OFG Bancorp (OFG) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, Oct. 21, 2026

CALL PARTICIPANTS

• Chief Executive Officer and Chairman of the Board of Directors - José Rafael Fernández
• Chief Financial Officer - Maritza Arizmendi
• Chief Risk Officer - César Ortiz

TAKEAWAYS

• Diluted EPS -- $1.33, representing a 14.7% increase year over year driven by commercial loan expansion and reduced non-interest expenses.
• Total Core Revenues -- $185.7 million, growing 1% year over year reflecting momentum in the commercial lending segment.
• Net Interest Margin -- 5.2%, declining from 5.5% in the second quarter due to higher liability costs and the absence of $4.1 million in commercial loan prepayment fees recorded in the previous period.
• Loans Held for Investment -- $8.45 billion at period end, a 1.8% sequential increase driven by growth in Puerto Rico commercial and consumer loan categories.
• New Loan Production -- $693.8 million, decreasing $61.2 million sequentially due to lower volumes in the auto, commercial, and residential mortgage segments.
• Customer Deposits -- $9.66 billion at period end, declining 0.8% from the previous quarter as demand and savings balances decreased while time deposits increased.
• Non-Interest Expense -- $96.3 million, decreasing $6.6 million from the second quarter primarily due to the absence of a $5.8 million business operational charge.
• Provision for Credit Losses -- $18.1 million, increasing from $13.0 million in the previous quarter due to $17.5 million for higher loan volumes and $1.3 million for seasonal auto delinquency adjustments.
• Efficiency Ratio -- 51.8%, reflecting management's focus on disciplined expense control during the quarter.
• Active Digital Users -- Growing 24% year over year as customers continue to adopt the company's omni-channel banking platform.
• Common Share Repurchases -- $13.5 million during the quarter, with $180 million remaining in the current repurchase authorization.
• Common Equity Tier 1 Ratio -- 14.1%, maintaining capital strength despite mark-to-market adjustments in the securities portfolio.
• Net Charge-Off Rate -- 0.70%, a decrease from 1.40% in the second quarter and 1.00% in the prior-year period.
• Total Delinquency Rate -- 3.91%, up from 3.68% in the previous quarter reflecting seasonal normalization in the auto lending portfolio.
• Return on Average Assets -- 1.9%, compared to 1.7% in the third quarter of 2025.
• Virtual Teller Use -- Increasing 11% year over year as customers transition routine branch interactions to digital channels.
• Total Interest Income -- $195.7 million, decreasing $1.4 million sequentially as higher average loan balances were offset by lower commercial prepayment income.
• Total Interest Expense -- $42.2 million, increasing $2.3 million from the second quarter due to higher average deposit balances and increased funding costs.
• FY 2026 NIM Guidance -- Near 5.25% for the balance of the year, assuming one additional 25 basis point interest rate hike in Dec. 2026.
• FY 2026 Provision Guidance -- $18 million to $20 million per quarter, reflecting anticipated loan volume growth and seasonal credit trends.
• FY 2026 Expense Guidance -- Approximately $385 million for the full year, excluding the second-quarter operational charge.
• FY 2026 Loan Growth Guidance -- Low single-digit growth for the year, with commercial loan expansion expected to offset declines in the auto portfolio.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Ortiz stated, "Looking ahead, we remain watchful of inflationary pressures, higher operating costs, elevated energy expenses, and the continued impact of higher borrowing costs on both commercial and consumer borrowers," noting potential headwinds for the portfolio's resilience.

SUMMARY

OFG Bancorp (NYSE:OFG) reported third-quarter results marked by expansion in commercial lending and the resumption of its share repurchase program. Management reported that the Puerto Rico economy remains stable, supported by historically low unemployment and active private investment inflows from both local and mainland businesses. The company's digital banking strategy continued to drive customer engagement, with significant growth in active digital users and the deployment of AI-based financial insights. While net interest margin contracted slightly due to higher deposit costs and the repricing of government accounts, leadership indicated that the bank's capital position remains strong. The quarter's performance reflected disciplined expense management and a shift in the deposit mix toward time accounts as customers reacted to the current interest rate environment.

• Fernández stated, "Puerto Rico's economy remains stable, supported by a healthy labor market and ongoing expansion by local and mainland businesses."
• Management reported that Oriental is the only bank in Puerto Rico currently providing customers with the speed and convenience of digital account opening.
• The company delivered more than 1.5 million customized AI-enabled Smart Banking Insights to customers monthly, receiving over 90% positive feedback.
• Arizmendi noted that the deposit mix saw a more than expected movement to time deposits as high-balance individual clients sought higher yields.
• Ortiz indicated that the recent increase in auto delinquency metrics reflects seasonal normalization rather than a deterioration in the underlying credit profile.
• Fernández reported a strong commercial pipeline, stating, "We are having a banner year on the commercial side in Puerto Rico."

INDUSTRY GLOSSARY

• Libre / Elite / My Biz: Branded account products offered by Oriental Bank designed for mass market, mass affluent, and small business customers, respectively.
• Net Interest Margin (NIM): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to its lenders.
• Purchased Credit Deteriorated (PCD) Loans: Loans that have experienced a more-than-insignificant deterioration in credit quality since origination.
• Common Equity Tier 1 (CET1) Ratio: A key measure of a bank's capital strength, consisting primarily of common stock and retained earnings.
• Efficiency Ratio: A financial ratio used to calculate a bank's ability to turn resources into revenue; a lower ratio is generally more favorable.
• Oriental: The trade name under which OFG Bancorp's principal subsidiaries operate in Puerto Rico and the U.S. Virgin Islands.

Full Conference Call Transcript

Operator: Good morning. Thank you for joining OFG Bancorp's conference call. My name is Chloe, 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. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the third quarter 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. 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. Fernández.

José Rafael Fernández: 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 Core Digital 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 omni-channel 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 five. 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.

Maritza Arizmendi: Thank you, José. All comparisons are to the second quarter, unless otherwise noted. Now let's turn to page six. 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 seven 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 eight 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 nine 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 5 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 José 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.

César Ortiz: 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. As a result, third quarter provision was slightly lower than originally anticipated due to better auto and consumer credit metrics. On the retail side, consumer and residential mortgage portfolios continue to perform well, with both reporting lower early and 90+ day delinquency levels compared to a year ago. The auto portfolio experienced modest increases in both early and non-performing delinquency levels compared to the same period last year. Net charge-offs for auto improved year-over-year and recovery performance remains strong. Collateral liquidation values have remained stable, resulting in consistent loss severities despite the modest increase in delinquency.

This provides additional confidence that the observed seasonal increase in delinquency does not necessarily translate into increased loss content. We continue to closely monitor this trend. Mortgage performance remained particularly strong with continuing improvements across delinquency measures and recoveries continued to exceed charge-offs. As we discussed in prior quarters, first half retail credit performance typically benefits from seasonal factors, including tax refunds and other liquidity events. We then see a seasonal increase in the credit risks in the second half. Accordingly, part of the third quarter increase in auto delinquency metrics reflects seasonal normalization rather than a deterioration in the underlying credit profile of the portfolio.

Our retail portfolio continued to benefit from discipline underwriting and a significantly improved credit profile. As we have previously reported, this reflects tighter underwriting standards, improved portfolio mix, and stronger vintage performance. Turning to commercial, our asset quality represents one of the strongest credit stories within the quarter. Commercial non-performing loan rates were 0.68% compared to 0.90% in the second quarter. Delinquencies and non-performing levels are down. Criticized exposures have declined, and overall asset quality has improved materially. Looking ahead, we remain watchful of inflationary pressures, higher operating costs, elevated energy expenses, and the continued impact of higher borrowing costs on both commercial and consumer borrowers. The credit portfolio continues to demonstrate resilience.

We believe we are well-positioned to navigate the current environment and any potential macroeconomic headwinds that may emerge. Now here's José to wrap up.

José Rafael Fernández: Thank you, César. Let's turn to page 12. The Puerto Rico economy remains resilient. It is supported by healthy consumer and business liquidity, higher wages, and historically low unemployment. Infrastructure projects and private investment continue to support economic activity. Manufacturing expansion and new onshoring initiatives reinforce the long-term economic outlook. As César mentioned, we remain attentive to evolving macroeconomic conditions, including higher energy costs, interest rates, and inflation, while continuing to monitor broader geopolitical developments. OFG is well-positioned for growth. Our Digital at the Core strategy is driving customer growth and engagement, simplifying operations, and expanding our market opportunity. We continue investing in people and technology to improve the customer experiences and operating efficiency.

Our capital strength, methodical execution, and differentiated franchise positions us well to navigate evolving market conditions. With this, we end our formal presentation. Operator, please open the call for questions.

Operator: Certainly. If you have a question at any time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, press the star two key. We will take our first question from Brett Rabatin with StoneX Group. Your line is open.

Brett Rabatin: Hey, good morning, everybody.

José Rafael Fernández: Hey, good morning.

Brett Rabatin: Thanks for the questions. Wanted to start off, José Rafael, I've seen some of the data here in the past few months that's been modestly positive for some continued Puerto Rico growth. But if you look at the newspaper articles in Puerto Rico, they seem to be somewhat more dour and talking about downside risks and the cost of diesel, etc. Can you maybe just start off with just what you're seeing on the ground and what positives and negatives you would point to as it relates to the economy?

José Rafael Fernández: Sure. Thank you for your question, Brett. We need to separate a little bit the noise from the facts here in the sense that we're not seeing any deterioration on the economy to speak of. We continue to see unemployment on the 5% handle. We see wages at a higher, historically highest levels. We're seeing the onshoring coming in, and we see actual private investment flowing through the economy. The data does not support the noise that we might be reading or listening to locally. Again, most of it driven by political kind of discussions and one side kind of challenging the other.

But from our perspective, and as César mentioned on the credit side, we continue to see a pretty steady consumer, and we are not seeing any indications of a slowdown in the economy. What we're seeing is a steady economy that continues to chug along and benefiting from the inflows of investment from the U.S. and locally to us as businesses continue to invest in their business, and they feel optimistic about their potential growth. That's as much as I can share with you given the data that we have.

Brett Rabatin: Okay. That's helpful. I wanted just. It seems like all the Puerto Rico banks have been lamenting that auto's been softer. When I look at the auto trends, the origination levels haven't fallen off that much. It seems like auto's still there relative to what I seem to hear. Any thoughts on auto from here? Just the commercial pipeline, I heard the guidance around the low single-digit growth. Just any thoughts as you think about 2027, any early reads that growth might be better or worse than what you're seeing this year?

José Rafael Fernández: Yep. To your first point, we are equally happily surprised with the levels of auto lending originations during this year. We expected a softer market, and we are still there seeing, yes, lower originations, but better than what we expected. We are not ready to give you formal 2027 guidance, but I can give you a little bit of color on how we see the auto business into 2027. I think you'll see a steady, maybe slightly lower new car sales, and therefore you'll see also some trends across the market where you will see a lower auto originations. We are into those analysis right now.

We feel that given what we saw in 2026, we do not expect auto originations to decline additionally at a faster pace than 2026. We see it pretty stable. That's on the auto side. On the commercial side, on the other hand, we are seeing very good growth opportunities. We are seeing good opportunities for us to establish new commercial relationships through the lending side as well as on the funding side. Maritza mentioned in her remarks the pipeline that we continue to have. We are having a banner year on the commercial side in Puerto Rico.

A lot of our work has been put into this year's work, and the team has done a great job on the commercial middle market and small business. We do feel that we are going to end the year with strong numbers, strong originations, and this quarter is another example of what we have been able to achieve.

Brett Rabatin: Okay. Great. Appreciate the color. Thanks, José Rafael.

José Rafael Fernández: Yep. Thank you, Brett. Thank you for your questions.

Operator: We'll take our next question from Arren Cyganovich with Truist Securities. Your line is open.

Arren Cyganovich: Thanks. Good morning. On the deposit side, are you seeing competition increase? Demand deposits were down, savings deposits were down quarter-over-quarter. Anything in particular driving that? I'm sorry if I missed something in the prepared remarks.

José Rafael Fernández: Yeah, I think Maritza covered it pretty well. I think big picture, the seasonality that we see in the first half of the year with funds coming in reflects also on the deposit side. You'll see a little bit of a softer second half of the year on the funding side just simply because the liquidity is put to work on the commercial side as well as on the individual side, on the retail side. From a competition perspective, look, we're in a competitive market and we compete, and our competitors compete against us, so this is not a cakewalk, trying to gain market share on all the business units as well as growing the bank.

Yes, for sure there's deposit competition. We're also seeing a little bit more sensitivity with higher rates on some higher balance individual clients. They are more sensitive, and they're looking for alternatives. We have the wealth management business that benefits from that, so it's fine with us. At the end, we're just trying to make sure that we service and cater to our customers on a relationship basis. We feel pretty confident on how we're growing our deposit balances and the deposit relationship with our commercial and retail customers, Arren.

Arren Cyganovich: Great. Thanks. As a follow-up in the slide deck discussing the AI insights that are personalized for your customers, maybe you could talk a little bit about how that works and maybe some examples of how that might be helping the customer experience.

José Rafael Fernández: Yep. So it's personalized. It's on the mobile, it's on online. You get your phone or your online, and the first thing you see is this is the expected expenses based on your several months before experience. These are your expected expenses that you're going to be funding. This is your expected income coming in. These are insights that are really unique for the Puerto Rico market. No ever has a bank provided those type of insights in such a simple and accessible way. So that's an example. There's another insight that you get, and these are personalized. This is not based on collective data.

This is on specific personalized ins and outs of the client's checking accounts and savings accounts, etc. Another example is we provide insight. You paid the same bill twice in the same month. Check it out because you might have paid it twice. Those are examples of what those insights provide, and the feedback that we're getting as mentioned, it provides pretty positive insights. This is all translating, Arren, into us growing retail customers 5% year-over-year. The same thing goes for the commercial side. It's something that we have been working on and building on throughout several years, and it's starting to show the results. We're also seeing the opportunity for us to deepen those relationships.

So it's not only about bringing in new customers and clients to Oriental, it is also about our opportunity to deepen those relationships and be able to make them primary customers for us. So it's exciting times for us. We're really happy with the way our strategy is progressing and how we're unique in the market and being a different bank than the market is accustomed to see.

Arren Cyganovich: Thanks, José.

Operator: And we'll take our next question from Kelly Motta with KBW. Your line is open.

Kelly Motta: Hi. Good morning. Thanks for the question.

José Rafael Fernández: Hi, Kelly.

Kelly Motta: I think I'd like to start off on the margin. You guys undoubtedly have one of the best margins here of the group, but it seems like your expectations near term are a bit more tempered than where you were in July. I am wondering in terms of both loan pricing as well as the deposit competition, you've noted you're in a competitive environment, where the incremental headwinds have been coming from relative to those July expectations. Thanks.

José Rafael Fernández: Thank you for your question, Kelly. I appreciate you recognizing the margin levels that we have and how we have managed them pretty consistently. Kudos to the team and Maritza overlooking and overseeing all that effort. I will let her give you the more details about it.

Maritza Arizmendi: Thank you, Kelly. I think when you look at the range that we share with you, we were near the lower end of that range because we were managing several scenarios at the moment, particularly in the funding side, how it will behave in the second part of the year given the liquidity that is moving and everything. When you look at what happened during the quarter, we did have some repricing in the government side that we were expecting because we repriced about $400 million of the government deposit at the end of second quarter that were moved into time deposits. We had that pulling back during this third quarter.

But secondly, the mix in the now savings and time deposits, we saw more than expected movement to the time deposit side of the funding mix. That is what happened with the initial estimate that we have. It is particularly driven by the funding mix. Okay? I think that the level of market rates right now, we were expecting no rate hikes during the second part of the year. Now we have one. Secondly, we have the Treasury notes at its highest level. We are starting to see more clients looking for high yielding type of product. We are there for our customers. That is why time deposits were higher than expected during this third quarter.

Kelly Motta: Great. Thanks so much for the color. That kind of ties into my next question, which is mostly a point of clarification as well as an outlook ahead. The government deposits, you had some go to wealth at the beginning of the year, and then you had what you had already disclosed as moving to being termed out to CDs in June. That's created some variability in those demand deposits. Just wanted to confirm that those balances are now, one, out of demand deposits, and then as we look ahead, it seems like clients are being driven by more rate sensitive accounts.

Do you think this is a place where we can stabilize, or would you anticipate some additional migration of excess funds to time here? Thanks.

Maritza Arizmendi: Yeah, let me make sure. You're asking about the government deposits or—

Kelly Motta: Yes.

Maritza Arizmendi: Okay. So that's a particular deposit that we have been managing for a long period. It was at $1.2 billion, about $500 million moved to the broker-dealer at the beginning of the year. Then end of second quarter, we made two time deposits. One actually matures end of third quarter, and we reprice it. That will impact this fourth quarter coming. So the answer is that we will see some repricing there because of the market condition. All these deposits are tied to three-month Treasury bill. So they will have some reflection of what the market is experiencing.

José Rafael Fernández: Yeah. And it's a good point that Maritza makes because that's very much separate to the actual core client deposit funding that we have on the retail and commercial. The—

Maritza Arizmendi: The dynamics are different.

José Rafael Fernández: The dynamics are completely different.

Maritza Arizmendi: Not necessarily tied to market rates.

José Rafael Fernández: Correct. It's good that you asked that question, Kelly, because there might be some confusion among the market.

Kelly Motta: Got it. Okay. That's helpful. Maybe last question from me, and then I'll step back. I appreciate you guys reiterated the low single-digit growth outlook for the year. You're kind of already there in 3Q. Obviously commercial growth was super strong. Wondering about the pipeline ahead, and what could potentially push you slightly above that if you're successful in growing loans again in Q4. Thank you.

José Rafael Fernández: Yeah. To answer your question, Kelly, is yes, we're very confident that we're going to have low single digit loan growth for the full year. We work hard to do better. The strong pipeline that we have keeps us confident that we have a chance to do better. That's as much as I'm going to share.

Kelly Motta: Great. Thank you so much. I will step back.

José Rafael Fernández: Thank you.

Operator: We will take our next question from Manuel Navas with Piper Sandler. Your line is open.

Manuel Navas: Hey, good morning. I appreciate the commentary. Just kind of following up on the NIM here. How should we think about the December hike post you kind of get past some of these seems more like unique public fund repricing moments that might be impacting the near term NIM in the fourth quarter. How should we think about future hikes impact on the NIM into early next year?

Maritza Arizmendi: Yeah. We will update at the end of the year with how we see 2027. I can answer on the matter of the December hike. It will be something similar to this quarter, that it happened at the end of September. As I have shared with you in my prepared remarks, the more elastic asset is the cash and also the about $500 million, $550 million in the commercial portfolio, which is tied to prime rates. The other happens gradually through the next quarter. That is how we see that. It will not be much of an impact on the fourth quarter NIM.

José Rafael Fernández: Yep. The fourth quarter interest rate hike.

Maritza Arizmendi: Interest rate hike.

José Rafael Fernández: Yeah.

Manuel Navas: Sure. I guess also, separately, you had a lot of loan growth come in at the end of the quarter. Do you have a sense for new loan yields especially for that piece, maybe like September new loan yields?

José Rafael Fernández: Yeah, similar to the portfolio yields. That those levels that we're originating on the commercial Puerto Rico side. So you should use that as a guidance.

Manuel Navas: Okay. Then I like that the buyback restarted this quarter. Just kind of thoughts on its pace. I know you're doing shareholder capital return, but just kind of a current—

José Rafael Fernández: Yeah.

Manuel Navas: —update on capital deployment and the pace of the buyback.

José Rafael Fernández: Yeah. So we look at loan growth and balance sheet growth first. We certainly are very proactive on the capital management, and we will continue to do so. We will mix it between dividend and the buyback. So you will see us being pretty steady on the buyback and probably more active as there are fluctuations in the market. But overall, the capital management strategy remains the same. We want to deploy our capital for growth on the balance sheet, and the excess capital that we have, we deploy it through dividends and buyback. We still have $180 million on the buyback, so that is ample space for us to go out and go into the market.

Manuel Navas: I appreciate that. My last question is a little bit on digging in deep on credit. Credit trends are really strong. The commercial trends are excellent. Just want to cover all my bases. Delinquencies ticked higher in auto, and a little bit higher, I think, year-over-year as well as linked quarter. Any extra color there, or is this still well within the normal seasonal increases, and you kind of expect a seasonal increase in the fourth quarter and then an improvement in the first quarter of next year as well? Is that the right trajectory to think about?

César Ortiz: Yeah, that is exactly right. You have it right. The seasonality works from first quarter improving and then picking up to the fourth quarter. We still expect that trend to happen this year too.

Manuel Navas: Anything specific in auto this year versus last year?

César Ortiz: No—

Manuel Navas: Okay.

César Ortiz: No. We continue seeing the resiliency on the customers as you see in the credit performance of the customers. So far the portfolio is behaving very well. The economy is well too. Those two together give us comfort on the credit performance of our portfolios.

José Rafael Fernández: Yeah, and as César mentioned, we are very cognizant about what is going on with higher interest rates and inflation and energy and all that stuff. But all those things are happening when Puerto Rico's economy is sitting in a much different position than in years past, and it makes a different behavior for consumers, simply. That is what is going on. The performance that you are seeing on the consumer side, on the credit consumer side, it is a reflection of the economy and all the things that we talked about earlier in the call.

Manuel Navas: Thank you. I appreciate the comments.

José Rafael Fernández: Yeah. Thank you.

Operator: Again, if you would like to ask a question, press star then the number one on your telephone keypad. At this time, there are no further questions. I will now turn the call back over to management for closing remarks.

José Rafael Fernández: Thank you, operator. Thanks again to all our team members for a great job in the quarter, and thanks to all our stakeholders who have listened in. Looking forward to see you next time.

Operator: Thank you. This does conclude today's program. We thank you for your participation. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.