OFG BANCORP 2026 Q3 Earnings Call

Good morning, and thank you for joining us. We are very pleased to report our results today. We had an outstanding third quarter with excellent performance across the board. Let's turn to page three of our presentation. Earnings per share increased 15% year-over-year and on 1% growth in total core revenues. This was driven by strong commercial loan growth, stable credit and core deposit balances, disciplined expense management, and strong profitability metrics. We continue advancing our digital bank with a human touch strategy. Customers are embracing Oriental's digital tools and value-added services. Our Libre, Elite, and My Biz accounts are attracting new clients and helping our bankers deepen existing relationships. We resumed stock repurchases, buying back $13.5 million of common shares, reflecting our continued focus on creating long-term shareholder value.

As to Puerto Rico's economy, it remains stable, supported by a healthy labor market and ongoing expansion by local and mainland businesses. Thank you to all our team members for their hard work and continued focus on making progress possible for our customers, employees, shareholders, and the communities we serve. Please turn to page four. Our Digital at the Core strategy is focused on three main areas. The first area centers on delivering value through innovative account products tailored to the needs of our customers. Libre for the mass market, Elite for the mass affluent, and My Biz for small businesses. The second area of focus is technology. Our omnichannel platform enables customers to engage with us seamlessly across our digital channels. This creates a convenient and efficient banking experience, helps drive digital adoption, generating efficiencies and savings.

As a result, we continue to invest in the customer experience and shift branch interactions away from routine transactions and toward meaningful relationship building. The third area of focus is AI-powered intelligent banking. Our data-driven, real-time, personalized insights provide compelling value, giving customers the ability to manage their finances in an easy and intuitive way. Together, these capabilities distinguish us from competitors and accelerate digital adoption. They also expand our client base, create more opportunities to deepen customer relationship and engagement, and ultimately support growth in core deposits. Please turn to page 5. Our key digital performance indicators continue to show our strategy is delivering results. During the third quarter, we saw year-over-year growth of 5% in net new retail customers and commercial customers, 24% in active digital users, 2% in digital loan payments, and 11% in virtual teller use.

Year to date as of September, more than 1.5 million customized AI-enabled Smart Banking Insights have been delivered monthly to customers with more than 90% positive feedback. Libre accounts increased 7%, while digitally opened Libre accounts grew 18%. We're the only bank in Puerto Rico that provides customers the convenience and speed of digital account opening. My Biz commercial accounts grew 6%, while accounts opened either digitally or by phone grew 16%. Now I'd like to turn the call to Maritza to go over the financials in more detail.

Thank you, Jose. All comparisons are to the second quarter, unless otherwise noted. Now let's turn to page 6. Our financial performance was strong this quarter. EPS was $1.33. Efficiency ratio was 52%. Return on average assets was 1.86%. Return on average tangible common equity was 17%. Loans-to-deposits ratio was 85%, and the payout ratio was 26%. Let's turn to page 7 to review our income statement highlights. Core revenues decreased $4.5 million to $186 million. Total interest income was $196 million, a decrease of $1 million. This reflected the absence of $4.1 million from the prepay in full commercial loans in the second quarter. This was partially offset by higher average balances of loans and cash and higher yields in cash and investment portfolio. There was one additional day in the quarter, which increased interest income by $1.6 million.

Total interest expense was $42 million, an increase of $2.3 million. This reflected higher average balances of deposits at a higher cost. The date factor increased interest expense by about $400,000. Total banking and financial service revenues decreased $1 million to $32 million. This reflected the absence of $1.1 million in annual insurance and annuity fees in the second quarter and lower mortgage banking revenues. This was partially offset by higher banking service revenues. Non-interest expenses decreased $6.6 million to $96 million. This reflected the absence of $5.8 million in business operational charges from the second quarter. Income tax was $15.2 million, reflecting an anticipated ETR of 22.5% for the year. Now, let's turn to page 8 to review our balance sheet highlights. Average loan balances grew $37 million to $8.3 billion, while end of period balances grew $151 million to 1.8%.

End of period balances reflected an increase in Puerto Rico commercial and consumer loans, which more than offset a decline in auto, residential mortgage, and U.S. commercial. Most of the commercial loan growth came in towards the end of the quarter. Year-over-year, loans are up 4.1%. New loan production was $694 million, a decrease of $61 million. This reflected decreases in auto, Puerto Rico commercial, and residential mortgage lending, partially offset by increases in U.S. commercial and Puerto Rico consumer loans. Average core deposit balances grew $15 million to $9.7 billion. End of period balances declined $80 million or 0.8%. This reflected decreases in demand and savings deposits, partially offset by increases in time deposits. Excluding the $500 million government deposits that moved to wealth management in the first quarter, deposits are up 3.5% year-over-year.

Average cash balances grew $29 million and fell $179 million end of period. End of period balances reflected the funding of loan growth, as previously mentioned. Average investments were flat and increased $20 million end of period. End of period balances increased due to purchases of $260 million of mortgage-backed securities and $20 million in securitizations. This was partially offset by mark-to-market adjustment and MBS principal payments. Average borrowings and brokered deposits increased $45 million and $131 million end of period, reflecting liquidity management. Now, let's turn to page 9 to review our net interest margin. The Fed's 25 basis point rate increase in September had a limited impact on this quarter's results. Loan yield declined 22 basis points to 7.68%. As a reminder, second quarter loan yield benefited from $4.1 million related to commercial loans that were paid in full.

September's rate increase had only a small impact on variable rate commercial loans. About $550 million of the total $1.7 billion of variable rate commercial portfolio repriced late in the quarter. Core deposit cost increased five basis points to 1.34%. This reflected higher demand for time deposits and higher cost of government deposits tied to three-month T-bill rates. Net interest margin was 5.23%. Now, let's turn to page 10. Capital remained strong despite an increase in mark-to-market adjustment in our securities portfolio. CET1 ratio was 14.10%. Total stockholders' equity was $1.3 billion. TCE ratio was 10.34%. Tangible book value was $29.66. As for share buyback, as Jose mentioned, we bought back $13.5 million in the third quarter. We have $180 million remaining in our authorization. César will provide more details about credit in a moment. Let me summarize where we're heading into the final quarter of 2026.

We continue to have a strong commercial pipeline and expect low single-digit loan growth for the year, with commercial more than offsetting an anticipated decline in auto. We expect deposit growth, excluding government deposits, driven by our Libre, Elite, and My Biz accounts. While our variable rate loans and cash position make us asset sensitive, higher asset yields should largely be offset by the increase in liability costs. We expect net interest margin to remain near 5.25% for the balance of the year. Our NIM outlook assumes that there will be one additional 25 basis points hike in December. Provision should move into $18 million-$20 million range. This reflects increased loan volume and seasonally higher auto and consumer credit metrics. We remain on track to maintain non-interest expenses at about $385 million for the year, excluding the $5.8 million business operational charge in the second quarter.

Our estimated tax rate for the year continues to be 22.5%, not including discrete items. We will deploy capital prudently across organic growth, dividends, and share repurchases, balancing attractive opportunities with long-term shareholder returns. Now, here's César. Thank you, Maritza.

Please turn to page 11. All comparisons are to the second quarter unless otherwise noted. Credit reflected disciplined execution, proactive risk management, and typical seasonal trends. Provision for credit losses was $18.1 million, up $5.1 million from the second quarter. This reflected $17.5 million for increased loan volume and $1.3 million due to seasonal adjustments for the auto delinquency. This compares to the second quarter, which included $14.7 million for increased loan volume, partially offset by $1.9 million in commercial loan recoveries. Early and total delinquency rates of 2.65% and 3.91% increased from the second quarter due to seasonal trends but declined year-over-year. At the same time, net charge-offs and non-performing loan rates of 0.70% and 0.74% declined compared to second quarter 2026 and third quarter 2025.