net charge-off, we usually compare it to last year, same period last year, and what you see there is 1.63% last year, but that was benefited because we sold charge-off portfolio. Without that sale, that number would have been 1.86%. And we are right now at 1.81% this quarter, so it is a positive sign, but again, the seasonality of the portfolio will result in an increased delinquency in this quarter, but we expect that benefit in the next quarter. You’re going to see a positive effect on all those metrics.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yeah.

Brett Rabatin, Analyst, Hovde Group: Okay. That’s helpful. Thanks for the color.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yeah. End of the year season. No, it’s just end of the year seasonality. And we’ll keep you guys updated in the first part of the year and see if that turns around again. But that’s what we’ve seen in the last three years. We’ll be watching closely in the first part of this year to see if that replicates again.

Brett Rabatin, Analyst, Hovde Group: Okay. Great. Sorry to interrupt anything. Thanks for all the color.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yeah. Thank you for your questions, Brett.

Operator: Thank you. Our next question comes from Timur Braziler with Wells Fargo. Please go ahead. Your line is open.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Hi, Timur.

Timur Braziler, Analyst, Wells Fargo: Hi, good morning. Maybe bigger picture on the credit. Hi, can you hear me?

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Operator, we can’t hear Timur.

Timur Braziler, Analyst, Wells Fargo: Here, one second. I’ve been out. Can you hear me?

Operator: Okay. Are you able to hear you?

Timur Braziler, Analyst, Wells Fargo: Hello? Can you hear me now?

Operator: Timur, we are able to hear you. One moment, please.

Timur Braziler, Analyst, Wells Fargo: Perfect.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Have a good.

Operator: For all the interruptions, speakers, are you able to hear us?

Timur Braziler, Analyst, Wells Fargo: Is it better?

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Now I can hear you. Now I can hear you.

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

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: I think that the 1% range that you’re mentioning is within what we can expect here in net charge-off. If we look at 2025 without any specifics of the sales or any particular case, that should be a good run rate. When we think about how we build the reserve, please be mindful that there’s some specific reserve at the end of this year related to the telecommunication loan. So that’s a very isolated case, very specific. So setting that aside, I think that we could continue monitoring credit and building reserve as needed. But 1% net charge-off delinquency remaining at the level that we’re managing this year, maybe we won’t build reserve at the same level because of the specifics that we have this quarter.

But definitely, it could be about flat from what we have right now, excluding any specific case that we have managed during the year, okay?

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

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: No. It’s basically we receive financials every period. So last period, they didn’t warrant right away non-accrual status. But this period, it repeated the deterioration on the financials. So basically, we decided, yeah, this is a deterioration that merits the non-accrual status.

Maritza Arizmendi, Chief Financial Officer, OFG Bancorp: Yeah, and at the end, this is a loan that continues to pay. It pays. So what we’re doing is being prudent, and given the specific situation of the company that comes from the outcome of a merger, we decided to put it in non-accrual.

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

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yeah. I think the competitive landscape is slowly but surely intensifying. I think each institution has its own drivers, right? And some of the drivers that come in from the reinvestment in the investment portfolio at a higher yield gives flexibility to be more competitive and more aggressive on some of the CD offerings and stuff like that. So I’m not saying that we are going out crazy here in the market in Puerto Rico in terms of deposits, but it’s slightly and slowly but surely getting more intense in terms of deposit competition. Also, be aware that we have credit unions, US credit unions that are and have been for the last three or four years very aggressive. They remain so. And that is also part of the equation here in Puerto Rico, these tax-exempt credit unions.

They have another lever there that allows them to be more aggressive on the deposit side. So our strategy is to target the mass and the mass affluent. We have come up with the products. We have come up with the differentiation in terms of our platforms and technology and the way we do the business. That’s the formula that we’re using. And it’s paying off. I’m sure our friendly and larger competitors are also doing their thing. And I’m sure they’re going to be very competitive throughout. So it’s just now blocking and tackling and trying to achieve organic growth on the loan side and on the deposit side. And it’s exciting for us at this juncture how we are well positioned to achieve both.

Brett Rabatin, Analyst, Hovde Group: Got it. Thanks for the color. Appreciate it.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Thank you, Timur.

Operator: Thank you. We will move next with Manuel Navas with Piper Sandler. Please go ahead. Your line is open.

Timur Braziler, Analyst, Wells Fargo: Hey, good morning. I just wanted to follow up on that last question. Has there been any price response from other players on the island from your new Libre and Elite products? And where are those having the most success? Happy to hear a little bit more on those two products as well.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Sure. So there’s no need to have a price response because we’re not paying high yields. So I don’t know where the idea that we’re kind of bringing in higher yields or so. It’s actually Libre account is a non-interest-bearing account. So I don’t know where that comes from. But Elite, it does pay 1.28% average cost of funds on the balances that we have. And that is the way we approach the mass-affluent. And it’s paying off, and it’s doing well. Because it’s not about the rate only. It’s about what we offer as a product and what is the value proposition that we bring into the equation here. And it’s not only a rate. It’s more than a rate. It’s the functionality. It’s the accessibility. It’s the every day, every time, anywhere, wherever you are.

And the fast, the agile way we service our customers in any interaction that they have with us that brings us the ability to attract, deepen, and expand relationships across the markets that we operate, which is here in Puerto Rico. So reaction from the competition? Zero. There’s no increase in competition in terms of rates here. What we’re seeing is more on a targeted basis, CD rates. And that’s what I mentioned earlier, Manuel.

Timur Braziler, Analyst, Wells Fargo: I appreciate that and it is pretty early innings, but you’re seeing that deeper relationship. Are you seeing younger clientele in these accounts as well, given they’re a little bit more digital forward?

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

Timur Braziler, Analyst, Wells Fargo: I appreciate that extra color. Going back to the NIM for a moment, as you’re targeting a little different auto client and commercial loans are adjusting, what are kind of some of your new yields coming on, especially in those two categories in auto and commercial?

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

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

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

Timur Braziler, Analyst, Wells Fargo: I really appreciate the commentary. Thank you.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yep. Thank you for your questions, Manuel, and welcome to the calls.

Timur Braziler, Analyst, Wells Fargo: Thank you.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Yeah.

Operator: Thank you, and once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. We’ll pause a moment to allow any further questions to queue, and at this time, if there are no further questions, I will now turn the call back over to management for closing remarks.

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, OFG Bancorp: Thank you, operator. And thanks again to all our team members. Thanks to all our shareholders who have listened in. Looking forward to our next call. Have a great day.

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