OFG (OFG) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, April 21, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — José Rafael Fernández
• Chief Financial Officer — Maritza Arizmendi
• Chief Risk Officer — Cesar A. Ortiz-Marcano

TAKEAWAYS

• Earnings per Share (Diluted) -- Increased 26% year over year, reflecting core operating leverage.
• Total Core Revenue -- Gained 4% year over year, driven by loan growth and deposit franchise strength.
• Loans -- Rose 5% year over year, with new loan production increasing 9%, mainly from commercial lending.
• Core Deposits -- Declined 1%, but excluding a $500 million government deposit transfer, grew more than 4% year over year.
• Shareholder Returns -- Repurchased $44.5 million in common shares and increased the dividend by 17%.
• Digital Metrics -- Retail digital enrollments rose 10%, digital loan payments by 5%, and virtual teller usage by 7% year over year.
• Core Revenue (QOQ) -- Reported at $186 million, approximately flat from the previous quarter.
• Total Interest Income -- $194 million, down $3 million sequentially, reflecting lower balances and yields on cash and securities.
• Total Interest Expense -- $40 million, down $4 million sequentially, linked to lower average core deposits and yields.
• Noninterest Expense -- Totaled $95 million, down $10.3 million sequentially, including $2.5 million in net cost savings.
• Efficiency Ratio -- 51%, indicating operational cost control.
• Return on Average Assets -- 1.78% for the quarter.
• Return on Common Equity -- 16.4% for the period.
• Tangible Book Value -- $30.14 per share at period end.
• Average Loan Balances -- $8.2 billion, up $1.55 billion sequentially; driven by commercial lending offset by decreases in residential mortgage, auto, and consumer.
• Loan Yield -- 7.87%, up 14 basis points sequentially; excluding loan recovery, 7.71%, down 2 basis points.
• Average Core Deposit Balances -- $9.6 billion, down 4% sequentially, with $500 million transferred from government deposits to wealth management.
• Core Deposit Cost -- 1.29%, a decrease of 13 basis points quarter over quarter, mainly due to the government withdrawal and lower average rates.
• Average Noninterest-Bearing Deposits -- $7 billion, up 1.41% sequentially and 4.55% year over year.
• Investments -- $2.8 billion at period end, down $55 million sequentially, reflecting principal paydowns and maturities offset by new purchases.
• Average Borrowings and Brokered Deposits -- $929 million, up from $787 million in the previous quarter; aggregate rate paid decreased 5 basis points to 3.98%.
• Period-End Cash -- $636 million, a 39% decline due to the government deposit transfer.
• Net Interest Margin (NIM) -- 5.36%, incorporating a $3.3 million loan recovery and lower deposit/funding costs.
• Expense Guidance -- Noninterest expenses expected in the $380 million to $385 million full-year range.
• Tax Rate Guidance -- Estimated at 22.3% for 2026, excluding discrete items.
• Credit Quality -- Net charge-offs of $21 million, down $5.5 million sequentially; net charge-off rate improved to 1.05%, down 27 basis points.
• Commercial Nonperforming Loan Rate -- 2.36%, down from 2.5% prior quarter.
• Allowance Coverage -- 2.48% of loans, with provision for credit losses at $22.5 million, down $9 million sequentially.
• Updated NIM Guidance -- Now forecasted at 5.1%-5.2% for the year, reflecting no rate cuts and the expected government deposit exit.
• Government Deposit Balance -- Approximately $600 million remains, with prior $500 million transferred to the broker-dealer.
• Capital Ratios -- Common Equity Tier 1 (CET1) at approximately 13.75% after buybacks.
• Gallup Workplace Award -- Recognized in the first quarter for employee engagement and culture focus.

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RISKS

• Fernández stated, "we really do not want to promise something that we do not deliver on," regarding uncertainty in NIM guidance due to unpredictable timing of large government deposit exits.
• Arizmendi said, "do not see much flexibility to push down more the cost of deposits," indicating potential for higher funding costs if rate environments change unfavorably.
• Explicit acknowledgement of "various geopolitical and economic headwinds that may increase the cost of living or inflationary pressures in Puerto Rico," suggesting vigilance is needed regarding external macro risks.

SUMMARY

Management confirmed commercial loan-driven growth and deposit franchise strength, underpinned by expanded digital platform adoption and targeted customer accounts. Strategic capital allocation was demonstrated through a 17% dividend increase and $44.5 million in share repurchases, supported by a CET1 ratio near 14%. Updated guidance incorporates NIM of 5.1%-5.2% for the year, reflecting expectations for no rate cuts and the transfer of a large government deposit, while noninterest expenses are projected within $380 million to $385 million. Credit quality continued to improve, with net charge-off rates, delinquency, and nonperforming loan metrics trending favorably across portfolios. The company cited recognition for workplace culture as a reinforcing element for operating performance and strategic execution.

• Fernández described the current government tax credit inflows as supportive of first half deposit trajectory, while commercial and retail relationships contributed to deposit stability amidst expected governmental outflows.
• Arizmendi clarified that asset and liability sensitivity are moderating net interest margin movements, with ongoing funding mix improvements mitigating pressure from loan yield changes.
• Digital-first banking—anchored by Libre, Elite, and MyBiz—drove both customer acquisition and savings on operational expenses, catalyzing efficiency ratio improvement and future technology investment opportunities.
• Loan portfolio mix is set to become increasingly commercial-focused as consumer and auto exposures moderate, with guidance for low single-digit loan growth reaffirmed.
• Provision for credit loss included specific reserves for previously identified single-name commercial exposures, but management considers these exposures well understood and not indicative of broader asset quality deterioration.
• Fernández highlighted continued economic resilience in Puerto Rico, driven by low unemployment, reconstruction funds, and private investment, yet acknowledged the potential for global macro disruptions to affect local operations.

INDUSTRY GLOSSARY

• PCD Loan: Purchased Credit Deteriorated loan; acquired loans with marked credit quality changes since origination, requiring specific accounting treatment.
• MSR Valuation: The adjustment in value of Mortgage Servicing Rights, impacting noninterest income via periodic remeasurement.
• CET1: Common Equity Tier 1 capital ratio, a regulatory measure of core capital strength relative to risk-weighted assets.

Full Conference Call Transcript

José Rafael Fernández: Good morning, and thank you for joining us. We are pleased to report our first quarter results. Let us go to Page 3 of our presentation. We started the year with a strong financial performance. Earnings per share diluted were up 26% year-over-year, on 4% growth in total core revenues. This was driven by ongoing loan growth, high-quality credit performance, core deposit strength, expense discipline, and proactive balance sheet management. Loans grew 5% year-over-year, and new loan production grew 9%. Reported core deposits declined 1%; excluding the previously announced $500 million government deposit transfer, core deposits grew more than 4% year-over-year.

This demonstrates how our strategies and operating model continue to deliver, supported by momentum in our businesses and disciplined execution across the franchise. We furthered our commitment to capital management. We purchased $44.5 million of common shares and increased the dividend 17%. Despite growing geopolitical uncertainties and their effect on energy prices, Puerto Rico’s economy continues to grow, and businesses’ and consumers’ balance sheets are solid with high liquidity levels. Please turn to Page 4. Our core digital strategy consists of three main pillars. The first is our service offerings. We are targeting specific customer segments with accounts that meet their needs: Libre for the mass market, Elite for the mass affluent, and MyBiz for small businesses.

This targeted approach is driving strong market adoption and deeper customer relationships. The second pillar is technology. Our omnichannel platform allows customers to interact with us seamlessly across all touch points. This is driving continued digital adoption, resulting in efficiency and savings that we reinvest in new ways to serve our customers. The third pillar is intelligent banking, leveraging data and real-time insights to help customers better manage their finances. We are increasingly seeing real customer connections being built through our digital channels. Please turn to Page 4. As proof of our success, we are driving innovation year-over-year. Retail digital enrollments are up 10%, digital loan payments 5%, and virtual teller usage up 7%.

Net new retail and commercial customers each grew by close to 3%. The added benefit is that this enables us to free up more of our teams to provide personal, value-added services, focus on sales to expand our market share, and develop new digital products and services. Now here is Maritza to go over the financials in more detail.

Maritza Arizmendi: Thank you, José. Let us turn to Page 6 to review our financial highlights. All comparisons are to the fourth quarter unless otherwise noted. Core revenues at $186 million were approximately level. Total interest income was $194 million, a decrease of $3 million. This reflected lower average balances of cash and investment securities at lower average yields. This was partially offset by higher average balances of loans at higher average yields. First quarter interest income included $3.3 million from a PCD loan paid in full. There were two fewer days in the first quarter; this negatively affected interest income by about $3.1 million. Total interest expense was $40 million, a decrease of $4 million.

This reflected lower average balances of core deposits at lower average yields. This was partially offset by higher average balances of brokered CDs and borrowings at lower average yields. The two fewer days reduced interest expense by approximately $1 million. Total banking and financial service revenues were $32 million, a decrease of $600 thousand. This reflected favorable MSR valuation of about $1.3 million, while the fourth quarter included $2.3 million in annual insurance commission recognition. The other income category was $200 thousand compared to a loss of $1.1 million. The change reflected the absence of several previously reported items from the fourth quarter. Noninterest expense totaled $95 million, down $10.3 million from the fourth quarter.

The first quarter included $1 million in merit raises, $700 thousand in payroll taxes, $1 million in costs related to our capital market readiness and registration process, $3.6 million in business-related volume incentives compared to $3.1 million a year ago, and $2.5 million net cost savings. The fourth quarter included net $6.8 million in previously reported expense items. Income tax was $14.9 million compared to a benefit of $8 million in the fourth quarter. The first quarter ETR was 21.6%. Looking at some other metrics, tangible book value was $30.14 per share. Efficiency ratio was 51%. Return on average assets was 1.78%, and return on common equity was 16.4%.

Now let us turn to Page 7 to review our operational highlights. Average loan balances were $8.2 billion, up $1.55 billion from the fourth quarter. This reflected increases in Puerto Rico and U.S. commercial loans, partially offset by lower balances in residential mortgage, auto, and consumer. Loan yield was 7.87%, up 14 basis points. Excluding the first quarter loan recovery, loan yield was 7.71%, down 2 basis points from the fourth quarter. New loan production was $[inaudible]. This mainly reflected an increase in auto loan production. Year-over-year, new loan production increased 9%, primarily reflecting increases in new commercial loans with auto moderating as anticipated. Average core deposit balances were $9.6 billion, down 4% from the fourth quarter.

This reflected the $500 million government deposit transfer to wealth management early in the first quarter. By the end of the quarter, this was partially offset by increases in retail and commercial deposits totaling more than $150 million across all categories: demand, savings and, to a lower extent, time deposits. Core deposit cost was 1.29%, down 13 basis points. This was mainly due to the previously mentioned government deposit withdrawal combined with lower average rates. Excluding public funds, cost of deposits was 1.00% compared to 1.02%. Also, reported average noninterest-bearing deposits of $7 billion in the first quarter increased 1.41% sequentially and 4.55% year-over-year. Investments totaled $2.8 billion, down $55 million. This reflected principal paydowns and maturities.

This was partially offset by purchases of $49.2 million of mortgage-backed securities and residential mortgage securitization of $23.5 million. Average borrowings and brokered deposits totaled $929 million compared to $787 million in the fourth quarter. The aggregate rate paid was 3.98%, down 5 basis points. By the end of the first quarter, balances were down to $747 million due to intentional runoff compared to $897 million at prior quarter end. Period-end cash at $636 million was 39% lower due to the government deposit transfer. Net interest margin was 5.36%, reflecting the previously mentioned $3.3 million interest recovery and lower cost of deposits and borrowings. Cesar will provide more details on our credit quality in a moment.

But first, let me summarize the quarter. We demonstrated year-over-year loan growth and production in line with expectations, and continue to expect low single-digit growth with our expanding presence in commercial more than offsetting a decline in auto. Our digital-first strategy is continuing to lead to more customer engagement and digital and debit card transactions. Digital-first also helped grow deposits in line with our strategies. We continue to anticipate growth this year with our Libre, Elite, and MyBiz accounts. We now expect net interest margin to range from 5.1% to 5.2%. This updated range assumes no additional rate cuts in 2026, compared to two cuts previously expected, and incorporates the exit of the large remaining government deposit later this year.

Noninterest expenses were maintained within our expected run rate. We remain on track to keep expenses in a range of $380 million to $385 million this year. Based on our first quarter results, the estimated tax rate for 2026 is anticipated to be 22.3%, excluding any discrete items. We were very active returning capital to shareholders. We will continue to be selective and opportunistic, balancing shareholder returns with disciplined growth. Now, here is Cesar.

Cesar A. Ortiz-Marcano: Thank you, Maritza. Please turn to Page 8. Before getting into the details, let me start with the key highlights for the quarter. Our thesis that higher customer liquidity in the first quarter drives better credit metrics was reinforced. We saw that most clearly across the retail portfolios, where early-stage and total delinquency trends improved sequentially, consistent with normal seasonality. Net charge-offs totaled $21 million, down $5.5 million, reflecting normal portfolio activity with continued improvement in retail loss trends. Net charge-offs reflected $3.9 million from our final settlement of a previously reserved U.S. loan, while the fourth quarter included $4.8 million related to a nonperforming loan sale.

The net charge-off rate was 1.05%, an improvement of 27 basis points from the fourth quarter. The auto net charge-off rate declined sequentially to 1.52%, an improvement of 29 basis points. The consumer net charge-off rate also improved to 4.40%, 15 basis points better than the fourth quarter. Provision for credit losses was $22.5 million, down $9 million from the fourth quarter. This reflected $17.5 million from increased loan volume, $3.7 million in added reserves for a previously reserved commercial loan, and $1 million for newly classified small commercial loans. Allowance coverage remains strong at 2.48% of loans, and reserve levels continue to appropriately reflect the risk profile of the portfolio.

Looking at other retail credit metrics, early and total delinquency rates declined meaningfully from the fourth quarter to 2.2% and 3.4%, respectively. These improvements were broad-based across the retail portfolios, with auto, consumer, and mortgage all showing better early-stage performance. The nonperforming loan rate was 1.47%, down 12 basis points. Retail nonperforming loan rates improved sequentially in auto and consumer, while remaining stable in mortgage. Overall, retail credit behavior was consistent with the seasonal improvement we typically see in the first quarter, supported by higher customer liquidity and strong employment conditions in Puerto Rico. Turning to commercial, the nonperforming loan rate declined to 2.36% from 2.5% last quarter, reflecting sequential improvement.

Commercial asset quality outside of one specific trade continues to perform as expected. As we discussed last quarter, the commercial portfolio continues to include a single-name telecommunication exposure that moved to nonaccrual late last year. This exposure remains well understood and idiosyncratic, and does not represent a broader trend within the commercial portfolio. Overall, credit continues to perform well. While we remain mindful that there are various geopolitical and economic headwinds that may increase the cost of living or inflationary pressures in Puerto Rico, the first quarter performance benefited from strong employment conditions and higher seasonal customer liquidity.

Credit metrics remain well controlled and within our risk appetite, and the portfolio is performing in line with our expectations and risk framework.

José Rafael Fernández: Thank you, Cesar. Please turn to Page 9. The Puerto Rico economy continues to perform well. Business and consumer liquidity levels are strong, and unemployment is at historically low levels. Public reconstruction funds, private investments, and new onshoring projects continue producing economic tailwinds. And as Cesar mentioned, we are closely watching geopolitical and macroeconomic uncertainties and their impact on the island, particularly with higher energy prices and overall inflation. Against this economic backdrop, OFG Bancorp remains very well positioned. Our digital strategy is driving unique customer experiences, attracting deposits, and growing our customer base steadily. Our culture of continuous improvement and investments in people, technology, and automation are producing tangible efficiencies.

We continue to have a solid commercial loan pipeline, stable credit trends, and strong risk management and discipline in liability management. All these factors, combined with Puerto Rico’s level of business activity, position us well for continued growth. Before I end my prepared remarks, I want to highlight the recognition we received in the first quarter, where we were honored with a 2026 Gallup Exceptional Workplace Award. For us, this recognition goes well beyond employee engagement scores. It reinforces a culture we have been intentionally building for many years—one that emphasizes agility, openness to challenge, and innovation.

At OFG Bancorp, our teams are encouraged to question how things have always been done, to move quickly in responding to customer and market needs, and to continuously improve how we operate. That mindset enables faster decision making, more innovation across our digital and operating platforms, and better execution in a dynamic environment. This recognition highlights how our people, culture, and strategy are united by a shared sense of purpose, driving meaningful progress for all our stakeholders. It is this commitment to purpose that empowers us to consistently achieve strong, long-term results while making a positive impact across all our stakeholders. We will now open the call for questions.

Operator: Thank you. Star one on your telephone keypad. If you wish to remove yourself from the queue, press star two. We will take our first question from Analyst. Please go ahead. Your line is open.

Analyst: Good morning. Wanted to start just on the margin. Even excluding the $3.3 million, that would have made it about 5.24%. That was better than anticipated. When I look at the cost of deposits—if I heard correctly, 1% excluding the government deposits in the quarter—it seems like things turned out better than expected on the margin. I know the guidance is for a slightly lower level from here, but any thoughts on potential positives for the margin relative to the guidance, whether it be loan pricing or any other factors? It seems like you are probably getting close to a bottom on funding costs.

José Rafael Fernández: So, Brett, before I let Maritza give you the specifics, let us be clear. For us to provide guidance on the margin is a little tricky given the uncertainty on when and how much of the large government deposit will exit and how those funds will be replaced. So when we give guidance on the NIM, we are using the most conservative guidance possible because we really do not want to promise something that we do not deliver on. Bear that in mind. We still have significant deposits from the government that have been telegraphed to us that they will depart sometime. We do not know if it is tomorrow or if it is next year.

Replacing those deposits, we certainly bet that our business teams—the commercial team as well as the retail team—as they did this first quarter, will deliver and deliver substantially better than what we expected in the first quarter. It definitely has a lot to do with the economic background that we are living in Puerto Rico, and sometimes we undermine that in our own forecast, given the 22 or 23 years that we have operated on the island. Now I will pass the answer to Maritza so she can give you the specific details.

Maritza Arizmendi: Thanks, José, for that. For the first quarter, deposits increased at a higher rate than expected. It was very good momentum for us. The reality is that, going forward, thinking about the rate scenario we are managing—with no cuts—we do not see much flexibility to push down more the cost of deposits. So we will continue to see deposit costs at the same level as we saw during the first quarter. The other element embedded within the range I provided is asset composition, because we will continue to see the commercial book becoming a higher proportion as auto continues to go down, as I shared in the prepared remarks.

That means we also have some impact in the loan yield that during this quarter went down 2 basis points ex-recovery. We are seeing the asset sensitivity and the liability sensitivity somehow compensating between the two. Since the NIM we saw during the quarter—excluding the recovery—was 5.25%, we expect it roughly stable, maybe 5 basis points down or up. That is why we are giving the 5.1% to 5.2% range for the full year. We will also need to manage liquidity through the year, as José was mentioning.

José Rafael Fernández: And you know us—we are going to be conservative in all the guidance that we provide. We have been doing that for many years. That is where we stand, Brett.

Analyst: Okay. And can you remind me, José Rafael, how much of the government deposit piece is left? I know you are unsure of the timing, but any thoughts?

José Rafael Fernández: Around $600 million on the one deposit. Remember, the other $500 million went to our broker-dealer, so we are getting a little bit of a fee there. That is where it stands right now.

Analyst: Okay. And then on credit quality, I heard the comments and it makes sense—there is some seasonality related to early-stage delinquencies—but there was some nice improvement this quarter. Was there anything else that might have been driving the improvement other than seasonality and customers having higher liquidity during 1Q? Are you seeing any other broad-based things that were improving credit?

José Rafael Fernández: Back in late 2022, we improved the underwriting standards to make sure that we booked higher quality, because that was a record-breaking period. We wanted to use that moment to improve our portfolio quality. Now we are seeing the results of those improvements in the credit metrics, where the auto portfolio is 99% prime. We are starting to see the benefits in the credit metrics of those adjustments that we did in 2022. When you think about it, the seasonality of the vintage that is coming due in 2026 is one that already has 80% plus in prime. So we expect to have lower loss content in the vintages that are becoming seasonal in the next couple of years.

That is an additional element of our consumer credit portfolio.

Analyst: Yep. Okay. And then just last one for me around the broad macro. I saw this morning that construction in Puerto Rico was slightly off in January, maybe February, and with higher oil prices and inflation—anything you are seeing in terms of macro in Puerto Rico and opportunities or challenges?

José Rafael Fernández: You have heard me before talk about Puerto Rico’s economy, and it remains very constructive, very positive. Puerto Rico is in its best economic position in many decades. Right now, Puerto Rico has only 30% debt-to-GDP. Puerto Rico has the lowest levels of unemployment in seventy-some years. Puerto Rico receives around $4 billion to $6 billion in reconstruction funds a year and will continue to receive them for the next five to seven years. Puerto Rico is benefiting from onshoring of medical devices and pharmaceuticals, leveraging infrastructure that has been in place for many years. Manufacturing is around 45% of the island’s economy.

We are also back in the limelight in terms of our geopolitical positioning; you saw when the military went into Venezuela, it all came from Puerto Rico, and they are increasing their military presence on the island. We will certainly have to face threats coming from geopolitical events and inflationary pressures, and if the United States potentially goes into a recession, we will get some of those effects. But Puerto Rico is in a much stronger position today than several decades ago to embark on those challenges. Month-to-month changes in economic data points are real, but on the ground we are seeing high levels of liquidity, strong interest in building infrastructure, strong private investments.

We are meeting with commercial clients—just yesterday I had lunch with clients who are putting money to work in different industries. I think the next several years in Puerto Rico are going to continue to be steady growth. We are seeing a solid, positive economic environment that is not exempt from threats and risks, but we have been managing them for many years, and we are confident that we will continue to grow our client base, our loans, and our deposits—being very strategic and very intentional. Our team is really focused on being the challenger bank on the island and gaining market share. That is my view.

Analyst: I appreciate all the color, and it has been good to see the onshoring. Thanks.

José Rafael Fernández: Thank you.

Operator: We will move next with Analyst. Please go ahead. Your line is open.

Analyst: Thanks. Good morning. The deposit growth surprised me. Despite the government deposit you had guided as coming out, you had pretty strong growth in the quarter to cover that, where I thought it would actually come in through the borrowing side. You mentioned that Libre, Elite, and MyBiz all contributed. Are you seeing any particular growth in any one of those products, and were you doing anything special to drive that growth in the first quarter?

José Rafael Fernández: The three products are the driving force for us—very targeted, very focused. We do not have 50 different deposit accounts. We have one for mass market, one for mass affluent, and one for small business. That focus helps our team members. We also have excellent benefits for each of those accounts, and that is what is driving adoption, account opening, and customer growth. It is across the board. With Libre and Elite on the retail side, we saw increasing deposits. Libre is mostly noninterest-bearing and a digital account you can open online. We continue to see great adoption there, growing client base steadily.

In mass affluent, we also saw great growth in deposits and deeper relationships—more Elite customers using lending with Oriental and OFG Bancorp. On MyBiz, it is our flagship. Our team members go out there; we have a solid cash management offering, and the platform compares well to those banks in the States have. Customers are identifying those benefits, and we are seeing the results. Certainly, the economy helps with a lot of liquidity, but I do not want to underestimate the power of our strategy and execution.

Analyst: Great. That is helpful. On Slide 5, you have always talked about the digital-first aspect and the statistics are impressive. Any particular new investments on the technology side to continue to improve those statistics?

José Rafael Fernández: We have made investments over the last several years, and some of what you are seeing today is the benefit of those investments. We continue to invest. Right now, the biggest focus as we finalize our data management is making sure we have data readily accessible, so we can extract insights for our customers, improve their lives, and provide value-add. We are already doing that and expanding it, with a team working on it for many years. The benefits of artificial intelligence are first and foremost on efficiency.

When you heard Maritza talk about expenses and our flat guidance versus last year, we continue to see good opportunities to leverage AI and bring efficiencies to the bottom line for 2027 and beyond. The other side is value-add to our customers—how do we make their lives simpler. Those are the things we are investing in right now. It is tricky—we will hit some good investments and we might miss some—but that is how we operate. We bet on innovation. Banking will require innovation going forward, and Puerto Rico is behind on that curve. OFG Bancorp is the one driving that innovation in Puerto Rico.

Analyst: Thank you.

Operator: Thank you. We will move next with Analyst. Please go ahead. Your line is open.

Analyst: Hi. Good morning. Thanks for the question. Just a quick guidance clarification for Maritza: that 5.10% to 5.20% margin—is that for the full year or the balance of 2026 quarters?

Maritza Arizmendi: It is for the full year. I already shared how we are seeing and why we are seeing that range, including the timing of the big government deposit transfer and the fact that we are not seeing rate cuts during the year.

Analyst: Got it. That is helpful. Similarly, I thought a real strength of the quarter was the core deposits. I know Puerto Rico has a government tax rebate. Did you see any positive impacts from that in 1Q, or if not, can you help with the timing?

José Rafael Fernández: That is usually at the end of the quarter. We saw a little bit at the end of the quarter, and it plays out throughout the first half of the year. We see the child tax credit and the tax refunds in general, and that plays out through the first half.

Analyst: Great, helpful. Turning to capital, you announced a meaningful dividend raise earlier in the quarter and were more active with the buyback with the new authorization out. Capital looks very healthy. Can you remind us of any guideposts or thoughts around the capital side of things?

José Rafael Fernández: Everything starts with how we deploy our capital. We want to deploy it first and foremost in our business here in Puerto Rico. If there are opportunities to deploy it in a growing balance sheet, we will do that—that is the first level of thinking. We certainly see the buyback as a way to continue to return capital to shareholders. We are methodical and opportunistic, as we showed in the first quarter, and will continue to be so during the rest of the year. For the dividend, we feel very confident about the earnings power we have.

With CET1 close to 14%—around 13.75% this quarter given the buybacks—we feel that returning capital to shareholders is part of our strategy, and we will continue to do so, Kelly.

Analyst: Great. Helpful. Last modeling question: I appreciate the color on margin and the interest recovery. Looking at your average balance sheet, it looks like there was a jump in PCD interest income. Just to confirm, was that where the interest recovery came in?

Maritza Arizmendi: Yes. It was the pay-in-full of a loan within that book.

Analyst: Great. Thank you for confirming. I will step back. Really nice quarter.

José Rafael Fernández: Thank you, Kelly.

Operator: Thank you. We will move next with Analyst. Please go ahead. Your line is open.

Analyst: Hi. How much did taking out Fed rate cuts help that NIM guide? And if we did get one rate cut, what would you expect the impact to be?

Maritza Arizmendi: Thank you, Manuel. We continue to be asset sensitive, but a 50 basis point rate cut would have a very low impact—less than 1%—to NII. We are taking that into consideration in this new guidance because we were expecting two cuts midyear and then at the end of the year. That is no longer impacting the commercial book, so it is impacting the guidance positively. We moved it about 10 basis points, not necessarily fully related to the change in rate expectations, but also due to a better funding mix from the inflows we received during the first quarter. It is encouraging us for the rest of the year.

We expect core deposits to continue growing, which will help funding mix in front of the potential exit of the government deposit. That is embedded in the guidance.

Analyst: I appreciate that. So the success you are having with the new account types—as long as they keep growing, they can replace borrowings and should benefit your funding. Is that what you are hoping?

José Rafael Fernández: Yes. It also has another component we do not talk about often: the large commercial book and business we have. We have some good-sized commercial accounts that have been long-standing clients of ours that also are benefiting from higher liquidity levels.

Analyst: On that front, I know your loan growth is commercial-led this year, a little less on the auto side. How do pipelines look? Any update to the mix of loan growth from last quarter? Is there going to be a seasonal improvement in growth?

José Rafael Fernández: We have a pretty good pipeline, and we are continuing to stick with our guidance of low single digits. Not because we do not feel comfortable with the commercial pipeline, but because we are modeling a reduction in the auto loan book that is hard to predict given the landscape in Puerto Rico. We are very happy with the commercial business. We continue to grow it and have a very strong pipeline.

Analyst: My last question is on credit. Is this improvement in past dues—which is somewhat seasonal—likely to drive a bit lower net charge-off levels for the year? I think we are looking at closer to 1% plus.

José Rafael Fernández: We talked about the 1% last quarter too. I do not want to project this quarter’s seasonality forward. I would stick to 1% for the year, and hopefully it will be better because of the improvements in the FICO quality of the portfolio, which should translate into a better charge-off rate. But as of now, I would say 1%.

Analyst: I appreciate it. Thank you.

José Rafael Fernández: Thank you for your question.

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

José Rafael Fernández: Thank you, operator. Thanks again to all our team members, and thank you to all our shareholders who are listening. Have a great day.

Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.

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