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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-12647

OFG Bancorp

(Exact name of registrant as specified in its charter)

Commonwealth of Puerto Rico						66-0538893
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

254 Muñoz Rivera Avenue						00918
San Juan, Puerto Rico						(Zip code)
(Address of principal executive offices)

			(787) 771-6800
			(Registrant’s telephone number, including area code)
			N/A
			(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common shares, par value $1.00 per share			OFG			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☑

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

47,002,057 common shares ($1.00 par value per share) outstanding as of April 30, 2024

---

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION									Page
Item 1.			Financial Statements
			Unaudited Consolidated Statements of Financial Condition						3
			Unaudited Consolidated Statements of Operations						5
			Unaudited Consolidated Statements of Comprehensive Income						7
			Unaudited Consolidated Statements of Changes in Stockholders’ Equity						8
			Unaudited Consolidated Statements of Cash Flows						9
			Notes to Unaudited Consolidated Financial Statements
			Note 1 – Summary of Significant Accounting Policies						12
			Note 2 – Restricted Cash						13
			Note 3 – Investment Securities						13
			Note 4 – Loans						18
			Note 5 – Allowance for Credit Losses						31
			Note 6 – Foreclosed Real Estate						33
			Note 7 – Servicing Assets						33
			Note 8 – Goodwill and Other Intangible Assets						34
			Note 9 – Accrued Interest Receivable and Other Assets						36
			Note 10 – Deposits and Related Interest						37
			Note 11 – Borrowings and Related Interest						38
			Note 12 – Income Taxes						39
			Note 13 – Regulatory Capital Requirements						40
			Note 14 – Stockholders’ Equity						41
			Note 15 – Accumulated Other Comprehensive Loss						42
			Note 16 – Earnings per Common Share						43
			Note 17 – Guarantees						44
			Note 18 – Commitments and Contingencies						45
			Note 19 – Operating Leases						47
			Note 20 – Fair Value of Financial Instruments						48
			Note 21 – Banking and Financial Service Revenues						54
			Note 22 – Business Segments						55
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations						57
			Critical Accounting Policies and Estimates						58
Item 3.			Quantitative and Qualitative Disclosures about Market Risk						86
Item 4.			Controls and Procedures						91
PART II – OTHER INFORMATION
Item 1.			Legal Proceedings						91
Item 1A.			Risk Factors						91
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds						91
Item 3.			Defaults upon Senior Securities						91
Item 4.			Mines Safety Disclosures						91
Item 5.			Other Information						91
Item 6.			Exhibits						92
Signatures									93

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FORWARD-LOOKING STATEMENTS

The information included in this quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the financial condition, results of operations, plans, objectives, future performance and business of OFG Bancorp (“we,” “our,” “us” or “OFG”), including, but not limited to, statements with respect to the adequacy of the allowance for credit losses (“ACL”), delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on OFG’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which by their nature are beyond OFG’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

•the rate of growth in the economy and employment levels, inflationary pressures or recessionary conditions, as well as general business and economic conditions;

•changes in interest rates, as well as the magnitude of such changes;

•a credit default by municipalities of the government of Puerto Rico;

•a credit default by the U.S. government or a downgrade in the credit ratings of the U.S. government;

•the impacts related to or resulting from bank failures and other volatility, including potential increased regulatory and compliance requirements and costs and potential impacts to macroeconomic conditions, which could affect the ability of depository institutions, including the Bank, to attract and retain depositors and to borrow or raise capital;

•the actual or perceived soundness of other financial institutions, including as a result of the financial or operational failure of a major financial institution, or concerns about the creditworthiness of such a financial institution or its ability to fulfill its obligations, which can cause substantial and cascading disruption within the financial markets;

•amendments to the fiscal plans approved by the Financial Oversight and Management Board for Puerto Rico;

•determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations, as well as the ability to successfully implement any court-approved plan of adjustment;

•unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters, pandemics, war or other international conflicts and acts of terrorism (including cyber-attacks), or utility disruptions, which could cause a disruption in our operations or other adverse consequences for our business;

•the impact of property, credit and other losses in Puerto Rico as a result of hurricanes, earthquakes and other natural disasters;

•the amount of government financial assistance for the reconstruction of Puerto Rico’s infrastructure, which was impacted by the effects of Hurricane Maria in 2017, earthquakes in 2020, and Hurricane Fiona in 2022;

•the pace and magnitude of Puerto Rico’s economic recovery;

•the fiscal and monetary policies of the federal government and its agencies;

•changes in federal bank regulatory and supervisory policies, including with respect to required levels of capital;

•the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico;

•the performance of the stock and bond markets;

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•competition in the financial services industry;

•possible legislative, tax or regulatory changes; and

•factors beyond our control such as severe weather conditions, natural disasters, pandemics, power loss, disruptions in telecommunications, terrorism and other catastrophic events, any of which could significantly affect delinquency rates, loan and accounts receivable balances and other aspects of our business and results of operations.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision for credit losses expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; risk of impairment of investment securities, goodwill, other intangible assets or deferred tax assets; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; OFG’s ability to grow its core businesses; decisions to downsize, sell or close units or otherwise change OFG’s business mix; and management’s ability to identify and manage these and other risks.

All forward-looking statements included in this quarterly report on Form 10-Q are based upon information available to OFG as of the date of this quarterly report on Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, OFG assumes no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

			March 31,						December 31,
			2024						2023
			(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks			$	749,718					$	743,550
Money market investments			4,674						4,623
Total cash and cash equivalents			754,392						748,173
Investments:
Trading securities, at fair value, with amortized cost of $163 (December 31, 2023 - $163)			14						13
Investment securities available-for-sale, at fair value, with amortized cost of $1,993,754 (December 31, 2023 - $2,177,761); no allowance for credit losses			1,897,707						2,099,264
Investment securities held-to-maturity, at amortized cost, with fair value of $483,657 (December 31, 2023 - $490,764); no allowance for credit losses			544,491						549,024
Equity securities			40,162						38,469
Total investments			2,482,374						2,686,770
Loans:
Loans held-for-sale, at lower of cost or fair value			28,274						28,345
Loans held-for-investment, net of allowance for credit losses of $156,563 (December 31, 2023 - $161,106)			7,383,104						7,373,273
Total loans			7,411,378						7,401,618
Other assets:
Foreclosed real estate			10,850						10,780
Accrued interest receivable			72,117						71,400
Deferred tax assets, net			4,379						4,923
Premises and equipment, net			104,980						104,102
Customers' liability on acceptances			25,826						25,576
Servicing assets			49,553						49,520
Goodwill			84,241						84,241
Other intangible assets			19,216						20,694
Operating lease right-of-use assets			21,606						21,725
Other assets			118,323						114,931
Total assets			$	11,159,235					$	11,344,453

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2024 AND DECEMBER 31, 2023 (CONTINUED)

			March 31,						December 31,
			2024						2023
			(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits			$	6,036,891					$	6,050,428
Savings accounts			2,001,770						2,088,102
Time deposits			1,509,613						1,623,639
Total deposits			9,548,274						9,762,169
Borrowings:
Advances from the Federal Home Loan Bank of New York (the “FHLB”)			200,766						200,768
Other borrowings			—						2
Total borrowings			200,766						200,770
Other liabilities:
Acceptances executed and outstanding			25,826						25,576
Operating lease liabilities			23,969						24,029
Deferred tax liabilities, net			22,876						22,444
Accrued expenses and other liabilities			121,871						115,985
Total liabilities			9,943,582						10,150,973
Commitments and contingencies (See Note 18)
Stockholders’ equity:
Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 47,216,571 shares outstanding (December 31, 2023 - 59,885,234 shares issued; 47,065,156 shares outstanding)			59,885						59,885
Additional paid-in capital			636,208						638,667
Legal surplus			155,732						150,967
Retained earnings			672,455						639,324
Treasury stock, at cost, 12,668,663 shares (December 31, 2023 - 12,820,078 shares)			(226,896)						(228,350)
Accumulated other comprehensive loss, net of tax of $14,316 (December 31, 2023 - $11,484)			(81,731)						(67,013)
Total stockholders’ equity			1,215,653						1,193,480
Total liabilities and stockholders’ equity			$	11,159,235					$	11,344,453

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023

			Quarter Ended March 31,
			2024						2023
			(In thousands, except per share data)
Interest income:
Loans			$	149,594					$	128,311
Mortgage-backed securities			19,793						10,074
Investment securities and other			14,039						10,600
Total interest income			183,426						148,985
Interest expense:
Deposits			36,792						12,497
Advances from FHLB and other borrowings			2,532						591
Total interest expense			39,324						13,088
Net interest income			144,102						135,897
Provision for credit losses			15,121						9,445
Net interest income after provision for credit losses			128,981						126,452
Non-interest income:
Banking service revenue			17,259						17,513
Wealth management revenue			8,107						7,120
Mortgage banking activities			4,693						3,898
Total banking and financial service revenues			30,059						28,531
Net (loss) gain on:
Sale of securities			(7)						—
Other non-interest income			296						370
Total non-interest income			30,348						28,901

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023 (CONTINUED)

			Quarter Ended March 31,
			2024						2023
			(In thousands, except per share data)
Non-interest expense:
Compensation and employee benefits			39,816						38,473
Occupancy, equipment and infrastructure costs			14,322						14,257
Electronic banking charges			10,366						10,337
Information technology expenses			6,603						6,418
Professional and service fees			4,004						5,064
Taxes, other than payroll and income taxes			3,243						3,273
Insurance			2,676						2,918
Loan servicing and clearing expenses			2,110						2,267
Advertising, business promotion, and strategic initiatives			2,379						2,036
Communication			1,081						1,029
Printing, postage, stationery and supplies			959						730
Director and investor relations			279						258
Foreclosed real estate and other repossessed assets income, net of expenses			668						793
Other			2,906						2,367
Total non-interest expense			91,412						90,220
Income before income taxes			67,917						65,133
Income tax expense			18,225						18,904
Net income available to common shareholders			$	49,692					$	46,229
Earnings per common share:
Basic			$	1.06					$	0.97
Diluted			$	1.05					$	0.96
Average common shares outstanding and equivalents			47,343						47,944
Cash dividends per share of common stock			$	0.25					$	0.22

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Net income			$	49,692					$	46,229
Other comprehensive (loss) income before tax:
Unrealized (loss) gain on securities available-for-sale			(17,557)						17,924
Realized loss on sale of securities available-for-sale			7						—
Unrealized loss on cash flow hedges			—						(131)
Other comprehensive (loss) income before taxes			(17,550)						17,793
Income tax effect			2,832						(2,724)
Other comprehensive (loss) income after taxes			(14,718)						15,069
Comprehensive income			$	34,974					$	61,298

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Common stock:
Balance at the beginning and end of period			59,885						59,885
Additional paid-in capital:
Balance at beginning of period			638,667						636,793
Stock-based compensation expense			1,165						965
Lapsed restricted stock units			(3,624)						(2,973)
Balance at end of period			636,208						634,785
Legal surplus:
Balance at beginning of period			150,967						133,901
Transfer from retained earnings			4,765						4,432
Balance at end of period			155,732						138,333
Retained earnings:
Balance at beginning of period			639,324						516,371
Net income			49,692						46,229
Cash dividends declared on common stock[1]			(11,796)						(10,527)
Transfer to legal surplus			(4,765)						(4,432)
Balance at end of period			672,455						547,641
Treasury stock:
Balance at beginning of period			(228,350)						(211,135)
Stocks repurchased			—						(2,894)
Lapsed restricted stock units and options			1,454						1,235
Balance at end of period			(226,896)						(212,794)
Accumulated other comprehensive loss, net of tax:
Balance at beginning of period			(67,013)						(93,409)
Other comprehensive (loss) gain, net of tax			(14,718)						15,069
Balance at end of period			(81,731)						(78,340)
Total stockholders’ equity			$	1,215,653					$	1,089,510

[1] Dividends declared per common share during the quarter ended March 31, 2024 - $0.25 (March 31, 2023 - $0.22).

See notes to unaudited consolidated financial statements.

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Cash flows from operating activities:
Net income			$	49,692					$	46,229
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan origination fees and fair value premiums on loans			827						497
Amortization of investment securities (discounts), net of accretion of premiums			(3,580)						(2,343)
Amortization of other intangible assets			1,478						1,725
Net change in operating leases			59						86
Depreciation and amortization of premises and equipment			5,286						5,043
Deferred income tax expense, net			3,808						15,391
Provision for credit losses			15,121						9,445
Stock-based compensation			1,165						965
(Gain) loss on:
Sale of securities			7						—
Sale of loans			(335)						(252)
Foreclosed real estate and other repossessed assets			(566)						(238)
Sale of other assets			(1)						(20)
Originations and purchases of loans held-for-sale			(27,696)						(27,509)
Proceeds from sale of loans held-for-sale			19,685						3,260
Net decrease (increase) in:
Accrued interest receivable			(694)						307
Servicing assets			(33)						1,576
Other assets			(558)						(9,764)
Net (decrease) increase in:
Accrued interest on deposits and borrowings			(1,254)						543
Accrued expenses and other liabilities			(1,420)						7,259
Net cash provided by operating activities			60,991						52,200
See notes to unaudited consolidated financial statements.

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OFG BANCORP  UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023 (CONTINUED)
			Quarter Ended March 31,
			2024						2023
			(In thousands)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale			(933)						(476)
FHLB stock			(12,600)						(9,000)
Equity securities			(1,693)						(573)
Maturities and redemptions of:
Investment securities available-for-sale			56,153						101,510
Investment securities held-to-maturity			4,838						4,492
FHLB stock			12,600						22
Proceeds from sales of:
Investment securities available-for-sale			149,406						—
Foreclosed real estate and other repossessed assets, including write-offs			10,363						15,110
Premises and equipment			1						20
Origination and purchase of loans, excluding loans held-for-sale			(683,420)						(631,471)
Principal repayment of loans			634,989						593,606
Additions to premises and equipment			(6,186)						(3,118)
Net cash provided by investing activities			$	163,518					$	70,122
Cash flows from financing activities:
Net (decrease) increase in:
Deposits			(205,733)						(10,417)
FHLB advances and other borrowings			(2)						199,329
Exercise of stock options and restricted units lapsed, net			(2,170)						(1,738)
Purchase of treasury stock			—						(2,894)
Dividends paid on common stock			(10,385)						(9,572)
Net cash (used in) provided by financing activities			$	(218,290)					$	174,708
Net change in cash, cash equivalents and restricted cash			6,219						297,030
Cash, cash equivalents and restricted cash at beginning of period			748,173						550,464
Cash, cash equivalents and restricted cash at end of period			$	754,392					$	847,494

See notes to unaudited consolidated financial statements.

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OFG BANCORP UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023 (CONTINUED)
			Quarter Ended March 31,
			2024						2023
			(In thousands)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Statements of Financial Condition:
Cash and due from banks			$	749,718					$	844,180
Money market investments			4,674						3,172
Restricted cash			—						142
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period			$	754,392					$	847,494
			Quarter Ended March 31,
			2024						2023
			(In thousands)
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:
Interest paid			$	39,446					$	11,224
Income taxes paid			$	5,094					$	—
Operating lease liabilities paid			$	2,594					$	2,514
Mortgage loans held-for-sale securitized into mortgage-backed securities			$	17,351					$	21,399
Transfer from loans to foreclosed real estate and other repossessed assets			$	12,803					$	13,140
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio			$	9,139					$	86
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio			$	—					$	8,736
Financed sales of foreclosed real estate			$	124					$	286
Delinquent loans booked under the GNMA buy-back option			$	18,510					$	26,348

See notes to unaudited consolidated financial statements.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

OFG is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. OFG operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer and investment adviser, Oriental Financial Services LLC (“Oriental Financial Services”), an insurance agency, Oriental Insurance, LLC (“Oriental Insurance”), a captive reinsurance company, OFG Reinsurance Ltd (“OFG Reinsurance”), and OFG Ventures LLC (“OFG Ventures”), which holds investments. Through these subsidiaries and their respective divisions, OFG provides a wide range of banking and financial services such as commercial, consumer, auto, and mortgage lending, financial planning, insurance sales, investment advisory, and securities brokerage services, as well as corporate and individual trust services.

The Bank has a wholly-owned operating subsidiary, OFG USA LLC, which is a commercial lender organized in Delaware. In addition, Oriental International Bank Inc. (“OIB”), a wholly-owned subsidiary of the Bank, and Oriental Overseas, a division of the Bank, are international banking entities licensed pursuant to the International Banking Center Regulatory Act of Puerto Rico, as amended. OIB and Oriental Overseas offer the Bank certain Puerto Rico tax advantages. Their activities are limited under Puerto Rico law to persons located in Puerto Rico with assets/liabilities located outside of Puerto Rico. During the quarter ended March 31, 2024, the Bank organized OBPEF LLC, as a wholly-owned subsidiary of the Bank and a private equity fund under the Puerto Rico Incentives Code, as amended, which objective is to provide financing to eligible borrowers, whether in the form of senior or subordinated debt, to support the economic development of Puerto Rico.

Basis of Presentation

The accompanying unaudited consolidated financial statements of OFG have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (“SEC”). Accordingly, these consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of OFG on a consolidated basis, and all such adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in OFG’s annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). Operating results for the quarter ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. OFG evaluated subsequent events through the filing date of this report with the SEC and has recorded or disclosed those material events or transactions as described within the accompanying consolidated financial statements and notes. Material estimates that are particularly susceptible to significant change in the near term relate mainly to the determination of the allowance for credit losses.

New Accounting Updates Not Yet Adopted

Segment Reporting—Improvements to Reportable Segment Disclosures. In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07 to enhance segment reporting by expanding the breadth and frequency of segment disclosures required for public entities. The amendments in this ASU will allow registrants to disclose multiple measures of segment profit or loss and it also clarifies that single reportable segment entities must apply Topic 280 in its entirety. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We will adopt this guidance when it becomes effective in the annual period of 2024 on a retrospective basis to all periods presented in the financial statements, and the impact on our financial statements and disclosures is not expected to be material.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Income Taxes—Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09 to enhance income tax disclosures and address investor requests for more information about the tax risks and opportunities present in an entity’s worldwide operations. The ASU’s two primary enhancements will require further disaggregation for existing disclosures for the effective tax rate reconciliation and income taxes paid. More specifically, the amendments will require entities to disclose: a tabular effective tax rate reconciliation, broken out into specific categories with certain reconciling items above a 5% threshold further broken out by nature and jurisdiction; and income taxes paid (net of refunds received), broken out between federal, state and foreign, and net amounts paid to an individual jurisdiction that exceed 5% of the total. The amendments in this update are effective for annual periods beginning after December 15, 2024. Entities are permitted to early adopt these amendments. The amendments should be applied prospectively, but retrospective application is permitted. We will adopt this guidance when it becomes effective, in the annual period of 2025 on a prospective basis, and the impact on our financial statements and disclosures is not expected to be material.

The Enhancement and Standardization of Climate-Related Disclosures for Investors. On March 6, 2024, the SEC issued a final rule under SEC Release No. 33-11275 that requires registrants to provide climate disclosures in their annual reports and registration statements. The rule includes disclosure concerning the use of carbon offsets or renewable energy credits or certificates if their use is a material component of the registrant’s plans to achieve its disclosed climate-related targets or goals, and certain disclosures about Scope 1 and/or Scope 2 greenhouse gas (“GHG”) emissions, if material. It also requires disclosures of amounts related to the effects of severe weather events and other natural conditions. The disclosure requirements will apply to OFG's fiscal year beginning January 1, 2025. We will adopt this rule when it becomes effective. OFG is currently evaluating the final rule but the impact on our financial statements and disclosures is not expected to be material.

NOTE 2 – RESTRICTED CASH

The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits, excluding government deposits that are secured with pledged collateral. The amount of those minimum average reserve balances for the week that covered March 31, 2024 was $475.7 million (December 31, 2023 - $464.5 million). At March 31, 2024 and December 31, 2023, the Bank complied with this requirement. Cash and due from bank, as well as other short-term highly liquid securities, are used to cover the required average reserve balances.

NOTE 3 – INVESTMENT SECURITIES

Money Market Investments

OFG considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At March 31, 2024 and December 31, 2023, money market instruments included as part of cash and cash equivalents amounted to $4.7 million and $4.6 million, respectively.

Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, weighted average yield and contractual maturities of the securities owned by OFG at March 31, 2024 and December 31, 2023 were as follows:

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			March 31, 2024
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Weighted Average Yield
			(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates
Due from 1 to 5 years			$	7,060					$	—					$	340					$	6,720					1.82		%
Due from 5 to 10 years			42,231						—						2,864						39,367						1.99		%
Due after 10 years			1,367,038						5,322						64,893						1,307,467						4.10		%
Total FNMA and FHLMC certificates			1,416,329						5,322						68,097						1,353,554						4.02		%
GNMA certificates
Due less than 1 year			2						—						—						2						1.31		%
Due from 1 to 5 years			9,253						—						390						8,863						1.72		%
Due from 5 to 10 years			14,394						9						942						13,461						2.23		%
Due after 10 years			393,433						5,373						36,961						361,845						3.46		%
Total GNMA certificates			417,082						5,382						38,293						384,171						3.38		%
CMOs issued by US government-sponsored agencies
Due from 1 to 5 years			7,995						—						345						7,650						1.78		%
Due after 10 years			834						—						14						820						5.07		%
Total CMOs issued by US government-sponsored agencies			8,829						—						359						8,470						2.09		%
Total mortgage-backed securities			1,842,240						10,704						106,749						1,746,195						3.87		%
Investment securities
US Treasury securities
Due less than 1 year			150,915						—						—						150,915						5.36		%
Other debt securities
Due less than 1 year			500						—						—						500						3.25		%
Due from 1 to 5 years			99						—						2						97						2.97		%
Total other debt securities			599						—						2						597						3.20		%
Total investment securities			151,514						—						2						151,512						5.35		%
Total securities available for sale			$	1,993,754					$	10,704					$	106,751					$	1,897,707					3.98		%
			March 31, 2024
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Weighted Average Yield
			(In thousands)
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates
Due after 10 years			$	309,764					$	—					$	60,241					$	249,523					1.73		%
Investment securities
US Treasury securities
Due less than 1 year			199,727						—						647						199,080						3.32		%
Other debt securities
Due from 1 to 5 years			35,000						54						—						35,054						6.33		%
Total securities held to maturity			$	544,491					$	54					$	60,888					$	483,657					2.61		%

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			December 31, 2023
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Weighted Average Yield
			(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates
Due from 1 to 5 years			$	6,972					—						$	311					$	6,661					1.76		%
Due from 5 to 10 years			45,835						—						2,767						43,068						2.00		%
Due after 10 years			1,411,327						8,989						54,100						1,366,216						4.11		%
Total FNMA and FHLMC certificates			1,464,134						8,989						57,178						1,415,945						4.03		%
GNMA certificates
Due less than 1 year			5						—						—						5						1.31		%
Due from 1 to 5 years			8,851						—						351						8,500						1.71		%
Due from 5 to 10 years			17,113						16						955						16,174						2.19		%
Due after 10 years			380,306						4,419						33,110						351,615						3.38		%
Total GNMA certificates			406,275						4,435						34,416						376,294						3.30		%
CMOs issued by US government-sponsored agencies
Due from 1 to 5 years			9,071						—						364						8,707						1.78		%
Due from 5 to 10 years			54						—						—						54						2.14		%
Due after 10 years			861						—						12						849						5.07		%
Total CMOs issued by US government-sponsored agencies			9,986						—						376						9,610						2.06		%
Total mortgage-backed securities			1,880,395						13,424						91,970						1,801,849						3.86		%
Investment securities
US Treasury securities
Due less than 1 year			296,747						52						—						296,799						5.40		%
Other debt securities
Due less than 1 year			500						—						—						500						3.25		%
Due from 1 to 5 years			119						—						3						116						2.97		%
Total investment securities			297,366						52						3						297,415						5.39		%
Total securities available for sale			$	2,177,761					$	13,476					$	91,973					$	2,099,264					4.07		%
			December 31, 2023
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Weighted Average Yield
			(In thousands)
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates
Due after 10 years			$	314,710					$	—					$	56,767					$	257,943					1.72		%
Investment securities
US Treasury securities
Due less than 1 year			199,314						—						1,548						197,766						3.33		%
Other debt securities
Due from 1 to 5 years			35,000						55						—						35,055						6.36		%
Total securities held to maturity			$	549,024					$	55					$	58,315					$	490,764					2.60		%

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The weighted average yield on debt securities available-for-sale is based on amortized cost and does not give effect to changes in fair value. Weighted average yields on tax-exempt obligations have been computed on a fully taxable equivalent basis.

At March 31, 2024 and December 31, 2023, most securities held by OFG are issued by U.S. government entities and government-sponsored agencies that have a zero-credit loss assumption and, therefore, have no allowance for credit losses.

Investment securities at March 31, 2024 include $1.617 billion pledged to secure government deposits and regulatory collateral, of which $1.570 billion serve as collateral for public funds. For regulatory collateral, the secured parties are not permitted to sell or repledge them. Investment securities as of December 31, 2023 include $1.624 billion pledged to secure government deposits, derivatives, and regulatory collateral that the secured parties are not permitted to sell or repledge, of which $1.575 billion serve as collateral for public funds.

At March 31, 2024 and December 31, 2023, the Bank’s international banking entity, OIB, held short-term US Treasury securities in the amount of $525 thousand and $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. At both March 31, 2024 and December 31, 2023, the Bank’s international banking entity, Oriental Overseas, held short-term US Treasury securities in the amount of $325 thousand as the legal reserve required for international banking entities under Puerto Rico law. These instruments cannot be withdrawn or transferred without the prior written approval of the Office of the Commissioner of Financial Institutions.

During the quarters ended March 31, 2024 and 2023, OFG retained securitized GNMA pools totaling $17.4 million and $16.5 million, respectively, at a yield of 5.05% and 5.19%, respectively, from its own originations.

During the quarter ended March 31, 2023, OFG retained FNMA pools totaling $4.9 million at a yield of 5.30%. OFG did not retain FNMA pools during the first quarter of 2024.

During the quarter ended March 31, 2024, OFG sold $149.4 million of available for sale US Treasury securities and recognized a $7 thousand loss on the sale. There were no sales of securities during the quarter ended March 31, 2023.

						Quarter Ended March 31, 2024
Description						Sale Price						Book Value at Sale						Gross Gains						Gross Losses
						(In thousands)
Sale of investment securities available-for-sale
Investment securities
US Treasury securities						$	149,406					$	149,413					$	—					$	7

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table shows OFG’s gross unrealized losses and fair value of investment securities available-for-sale at March 31, 2024 and December 31, 2023, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

			March 31, 2024
			12 months or more
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	754,641					$	65,319					$	689,322
GNMA certificates			271,543						38,197						233,346
CMOs issued by US Government-sponsored agencies			8,829						359						8,470
Other debt securities			99						2						97
			$	1,035,112					$	103,877					$	931,235
			March 31, 2024
			Less than 12 months
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	210,076					$	2,778					$	207,298
GNMA certificates			16,127						96						16,031
			$	226,203					$	2,874					$	223,329
			March 31, 2024
			Total
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	964,717					$	68,097					$	896,620
GNMA certificates			287,670						38,293						249,377
CMOs issued by US Government-sponsored agencies			8,829						359						8,470
Other debt securities			99						2						97
			$	1,261,315					$	106,751					$	1,154,564

The unrealized losses on OFG’s investment in federal agency mortgage-backed securities were caused by market volatility related to interest rate increases. OFG purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government or by a government sponsored enterprise. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of OFG’s investments. OFG does not intend to sell the investments, and it is not more likely than not that OFG will be required to sell the investments before recovery of their amortized cost bases.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			December 31, 2023
			12 months or more
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	731,334					$	56,847					$	674,487
GNMA certificates			275,669						34,364						241,305
CMOs issued by US Government-sponsored agencies			9,986						376						9,610
Other debt securities			119						3						116
			$	1,017,108					$	91,590					$	925,518

			December 31, 2023
			Less than 12 months
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	106,235					$	331					$	105,904
GNMA certificates			7,864						52						7,812
			$	114,099					$	383					$	113,716

			December 31, 2023
			Total
			Amortized Cost						Unrealized Loss						Fair Value
			(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates			$	837,569					$	57,178					$	780,391
GNMA certificates			283,533						34,416						249,117
CMOs issued by US Government-sponsored agencies			9,986						376						9,610
Other debt securities			119						3						116
			$	1,131,207					$	91,973					$	1,039,234

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 4 - LOANS

OFG’s loan portfolio is composed of four segments: commercial, mortgage, consumer, and auto loans. Loans are further segregated into classes which OFG uses when assessing and monitoring the risk and performance of the portfolio.

The composition of the amortized cost basis of OFG’s loan portfolio at March 31, 2024 and December 31, 2023 was as follows:

			March 31, 2024																		December 31, 2023
			Non-PCD						PCD						Total						Non-PCD						PCD						Total
			(In thousands)
Commercial PR:
Commercial secured by real estate			$	1,172,215					$	117,984					$	1,290,199					$	1,095,207					$	120,988					$	1,216,195
Other commercial and industrial			1,006,533						14,051						1,020,584						1,091,021						14,459						1,105,480
			2,178,748						132,035						2,310,783						2,186,228						135,447						2,321,675
Commercial US			740,665						—						740,665						755,228						—						755,228
Total commercial loans			2,919,413						132,035						3,051,448						2,941,456						135,447						3,076,903
Mortgage loans			609,939						909,106						1,519,045						629,247						933,362						1,562,609
Consumer loans:
Personal loans			577,304						260						577,564						568,358						264						568,622
Credit lines			10,747						284						11,031						10,926						288						11,214
Credit cards			39,016						—						39,016						40,314						—						40,314
Overdraft			369						—						369						296						—						296
			627,436						544						627,980						619,894						552						620,446
Auto loans			2,339,836						1,358						2,341,194						2,272,530						1,891						2,274,421
			6,496,624						1,043,043						7,539,667						6,463,127						1,071,252						7,534,379
Allowance for credit losses			(148,767)						(7,796)						(156,563)						(152,610)						(8,496)						(161,106)
Total loans held for investment, net			6,347,857						1,035,247						7,383,104						6,310,517						1,062,756						7,373,273
Mortgage loans held-for-sale			9,370						—						9,370						—						—						—
Other loans held-for-sale			18,904						—						18,904						28,345						—						28,345
Total loans held-for-sale			28,274						—						28,274						28,345						—						28,345
Total loans, net			$	6,376,131					$	1,035,247					$	7,411,378					$	6,338,862					$	1,062,756					$	7,401,618

During the quarter ended March 31, 2024, OFG sold $16.7 million of commercial loans held-for-sale and recognized a $26 thousand loss, included in other non-interest income in the consolidated statement of operations.

At March 31, 2024 and December 31, 2023, OFG had carrying balances of $75.5 million and $68.6 million, respectively, in loans held-for-investment granted to the Puerto Rico government or its instrumentalities as part of the commercial loan segment. The Bank’s loans to the Puerto Rico government are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities in current status. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations.

The tables below present the aging of the amortized cost of loans held for investment at March 31, 2024 and December 31, 2023, by class of loans. Mortgage loans past due include $18.5 million and $19.4 million of delinquent loans in the GNMA buy-back option program at March 31, 2024 and December 31, 2023, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			March 31, 2024
			30-59 Days Past Due						60-89 Days Past Due						90+ Days Past Due						Total Past Due						Current						Total Loans						Loans 90+ Days Past Due and Still Accruing
			(In thousands)
Commercial PR:
Commercial secured by real estate			$	2,146					$	298					$	5,534					$	7,978					$	1,164,237					$	1,172,215					$	—
Other commercial and industrial			2,349						265						2,509						5,123						1,001,410						1,006,533						—
			4,495						563						8,043						13,101						2,165,647						2,178,748						—
Commercial US			1,070						—						—						1,070						739,595						740,665						—
Total commercial loans			5,565						563						8,043						14,171						2,905,242						2,919,413						—
Mortgage loans			5,248						7,832						31,414						44,494						565,445						609,939						2,934
Consumer loans:
Personal loans			6,423						3,359						3,312						13,094						564,210						577,304						—
Credit lines			52						29						20						101						10,646						10,747						—
Credit cards			562						407						527						1,496						37,520						39,016						—
Overdraft			69						—						—						69						300						369						—
			7,106						3,795						3,859						14,760						612,676						627,436						—
Auto loans			91,686						35,018						14,516						141,220						2,198,616						2,339,836						—
Total loans			$	109,605					$	47,208					$	57,832					$	214,645					$	6,281,979					$	6,496,624					$	2,934

As of March 31, 2024, total past due loans exclude $6.5 million of past due commercial loans held-for-sale.

			December 31, 2023
			30-59 Day Past Due						60-89 Days Past Due						90+ Days Past Due						Total Past Due						Current						Total Loans						Loans 90+ Days Past Due and Still Accruing
			(In thousands)
Commercial PR:
Commercial secured by real estate			$	1,585					$	411					$	5,671					$	7,667					$	1,087,540					$	1,095,207					$	—
Other commercial and industrial			1,366						291						4,974						6,631						1,084,390						1,091,021						—
			2,951						702						10,645						14,298						2,171,930						2,186,228						—
Commercial US			—						—						—						—						755,228						755,228						—
Total commercial loans			2,951						702						10,645						14,298						2,927,158						2,941,456						—
Mortgage loans			6,107						9,596						31,557						47,260						581,987						629,247						2,478
Consumer loans:
Personal loans			6,115						4,041						2,755						12,911						555,447						568,358						—
Credit lines			137						35						35						207						10,719						10,926						—
Credit cards			657						280						586						1,523						38,791						40,314						—
Overdraft			87						14						—						101						195						296						—
			6,996						4,370						3,376						14,742						605,152						619,894						—
Auto loans			101,610						46,071						19,056						166,737						2,105,793						2,272,530						—
Total loans			$	117,664					$	60,739					$	64,634					$	243,037					$	6,220,090					$	6,463,127					$	2,478

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2023, total past due loans exclude $6.4 million of past due commercial loans held for sale.

Upon adoption of the Current Expected Credit Losses (“CECL”) methodology, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, purchased credit deteriorated (“PCD”) loans are not included in the preceding two tables.

Non-accrual Loans

The following table presents the amortized cost basis of loans held for investment on non-accrual status as of March 31, 2024 and December 31, 2023:

			March 31, 2024																		December 31, 2023
			Non-accrual with Allowance for Credit Loss						Non-accrual with no Allowance for Credit Loss						Total						Non-accrual with Allowance for Credit Loss						Non-accrual with no Allowance for Credit Loss						Total
			(In thousands)																		(In thousands)
Non-PCD:
Commercial PR:
Commercial secured by real estate			$	3,818					$	7,747					$	11,565					$	3,553					$	7,929					$	11,482
Other commercial and industrial			2,941						709						3,650						4,560						830						5,390
			6,759						8,456						15,215						8,113						8,759						16,872
Commercial US			18,579						—						18,579						19,224						—						19,224
Total Commercial loans			25,338						8,456						33,794						27,337						8,759						36,096
Mortgage loans			9,746						3,954						13,700						10,339						3,858						14,197
Consumer loans:
Personal loans			3,203						143						3,346						2,741						14						2,755
Personal lines of credit			21						—						21						35						—						35
Credit cards			526						—						526						586						—						586
			3,750						143						3,893						3,362						14						3,376
Auto loans			14,510						6						14,516						19,051						5						19,056
Total			$	53,344					$	12,559					$	65,903					$	60,089					$	12,636					$	72,725
PCD:
Commercial PR:
Commercial secured by real estate			$	2,835					$	2,306					$	5,141					$	3,060					$	2,417					$	5,477
Other commercial and industrial			—						828						828						—						947						947
			2,835						3,134						5,969						3,060						3,364						6,424
Mortgage loans			247						—						247						250						—						250
Total			$	3,082					$	3,134					$	6,216					$	3,310					$	3,364					$	6,674
Total non-accrual loans			$	56,426					$	15,693					$	72,119					$	63,399					$	16,000					$	79,399

The determination of non-accrual or accrual status of PCD loans is made at the pool level, not the individual loan level.

As of March 31, 2024 and December 31, 2023, total commercial non-accrual loans exclude $6.5 million and $6.4 million of non-accrual commercial loans held for sale, respectively.

Delinquent residential mortgage loans insured or guaranteed under applicable Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Modifications to Debtors Experiencing Financial Difficulty

OFG’s loss mitigation program was designed to ensure that borrowers experiencing financial difficulties have the opportunity to continue paying their obligations. The loss mitigation alternatives are divided depending on the borrower’s hardship and its ability to continue with regular payment or with a new modified payment plan. The loss mitigation program provides alternatives for home retention or disposition options avoiding foreclosure proceedings and collateral retention.

OFG offers various types of loan modifications to borrowers experiencing financial difficulty in the form of an interest rate reduction, an other-than-insignificant payment delay, a term extension, interest or principal forbearance or forgiveness, or any combination of these types of concessions.

At March 31, 2024 and 2023, the amortized cost of modified loans excludes zero and $32 thousand, respectively, in accrued interest receivable. Accrued interest receivable on loans is included in the “accrued interest receivable” line in OFG’s consolidated statements of financial condition. The amortized cost of modified loans during the quarters ended March 31, 2024 and 2023, includes $54 thousand and $2.4 million, respectively, of government-guaranteed loans (e.g., FHA/VA).

The following tables present the amortized cost basis as of March 31, 2024 and 2023 of loans held for investment that were modified during the quarters ended March 31, 2024 and 2023, disaggregated by class of financing receivable and type of concession granted.

			Quarter Ended March 31, 2024
			Interest Rate Reduction									Term Extension									Principal Forbearance/Forgiveness									Combination of Term Extension and Interest Rate Reduction									Combination of Term Extension and Principal Forgiveness/Forbearance
			Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable
			(Dollars in thousands)
Mortgage loans			$	—		—		%				$	95		0.01		%				$	—		—		%				$	—		—		%				$	—		—		%
Consumer:
Personal loans			27			—		%				7			—		%				—			—		%				—			—		%				—			—		%
Total			$	27								$	102								$	—								$	—								$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			Quarter Ended March 31, 2023
			Interest Rate Reduction									Term Extension									Principal Forbearance/Forgiveness									Combination of Term Extension and Interest Rate Reduction									Combination of Term Extension and Principal Forgiveness/Forbearance
			Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable						Amortized Cost Basis			% of Total Class of Financing Receivable
			(Dollars in thousands)
Commercial PR:
Commercial secured by real estate			$	—		—		%				$	495		0.04		%				$	—		—		%				$	—		—		%				$	—		—		%
Mortgage loans			—			—		%				2,604			0.16		%				129			0.01		%				187			0.01		%				$	—		—		%
Consumer:
Personal loans			—			—		%				—			—		%				—			—		%				28			0.01		%				$	—		—		%
Total			$	—								$	3,099								$	129								$	215								$	—

Our credit loss estimation methodology incorporates a lifetime approach, utilizing modeled loan performance based on the historical experience of loans with similar risk characteristics, adjusted for current conditions, and reasonable and supportable forecasts. The model considers extensive historical loss experience, including the impact of loss mitigation programs offered to borrowers facing financial difficulty and projected loss severity from loan defaults, and is applied consistently across all portfolio segments. Additionally, our ACL is recorded on each asset upon origination or acquisition and is based on historical loss information, including modifications made to borrowers facing financial difficulty, and expected behavior. Changes to the ACL are generally not recorded upon modification, as the effects of most modifications are already considered in the estimation methodology. Refer to Note 5 – Allowance for Credit Losses for additional information.

The following tables present the financial effect of the modifications granted to borrowers experiencing financial difficulty during the quarters ended March 31, 2024 and 2023. The financial effect of the combined modifications is presented separately by type of modification.

			Quarter Ended March 31, 2024
			Weighted-Average Interest Rate Reduction						Weighted-Average Term Extension (In months)						Weighted-Average Forgiveness/Forbearance of Principal Amount (In thousands)
Mortgage loans			—		%				180						—
Consumer loans:
Personal loans			5.00		%				18						—

			Quarter Ended March 31, 2023
			Weighted-Average Interest Rate Reduction						Weighted-Average Term Extension (In months)						Weighted-Average Forgiveness/Forbearance of Principal Amount (In thousands)
Commercial PR:
Commercial loans secured by real estate			—		%				12						$	—
Mortgage loans			2.08		%				212						$	39
Consumer loans:
Personal loans			5.00		%				24						$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the amortized cost basis as of March 31, 2024 of loans held for investment that had a payment default subsequent to being granted a modification to borrowers experiencing financial difficulty in the prior twelve-months.

			Twelve Months Ended March 31, 2024
			Amortized Cost Basis of Modified Financing Receivables that Subsequently Defaulted
			Interest Rate Reduction						Term Extension						Principal Forgiveness/Forbearance						Combination - Term Extension and Interest Rate Reduction						Total
			(In thousands)
Mortgage loans			$	—					$	277					$	—					$	85					$	362

A payment default for a financial difficulty modification loan is defined as reaching 90 days past due with respect to principal and/or interest payments or when the borrower missed three consecutive monthly payments since modification. Payment defaults is one of the factors considered when projecting future cash flows in the calculation of the allowance for credit losses of loans.

OFG closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the payment status of loans that have been modified in the last twelve-months.

			March 31, 2024
			30-59 Day Past Due						60-89 Days Past Due						90+ Days Past Due						Total Past Due						Current						Total
			(In thousands)
Commercial loans:
Commercial PR:
Commercial loans secured by real estate			$	—					$	—					$	—					$	—					$	5,806					$	5,806
Other commercial and industrial			—						—						—						—						638						638
			—						—						—						—						6,444						6,444
Commercial US			—						—						—						—						10,571						10,571
			—						—						—						—						17,015						17,015
Mortgage loans			141						115						277						533						3,832						4,365
Consumer loans:
Personal loans			—						—						—						—						127						127
			—						—						—						—						127						127
Auto loans			—						—						—						—						110						110
Total			$	141					$	115					$	277					$	533					$	21,084					$	21,617

There were no outstanding commitments to lend additional funds to debtors experiencing financial difficulties at March 31, 2024 and December 31, 2023.

As of March 31, 2024 and December 31, 2023, the recorded investment on residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure amounted to $18.2 million and $24.1 million, respectively. OFG commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent. Puerto Rico and the USVI require the foreclosure to be processed through their respective courts. Foreclosure timelines vary according to local law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediation, bankruptcy, court delays and property title issues.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Collateral-dependent Loans

The table below presents the amortized cost of commercial collateral-dependent loans held for investment at March 31, 2024 and December 31, 2023, by class of loans.

			March 31,						December 31,
			2024						2023
			(In thousands)
Commercial PR:
Commercial loans secured by real estate			$	7,862					$	8,027

PCD loans, except for single-pooled loans, are not included in the table above as their unit of account is the loan pool.

Credit Quality Indicators

OFG categorizes its loans into loan grades based on relevant information about the ability of borrowers to service their debts, such as economic conditions, portfolio risk characteristics, prior loss experience, and the results of periodic credit reviews of individual loans.

OFG uses the following definitions for loan grades:

Pass: Loans classified as “pass” have a well-defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.

Special Mention: Loans classified as “special mention” have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as “doubtful” have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, questionable and improbable.

Loss: Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future.

Loans not meeting the criteria above that are analyzed individually as part of the process described above are considered to be pass loans.

As of March 31, 2024, and based on the most recent analysis performed, the risk category of loans held for investment subject to risk rating by class of loans, and current year-to-date period gross charge-offs by year of origination is as follows:

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

						Term Loans Amortized Cost Basis by Origination Year																																				Revolving Loans Amortized Cost Basis						Total
						2024						2023						2022						2021						2020						Prior
						(In thousands)
Commercial PR:
Commercial secured by real estate:
Loan grade:
Pass						$	93,845					$	223,742					$	206,955					$	191,368					$	110,669					$	203,868					$	74,976					$	1,105,423
Special Mention						—						—						8,656						6,464						4,820						28,267						133						48,340
Substandard						—						—						457						1,346						1,214						14,714						706						18,437
Doubtful						—						—						—						—						—						15						—						15
Loss						—						—						—						—						—						—						—						—
Total commercial secured by real estate						93,845						223,742						216,068						199,178						116,703						246,864						75,815						1,172,215
Commercial secured by real estate:
YTD gross charge-offs						—						—						—						—						—						7						—						7
Other commercial and industrial:
Loan grade:
Pass						33,643						280,879						79,473						107,103						30,025						20,175						447,902						999,200
Special Mention						—						—						2,822						10						—						73						1,060						3,965
Substandard						—						32						388						1,095						236						1,172						445						3,368
Doubtful						—						—						—						—						—						—						—						—
Loss						—						—						—						—						—						—						—						—
Total other commercial and industrial:						33,643						280,911						82,683						108,208						30,261						21,420						449,407						1,006,533
Other commercial and industrial:
YTD gross charge-offs						99						—						156						3,303						—						—						—						3,558
Commercial US:
Loan grade:
Pass						9,860						141,607						63,193						59,735						30,482						29,930						356,117						690,924
Special Mention						—						—						7,798						17,678						—						—						—						25,476
Substandard						—						10,571						—						—						—						5,686						8,008						24,265
Doubtful						—						—						—						—						—						—						—						—
Loss						—						—						—						—						—						—						—						—
Total Commercial US:						9,860						152,178						70,991						77,413						30,482						35,616						364,125						740,665
Commercial US:
YTD gross charge-offs						—						—						—						1,749						—						2						—						1,751
Total commercial loans						$	137,348					$	656,831					$	369,742					$	384,799					$	177,446					$	303,900					$	889,347					$	2,919,413
Total YTD gross charge-offs						$	99					$	—					$	156					$	5,052					$	—					$	9					$	—					$	5,316

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2023, and based on the most recent analysis performed, the risk category of loans held for investment subject to risk rating by class of loans is as follows:

						Term Loans Amortized Cost Basis by Origination Year																																				Revolving Loans Amortized Cost Basis						Total
						2023						2022						2021						2020						2019						Prior
						(In thousands)
Commercial PR:
Commercial secured by real estate:
Loan grade:
Pass						$	224,598					$	216,205					$	195,884					$	120,489					$	80,671					$	131,016					$	65,873					$	1,034,736
Special Mention						—						1,772						6,554						5,057						15,676						12,500						153						41,712
Substandard						—						459						1,386						1,109						2,615						11,939						1,236						18,744
Doubtful						—						—						—						—						—						15						—						15
Loss						—						—						—						—						—						—						—						—
Total commercial secured by real estate						224,598						218,436						203,824						126,655						98,962						155,470						67,262						1,095,207
Commercial secured by real estate:
YTD gross charge-offs						—						—						265						—						94						820						—						1,179
Other commercial and industrial:
Loan grade:
Pass						284,615						99,522						113,760						37,665						7,438						14,836						527,008						1,084,844
Special Mention						8						2,953						—						—						51						100						—						3,112
Substandard						3						473						826						259						935						186						383						3,065
Doubtful						—						—						—						—						—						—						—						—
Loss						—						—						—						—						—						—						—						—
Total other commercial and industrial:						284,626						102,948						114,586						37,924						8,424						15,122						527,391						1,091,021
Other commercial and industrial:
YTD gross charge-offs						—						124						1,095						89						9						1,180						—						2,497
Commercial US:
Loan grade:
Pass						142,222						63,885						69,233						31,206						28,202						8,085						358,757						701,590
Special Mention						—						7,803						—						—						—						—						20,913						28,716
Substandard						10,832						—						—						—						—						5,699						8,391						24,922
Doubtful						—						—						—						—						—						—						—						—
Loss						—						—						—						—						—						—						—						—
Total Commercial US:						153,054						71,688						69,233						31,206						28,202						13,784						388,061						755,228
Commercial US:
YTD gross charge-offs						33						1,156						642						47						—						8,637						—						10,515
Total commercial loans						$	662,278					$	393,072					$	387,643					$	195,785					$	135,588					$	184,376					$	982,714					$	2,941,456
Total YTD gross charge-offs						$	33					$	1,280					$	2,002					$	136					$	103					$	10,637					$	—					$	14,191

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

At March 31, 2024 and December 31, 2023, the balance of revolving commercial loans converted to term loans was $162.7 million and $144.1 million, respectively.

OFG considers the performance of the loan portfolio and its impact on the ACL. For mortgage and consumer loan classes, OFG also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in mortgage and consumer loans held for investment based on payment activity as of March 31, 2024:

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

						Term Loans Amortized Cost Basis by Origination Year																																				Revolving Loans Amortized Cost Basis						Total
						2024						2023						2022						2021						2020						Prior
						(In thousands)
Mortgage loans:
Payment performance:
Performing						$	3,961					$	17,075					$	19,576					$	23,376					$	15,766					$	511,141					$	—					$	590,895
Nonperforming						—						—						—						176						106						18,762						—						19,044
Total mortgage loans:						3,961						17,075						19,576						23,552						15,872						529,903						—						609,939
Mortgage loans:
YTD gross charge-offs						—						—						—						—						—						64						—						64
Consumer loans:
Personal loans:
Payment performance:
Performing						66,385						247,875						166,549						59,793						16,903						16,453						—						573,958
Nonperforming						34						1,189						1,404						463						157						99						—						3,346
Total personal loans						66,419						249,064						167,953						60,256						17,060						16,552						—						577,304
Personal loans:
YTD gross charge-offs						—						1,635						3,576						1,018						298						381						—						6,908
Credit lines:
Payment performance:
Performing						—						—						—						—						—						—						10,726						10,726
Nonperforming						—						—						—						—						—						—						21						21
Total credit lines						—						—						—						—						—						—						10,747						10,747
Credit lines:
YTD gross charge-offs						—						—						—						—						—						—						64						64
Credit cards:
Payment performance:
Performing						—						—						—						—						—						—						38,490						38,490
Nonperforming						—						—						—						—						—						—						526						526
Total credit cards						—						—						—						—						—						—						39,016						39,016
Credit cards:
YTD gross charge-offs						—						—						—						—						—						—						633						633
Overdrafts:
Payment performance:
Performing						—						—						—						—						—						—						369						369
Nonperforming						—						—						—						—						—						—						—						—
Total overdrafts						—						—						—						—						—						—						369						369
Overdrafts:
YTD gross charge-offs						—						—						—						—						—						—						376						376
Total consumer loans						66,419						249,064						167,953						60,256						17,060						16,552						50,132						627,436
Total consumer loans YTD gross charge-offs						—						1,635						3,576						1,018						298						381						1,073						7,981
Total mortgage and consumer loans						$	70,380					$	266,139					$	187,529					$	83,808					$	32,932					$	546,455					$	50,132					$	1,237,375
Total mortgage and consumer loans YTD gross charge-offs						$	—					$	1,635					$	3,576					$	1,018					$	298					$	445					$	1,073					$	8,045

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the amortized cost in mortgage and consumer loans held for investment based on payment activity as of December 31, 2023:

						Term Loans Amortized Cost Basis by Origination Year																																				Revolving Loans Amortized Cost Basis						Total
						2023						2022						2021						2020						2019						Prior
						(In thousands)
Mortgage loans:
Payment performance:
Performing						$	24,623					$	19,722					$	23,303					$	15,821					$	14,589					$	511,182					$	—					$	609,240
Nonperforming						$	—					—						181						108						479						19,239						—						20,007
Total mortgage loans:						24,623						19,722						23,484						15,929						15,068						530,421						—						629,247
Mortgage loans:
YTD gross charge-offs						$	—					4						—						—						—						755						—						759
Consumer loans:
Personal loans:
Payment performance:
Performing						270,883						186,612						68,133						19,185						14,460						6,330						—						$	565,603
Nonperforming						503						1,588						304						193						66						101						—						2,755
Total personal loans						271,386						188,200						68,437						19,378						14,526						6,431						—						568,358
Personal loans:
YTD gross charge-offs						1,748						10,512						4,661						830						1,384						731						—						19,866
Credit lines:
Payment performance:
Performing						—						—						—						—						—						—						10,891						$	10,891
Nonperforming						—						—						—						—						—						—						35						35
Total credit lines						—						—						—						—						—						—						10,926						10,926
Credit lines:
YTD gross charge-offs						—						—						—						—						—						—						419						419
Credit cards:
Payment performance:
Performing						—						—						—						—						—						—						39,728						$	39,728
Nonperforming						—						—						—						—						—						—						586						586
Total credit cards						—						—						—						—						—						—						40,314						40,314
Credit cards:
YTD gross charge-offs						—						—						—						—						—						—						2,825						2,825
Overdrafts:
Payment performance:
Performing						—						—						—						—						—						—						296						$	296
Nonperforming						—						—						—						—						—						—						—						—
Total overdrafts						—						—						—						—						—						—						296						296
Overdrafts:
YTD gross charge-offs						—						—						—						—						—						—						545						545
Total consumer loans						271,383						188,200						68,437						19,378						14,526						6,431						51,536						619,894
Total consumer loans YTD gross charge-offs						1,748						10,512						4,661						830						1,384						731						3,789						23,655
Total mortgage and consumer loans						$	296,009					$	207,922					$	91,921					$	35,307					$	29,594					$	536,852					$	51,536					$	1,249,141
Total mortgage and consumer loans YTD gross charge-offs						$	1,748					$	10,516					$	4,661					$	830					$	1,384					$	1,486					$	3,789					$	24,414

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

At March 31, 2024, the balance of revolving mortgage and consumer loans that converted to term loans was $54.4 thousand. At December 31, 2023, there were no mortgage and consumer revolving loans that converted to term loans.

OFG evaluates credit quality for auto loans based on FICO score. The following table presents the amortized cost in auto loans held for investment based on their most recent FICO score as of March 31, 2024:

			Term Loans Amortized Cost Basis by Origination Year																																				Total
			2024						2023						2022						2021						2020						Prior
			(In thousands)
Auto loans:
FICO score:
1-660			27,029						199,471						189,377						113,598						53,460						68,305						651,240
661-699			36,542						165,438						98,929						51,872						23,089						27,931						403,801
700+			119,541						460,225						298,660						168,374						93,230						120,373						1,260,403
No FICO			969						6,493						6,225						4,291						1,992						4,422						24,392
Total auto loans			$	184,081					$	831,627					$	593,191					$	338,135					$	171,771					$	221,031					$	2,339,836
Auto loans:
YTD gross charge-offs			$	9					$	4,342					$	5,108					$	2,272					$	1,009					$	1,478					$	14,218

The following table presents the amortized cost in auto loans held for investment based on their most recent FICO score as of December 31, 2023:

			Term Loans Amortized Cost Basis by Origination Year																																				Total
			2023						2022						2021						2020						2019						Prior
			(In thousands)
Auto loans:
FICO score:
1-660			170,639						190,743						118,821						57,087						41,124						38,570						616,984
661-699			169,430						110,260						58,166						25,886						18,253						16,137						398,132
700+			474,005						323,514						183,286						103,886						88,929						58,779						1,232,399
No FICO			6,203						6,537						4,592						2,200						3,886						1,597						25,015
Total auto loans			$	820,277					$	631,054					$	364,865					$	189,059					$	152,192					$	115,083					$	2,272,530
Auto loans:
YTD gross charge-offs			$	4,090					$	18,142					$	10,894					$	4,008					$	3,380					$	3,250					$	43,764

Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the preceding two tables.

As of March 31, 2024 and December 31, 2023, accrued interest receivable on loans totaled $62.6 million and $63.5 million, respectively, and is included in the accrued interest receivable line in OFG’s consolidated statements of financial condition. Refer to “Note 9 – Accrued Interest Receivable and Other Assets” for more information on accrued interest receivable on loans.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

OFG measures its ACL based on management’s best estimate of lifetime expected credit losses inherent in OFG’s relevant financial assets. The ACL is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio, and an economic outlook over the life of the loan. Also included in the ACL are qualitative reserves to cover losses that are expected but, in OFG’s assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, OFG incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. The scenarios that are chosen each quarter and the amount of weight given to each scenario depend on a variety of factors, including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. For more information on OFG’s credit loss accounting policies, including the allowance for credit losses, see “Note 1 – Summary of Significant Accounting Policies” included in OFG’s 2023 Form 10-K.

At March 31, 2024, OFG used an economic probability-weighted scenario approach consisting of the baseline and moderate recession scenarios, giving more weight to the baseline scenario, except for the US loan segment that uses a higher probability level in the moderate recessionary scenario. In addition, the ACL at March 31, 2024 continues to include qualitative reserves for certain segments that OFG views as higher risk that may not be fully recognized through its quantitative models, such as auto loan portfolio credit trends and the evolution of risk ratings applied to the commercial loans and collateral changes in real estate portfolios. There are still many unknown variables, including the results of the government’s fiscal and monetary actions resulting from the effect of inflation and geopolitical tension.

As of March 31, 2024, the ACL decreased by $4.5 million compared to December 31, 2023. The provision for credit losses for the quarter ended March 31, 2024, reflected adjustments of $15.1 million related to volume and $1.7 million as a result of the strategic sale of a performing US commercial loan, partially offset by $1.7 million related to a reduction in specific reserves for payments received on substantially reserved US commercial loans.

The net charge-offs for the quarter ended March 31, 2024, amounted to $19.8 million, an increase of $9.7 million when compared to the same period of 2023. The increase is mainly due to $5.3 million in auto loans, $2.5 million in consumer loans and $2.4 million in commercial loans. Net charge-offs for the quarter ended March 31, 2024 include $3.5 million from previously and fully-reserved nonperforming paycheck protection program (“PPP”) loans.

The following tables present the activity in OFG’s allowance for credit losses by segment for the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31, 2024
			Commercial						Mortgage						Consumer						Auto						Total
			(In thousands)
Non-PCD:
Balance at beginning of period			$	44,041					$	7,998					$	27,086					$	73,485					$	152,610
(Recapture of) provision for credit losses			(1,406)						(574)						7,655						11,078						16,753
Charge-offs			(5,316)						(64)						(7,981)						(14,218)						(27,579)
Recoveries			52						267						693						5,971						6,983
Balance at end of period			$	37,371					$	7,627					$	27,453					$	76,316					$	148,767
PCD:
Balance at beginning of period			$	1,113					$	7,351					$	7					$	25					$	8,496
Recapture of provision for credit losses			(137)						(1,268)						(23)						(56)						(1,484)
Charge-offs			—						(83)						—						(9)						(92)
Recoveries			157						638						23						58						876
Balance at end of period			$	1,133					$	6,638					$	7					$	18					$	7,796
Total allowance for credit losses at end of period			$	38,504					$	14,265					$	27,460					$	76,334					$	156,563

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			Quarter Ended March 31, 2023
			Commercial						Mortgage						Consumer						Auto						Total
			(In thousands)
Non-PCD:
Balance at beginning of period			$	39,158					$	9,571					$	23,264					$	69,848					$	141,841
(Recapture of) provision for credit losses			(335)						(503)						5,974						2,896						8,032
Charge-offs			(1,375)						(201)						(5,440)						(9,479)						(16,495)
Recoveries			326						216						866						6,599						8,007
Balance at end of period			$	37,774					$	9,083					$	24,664					$	69,864					$	141,385
PCD:
Balance at beginning of period			$	1,388					$	9,359					$	14					$	71					$	10,832
Provision for (recapture of) credit losses			1,920						(814)						200						(7)						1,299
Charge-offs			(2,104)						(75)						(213)						(87)						(2,479)
Recoveries			489						247						11						100						847
Balance at end of period			$	1,693					$	8,717					$	12					$	77					$	10,499
Total allowance for credit losses at end of period			$	39,467					$	17,800					$	24,676					$	69,941					$	151,884

NOTE 6 — FORECLOSED REAL ESTATE

The following table presents the activity related to foreclosed real estate for the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Balance at beginning of period			$	10,780					$	11,214
Additions			1,345						1,438
Sales			(1,826)						(3,581)
Decline in value			(170)						(127)
Other adjustments			721						306
Balance at end of period			$	10,850					$	9,250

NOTE 7 - SERVICING ASSETS

OFG periodically sells or securitizes mortgage loans while retaining the obligation to perform the servicing of such loans. In addition, OFG may purchase or assume the right to service mortgage loans originated by others. Whenever OFG undertakes an obligation to service a loan, management assesses whether a servicing asset and/or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate OFG for servicing the loans. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate OFG for its expected cost.

At March 31, 2024, the fair value of mortgage servicing rights was $49.6 million ($49.5 million — December 31, 2023).

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the changes in servicing rights measured using the fair value method for March 31, 2024 and 2023:

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Fair value at beginning of period			$	49,520					$	50,921
Servicing from mortgage securitization or asset transfers			527						575
Changes due to payments on loans			(920)						(1,065)
Changes in fair value due to changes in valuation model inputs or assumptions			426						(1,086)
Fair value at end of period			$	49,553					$	49,345

The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value as of March 31, 2024 and 2023:

			Quarter Ended March 31,
			2024						2023
Constant prepayment rate			1.14% - 15.08%						3.59% - 23.26%
Discount rate			10.00% - 15.50%						10.00% - 15.50%

The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:

			March 31,						December 31,
			2024						2023
			(In thousands)
Mortgage-related servicing asset
Carrying value of mortgage servicing asset			$	49,553					49,520
Weighted average life (in years)			7.3						7.3
Constant prepayment rate
Decrease in fair value due to 10% adverse change			$	(928)					$	(928)
Decrease in fair value due to 20% adverse change			$	(1,821)					$	(1,821)
Discount rate
Decrease in fair value due to 10% adverse change			$	(2,007)					$	(1,999)
Decrease in fair value due to 20% adverse change			$	(3,871)					$	(3,856)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.

Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Servicing fee income is based on a contractual percentage of the outstanding principal balance and is recorded as income when earned and included in the mortgage banking activities section in the consolidated statement of operations. Servicing fees on mortgage loans for the quarters ended March 31, 2024 and 2023 totaled $4.4 million and $5.0 million, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reportable business segment is included in the table below. Refer to “Note 22 – Business Segments” for additional information on OFG’s reportable business segments.

			Banking						Wealth Management						Treasury						Total
			(In thousands)
December 31, 2023			$	84,063					$	178					$	—					$	84,241
March 31, 2024			$	84,063					$	178					$	—					$	84,241

There were no changes in the carrying amount of goodwill during the quarters ended March 31, 2024 and 2023. There were no accumulated impairment losses at March 31, 2024 and December 31, 2023.

Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting segment is less than its carrying amount may include macroeconomic conditions (such as deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, natural disasters, or similar events.

OFG performed its annual impairment review of goodwill during the fourth quarter of 2023 using October 31, 2023 as the annual evaluation date and concluded that there was no impairment at December 31, 2023. During the quarter ended March 31, 2024, OFG performed an assessment of events or circumstances that could trigger reductions in the book value of the goodwill. Based on this assessment, no impairments were identified at March 31, 2024.

The following table reflects the components of other intangible assets subject to amortization at March 31, 2024 and December 31, 2023:

						Gross Carrying Amount						Accumulated Amortization						Net Carrying Value
						(In thousands)
March 31, 2024
Core deposit intangibles						$	41,507					$	26,791					$	14,716
Customer relationship intangibles						12,693						8,193						4,500
Total other intangible assets						$	54,200					$	34,984					$	19,216
December 31, 2023
Core deposit intangibles						$	41,507					$	25,659					$	15,848
Customer relationship intangibles						12,693						7,847						4,846
Total other intangible assets						$	54,200					$	33,506					$	20,694

In connection with previous acquisitions, OFG recorded core deposit intangibles representing the value of checking and savings deposits acquired. In addition, OFG recorded customer relationship intangibles representing the value of customer relationships acquired with its acquisitions of insurance agencies. During the quarter ended March 31, 2024, OFG performed an assessment of events or circumstances that could trigger reductions in the book value of other intangible assets. Based on this assessment, no impairments were identified at March 31, 2024.

Other intangible assets have a definite useful life. Amortization of other intangible assets for the quarters ended March 31, 2024 and 2023, was $1.5 million and $1.7 million, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the estimated amortization of other intangible assets for each of the following periods.

Year Ending December 31,						(In thousands)
2024						5,913
2025						4,927
2026						3,942
2027						2,956
2028						1,971
Thereafter						985

NOTE 9 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS

Accrued interest receivable at March 31, 2024 and December 31, 2023 consists of the following:

			March 31, 2024						December 31, 2023
			(In thousands)
Loans			$	62,584					$	63,526
Investments			9,533						7,874
			$	72,117					$	71,400

Accrued interest receivable on loans that participated in the Hurricane Fiona and Covid-19 deferral programs amounted to $19.9 million at March 31, 2024, of which $17.8 million corresponded to loans in current status, and $20.2 million at December 31, 2023, of which $18.2 million corresponded to loans in current status. OFG estimates expected credit losses on accrued interest receivable for loans that participated in moratorium programs. An allowance has been established for loans with delinquency status in 30 to 89 days past due and is calculated by applying the corresponding loan projected loss factors to the accrued interest receivable balance. At March 31, 2024 and December 31, 2023, the ACL for accrued interest receivable for loans that participated in moratorium programs amounted to $62 thousand and $85 thousand, respectively, and is included in accrued interest receivable in the statement of financial condition.

Other assets at March 31, 2024 and December 31, 2023 consist of the following:

			March 31, 2024						December 31, 2023
			(In thousands)
Prepaid expenses			$	62,145					$	63,040
Other repossessed assets			6,844						4,032
Accounts receivable and other assets			49,334						47,859
			$	118,323					$	114,931

Prepaid expenses amounting to $62.1 million at March 31, 2024, include prepaid municipal, property and income taxes aggregating to $55.0 million. At December 31, 2023 prepaid expenses amounted to $63.0 million, including prepaid municipal, property and income taxes aggregating to $54.7 million.

Other repossessed assets totaled $6.8 million and $4.0 million at March 31, 2024 and December 31, 2023, respectively, and consist of repossessed automobiles, which are recorded at their net realizable value.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 10 — DEPOSITS AND RELATED INTEREST

Total deposits, including related accrued interest payable, as of March 31, 2024 and December 31, 2023 consist of the following:

			March 31, 2024						December 31, 2023
			(In thousands)
Non-interest-bearing demand deposits			$	2,562,096					$	2,537,431
Interest-bearing savings and demand deposits			5,476,565						5,601,099
Retail certificates of deposit			1,117,004						1,083,316
Institutional certificates of deposit			390,033						378,143
Total core deposits			9,545,698						9,599,989
Brokered deposits			2,576						162,180
Total deposits			$	9,548,274					$	9,762,169

At March 31, 2024 and December 31, 2023, the aggregate amount of uninsured deposits was $4.891 billion (51% of total deposits) and $4.885 billion (50.0% of total deposits), respectively.

The weighted average interest rate of OFG’s deposits was 1.54% and 0.88%, respectively, at March 31, 2024 and December 31, 2023.

Interest expense for the quarters ended March 31, 2024 and 2023 was as follows:

			Quarter Ended March 31,
			2024						2023
Demand and savings deposits			$	26,065					$	8,668
Certificates of deposit			10,727						3,829
			$	36,792					$	12,497

At March 31, 2024 and December 31, 2023, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $793.4 million and $747.2 million, respectively.

At March 31, 2024 and December 31, 2023, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $1.590 billion and $1.616 billion, respectively. These public funds were collateralized with securities and commercial loans amounting to $1.694 billion and $1.645 billion at March 31, 2024 and December 31, 2023, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Excluding accrued interest of approximately $1.7 million and $3.0 million, the scheduled maturities of certificates of deposit at March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024
			Period-end amount						Uninsured amount
			(In thousands)
Within one year:
Three months or less			$	291,558					$	88,260
Over 3 months through 6 months			200,361						91,329
Over 6 months through 1 year			509,185						233,878
			1,001,104						413,467
Over 1 through 2 years			350,012						109,708
Over 2 through 3 years			77,872						8,988
Over 3 through 4 years			34,371						1,415
Over 4 through 5 years			43,591						4,847
Over 5 years			961						—
			$	1,507,911					$	538,425
December 31, 2023
			Period-end amount						Uninsured amount
			(In thousands)
Within one year:
Three months or less			$	457,533					$	115,392
Over 3 months through 6 months			195,902						61,245
Over 6 months through 1 year			329,758						113,524
			983,193						290,161
Over 1 through 2 years			467,348						201,478
Over 2 through 3 years			94,450						13,971
Over 3 through 4 years			29,514						1,379
Over 4 through 5 years			45,575						4,665
Over 5 years			608						—
			$	1,620,688					$	511,654

The tables of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $633 thousand and $564 thousand as of March 31, 2024 and December 31, 2023, respectively.

NOTE 11— BORROWINGS AND RELATED INTEREST

Advances from the Federal Home Loan Bank of New York

Advances are received from the FHLB under an agreement whereby OFG is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At March 31, 2024 and December 31, 2023, these advances were secured by mortgage and commercial loans amounting to $984.4 million and $1.0 billion, respectively. Also, at March 31, 2024 and December 31, 2023, OFG had an additional borrowing capacity with the FHLB of $457.5 million and $446.0 million, respectively. At March 31, 2024 and December 31, 2023, the weighted average remaining maturity of FHLB advances was 11 months and 1.2 years, respectively. The original terms of the outstanding long-term advances at March 31, 2024 is 2 years.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table shows a summary of the advances and their terms, excluding accrued interest in the amount of $766 thousand and $768 thousand at March 31, 2024 and December 31, 2023, respectively:

			March 31, 2024						December 31, 2023
			(In thousands)
Long-term fixed-rate advance from FHLB, with a weighted average interest rate of 4.52% (December 31, 2023 - 4.52%)			$	200,000					$	200,000

Advances from FHLB mature as follows:

			March 31, 2024						December 31, 2023
			(In thousands)
Over one to three years			$	200,000					$	200,000

NOTE 12 — INCOME TAXES

OFG is subject to the provisions of the Puerto Rico Internal Revenue Code of 2011, as amended (the “PR Code”). The PR Code imposes a maximum statutory corporate tax rate of 37.5%. OFG has operations in the U.S. through its wholly owned subsidiaries OFG Ventures and OFG USA LLC (“OFG USA”), which is a direct subsidiary of the Bank, and has two branches in the USVI. The United States subsidiaries are subject to federal income taxes at the corporate level, while the USVI branches are subject to federal income taxes under a mirror system and a 10% surtax included in the maximum tax rate. OFG USA is subject to North Carolina state taxes, and current investments in OFG Ventures are subject to state taxes in Missouri. In addition, OFG’s wholly owned subsidiary, OFG Reinsurance Ltd., is tax exempt in Grand Cayman.

As of March 31, 2024, OFG’s net deferred tax assets, net of a valuation allowance of $7.1 million, amounted to $4.4 million; and the net deferred tax liability, net of valuation allowance of $461 thousand, amounted to $22.9 million, reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of OFG. As of December 31, 2023, OFG’s deferred tax asset, net of a valuation allowance of $7.0 million, amounted to $4.9 million; and net deferred tax liability, net of a valuation allowance of $569 thousand, amounted to $22.4 million, reflecting aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of OFG. The decrease in valuation allowance of $39 thousand was mainly related to USVI operations. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. Based upon the assessment of positive and negative evidence, the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax asset are deductible, and provisions of certain closing agreements, management believes it is more likely than not that OFG will realize the benefits of these deductible differences, net of the existing valuation allowances, at March 31, 2024. The amount of the deferred tax asset that is considered realizable could be reduced in the near term if there are changes in estimates of future taxable income.

OFG maintained an effective tax rate (“ETR”) lower than the statutory rate for the quarters ended March 31, 2024 and 2023 of 26.8% and 29.0%, respectively, the decrease is mainly related to exempt income, income subject to preferential tax treatment under the PR Code and a discrete tax windfall on stock options recognized during the period. The expected ETR for 2024 is 28.5%.

OFG classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the ETR if realized. At March 31, 2024, the amount of unrecognized tax benefits was $952 thousand (December 31, 2023 - $936 thousand).

Income tax expense for the quarters ended March 31, 2024 and 2023 was $18.2 million and $18.9 million, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 13 — REGULATORY CAPITAL REQUIREMENTS

Regulatory Capital Requirements

OFG (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on OFG’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, OFG and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. OFG and the Bank have elected to exclude accumulated comprehensive income related to both available for sale securities and derivative valuations from Common Equity Tier 1 Capital.

As of March 31, 2024 and December 31, 2023, OFG and the Bank met all capital adequacy requirements to which they are subject. As of March 31, 2024 and December 31, 2023, OFG and the Bank are “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the tables presented below.

OFG’s and the Bank’s actual capital amounts and ratios as of March 31, 2024 and December 31, 2023 were as follows:

			Actual												Minimum Capital Requirement (including capital conservation buffer)												Minimum to be Well Capitalized
			Amount						Ratio						Amount						Ratio						Amount						Ratio
			(Dollars in thousands)
OFG Bancorp Ratios
As of March 31, 2024
Total capital to risk-weighted assets			$	1,309,893					15.71		%				$	875,507					10.50		%				$	833,817					10.00		%
Tier 1 capital to risk-weighted assets			$	1,205,231					14.45		%				$	708,744					8.50		%				$	667,053					8.00		%
Common equity tier 1 capital to risk-weighted assets			$	1,205,231					14.45		%				$	583,672					7.00		%				$	541,981					6.50		%
Tier 1 capital to average total assets			$	1,205,231					10.76		%				$	447,862					4.00		%				$	559,827					5.00		%
As of December 31, 2023
Total capital to risk-weighted assets			$	1,278,537					15.37		%				$	873,369					10.50		%				$	831,780					10.00		%
Tier 1 capital to risk-weighted assets			$	1,174,205					14.12		%				$	707,013					8.50		%				$	665,424					8.00		%
Common equity tier 1 capital to risk-weighted assets			$	1,174,205					14.12		%				$	582,246					7.00		%				$	540,657					6.50		%
Tier 1 capital to average total assets			$	1,174,205					11.03		%				$	425,911					4.00		%				$	532,389					5.00		%

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			Actual												Minimum Capital Requirement (including capital conservation buffer)												Minimum to be Well Capitalized
			Amount						Ratio						Amount						Ratio						Amount						Ratio
			(Dollars in thousands)
Bank Ratios
As of March 31, 2024
Total capital to risk-weighted assets			$	1,192,181					14.40		%				$	869,541					10.50		%				$	828,134					10.00		%
Tier 1 capital to risk-weighted assets			$	1,088,220					13.14		%				$	703,914					8.50		%				$	662,507					8.00		%
Common equity tier 1 capital to risk-weighted assets			$	1,088,220					13.14		%				$	579,694					7.00		%				$	538,287					6.50		%
Tier 1 capital to average total assets			$	1,088,220					9.82		%				$	443,045					4.00		%				$	553,807					5.00		%
As of December 31, 2023
Total capital to risk-weighted assets			$	1,179,164					14.27		%				$	867,797					10.50		%				$	826,474					10.00		%
Tier 1 capital to risk-weighted assets			$	1,075,487					13.01		%				$	702,503					8.50		%				$	661,179					8.00		%
Common equity tier 1 capital to risk-weighted assets			$	1,075,487					13.01		%				$	578,532					7.00		%				$	537,208					6.50		%
Tier 1 capital to average total assets			$	1,075,487					10.20		%				$	421,660					4.00		%				$	527,075					5.00		%

NOTE 14 – STOCKHOLDERS’ EQUITY

Common Stock

At both March 31, 2024 and December 31, 2023, common stock amounted to $59.9 million.

Additional Paid-in Capital

Additional paid-in capital represents contributed capital in excess of par value of common stock, net of the costs of issuance. At both March 31, 2024 and December 31, 2023, accumulated common stock issuance costs charged against additional paid-in capital amounted to $13.6 million.

Legal Surplus

The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid-in capital on common and preferred stock. At March 31, 2024 and December 31, 2023, the Bank’s legal surplus amounted to $155.7 million and $151.0 million, respectively. During the quarter ended March 31, 2024, OFG transferred $4.8 million to the legal surplus account. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.

Treasury Stock

In January 2024, OFG announced the approval by the Board of Directors of a stock repurchase program for the purchase of up to $50 million of its outstanding shares of common stock. The new stock repurchase program, which is open-ended, replaces the prior stock repurchase program of $100 million, which had a remaining balance of $17.2 million and had been approved by the Board of Directors in January 2022. The shares of common stock repurchased are held by OFG as treasury shares. OFG records treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. There were no repurchases of stock under the new program during the quarter ended March 31, 2024. Under the prior stock program, OFG repurchased 104,800 shares for a total of $2.9 million at an average price of $27.61 per share during the quarter ended March 31, 2023.

OFG did not repurchase any shares of its common stock during the quarter ended March 31, 2024 and 2023, other than through its publicly announced stock repurchase program.

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The activity in connection with common shares held in treasury by OFG for the quarters ended March 31, 2024 and 2023 is set forth below:

			Quarter Ended March 31,
			2024												2023
			Shares						Dollar Amount						Shares						Dollar Amount
			(In thousands, except shares data)
Beginning of period			12,820,078						$	228,350					12,303,859						$	211,135
Common shares used upon lapse of restricted stock units and options			(151,415)						(1,454)						(134,827)						(1,235)
Common shares repurchased as part of the stock repurchase programs			—						—						104,800						2,894
End of period			12,668,663						$	226,896					12,273,832						$	212,794

NOTE 15 - ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss, net of income taxes, as of March 31, 2024 and December 31, 2023 consisted of:

			March 31, 2024						December 31, 2023
			(In thousands)
Unrealized loss on securities available-for-sale			$	(96,047)					$	(78,497)
Income tax effect of unrealized loss on securities available-for-sale			14,316						11,484
Net unrealized loss on securities available-for-sale			(81,731)						(67,013)
Accumulated other comprehensive loss, net of income taxes			$	(81,731)					$	(67,013)

The following table presents changes in accumulated other comprehensive loss by component, net of taxes, for the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31, 2024
			Net unrealized loss on securities available-for-sale
			(In thousands)
Beginning balance			$	(67,013)
Other comprehensive loss before reclassifications			(14,711)
Amounts reclassified out of accumulated other comprehensive loss			(7)
Other comprehensive loss			(14,718)
Ending balance			$	(81,731)

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			Quarter Ended March 31, 2023
			Net unrealized loss on securities available-for-sale						Net unrealized loss on cash flow hedges						Accumulated other comprehensive loss
			(In thousands)
Beginning balance			$	(93,663)					$	254					$	(93,409)
Other comprehensive income (loss) before reclassifications			15,149						(673)						14,476
Amounts reclassified out of accumulated other comprehensive (loss) income			2						591						593
Other comprehensive income (loss)			15,151						(82)						15,069
Ending balance			$	(78,512)					$	172					$	(78,340)

The following table presents reclassifications out of accumulated other comprehensive loss for the quarters ended March 31, 2024 and 2023:

			Amount reclassified out of accumulated other comprehensive loss Quarter Ended March 31,															Affected Line Item in Consolidated Statement of Operations
			2024						2023
			(In thousands)
Cash flow hedges:
Interest-rate contracts			$	—					$	591											Net interest expense
Available-for-sale securities:
Loss on sale of investments			(7)						—												Net (loss) gain on sale of securities
Tax effect from changes in tax rates			—						2												Income tax expense
			$	(7)					$	593

NOTE 16 – EARNINGS PER COMMON SHARE

The calculation of earnings per common share for the quarters ended March 31, 2024 and 2023 is as follows:

			Quarter Ended March 31,
			2024						2023
			(In thousands, except per share data)
Income available to common shareholders			$	49,692					$	46,229
Average common shares outstanding			47,096						47,600
Effect of dilutive securities:
Average potential common shares-options			247						344
Total weighted average common shares outstanding and equivalents			47,343						47,944
Earnings per common share - basic			$	1.06					$	0.97
Earnings per common share - diluted			$	1.05					$	0.96

For the quarters ended March 31, 2024 and 2023, weighted-average restricted stock units with an anti-dilutive effect on earnings per share not included in the calculation amounted to zero and 446, respectively.

During the quarter ended March 31, 2024, OFG increased its quarterly common stock cash dividend to $0.25 per share from $0.22 per share at December 31, 2023.

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NOTE 17 – GUARANTEES

At March 31, 2024 and December 31, 2023, the notional amount of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $24.7 million and $24.0 million, respectively.

OFG has a liability for residential mortgage loans sold subject to credit recourse pursuant to FHLMC's, GNMA's, and FNMA's residential mortgage loan sales and securitization programs. At March 31, 2024 and December 31, 2023, the unpaid principal balance of residential mortgage loans sold subject to credit recourse under the residential mortgage loan sales programs was $96.4 million and $98.7 million, respectively. The estimated losses to be absorbed under the credit recourse arrangements were recorded as a liability when the credit recourse was assumed and are updated on a quarterly basis. At March 31, 2024, OFG's liability for estimated credit losses related to loans sold with credit recourse amounted to $73 thousand (December 31, 2023– $102 thousand). On May 1, 2023, OFG and a third-party servicer terminated a subservicing agreement by mutual agreement. Pursuant to such termination, the third-party servicer assumed the direct servicing of the subserviced loans pursuant to FNMA's residential mortgage loans sales program, thereby relieving OFG of its corresponding recourse obligation under that program.

The following table shows the changes in OFG’s liability for estimated losses from these credit recourse agreements, included in the consolidated statements of financial condition during the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Balance at beginning of period			$	102					$	147
Net recoveries (charge-offs/terminations)			(29)						(6)
Balance at end of period			$	73					$	141

The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The probability of default represents the probability that a loan in good standing would become 120 days delinquent, in which case OFG is obligated to repurchase the loan.

If a borrower defaults, pursuant to the credit recourse provided, OFG is required to repurchase the loan or reimburse the third-party investor for the incurred loss. The maximum potential amount of future payments that OFG would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarters ended March 31, 2024 and 2023, OFG repurchased $134 thousand and $65 thousand, respectively, in mortgage loans. If a borrower defaults, OFG has rights to the underlying collateral securing the mortgage loan. OFG suffers losses on these mortgage loans when the proceeds from a foreclosure sale of the collateral property are less than the outstanding principal balance of the loan, any uncollected interest advanced, and the costs of holding and disposing the related property.

When OFG sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. OFG’s mortgage operations division groups conforming mortgage loans into pools that are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA or other private investors for cash. As required under such mortgage-backed securities programs, quality review procedures are performed by OFG to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, OFG may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the quarter ended March 31, 2024, OFG repurchased $1.0 million (March 31, 2023 –$2.2 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to such credit recourse provision. At March 31, 2024 and December 31, 2023, OFG had a $277 thousand and a $405 thousand liability, respectively, for the estimated credit losses related to these loans.

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During the quarters ended March 31, 2024 and 2023, OFG recognized $28 thousand and $6 thousand in gains, respectively, from the repurchase of residential mortgage loans sold subject to credit recourse, and $109 thousand and $252 thousand in gains, respectively, from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties.

At March 31, 2024 OFG serviced $5.6 billion (December 31, 2023 - $5.6 billion) in mortgage loans for third parties. Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require OFG to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. OFG generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantee programs. However, in the meantime, OFG must absorb the cost of the funds it advances during the time the advance is outstanding. OFG must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and OFG would not receive any future servicing income with respect to that loan. At March 31, 2024, the outstanding balance of funds advanced by OFG under such mortgage loan servicing agreements was approximately $3.4 million (December 31, 2023 - $4.2 million). To the extent the mortgage loans underlying OFG’s servicing portfolio experience increased delinquencies, OFG would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

NOTE 18— COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, OFG becomes a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby and commercial letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition. The contract or notional amount of those instruments reflects the extent of OFG’s involvement in particular types of financial instruments.

OFG’s exposure to credit losses in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit, including commitments under credit card arrangements, and commercial letters of credit is represented by the contractual notional amounts of those instruments, which do not necessarily represent the amounts potentially subject to risk. In addition, the measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are identified. OFG uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Credit-related financial instruments at March 31, 2024 and December 31, 2023 were as follows:

			March 31, 2024						December 31, 2023
			(In thousands)
Commitments to extend credit			$	1,353,808					$	1,255,695
Commercial letters of credit			829						119

Commitments to extend credit represent agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. OFG evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by OFG upon the extension of credit, is based on management’s credit evaluation of the counterparty.

At March 31, 2024 and December 31, 2023, commitments to extend credit consisted mainly of undisbursed available amounts on commercial lines of credit, construction loans, and revolving credit card arrangements. Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of these unused commitments does not necessarily represent future cash requirements.

Commercial letters of credit are issued or confirmed to guarantee payment of customers’ payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the risk associated with these contracts.

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The summary of instruments that are considered financial guarantees in accordance with the authoritative guidance related to guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others, at March 31, 2024 and December 31, 2023, is as follows:

			March 31, 2024						December 31, 2023
			(In thousands)
Standby letters of credit and financial guarantees			$	24,655					$	23,970
Loans sold with recourse			96,437						98,685

Standby letters of credit and financial guarantees are written conditional commitments issued by OFG to guarantee the payment and/or performance of a customer to a third party (“beneficiary”). If the customer fails to comply with the agreement, the beneficiary may draw on the standby letter of credit or financial guarantee as a remedy. The amount of credit risk involved in issuing letters of credit in the event of non-performance is the face amount of the letter of credit or financial guarantee. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The amount of collateral obtained, if it is deemed necessary by OFG upon extension of credit, is based on management’s credit evaluation of the customer.

At March 31, 2024 and December 31, 2023, the ACL for off-balance sheet credit exposures corresponding to commitments to extend credit and standby letters of credit amounted to $1.0 million and $1.2 million, respectively, and is included in other liabilities in the statement of financial condition.

At March 31, 2024 and December 31, 2023, OFG maintained other non-credit commitments amounting to $19.1 million and $18.9 million, respectively, primarily for the acquisition of equity securities. In addition, as we continue to transform OFG with a focus on simplification and building a culture of excellence and customer service, we continue to invest in technology. Some of our technology investments require us to continuously upgrade our systems. Others require us to focus our technology on investments that drive our strategy, namely digital, data analytics, cloud migration, cyber security, and our sales and service capabilities. At March 31, 2024 and December 31, 2023, OFG had commitments for capital expenditures in technology amounting to $6.0 million and $7.8 million, respectively.

Contingencies

OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. In the ordinary course of business, OFG and its subsidiaries are also subject to governmental and regulatory examinations. Certain subsidiaries of OFG, including the Bank (and its subsidiary, OIB), Oriental Financial Services and Oriental Insurance, are subject to regulation by various U.S., Puerto Rico and other regulators.

OFG seeks to resolve all arbitration, litigation and regulatory matters in the manner management believes is in the best interests of OFG and its shareholders, and contests allegations of liability or wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.

In accordance with applicable accounting guidance, OFG establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, OFG, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, OFG will establish an accrued liability and record a corresponding amount of expense. At March 31, 2024 and December 31, 2023, accrued liability for legal contingencies amounted to $725 thousand and $817 thousand, respectively. OFG continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. OFG also has an accrued liability for potential losses, operational errors, loss on theft not covered by insurance premiums, uncollectible receivables, among other transactions, amounting to $1.7 million and $1.4 million, respectively, as of March 31, 2024 and December 31, 2023.

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Subject to the accounting and disclosure framework under the provisions of ASC 450, it is the opinion of OFG’s management, based on current knowledge and after taking into account its current legal accruals, that the eventual outcome of all matters would not be likely to have a material adverse effect on the consolidated statements of financial condition of OFG. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse effect on OFG’s consolidated results of operations or cash flows in particular quarterly or annual periods. OFG has evaluated all arbitration, litigation and regulatory matters where the likelihood of a potential loss is deemed reasonably possible. OFG has determined that the estimate of the reasonably possible loss is not significant.

NOTE 19— OPERATING LEASES

Substantially all leases in which OFG is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2038. OFG’s leases do not contain residual value guarantees or material variable lease payments. All leases are classified as operating leases and are included on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. OFG leases to others certain space in its principal offices for terms extending through 2024; all are operating leases.

Operating Lease Cost

			Quarter Ended March 31,
			2024						2023																								Statement of Operations Classification
			(In thousands)
Lease costs			$	2,653					$	2,600																							Occupancy and equipment
Variable lease costs			411						341																								Occupancy and equipment
Short-term lease costs			50						157																								Occupancy and equipment
Lease income			(22)						(38)																								Occupancy and equipment
Total lease costs			$	3,092					$	3,060

Operating Lease Assets and Liabilities

			March 31, 2024						December 31, 2023						Statement of Financial Condition Classification
			(In thousands)
Right-of-use assets			$	21,606					$	21,725					Operating lease right-of-use assets
Lease Liabilities			$	23,969					$	24,029					Operating leases liabilities

			March 31, 2024						December 31, 2023
			(In thousands)
Weighted-average remaining lease term			5.1 years						5.1 years
Weighted-average discount rate			7.5		%				7.0		%

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Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2024 were as follows:

			Minimum Rent
As of March 31, 2024			(In thousands)
2024			$	6,212
2025			6,540
2026			4,481
2027			3,724
2028			2,937
Thereafter			5,179
Total lease payments			$	29,073
Less imputed interest			5,104
Present value of lease liabilities			$	23,969

OFG, as lessor, leases and subleases real property to tenants under operating leases. As of March 31, 2024, no material lease concessions have been granted to tenants. As of March 31, 2024, OFG, as lessee, has not requested any lease concessions.

NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS

OFG follows the fair value measurement framework under GAAP.

Fair Value Measurement

The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Money market investments

The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

Investment securities

The fair value of investment securities is based on valuations obtained from an independent pricing provider, ICE Data Pricing (formerly known as IDC) (“ICE”). ICE is a well-recognized pricing company and an established leader in financial information. Such securities are classified as Level 1 or Level 2, depending on the basis for determining fair value. At March 31, 2024, there was one security held-to-maturity, carried at amortized cost with no ACL established, classified as Level 3.

Servicing assets

Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service, and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.

Foreclosed real estate

Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price opinion or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

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Other repossessed assets

Other repossessed assets are mainly composed of repossessed automobiles. The fair value of the repossessed automobiles may be determined using internal valuation and an external appraisal. These repossessed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:

			March 31, 2024
			Fair Value Measurements
			Level 1						Level 2						Level 3						Total
			(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale			$	150,915					$	1,746,792					$	—					$	1,897,707
Trading securities			—						14						—						14
Money market investments			4,674						—						—						4,674
Servicing assets			—						—						49,553						49,553
			$	155,589					$	1,746,806					$	49,553					$	1,951,948
Non-recurring fair value measurements:
Collateral dependent loans			$	—					$	—					$	7,862					$	7,862
Foreclosed real estate			—						—						10,850						10,850
Other repossessed assets			—						—						6,844						6,844
Mortgage loans held for sale			—						—						9,370						9,370
Other loans held for sale			—						—						18,904						18,904
			$	—					$	—					$	53,830					$	53,830

			December 31, 2023
			Fair Value Measurements
			Level 1						Level 2						Level 3						Total
			(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale			$	296,799					$	1,802,465					$	—					$	2,099,264
Trading securities			—						13						—						13
Money market investments			4,623						—						—						4,623
Servicing assets			—						—						49,520						49,520
			$	301,422					$	1,802,478					$	49,520					$	2,153,420
Non-recurring fair value measurements:
Collateral dependent loans			$	—					$	—					$	8,027					$	8,027
Foreclosed real estate			—						—						10,780						10,780
Other repossessed assets			—						—						4,032						4,032
Other loans held for sale			$	—					$	—					$	28,345					28,345
			$	—					$	—					$	51,184					$	51,184

The fair value information included in the tables above for non-recurring fair value measurements is not as of year-end. Instead, it is as of the date that the fair value measurement was recorded during March 31, 2024 and December 31, 2023, excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

The tables below present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for March 31, 2024 and 2023:

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Level 3 Instruments Only

						Quarter Ended March 31,
						2024						2023
						Servicing Assets									Other debt securities available for sale			Servicing Assets			Total
						(In thousands)
Balance at beginning period						$	49,520								$	406		$	50,921		$	51,327
New instruments acquired						527									—			575			575
Principal repayments and amortization						(920)									—			(1,065)			(1,065)
Gains included in earnings						426									—			(1,086)			(1,086)
Gains included in other comprehensive income						—									7			—			7
Balance at end of period						$	49,553								$	413		$	49,345		$	49,758

Servicing assets gains included in earnings during the quarters ended March 31, 2024 and 2023 were included as mortgage servicing activities in the consolidated statements of operations. For more information on the qualitative information about Level 3 fair value measurements, see Note 7 – Servicing Assets.

During the quarters ended March 31, 2024 and 2023, there were purchases and sales of assets and liabilities measured at fair value on a recurring basis.

The table below presents quantitative information for all assets and liabilities measured at fair value on a recurring and non-recurring basis using significant unobservable inputs (Level 3) at March 31, 2024 and December 31, 2023:

			March 31, 2024
			Fair Value						Valuation Technique						Unobservable Input						Range						Weighted Average
			(In thousands)
Servicing assets			$	49,553					Cash flow valuation						Constant prepayment rate						1.14% - 15.08%						6.18		%
															Discount rate						10.00% - 15.50%						11.46		%
Collateral dependent loans			$	7,862					Fair value of property or collateral						Appraised value less disposition costs						10.20% - 33.20%						16.99		%
Foreclosed real estate			$	10,850					Fair value of property or collateral						Appraised value less disposition costs						10.20% - 33.20%						12.53		%
Other repossessed assets			$	6,844					Fair value of property or collateral						Estimated net realizable value less disposition costs						31.00% - 77.00%						56.43		%
Mortgage loans held for sale			$	9,370					Market prices						Pricing and execution whole loan						96.04% - 101.24%						98.25		%
Other loans held for sale			$	18,904					Bids or sales contract prices						Estimated market value						98.41% - 147.96%						129.96		%

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			December 31, 2023
			Fair Value						Valuation Technique						Unobservable Input						Range						Weighted Average
			(In thousands)
Servicing assets			$	49,520					Cash flow valuation						Constant prepayment rate						1.35% - 17.34%						6.12		%
															Discount rate						10.00% - 15.50%						11.45		%
Collateral dependent loans			$	8,027					Fair value of property or collateral						Appraised value less disposition costs						10.20% - 33.20%						17.00		%
Foreclosed real estate			$	10,780					Fair value of property or collateral						Appraised value less disposition costs						10.20% - 33.20%						12.67		%
Other repossessed assets			$	4,032					Fair value of property or collateral						Estimated net realizable value less disposition costs						31.00% - 77.00%						57.72		%
Other loans held for sale			$	28,345					Bids or sales contract prices						Estimated market value						52.00% - 103.20%						84.80%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Servicing assets – The significant unobservable inputs used in the fair value measurement of OFG’s servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Fair Value of Financial Instruments

The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of OFG.

The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments include the value of long-term customer relationships of retail deposits, and premises and equipment.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The estimated fair value and carrying value of OFG’s financial instruments at March 31, 2024 and December 31, 2023 was as follows:

			March 31, 2024												December 31, 2023
			Fair Value						Carrying Value						Fair Value						Carrying Value
			(In thousands)
Financial Assets:
Level 1
Cash and cash equivalents			$	754,392					$	754,392					$	748,173					$	748,173
Investment securities available-for-sale			$	150,915					$	150,915					$	296,799					$	296,799
Level 2
Financial Assets:
Trading securities			$	14					$	14					$	13					$	13
Investment securities available-for-sale			$	1,746,792					$	1,746,792					$	1,802,465					$	1,802,465
Investment securities held-to-maturity			$	448,603					$	509,491					$	455,709					$	514,024
Federal Home Loan Bank (FHLB) stock			$	14,488					$	14,488					$	14,488					$	14,488
Equity securities			$	25,674					$	25,674					$	23,981					$	23,981
Level 3
Financial Assets:
Investment securities held-to-maturity			$	35,054					$	35,000					$	35,055					$	35,000
Total loans (including loans held-for-sale)			$	7,296,452					$	7,411,378					$	7,282,214					$	7,401,618
Accrued interest receivable			$	72,117					$	72,117					$	71,400					$	71,400
Servicing assets			$	49,553					$	49,553					$	49,520					$	49,520
Accounts receivable and other assets			$	49,334					$	49,334					$	47,859					$	47,589
Financial Liabilities:
Deposits			$	9,581,054					$	9,548,274					$	9,767,068					$	9,762,169
Advances from FHLB			$	198,755					$	200,766					$	199,184					$	200,768
Other borrowings			$	—					$	—					$	2					$	2
Accrued expenses and other liabilities			$	121,871					$	121,871					$	115,985					$	115,985

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following methods and assumptions were used to estimate the fair values of significant financial instruments at March 31, 2024 and December 31, 2023:

•Cash and cash equivalents (including money market investments and time deposits with other banks), accrued interest receivable, accounts receivable and other assets, accrued expenses and other liabilities, and other borrowings have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

•Investments in FHLB stock are valued at their redemption value.

•The fair value of investment securities, including trading securities, is based on quoted market prices, when available or prices provided from contracted pricing providers, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. The estimated fair value of the AFICA bond in other debt securities held-to-maturity is determined by using a detailed discounted cash flow valuation model to calculate the present value of projected future cash flows. The credit losses are recorded using the ACL methodology. This involves comparing the amortized cost of the securities with the fair value of the expected future cash flows. Several assumptions requiring a high degree of judgment include the selection of market discount rates, the determination of current credit spread, and the estimation of both the probability of default and loss given default rates. Equity securities do not have readily available fair values and are measured at cost, less any impairment.

•The fair value of servicing asset is estimated by using a cash flow valuation model, which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

•The fair value of the loan portfolio (including loans held-for-sale and non-performing loans) is based on the exit market price, which is estimated by segregating by loan type, such as mortgage, commercial, consumer and auto. The fair value is calculated by discounting contractual cash flows. The discount rate used in such calculation considers a capital adjustment as well as other premiums for systemic risk, servicing costs, modeling and uncertainty risk, and impairment uncertainty.

•The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.

•The fair value of long-term borrowings, including advances from FHLB, is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 21 – BANKING AND FINANCIAL SERVICE REVENUES

The following table presents the major categories of banking and financial service revenues for the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Banking service revenues:
Electronic banking fees			$	13,690					$	13,366
Checking accounts fees			2,167						2,220
Savings accounts fees			308						333
Credit life commissions			4						105
Branch service commissions			346						422
Servicing and other loan fees			568						881
International fees			172						183
Miscellaneous income			4						3
Total banking service revenues			17,259						17,513
Wealth management revenue:
Insurance income			3,774						3,369
Broker fees			2,091						1,784
Trust fees			2,242						1,924
Other fees			—						43
Total wealth management revenue			8,107						7,120
Mortgage banking activities:
Net servicing fees			3,951						2,842
Net gains on sale of mortgage loans and valuation			653						769
Net gain on repurchased loans and other			89						287
Total mortgage banking activities			4,693						3,898
Total banking and financial service revenues			$	30,059					$	28,531

OFG recognizes the revenue from banking services, wealth management and mortgage banking based on the nature and timing of revenue streams from contracts with customers:

Banking Service Revenues

Electronic banking fees are credit and debit card processing services, use of the Bank’s ATMs by non-customers, debit card interchange income and service charges on deposit accounts. Revenue is recorded once the contracted service has been provided.

Service charges on checking and saving accounts is recognized as consumer periodic maintenance revenue once the service is rendered, while overdraft and late charges revenues are recorded after the contracted service has been provided.

Other income as credit life and branch service commissions, servicing and other loan fees, international fees, and miscellaneous income recognized as banking services revenue are out of the scope of ASC 606 – Revenue from Contracts with Customers.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Wealth Management Revenue

Insurance income from commissions generated in the sale of insurance policies issued by unaffiliated insurance companies and sale of annuities are recorded once the sale has been completed. Reinsurance revenue is recorded based on earned premium confirmed by the fronting insurance company. Contingent insurance commissions are recorded once the paying insurance companies confirm the amounts earned.

Broker fees consist of two categories:

•Sales commissions generated by advisers for their clients’ purchases and sales of securities and other investment products, which are collected once the stand-alone transactions are completed at trade date or as earned, and managed account fees which are fees charged to advisers’ clients’ accounts on OFG’s corporate advisory platform. These revenues do not cover future services, as a result there is no need to allocate the amount received to any other service.

•Fees for providing distribution services related to mutual funds, net of compensation paid to a provider of such services, as well as trailer fees (also known as 12b-1 fees). These fees are considered variable and are recognized over time, as the uncertainty of the fees to be received is resolved as the net asset value of the mutual fund is determined and investor activity occurs. Fees do not cover future services, as a result there is no need to allocate the amount received to any other service.

Trust fees are revenues related to fiduciary services provided to 401K retirement plans, an IRA trust, and retirement plans. These generally include payment for trustee services, distribution services, custodial services of plan assets, due diligence services, and investment advisory services. Fees are billed based on services contracted. Negotiated fees are detailed in the contract. Fees collected in advance are amortized over the term of the contract. Fees are generally collected on an annual or quarterly basis once the administrative service has been completed. Fees do not include future services.

Mortgage Banking Activities

Mortgage banking activities such as servicing fees, gain on sale of mortgage loans and valuation, and loss on repurchased loans and other are out of the scope of ASC 606.

NOTE 22 – BUSINESS SEGMENTS

OFG segregates its businesses into the following segments of business: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as OFG’s organization, nature of its products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. OFG measures the performance of these segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. OFG’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. These factors are reviewed on a periodical basis and may change if the conditions warrant.

Banking includes the Bank’s branches and traditional banking products such as deposits and commercial, consumer, auto, and mortgage loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for OFG’s own portfolio. As part of its mortgage banking activities, OFG may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.

Wealth Management is comprised of the Bank’s trust division, Oriental Financial Services, Oriental Insurance, and OFG Reinsurance. The core operations of this segment are financial planning, securities brokerage services, investment advisory services, insurance, corporate and individual trust and retirement services.

The Treasury segment encompasses all of OFG’s asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, and borrowings. Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2024 and 2023:

			Quarter Ended March 31, 2024
			Banking						Wealth Management						Treasury						Total Major Segments						Eliminations						Consolidated Total
			(In thousands)
Interest income			$	150,995					$	9					$	33,497					$	184,501					$	(1,075)					$	183,426
Interest expense			(35,849)						—						(4,550)						(40,399)						1,075						(39,324)
Net interest income			115,146						9						28,947						144,102						—						144,102
Provision for (recapture of) credit losses			15,225						—						(104)						15,121						—						15,121
Non-interest income			23,065						7,375						(92)						30,348						—						30,348
Non-interest expenses			(85,990)						(4,522)						(900)						(91,412)						—						(91,412)
Intersegment revenue			424						—						—						424						(424)						—
Intersegment expenses			—						(267)						(157)						(424)						424						—
Income before income taxes			37,420						2,595						27,902						67,917						—						$	67,917
Income tax expense			18,166						13						46						18,225						—						18,225
Net income			$	19,254					$	2,582					$	27,856					$	49,692					$	—					$	49,692
Total assets			$	9,132,772					$	32,597					$	3,144,241					$	12,309,610					$	(1,150,375)					$	11,159,235

Eliminations include interest income and expense for a time deposit opened by the Bank in Oriental Overseas, an international banking entity organized and licensed under Puerto Rico law, which operates as a unit within the Bank. The time deposit with a balance of $301.4 million and $414.6 million at March 31, 2024 and 2023, respectively, is included in the Treasury Segment with its corresponding interest expense, to fund Oriental Overseas operations, which is included in the Banking Segment with its corresponding interest income, and are eliminated in the consolidation. Interest income is accrued on the unpaid principal balance. The decrease in interest income and interest expense from the prior year was mainly as a result of lower interest rate and average balance.

			Quarter Ended March 31, 2023
			Banking						Wealth Management						Treasury						Total Major Segments						Eliminations						Consolidated Total
			(In thousands)
Interest income			$	132,425					$	5					$	21,126					$	153,556					$	(4,571)					$	148,985
Interest expense			(12,381)						—						(5,278)						(17,659)						4,571						(13,088)
Net interest income			120,044						5						15,848						135,897						—						135,897
Provision for credit losses			9,405						—						40						9,445						—						9,445
Non-interest income			21,625						7,276						—						28,901						—						28,901
Non-interest expenses			(85,365)						(3,955)						(900)						(90,220)						—						(90,220)
Intersegment revenue			546						—						—						546						(546)						—
Intersegment expenses			—						(377)						(169)						(546)						546						—
Income before income taxes			47,445						2,949						14,739						65,133						—						65,133
Income tax expense			18,892						—						12						18,904						—						18,904
Net income			$	28,553					$	2,949					$	14,727					$	46,229					$	—					$	46,229
Total assets			$	8,484,413					$	28,605					$	2,591,608					$	11,104,626					$	(1,047,045)					$	10,057,581

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item I, “Financial Statements” of this quarterly report on Form 10-Q. This discussion and analysis section contains forward-looking statements. Please see “Forward-Looking Statements,” “Risk Factors,” and “Quantitative and Qualitative Disclosures about Market Risk” in this quarterly report on Form 10-Q for the quarter ended March 31, 2024 and set forth in our annual report for the year ended December 31, 2023 (the “2023 Form 10-K”), as supplemented and amended by any subsequent quarterly reports on Form 10-Q, for a discussion of the uncertainties, risks and assumptions associated with these statements.

Other factors not identified above, including those described under the headings in our 2023 Form 10-K and any subsequent quarterly reports on Form 10-Q may also cause actual results to differ materially from those described in our forward-looking statements.

INTRODUCTION

OFG is a publicly-owned financial holding company that provides wide range of banking and financial services such as commercial, consumer, auto, and mortgage lending, financial planning, insurance sales, investment advisory and securities brokerage services, as well as corporate and individual trust services. OFG operates through three business segments: Banking, Wealth Management, and Treasury, and distinguishes itself based on quality service. OFG conducts its business through its main office in San Juan, Puerto Rico, forty-two branches in Puerto Rico and two branches in the U.S. Virgin Islands (the “USVI”). OFG has three subsidiaries with operations in Puerto Rico: the Bank, Oriental Financial Services and Oriental Insurance; two subsidiaries in the United States, OFG USA and OFG Ventures; and one subsidiary in the Cayman Islands, OFG Reinsurance. OFG’s long-term goal is to strengthen its banking and financial services franchise by expanding its lending businesses, increasing the level of integration in the marketing and delivery of banking and financial services, continuously improving our already effective asset-liability management, growing non-interest revenue from banking and financial services, as well as achieving greater operating efficiencies.

OFG’s diversified mix of businesses and products generates both the interest income traditionally associated with a banking institution and non-interest income traditionally associated with a financial services institution (generated by such businesses as securities brokerage, fiduciary services, investment advisory, insurance agency and reinsurance). Although all of these businesses, to varying degrees, are affected by interest rate and financial market fluctuations and other external factors, OFG’s commitment is to continue producing a balanced and growing revenue stream.

RECENT DEVELOPMENTS

Capital Actions

In January 2024, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.25 per common share from $0.22 per share, beginning in the quarter ended March 31, 2024. The Board of Directors also approved a new $50.0 million stock repurchase program. The new stock repurchase program, which is open-ended, replaces the prior stock repurchase program, which had had been approved by the Board of Directors in January 2022 and had $17.2 million remaining of its $100.0 million repurchase parameters. At March 31, 2024, there have been no repurchases under this new program.

Economic Conditions

We believe that Puerto Rico’s economy continues to demonstrate resiliency and growth and its private sector is expanding. The Puerto Rico Economic Activity Index, as published by the Economic Development Bank for Puerto Rico, increased 3.4% year-over-year in December 2023 and retail sales increased 4.5% year-over-year also in December 2023. According to the data published by Economic Development Bank for Puerto Rico, wages are rising, and labor participation is increasing. Total non-farm payroll employment in December 2023 increased 2.6% year-over-year and total employment rose 2.5% from July 2022 to December 2023. The inflow of federal stimulus and reconstruction funds for rebuilding infrastructure has continued, and we believe this inflow will stimulate the local economy. Nevertheless, OFG continues to pay attention to the potential impact of interest rate changes, inflation, and other economic factors, and global conflicts, all of which could impact our business and results of operations.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” of our 2023 Form 10-K.

In the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” section of our 2023 Form 10-K, we identified the Allowance for Credit Losses related to loans collectively evaluated for impairment as a critical accounting policy and estimate because it involves significant estimation uncertainty that has or is reasonably likely to have a material impact on our financial condition or results of operations.

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing conditions. As part of OFG’s continuous enhancement to the allowance for credit losses methodology, during the quarter ended March 31, 2024, an assessment of the weight of probability scenarios for the US loan segment was performed and updated to use a higher probability level in the moderate recessionary scenario. This change in the allowance for credit losses is considered a change in accounting estimate as per ASC 250-10 provisions, where adjustments should be made prospectively. Apart from the foregoing change, there have been no material changes in the methods that we used to formulate these critical accounting estimates from those discussed in our 2023 Form 10-K.

FINANCIAL HIGHLIGHTS

First quarter earnings per share diluted increased 9.4% year-over-year on a 5.9% increase in total core revenues, reflecting what we believe is an overall solid performance across all businesses in line with our strategic plans. We believe that OFG's Digital First strategy continues to drive an increase in customers and their engagement. Overall, Puerto Rico's business activity and consumer liquidity remains strong. We believe that OFG's balance sheet is well positioned to navigate a longer-high-interest rate environment.

First Quarter of 2024:

Earnings per share diluted was $1.05 compared to $0.98 in the fourth quarter of 2023 and $0.96 in the first quarter of 2023. Total core revenues of $174.2 million compared to $175.6 million in the fourth quarter of 2023 and $164.4 million in the first quarter of 2023.

Performance metrics: Net interest margin of 5.40%, return on average assets of 1.77%, return on average tangible common stockholders’ equity of 17.92%, and efficiency ratio of 52.49%.

Total interest income of $183.4 million compared to $176.2 million in the fourth quarter of 2023 and $149.0 million in the first quarter of 2023. Compared to the fourth quarter of 2023, the first quarter of 2024 primarily reflected higher average balances and yields on investment securities, cash and loans. The first quarter of 2024 included one fewer day than the fourth quarter of 2023, which reduced interest income by about $1.4 million.

Total interest expense of $39.3 million compared to $32.7 million in the fourth quarter of 2023 and $13.1 million in the first quarter of 2023. Compared to the fourth quarter of 2023, the first quarter of 2024 core deposits average balances increased 10% and the cost increased 40 basis points reflecting the impact of the $1.2 billion in government funds deposited late in the fourth quarter of 2023.

Total banking and financial service revenues of $30.1 million compared to $32.1 million in the fourth quarter of 2023 and $28.5 million in the first quarter of 2023. The first quarter of 2024 reflected one fewer day compared to the fourth quarter of 2023, which included $2.5 million of annual insurance recognition.

Pre-provision net revenues of $83.0 million compared to $88.2 million in the fourth quarter of 2023 and $74.6 million in the first quarter of 2023. The fourth quarter of 2023 included $8.8 million from a gain on the sale of nonperforming commercial loans and from annual insurance recognition revenues.

Total provision for credit losses of $15.1 million compared to $19.7 million in the fourth quarter of 2023 and $9.4 million in the first quarter of 2023. The first quarter of 2024 provision reflected $15.1 million related to loan volume and $1.7 million as a result of the strategic sale of a performing U.S. commercial loan. This was partially offset by $1.7 million mainly due to a reduction in specific reserves for payments received on substantially reserved U.S. commercial loans.

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Credit quality: Net charge-offs of $19.8 million compared to $16.3 million in the fourth quarter of 2023 and $10.1 million in the first quarter of 2023. The first quarter of 2024 included $3.5 million from previously and fully reserved nonperforming PPP loans. The first quarter of 2024 early and total delinquency rates were 2.41% and 3.30%, respectively, lower than the fourth quarter of 2023 and pre-pandemic levels. The non-performing loan rate of 1.10% was the lowest over the last five quarters.

Total non-interest expense of $91.4 million compared to $94.1 million in the fourth quarter of 2023 and $90.2 million in the first quarter of 2023. The first quarter of 2024 included a higher level of FICA payments compared to the fourth quarter of 2023, which included $3.2 million in workforce early retirement and rightsizing costs.

Effective Tax Rate of 26.8% compared to 31.9% in the fourth quarter of 2023 and first quarter of 2023. The first quarter of 2024 reflected expected 2024 effective tax rate of 28.5% due to higher forecasted business activities with preferential tax treatment under the Puerto Rico Internal Revenue Code of 2011, coupled with a $1.1 million discrete benefit for stock vested in the first quarter of 2024.

Loans held for investment of $7.54 billion compared to $7.53 billion in the fourth quarter of 2023 and $6.85 billion in the first quarter of 2023. Loans were approximately level with December 31, 2023 balances and increasing by 10.0% year-over-year. Compared to December 31, 2023, the March 31, 2024 loans reflected increases in retail auto and consumer, partially offset by regular paydowns of residential mortgages and securitization and sale of conforming loans as well as seasonal paydowns of commercial lines of credit.

New loan production of $536.6 million compared to $663.9 million in the fourth quarter of 2023 and $561.3 million in the first quarter of 2023. Compared to the fourth quarter of 2023, production reflected increased auto and consumer lending and lower commercial and residential mortgage lending.

Total investments of $2.48 billion compared to $2.69 billion in the fourth quarter of 2023 and $1.92 billion in the first quarter of 2023. The first quarter of 2024 primarily reflected the sale of US Treasury securities.

Customer deposits of $9.55 billion compared to $9.60 billion in the fourth quarter of 2023 and $8.57 billion in the first quarter of 2023.

Total borrowings and brokered deposits of $203.3 million compared to $363.0 million in the fourth quarter of 2023 and $226.8 million in the first quarter of 2023. Compared to the fourth quarter of 2023, the first quarter of 2024 reflected a reduced need for wholesale funding.

Cash and cash equivalents of $754.4 million compared to $748.2 million in the fourth quarter of 2023 and $847.5 million in the first quarter of 2023.

Total assets of $11.16 billion compared to $11.34 billion in the fourth quarter of 2023 and $10.06 billion in the first quarter of 2023.

Capital: CET1 ratio of 14.45% compared to 14.12% in the fourth quarter of 2023 and 14.07% in the first quarter of 2023. The Tangible Common Equity ratio was 10.06% compared to 9.68% in the fourth quarter of 2023 and 9.85% in the first quarter of 2023. Tangible Book Value per share of $23.55 compared to $23.13 in the fourth quarter of 2023 and $20.57 in the first quarter of 2023. The first quarter of 2024 Tangible Book Value reflected increased retained earnings.

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Selected income statement and balance sheet data and key performance indicators are presented in the tables below:

			Quarter Ended March 31,
			2024						2023						Variance %
EARNINGS DATA:			(In thousands, except per share data)
Interest income			$	183,426					$	148,985					23.1%
Interest expense			39,324						13,088						200.5%
Net interest income			144,102						135,897						6.0%
Provision for credit losses			15,121						9,445						60.1%
Net interest income after provision for credit losses			128,981						126,452						2.0%
Non-interest income			30,348						28,901						5.0%
Non-interest expenses			91,412						90,220						1.3%
Income before taxes			67,917						65,133						4.3%
Income tax expense			18,225						18,904						(3.6)%
Net income available to common shareholders			$	49,692					$	46,229					7.5%
PER SHARE DATA:
Basic			$	1.06					$	0.97					9.3%
Diluted			$	1.05					$	0.96					9.4%
Average common shares outstanding			47,096						47,600						(1.1)%
Average common shares outstanding and equivalents			47,343						47,944						(1.3)%
Cash dividends declared per common share			$	0.25					0.22						13.6%
Cash dividends declared on common shares			$	11,796					10,527						12.1%
PERFORMANCE RATIOS:
Return on average assets (ROA)			1.77		%				1.87		%				(5.3)%
Return on average tangible common stockholders’ equity			17.92		%				19.13		%				(6.3)%
Return on average common equity (ROE)			16.38		%				17.16		%				(4.5)%
Efficiency ratio			52.49		%				54.87		%				(4.3)%
Interest rate spread			5.26		%				5.85		%				(10.1)%
Interest rate margin			5.40		%				5.89		%				(8.3)%

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			March 31,						December 31,									Variance
			2024						2023									%
PERIOD END BALANCES AND CAPITAL RATIOS:			(In thousands, except per share data)
Investments and loans
Investment securities			$	2,482,374					$	2,686,770								(7.6)%
Loans, net			7,411,378						7,401,618									0.1%
Total investments and loans			$	9,893,752					$	10,088,388								(1.9)%
Deposits and borrowings
Deposits			$	9,548,274					$	9,762,169								(2.2)%
Borrowings			200,766						200,770									—%
Total deposits and borrowings			$	9,749,040					$	9,962,939								(2.1)%
Stockholders’ equity
Common stock			59,885						59,885									—%
Additional paid-in capital			636,208						638,667									(0.4)%
Legal surplus			155,732						150,967									3.2%
Retained earnings			672,455						639,324									5.2%
Treasury stock, at cost			(226,896)						(228,350)									(0.6)%
Accumulated other comprehensive loss			(81,731)						(67,013)									22.0%
Total stockholders’ equity			$	1,215,653					$	1,193,480								1.9%
Per share data
Book value per common share			$	25.75					$	25.36								1.5%
Tangible book value per common share			$	23.55					$	23.13								1.8%
Market price			$	36.81					$	37.48								(1.8)%
Capital ratios
Leverage capital			10.76		%				11.03		%							(2.4)%
Common equity Tier 1 capital			14.45		%				14.12		%							2.3%
Tier 1 risk-based capital			14.45		%				14.12		%							2.3%
Total risk-based capital			15.71		%				15.37		%							2.2%
Financial assets managed
Trust assets managed			$	2,648,006					$	2,511,880								5.4%
Broker-dealer assets managed			2,579,404						2,446,281									5.4%
Total assets managed			$	5,227,410					$	4,958,161								5.4%

ANALYSIS OF RESULTS OF OPERATIONS

The following tables show major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates for the quarters ended March 31, 2024 and 2023.

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TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE FOR THE QUARTERS ENDED MARCH 31, 2024 AND 2023

			Interest												Average rate												Average balance
			March 2024						March 2023						March 2024						March 2023						March 2024						March 2023
			(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets			$	183,426					$	148,985					6.87		%				6.46		%				$	10,739,590					$	9,359,211
Tax equivalent adjustment			4,109						4,635						0.15		%				0.20		%				—						—
Interest-earning assets - tax equivalent			187,535						153,620						7.02		%				6.66		%				10,739,590						9,359,211
Interest-bearing liabilities			39,324						13,088						1.61		%				0.61		%				9,812,300						8,668,789
Tax equivalent net interest income / spread			148,211						140,532						5.41		%				6.05		%				927,290						690,422
Tax equivalent interest rate margin															5.56		%				6.25		%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities			25,836						14,229						3.98		%				2.93		%				2,597,542						1,939,990
Interest bearing cash and money market investments			7,996						6,445						5.36		%				4.73		%				600,291						552,635
Total investments			33,832						20,674						4.26		%				3.36		%				3,197,833						2,492,625
Non-PCD loans
Mortgage			8,229						8,573						5.56		%				5.42		%				591,621						633,126
Commercial			57,235						44,299						7.96		%				7.31		%				2,925,082						2,457,932
Consumer			18,623						16,238						11.48		%				11.38		%				652,220						578,686
Auto			48,885						40,220						8.52		%				8.15		%				2,307,125						2,001,222
Total Non-PCD loans			132,972						109,330						8.26		%				7.82		%				6,476,048						5,670,966
PCD loans
Mortgage			14,426						15,707						6.27		%				6.16		%				919,660						1,020,297
Commercial			2,120						3,112						5.89		%				7.34		%				143,888						169,678
Consumer			18						45						11.53		%				23.13		%				623						781
Auto			58						117						15.22		%				9.66		%				1,538						4,864
Total PCD loans			16,622						18,981						6.24		%				6.35		%				1,065,709						1,195,620
Total loans (1)			149,594						128,311						7.98		%				7.58		%				7,541,757						6,866,586
Total interest-earning assets			183,426						148,985						6.87		%				6.46		%				10,739,590						9,359,211
Interest-bearing liabilities:
Deposits:
NOW Accounts			20,516						4,212						2.38		%				0.68		%				3,472,852						2,497,917
Savings and money market			4,417						3,135						0.87		%				0.57		%				2,042,865						2,232,903
Time deposits			9,924						3,821						2.70		%				1.28		%				1,480,753						1,209,432
Total core deposits			34,857						11,168						2.00		%				0.76		%				6,996,470						5,940,252
Brokered deposits			803						8						5.50		%				0.30		%				58,737						10,229
			35,660						11,176						2.03		%				0.76		%				7,055,207						5,950,481
Non-interest bearing deposits			—						—						—						—						2,536,320						2,654,140

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			Interest												Average rate												Average balance
			March 2024						March 2023						March 2024						March 2023						March 2024						March 2023
			(Dollars in thousands)
Fair value premium and core deposit intangible amortizations			1,132						1,321						—		%				—		%				—						—
Total deposits			36,792						12,497						1.54		%				0.59		%				9,591,527						8,604,621
Borrowings:
Advances from FHLB and other borrowings			2,532						591						4.61		%				3.74		%				220,773						64,168
Total borrowings			2,532						591						4.61		%				3.74		%				220,773						64,168
Total interest-bearing liabilities			39,324						13,088						1.61		%				0.61		%				9,812,300						8,668,789
Net interest income / spread			$	144,102					$	135,897					5.26		%				5.85		%
Interest rate margin															5.40		%				5.89		%
Excess of average interest-earning assets over average interest-bearing liabilities																											$	927,290					$	690,422
Average interest-earning assets to average interest-bearing liabilities ratio																											109.45		%				92.62		%
(1) Includes loans held for sale and excludes allowance for credit losses. Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis

C - CHANGES IN NET INTEREST INCOME DUE TO:

			Volume						Rate						Total
			(In thousands)
Interest Income:
Investment securities			$	5,382					$	6,225					$	11,607
Interest bearing cash and money market investments			208						1,343						1,551
Loans			14,636						6,647						21,283
Total interest income			20,226						14,215						34,441
Interest Expense:
NOW Accounts			2,176						14,128						16,304
Savings and money market			(283)						1,565						1,282
Time deposits			1,498						4,605						6,103
Brokered deposits			168						627						795
Fair value premium and core deposit intangible amortizations			—						(189)						(189)
Advances from FHLB and other borrowings			1,761						180						1,941
Total interest expense			5,320						20,916						26,236
Net Interest Income			$	14,906					$	(6,701)					$	8,205

Net Interest Income

Net interest income is a function of the difference between rates earned on OFG’s interest-earning assets and rates paid on its interest-bearing liabilities (interest rate spread) and the relative amounts of its interest earning assets and interest-bearing liabilities (interest rate margin). OFG constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels.

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Comparison of quarters ended March 31, 2024 and 2023

Net interest income of $144.1 million increased $8.2 million from $135.9 million. Tax equivalent basis net interest income of $148.2 million increased $7.7 million, or 5.5%, from $140.5 million.

Interest rate spread decreased 59 basis points to 5.26% from 5.85% and net interest margin decreased 49 basis points to 5.40% from 5.89%.

Net interest income was positively impacted by:

•A $21.3 million increase in interest income from loans, primarily driven by: (i) higher interest income from commercial loans by $11.9 million, reflecting the upward repricing of variable rate loans and increased yields on new loans originated during 2024; (ii) higher interest income from auto loans by $8.6 million, mainly due to an increase in the average balance of this portfolio by approximately $302.6 million; and (iii) higher interest income from consumer loans by $2.4 million, mainly due to an increase in the average balance of this portfolio of approximately $73.4 million. These increases were partially offset by lower interest income from residential mortgage loans by $1.6 million, reflecting a decrease in the average balance of this portfolio by approximately $142.1 million, mainly from the securitization and sale of conforming loans;

•A $11.6 million increase in interest income from investments securities, primarily related to higher yield by 105 basis points, which contributed to an increase in interest income of approximately $6.2 million and higher average volume of $657.6 million, resulting in an increase in interest income of approximately $5.4 million; and

•A $1.6 million increase in interest income from interest-bearing cash and money market investments related to higher FRB federal funds rates and higher average balances.

These increases were partially offset by higher interest expense of $26.2 million from (i) deposits of $24.3 million due to higher average cost of total deposits of 95 basis points and (ii) advances from the FHLB of $1.9 million related to a $156.6 million increase in the average balance.

TABLE 2 - NON-INTEREST INCOME SUMMARY

			Quarter Ended March 31,
			2024						2023						Variance %
			(In thousands)
Banking service revenue			$	17,259					$	17,513					(1.5)		%
Wealth management revenue			8,107						7,120						13.9		%
Mortgage banking activities			4,693						3,898						20.4		%
Total banking and financial service revenue			30,059						28,531						5.4		%
Net (loss) gain on:
Sale of securities			(7)						—						—		%
Other non-interest income			296						370						(20.0)		%
Total non-interest income			$	30,348					$	28,901					5.0		%

Non-Interest Income

Non-interest income is affected by fees generated from loans and deposit accounts, the amount of assets under management of the Bank’s trust department, transactions generated by clients’ financial assets serviced by OFG’s securities broker-dealer, insurance agency and reinsurance subsidiaries, the level of mortgage banking activities, and gains or losses on sales of assets.

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Comparison of quarters ended March 31, 2024 and 2023

OFG recorded non-interest income, net, in the amount of $30.3 million, compared to $28.9 million, an increase of 5.0%, or $1.4 million. The increase in non-interest income was mainly due to the net effect of:

•A $987 thousand increase in wealth management revenue primarily reflecting: (i) a $405 thousand increase in insurance income from higher annuities and reinsurance income, (ii) a $318 thousand increase in trust division fees and (iii) a $308 thousand increase in broker-dealer fees related to higher market asset values; and

•A $795 thousand increase in mortgage banking activities mainly from favorable impact of $1.7 million in mortgage servicing rights valuation, partially offset by lower gains on sales in the current quarter driven by lower sales volume.

TABLE 3 - NON-INTEREST EXPENSES SUMMARY

			Quarter Ended March 31,
			2024						2023						Variance %
			(In thousands)
Compensation and employee benefits			$	39,816					$	38,473					3.5		%
Occupancy, equipment and infrastructure costs			14,322						14,257						0.5		%
Electronic banking charges			10,366						10,337						0.3		%
Information technology expenses			6,603						6,418						2.9		%
Professional and service fees			4,004						5,064						-20.9		%
Taxes, other than payroll and income taxes			3,243						3,273						-0.9		%
Insurance			2,676						2,918						-8.3		%
Loan servicing and clearing expenses			2,110						2,267						-6.9		%
Advertising, business promotion, and strategic initiatives			2,379						2,036						16.8		%
Communication			1,081						1,029						5.1		%
Printing, postage, stationery and supplies			959						730						31.4		%
Director and investor relations			279						258						8.1		%
Foreclosed real estate and other repossessed assets income, net of expenses			668						793						-15.8		%
Other			2,906						2,367						22.8		%
Total non-interest expenses			$	91,412					$	90,220					1.3		%
Relevant ratios and data:
Efficiency ratio			52.49		%				54.87		%
Compensation and benefits to non-interest expense			43.56		%				42.64		%
Compensation to average total assets owned			1.42		%				1.55		%
Number of employees end of period			2,230						2,249
Average number of employees			2,232						2,251
Average compensation per employee (in thousands)			$	71.37					$	68.37
Average loans per average employee			$	3,379					$	3,050

Comparison of quarters ended March 31, 2024 and 2023

Non-interest expense was $91.4 million, representing an increase of 1.3% or $1.2 million, compared to $90.2 million. The increase in non-interest expense was mainly due to:

•Increase of $1.3 million in compensation and employee benefits, as a result of higher salaries and benefits, including payroll taxes;

•Increase of $539 thousand in other expenses, primarily driven by a $940 thousand accrual recorded during the quarter related to regulatory examinations, offset by lower charitable contributions by $336 thousand; and

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•Increase of $343 thousand in advertising, business promotion, and strategic initiatives, primarily driven by an increase in marketing campaigns and digital marketing efforts made during the current quarter.

The increase in non-interest expense was partially offset by a decrease of $1.1 million in professional and service fees, mainly due to lower consulting expenses.

The efficiency ratio was 52.49%, an improvement from 54.87%. The efficiency ratio measures how much of OFG’s revenues is used to pay operating expenses. OFG computes its efficiency ratio by dividing non-interest expenses by the sum of its net interest income and non-interest income, but excluding gains on the sale of investment securities, other gains and losses, and other income that may be considered volatile in nature. Management believes that the exclusion of those items permits consistent comparability. Amounts presented as part of non-interest income that were excluded from the adjusted efficiency ratio computation for the quarters ended March 31, 2024 and 2023 amounted to $289 thousand and $370 thousand, respectively.

Provision for Credit Losses

Comparison of quarters ended March 31, 2024 and 2023

Provision for credit losses increased by $5.7 million to $15.1 million from $9.4 million. The provision for credit losses for the quarter ended March 31, 2024, reflected adjustments of $15.1 million related to loan volume and $1.7 million as a result of the strategic sale of a performing U.S. commercial loan, partially offset by $1.7 million related to a reduction in specific reserves for payments received on substantially reserved U.S. commercial loans. The provision for credit losses for the quarter ended March 31, 2023, reflected a provision of $6.1 million related to the growth in loan balances and a provision of $4.1 million related to commercial-specific loan reserves. The increases to the provision were partially offset by releases of $619 thousand associated with qualitative adjustment due to improvement in the performance of the portfolios and in Puerto Rico’s labor market and $293 thousand for changes in the economic and loss rate models.

Income Tax Expense

Comparison of quarters ended March 31, 2024 and 2023

Income tax expense for the quarter ended March 31, 2024 increased $679 thousand to $18.2 million from $18.9 million. OFG maintained an effective tax rate (“ETR”) lower than the statutory rate for the quarters ended March 31, 2024 and 2023 of 26.8% and 29.0%, respectively. The current quarter reflected expected 2024 ETR of 28.5% due to higher forecasted business activities with preferential tax treatment under the Puerto Rico tax code, and a $1.1 million discrete benefit for stock vested in the current period.

Business Segments

OFG segregates its businesses into the following segments: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as OFG’s organization, nature of its products, distribution channels and economic characteristics of its services were also considered in the determination of the reportable segments. OFG measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. OFG’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2024 and 2023.

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TABLE 4 - BUSINESS SEGMENTS
			Quarter Ended March 31, 2024
			Banking						Wealth Management						Treasury						Total Major Segments						Eliminations						Consolidated Total
			(In thousands)
Interest income			$	150,995					$	9					$	33,497					$	184,501					$	(1,075)					$	183,426
Interest expense			(35,849)						—						(4,550)						(40,399)						1,075						(39,324)
Net interest income			115,146						9						28,947						144,102						—						144,102
Provision for (recapture of) credit losses			15,225						—						(104)						15,121						—						15,121
Non-interest income			23,065						7,375						(92)						30,348						—						30,348
Non-interest expenses			(85,990)						(4,522)						(900)						(91,412)						—						(91,412)
Intersegment revenue			424						—						—						424						(424)						—
Intersegment expenses			—						(267)						(157)						(424)						424						—
Income before income taxes			37,420						2,595						27,902						67,917						—						67,917
Income tax expense			18,166						13						46						18,225						—						18,225
Net income			$	19,254					$	2,582					$	27,856					$	49,692					$	—					$	49,692
Total assets			$	9,132,772					$	32,597					$	3,144,241					$	12,309,610					$	(1,150,375)					$	11,159,235

			Quarter Ended March 31, 2023
			Banking						Wealth Management						Treasury						Total Major Segments						Eliminations						Consolidated Total
			(In thousands)
Interest income			$	132,425					$	5					$	21,126					$	153,556					$	(4,571)					$	148,985
Interest expense			(12,381)						—						(5,278)						(17,659)						4,571						(13,088)
Net interest income			120,044						5						15,848						135,897						—						135,897
Provision for credit losses			9,405						—						40						9,445						—						9,445
Non-interest income			21,625						7,276						—						28,901						—						28,901
Non-interest expenses			(85,365)						(3,955)						(900)						(90,220)						—						(90,220)
Intersegment revenue			546						—						—						546						(546)						—
Intersegment expenses			—						(377)						(169)						(546)						546						—
Income before income taxes			47,445						2,949						14,739						65,133						—						65,133
Income tax expense			18,892						—						12						18,904						—						18,904
Net income			$	28,553					$	2,949					$	14,727					$	46,229					$	—					$	46,229
Total assets			$	8,484,413					$	28,605					$	2,591,608					$	11,104,626					$	(1,047,045)					$	10,057,581

Eliminations include interest income and expense for a time deposit opened by the Bank in Oriental Overseas, an international banking entity organized and licensed under Puerto Rico law, which operates as a unit within the Bank. The time deposit with a balance of $301.4 million and $414.6 million at March 31, 2024 and 2023, respectively, is included in the Treasury Segment with its corresponding interest expense, to fund Oriental Overseas operations, which is included in the Banking Segment with its corresponding interest income, and are eliminated in the consolidation. Interest income is accrued on the unpaid principal balance. The decrease in interest income and interest expense from the prior year was mainly as a result of lower interest rate and average balance.

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Comparison of quarters ended March 31, 2024 and 2023

Banking

OFG’s banking segment net income before taxes decreased by $10.0 million from $47.4 million to $37.4 million, mainly reflecting:

•Increase of $23.5 million in interest expense primarily related to an increase in the average cost of deposits and borrowings;

•Increase of $5.8 million in provision for credit losses (provision for the first quarter of 2024 included $15.1 million related to the growth in loan balances); and

•Decrease of $3.5 million in interest income related to Oriental Overseas’ time deposit from the Bank to fund its operations, eliminated in the consolidation, mainly as a result of lower interest rates and average in the current period.

The decrease in the banking segment’s net income before taxes was partially offset by:

•Increase of $18.6 million in interest income from loans, driven by increased yields on higher balances.

Wealth Management

Wealth management segment revenue consists of commissions and fees from fiduciary activities, securities brokerage, and insurance and reinsurance activities. Net income before taxes from this segment decreased slightly from $2.9 million to $2.6 million. The decrease mostly reflected an increase in non-interest expenses of $567 thousand, mainly from higher salaries and employee benefits.

Treasury

Treasury segment net income before taxes increased by $13.2 million, mainly reflecting an increase in interest income from the purchases of investment securities during 2024 and 2023, higher yield in interest bearing cash and money market investments related to higher rates, and lower interest expense associated with inter-segment borrowing as a result of lower interest rates and average balance.

ANALYSIS OF FINANCIAL CONDITION

Assets Owned

At March 31, 2024, OFG’s total assets amounted to $11.159 billion, a decrease of $185.2 million, when compared to $11.344 billion at December 31, 2023.

Cash and due from banks increased by $6.2 million to $749.7 million, reflecting the effect of $149.4 million sale of US Treasury securities, principal paydowns on mortgage-backed securities totaling $55.3 million, offset by loan funding and lower deposit balances.

The investment portfolio decreased by $204.4 million or 7.6% primarily driven by the sale of a $149.4 million US Treasury securities available for sale, principal paydowns on mortgage-backed securities totaling $55.3 million and unfavorable market value adjustments of $17.5 million, offset by $17.4 million in mortgage loan securitization and $933 thousand new US Treasury securities available for sale. OFG’s investment strategy focuses on liquidity and highly liquid securities, considering their investment and the current market environment.

OFG’s loan portfolio is comprised of commercial loans secured by real estate, other commercial and industrial loans, US commercial loans, residential mortgage loans, consumer loans, and auto loans. At March 31, 2024, OFG’s net loan portfolio increased by $9.8 million or 0.1% reflecting increases in retail auto and consumer loans, partially offset by regular paydowns of residential mortgage loans and securitization and sale of conforming loans as well as seasonal paydowns of commercial lines of credit.

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Financial Assets Managed

At March 31, 2024, OFG’s financial assets include those managed by OFG’s trust division and its securities broker-dealer and insurance agency subsidiaries. OFG’s trust division offers various types of individual retirement accounts (“IRAs”) and manages Keogh retirement plans and custodian and corporate trust accounts. At March 31, 2024 and December 31, 2023, the total assets managed by OFG’s trust division amounted to $2.648 billion and $2.512 billion, respectively. OFG’s broker-dealer subsidiary offers a wide array of investment alternatives to its client base, such as tax-advantaged fixed income securities, mutual funds, stocks, bonds and money management wrap-fee programs. At March 31, 2024, total assets managed by the securities broker-dealer and insurance agency subsidiaries from their customers’ investment accounts amounted to $2.579 billion, compared to $2.446 billion at December 31, 2023. Changes in trust and broker-dealer related assets also reflect changes in portfolio balances and differences in market value resulting from higher interest rates.

Goodwill

OFG’s goodwill is not amortized to expense but is tested at least annually for impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, OFG determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. OFG completes its annual goodwill impairment test as of October 31 of each year. OFG tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill.

As of both March 31, 2024 and December 31, 2023, OFG had $84.2 million of goodwill allocated as follows: $84.1 million to the banking segment and $100 thousand to the wealth management segment. Please refer to “Note 8 – Goodwill and Other Intangible Assets” to our consolidated financial statements for more information on the annual goodwill impairment test.

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TABLE 5 - ASSETS SUMMARY AND COMPOSITION

			March 31,						December 31,									Variance %
			2024						2023
			(In thousands)
Investments:
FNMA and FHLMC certificates			$	1,663,318					$	1,730,655								-3.9		%
US Treasury securities			350,642						496,113									-29.3		%
GNMA certificates			384,171						376,294									2.1		%
Equity securities			40,162						38,469									4.4		%
CMOs issued by US government-sponsored agencies			8,470						9,610									-11.9		%
Other debt securities			35,597						35,616									-0.1		%
Trading securities			14						13									7.7		%
Total investments			2,482,374						2,686,770									-7.6		%
Loans, net			7,411,378						7,401,618									0.1		%
Total investments and loans			9,893,752						10,088,388									-1.9		%
Other assets:
Cash and due from banks			749,718						743,550									0.8		%
Money market investments			4,674						4,623									1.1		%
Foreclosed real estate			10,850						10,780									0.6		%
Accrued interest receivable			72,117						71,400									1.0		%
Deferred tax asset, net			4,379						4,923									-11.1		%
Premises and equipment, net			104,980						104,102									0.8		%
Servicing assets			49,553						49,520									0.1		%
Goodwill			84,241						84,241									0.0		%
Other intangible assets			19,216						20,694									-7.1		%
Operating lease right-of-use assets			21,606						21,725									-0.5		%
Other assets and customers' liability on acceptances			144,149						140,507									2.6		%
Total other assets			1,265,483						1,256,065									0.7		%
Total assets			$	11,159,235					$	11,344,453								-1.6		%
Investment portfolio composition:
FNMA and FHLMC certificates			67.0		%				64.4		%
US Treasury securities			14.1		%				18.5		%
GNMA certificates			15.5		%				14.0		%
Equity securities			1.6		%				1.4		%
CMOs issued by US government-sponsored agencies			0.3		%				0.4		%
Other debt securities and trading securities			1.5		%				1.3		%
			100.0		%				100.0		%

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TABLE 6 - LOAN PORTFOLIO COMPOSITION

			March 31, 2024						December 31, 2023						Variance %
			(In thousands)
Loans held for investment:
Commercial loans			$	3,051,448					$	3,076,903					(0.8)		%
Mortgage loans			1,519,045						1,562,609						(2.8)		%
Consumer loans			627,980						620,446						1.2		%
Auto loans			2,341,194						2,274,421						2.9		%
			7,539,667						7,534,379						0.1		%
Allowance for credit losses			(156,563)						(161,106)						(2.8)		%
Total loans held for investment			7,383,104						7,373,273						0.1		%
Mortgage loans held for sale			9,370						—						100.0		%
Other loans held for sale			18,904						28,345						(33.3)		%
Total loans held for sale			28,274						28,345						(0.3)		%
Total loans, net			$	7,411,378					$	7,401,618					0.1		%

OFG’s loan portfolio is composed of commercial, mortgage, consumer, and auto loans. As shown in Table 6 above, total loans, net, amounted to $7.411 billion at March 31, 2024, a 0.1% increase when compared to $7.402 billion at December 31, 2023. The composition and trends of OFG’s loans held-for-investment portfolio were as follows:

•Commercial loan portfolio amounted to $3.051 billion (40.5% of the gross loan portfolio) compared to $3.077 billion (40.8% of the gross loan portfolio) at December 31, 2023, a 0.8% decrease as a result of seasonal paydowns of lines of credit. Commercial loans secured by non-owner occupied commercial real estate amounted to $804.9 million and $744.6 million at March 31, 2024 and December 31, 2023, respectively, which represented 10.7% and 9.88% of our total loan portfolio held for investment. US commercial loans amounted to $740.7 million and $755.2 million at March 31, 2024 and December 31, 2023, respectively, which represented 9.8% and 10.0% of our total loan portfolio held for investment. Commercial loan production decreased by 8% or $18.9 million, to $203.5 million in the quarter ended March 31, 2024 from $222.4 million in the prior year quarter.

•Mortgage loan portfolio amounted to $1.519 billion (20.1% of the gross loan portfolio) compared to $1.563 billion (20.7% of the gross originated loan portfolio) at December 31, 2023, a 2.8% decrease resulting from regular paydowns of residential mortgages and securitization and sale of conforming loans. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $18.5 million and $19.4 million at March 31, 2024 and December 31, 2023, respectively. Under the GNMA program, issuers such as OFG have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on our financial statements with an offsetting liability. Mortgage loan production totaled $32.2 million in the quarter ended March 31, 2024 which represents an increase of 6% from $30.3 million in the prior year quarter.

OFG follows a conservative residential mortgage lending policy with more than 90% of its residential mortgage portfolio consisting of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk associated with subprime loans offered by certain major US mortgage loan originators. Furthermore, OFG has never been active in negative amortization loans or offered adjustable-rate mortgage loans with teaser rates.

•Consumer loan portfolio amounted to $628.0 million (8.3% of the gross loan portfolio) compared to $620.4 million (8.2% of the gross loan portfolio) at December 31, 2023. Consumer loan production decreased by 21% to $68.6 million in March 31, 2024 from $86.3 million in the prior year quarter.

•Auto loans portfolio amounted to $2.341 billion (31.1% of the gross loan portfolio) compared to $2.274 billion (30.3% of the gross originated loan portfolio) at December 31, 2023. Auto loans production increased by 4%, or $10.0 million to $232.3 million in the quarter ended March 31, 2024 compared to $222.3 million in the prior year quarter.

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TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS

March 31, 2024
									Maturity
			Carrying Value						Less than 1 Year						1 to 3 Years						More than 3 Years
Loans:			(In thousands)
Municipalities			$	75,502					$	—					$	1,971					$	73,531

At March 31, 2024, OFG has $75.5 million of direct credit exposure to the Puerto Rico government, a $6.9 million increase from $68.6 million at December 31, 2023.

Allowance for Credit Losses

OFG measures its ACL based on management’s best estimate of expected credit losses inherent in OFG’s relevant financial assets. Tables 8 through 11 set forth an analysis of activity in the ACL and present selected credit loss statistics for the quarters ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023. In addition, Table 6 sets forth the composition of the loan portfolio.

Please refer to the “Provision for Credit Losses” and “Critical Accounting Policies and Estimates” sections in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this quarterly report on Form 10-Q and “Note 5 – Allowance for Credit Losses” of the accompanying consolidated financial statements for a more detailed analysis of provisions and ACL.

Non-performing Assets

OFG’s non-performing assets include non-performing loans, foreclosed real estate, and other repossessed assets (see Tables 12 and 14). At March 31, 2024, OFG had $72.1 million of non-accrual loans held for investment, including $6.2 million PCD loans, compared to $79.4 million at December 31, 2023, reflecting decreases of $0.5 million, $4.5 million and $2.8 million in mortgage, auto and commercial loan portfolios, respectively, partially offset by an increase of $0.5 million in the consumer loan portfolio. At March 31, 2024 and December 31, 2023, total commercial non-accrual loans excluded $6.5 million and $6.4 million, respectively, of non-accrual commercial loans held for sale.

On January 1, 2023, OFG adopted ASU 2022-02 related to the elimination of the recognition and measurement of TDRs and the enhancement of disclosures for loan restructurings for borrowers experiencing financial difficulty using the prospective transition method. Loans that were restructured in a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the historical TDR accounting until the relevant loans are paid off, liquidated or subsequently modified.

Delinquent residential mortgage loans insured or guaranteed under applicable Federal Housing Administration (“FHA”) and United States Department of Veterans Affairs (“VA”) programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans. As of March 31, 2024 and December 31, 2023, the outstanding balance of these residential mortgage loans was $5.3 million and $5.8 million, respectively.

At March 31, 2024, OFG’s non-performing assets decreased by 4.9% to $95.2 million (0.85% total assets) from $100.0 million (0.88% of total assets) at December 31, 2023.

Foreclosed real estate slightly increased from $10.8 million at December 31, 2023 to $10.9 million at March 31, 2024 and other repossessed assets increased from $4.0 million at December 31, 2023 to $6.8 million at March 31, 2024, both recorded at fair value. OFG does not expect non-performing loans to result in significantly higher losses. At March 31, 2024, the allowance coverage ratio to non-performing loans was 202.1% (189.1% at December 31, 2023).

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Upon adoption of the CECL methodology, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, for PCD loans the determination of non-accrual or accrual status is made at the pool level, not the individual loan level. The ACL was determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the non-credit premium or discount which will be amortized interest income over the remaining life of the pool. On a quarterly basis, management will monitor the composition and behavior of the pools to assess the ability for cash flow estimation and timing. If based on the analysis performed the pool is classified as non-accrual, the accretion/amortization of the non-credit (discount) premium will cease.

The following items comprise non-performing loans held for investment, including Non-PCD and PCDs:

Commercial loans - At March 31, 2024, OFG’s non-performing commercial loans amounted to $39.8 million (51.3% of OFG’s non-performing loans), a 6.5% decrease from $42.5 million at December 31, 2023 (49.9% of OFG’s non-performing loans). Non-PCD commercial loans are placed on non-accrual status when they become 90 days or more past due and are written down, if necessary, based on the specific evaluation of the underlying collateral, if any.

Mortgage loans - At March 31, 2024, OFG’s non-performing mortgage loans totaled $19.3 million (24.9% of OFG’s non-performing loans), a 4.8% decrease from $20.3 million (23.8% of OFG’s non-performing loans) at December 31, 2023. Non-PCD mortgage loans are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan, except for FHA and VA insured mortgage loans which are placed in non-accrual when they become 12 months or more past due.

Consumer loans - At March 31, 2024, OFG’s non-performing consumer loans amounted to $3.9 million (5.0% of OFG’s non-performing loans), a 15.3% increase from $3.4 million at December 31, 2023 (4.0% of OFG’s non-performing loans). Non-PCD consumer loans are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit.

Auto loans - At March 31, 2024, OFG’s non-performing auto loans amounted to $14.5 million (18.8% of OFG’s total non-performing loans), a decrease of 23.8% from $19.1 million at December 31, 2023 (22.3% of OFG’s total non-performing loans). Non-PCD auto loans are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days.

OFG has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-Conforming Mortgage Loan Program. Both programs are intended to help responsible homeowners to remain in their homes and avoid foreclosure, while also reducing OFG’s losses on non-performing mortgage loans.

The Loss Mitigation Program helps mortgage borrowers who are or will become financially unable to meet the current or scheduled mortgage payments. Loans that qualify under this program are those guaranteed by FHA, VA, USDA Rural Development (RURAL), Puerto Rico Housing Finance Authority (PRHFA), conventional loans guaranteed by Mortgage Guaranty Insurance Corporation (MGIC), conventional loans sold to FNMA and FHLMC, and conventional loans retained by OFG. The program offers diversified alternatives such as regular or reduced payment plans, payment moratorium, mortgage loan modification, partial claims (only FHA), short sale, and deed in lieu of foreclosure.

The Non-Conforming Mortgage Loan Program is for non-conforming mortgages, including balloon payment, interest-only/interest first, variable interest rate, adjustable interest rate and other qualified loans. Non-conforming mortgage loan portfolios are segregated into the following categories: performing loans that meet secondary market requirement and are refinanced under the credit underwriting guidelines of FHA/VA/FNMA/ FHLMC and performing loans not meeting secondary market guidelines processed pursuant OFG’s current credit and underwriting guidelines. OFG achieved an affordable and sustainable monthly payment by taking specific, sequential, and necessary steps such as reducing the interest rate, extending the loan term, capitalizing arrearages, deferring the payment of principal or, if the borrower qualifies, refinancing the loan.

In order to apply for any of our loan modification programs, if the borrower is active in Chapter 13 bankruptcy, it must request an authorization from the bankruptcy trustee to allow the loan modification. Borrowers with discharged Chapter 7 bankruptcies may also apply. Loans in these programs are evaluated by designated credit underwriters for financial difficulty modification if OFG grants a concession for legal or economic reasons due to the debtor’s financial difficulties.

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TABLE 8 - ALLOWANCE FOR CREDIT LOSSES BREAKDOWN

			March 31,						December 31,						Variance %
			2024						2023
			(In thousands)
ACL:
Non-PCD
Commercial loans			$	37,371					$	44,041					-15.1		%
Mortgage loans			7,627						7,998						-4.6		%
Consumer loans			27,453						27,086						1.4		%
Auto loans			76,316						73,485						3.9		%
Total ACL			$	148,767					$	152,610					-2.5		%
PCD
Commercial loans			$	1,133					$	1,113					1.8		%
Mortgage loans			6,638						7,351						-9.7		%
Consumer loans			7						7						—		%
Auto loans			18						25						-28.0		%
Total ACL			$	7,796					$	8,496					-8.2		%
ACL summary
Commercial loans			$	38,504					$	45,154					-14.7		%
Mortgage loans			14,265						15,349						-7.1		%
Consumer loans			27,460						27,093						1.4		%
Auto loans			76,334						73,510						3.8		%
Total ACL			$	156,563					$	161,106					-2.8		%
ACL composition:
Commercial loans			24.6		%				28.0		%
Mortgage loans			9.1		%				9.5		%
Consumer loans			17.5		%				16.8		%
Auto loans			48.8		%				45.7		%
			100.0		%				100.0		%
ACL coverage ratio at end of year:
Commercial loans			1.3		%				1.5		%				(14.3)		%
Mortgage loans			0.9		%				1.0		%				(4.1)		%
Consumer loans			4.4		%				4.3		%				1.4		%
Auto loans			3.3		%				3.2		%				0.9		%
			2.1		%				2.1		%				(2.8)		%
ACL coverage ratio to non-performing loans:
Commercial loans			96.8		%				106.2		%				(8.9)		%
Mortgage loans			73.9		%				75.8		%				(2.5)		%
Consumer loans			705.4		%				802.5		%				(12.1)		%
Auto loans			525.9		%				385.8		%				36.3		%
			202.1		%				189.1		%				6.9		%

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TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES

						March 31,									December 31,
						2024									2023
						Amount of ACL			Percent of loans in each category of total loans [1]						Amount of ACL			Percent of loans in each category of total loans [1]
Commercial loans						$	38,504		40.5%						$	45,154		40.8%
Mortgage loans						14,265			20.1%						15,349			20.7%
Consumer loans						27,460			8.3%						27,093			8.2%
Auto loans						76,334			31.1%						73,510			30.3%
Total						$	156,563		100.0		%				$	161,106		100.0		%
[1] Total loans in this table refers to total loans held for investment.

TABLE 10 - ALLOWANCE FOR CREDIT LOSSES SUMMARY

						Quarter Ended March 31,
						2024						2023						Variance %
						(Dollars in thousands)
Balance at beginning of period						$	161,106					$	152,673					5.5		%
Provision for credit losses						15,269						9,331						63.6		%
Charge-offs						(27,671)						(18,974)						45.8		%
Recoveries						7,859						8,854						-11.2		%
Balance at end of period						$	156,563					$	151,884					3.1		%

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TABLE 11 — NET CREDIT LOSSES STATISTICS ON LOANS

			Quarter Ended March 31,
			2024						2023						Variance %
			(Dollars in thousands)
Non-PCD:
Mortgage loans
Charge-offs			$	(64)					$	(201)					-68.2		%
Recoveries			267						216						23.6		%
Total			203						15						1,253.3		%
Commercial PR
Charge-offs			$	(3,567)					(1,375)						159.4		%
Recoveries			52						326						-84.0		%
Total Commercial PR			(3,515)						(1,049)						235.1		%
Commercial US
Charge-offs			$	(1,749)					—						100.0		%
Recoveries			—						—						—		%
Total Commercial US			(1,749)						—						100.0		%
Consumer loans
Charge-offs			(7,981)						(5,440)						46.7		%
Recoveries			693						866						-20.0		%
Total			(7,288)						(4,574)						59.3		%
Auto loans
Charge-offs			(14,218)						(9,479)						50.0		%
Recoveries			5,971						6,599						-9.5		%
Total			(8,247)						(2,880)						186.4		%
PCD:
Mortgage loans
Charge-offs			$	(83)					$	(75)					10.7		%
Recoveries			638						247						158.3		%
Total			555						172						222.7		%
Commercial PR
Charge-offs			—						(2,104)						—		%
Recoveries			157						489						(67.9)		%
Total Commercial PR loans			157						(1,615)						(109.7)		%
Consumer loans
Charge-offs			—						(213)						(100.0)		%
Recoveries			23						11						109.1		%
Total			23						(202)						(111.4)		%
Auto loans
Charge-offs			(9)						(87)						(89.7)		%
Recoveries			58						100						(42.0)		%
Total			49						13						276.9		%
Total charge-offs			(27,671)						(18,974)						45.8		%
Total recoveries			7,859						8,854						(11.2)		%
Net credit losses			$	(19,812)					$	(10,120)					95.8		%

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TABLE 11 — NET CREDIT LOSSES STATISTICS ON LOANS (CONTINUED)

			Quarter Ended March 31,
			2024						2023						Variance %
			(Dollars in thousands)
Net credit losses (recoveries) to average loans outstanding:
Mortgage loans			(0.20)		%				(0.05)		%				-300.0		%
Commercial PR			0.58		%				0.54		%				7.4		%
Commercial US			0.92		%				—		%				100.0		%
Consumer loans			4.45		%				3.30		%				34.8		%
Auto loans			1.42		%				0.57		%				149.1		%
Total			1.05		%				0.59		%				78.0		%
Recoveries to charge-offs			28.40		%				46.66		%				-39.1		%
Average Loans Held for Investment
Mortgage loans			$	1,511,281					$	1,653,423					-8.6		%
Commercial PR			$	2,312,561					$	1,985,001					16.5		%
Commercial US			$	756,409					$	642,609					17.7		%
Consumer loans			652,843						$	579,467					12.7		%
Auto loans			2,308,663						2,006,086						15.1		%
Total			$	7,541,757					$	6,866,586					9.8		%

Net charge-offs of $19.8 million for the quarter ended March 31, 2024, increased by $9.7 million, when compared to $10.1 million in prior year quarter.

Net charge-offs variances were as follows:

Residential mortgage loans net recoveries amounted to $758 thousand in the first quarter of 2024, increasing by $571 thousand when compared to $187 thousand in the first quarter of 2023.

Commercial loans net charge-offs amounted to $5.1 million in the first quarter of 2024, increasing by $2.4 million, when compared to $2.7 million in the first quarter of 2023. The first quarter of 2024 includes $3.5 million from previously and fully-reserved nonperforming PPP loans.

Consumer loans net charge-offs amounted to $7.3 million in the first quarter of 2024, increasing by $2.5 million, when compared to $4.8 million in the first quarter of 2023.

Auto loans net charge-offs amounted to $8.2 million in the first quarter of 2024, increasing by $5.3 million, when compared to $2.9 million in the first quarter of 2023.

With Covid-19 cash stimulus fading away, OFG has increased net charge-offs in auto and consumer loan portfolios. Nevertheless, these figures are lower than pre-pandemic levels.

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TABLE 12 — NON-PERFORMING ASSETS

			March 31,						December 31,						Variance %
			2024						2023
			(Dollars in thousands)
Non-performing assets:
Non-PCD
Non-accruing loans			$	65,903					$	72,725					-9.4		%
Accruing loans			5,344						5,810						-8.0		%
Total			$	71,247					$	78,535					-9.3		%
PCD			6,216						6,674						-6.9		%
Total non-performing loans			$	77,463					$	85,209					-9.1		%
Foreclosed real estate			10,850						10,780						0.6		%
Other repossessed assets			6,844						4,032						69.7		%
			$	95,157					$	100,021					-4.9		%
Non-performing assets to total assets			0.85		%				0.88		%				-3.4		%
Non-performing assets to total capital			7.83		%				8.38		%				-6.6		%

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TABLE 13 — NON-ACCRUAL LOANS

			March 31,						December 31,						Variance %
			2024						2023
			(Dollars in thousands)
Non-accrual loans
Non-PCD
Commercial loans			$	33,794					$	36,096					-6.4		%
Mortgage loans			13,700						14,197						-3.5		%
Consumer loans			3,893						3,376						15.3		%
Auto loans			14,516						19,056						-23.8		%
Total			$	65,903					$	72,725					-9.4		%
PCD
Commercial loans			$	5,969					$	6,424					-7.1		%
Mortgage loans			247						250						-1.2		%
Total			$	6,216					$	6,674					-6.9		%
Total non-accrual loans			$	72,119					$	79,399					-9.2		%
Non-accruals loans composition percentages:
Commercial loans			55.1		%				53.6		%
Mortgage loans			19.3		%				18.2		%
Consumer loans			5.4		%				4.3		%
Auto loans			20.2		%				23.9		%
			100.0		%				100.0		%
Non-accrual loans ratios:
Non-accrual loans to total loans			0.96		%				1.05		%				-8.57		%
Allowance for credit losses to non-accrual loans			217.09		%				202.91		%				6.99		%

			Quarter Ended March 31,
			2024						2023
			(In thousands)
Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans			$	408					$	470

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TABLE 14 - NON-PERFORMING LOANS

			March 31,						December 31,						Variance %
			2024						2023
			(Dollars in thousands)
Non-performing loans
Non-PCD
Commercial loans			$	33,794					$	36,096					-6.4		%
Mortgage loans			19,044						20,007						-4.8		%
Consumer loans			3,893						3,376						15.3		%
Auto loans			14,516						19,056						-23.8		%
Total			$	71,247					$	78,535					-9.3		%
PCD
Commercial loans			$	5,969					$	6,424					-7.1		%
Mortgage loans			247						250						-1.2		%
Total			$	6,216					$	6,674					-6.9		%
Total non-performing loans			$	77,463					$	85,209					-9.1		%
Non-performing loans composition percentages:
Commercial loans			51.30		%				49.90		%
Mortgage loans			24.90		%				23.80		%
Consumer loans			5.00		%				4.00		%
Auto loans			18.80		%				22.30		%
			100.00		%				100.00		%
Non-performing loans to:
Total loans held for investment gross			1.03		%				1.13		%				-8.8		%
Total assets			0.69		%				0.75		%				-8.0		%
Total capital			6.37		%				7.14		%				-10.8		%
Non-performing loans with partial charge-offs to:
Total loans held for investment gross			0.28		%				0.29		%				-3.4		%
Non-performing loans			27.59		%				25.63		%				7.6		%
Other non-performing loans ratios:
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken			75.55		%				75.14		%				0.5		%
Allowance for credit losses to non-performing loans on which no charge-offs have been taken			279.11		%				254.24		%				9.8		%

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TABLE 15 - LIABILITIES SUMMARY AND COMPOSITION

			March 31,						December 31,						Variance %
			2024						2023
			(Dollars in thousands)
Deposits:
Non-interest-bearing deposits			$	2,562,096					$	2,537,431					1.0		%
NOW accounts			3,474,692						3,512,887						-1.1		%
Savings accounts			2,001,755						2,088,091						-4.1		%
Time deposits			1,507,911						1,620,688						-7.0		%
Total deposits			9,546,454						9,759,097						-2.18		%
Accrued interest payable			1,820						3,072						-40.8		%
Total deposits and accrued interest payable			9,548,274						9,762,169						-2.19		%
Borrowings:
Advances from FHLB			200,766						200,768						—		%
Other borrowings			—						2						-100.0		%
Total borrowings			200,766						200,770						—		%
Total deposits and borrowings			9,749,040						9,962,939						-2.1		%
Other Liabilities:
Acceptances executed and outstanding			25,826						25,576						1.0		%
Lease liability			23,969						24,029						-0.2		%
Deferred tax liability, net			22,876						22,444						1.9		%
Accrued expenses and other liabilities			121,871						115,985						5.1		%
Total liabilities			$	9,943,582					$	10,150,973					-2.0		%
Deposits portfolio composition percentages:
Non-interest-bearing deposits			26.8%						26.0%
NOW accounts			36.4%						36.0%
Savings accounts			21.0%						21.4%
Time deposits			15.8%						16.6%
			100.0		%				100.0		%
Borrowings portfolio composition percentages:
Advances from FHLB			100.0		%				100.0		%

Liabilities and Funding Sources

As shown in Table 15 above, at March 31, 2024, OFG’s total liabilities were $9.944 billion, 2.0% lower than the $10.151 billion reported at December 31, 2023. Deposits and borrowings, OFG’s funding sources, amounted to $9.749 billion at March 31, 2024 compared to $9.963 billion at December 31, 2023. Deposits, excluding accrued interest payable, decreased by $212.6 million reflecting a decrease in brokered deposits of $159.6 million, demand deposits of $99.9 million and savings and money market accounts of $86.3 million, offset by an increase in time deposits of $45.6 million.

In December 2023, OFG received a $1.2 billion deposit in an interest-bearing checking account from an existing long-standing Puerto Rico government client who had an inflow of liquidity. At March 31, 2024 and December 31, 2023, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $1.590 billion and $1.616 billion, respectively. These public funds were collateralized with securities and commercial loans amounting to $1.694 billion and $1.645 billion at March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, borrowings consist of FHLB advances, amounting to $200.8 million, representing a two-year FHLB advance amounting to $200.0 million acquired in 2023 as part of OFG’s asset liability management strategies.

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Stockholders’ Equity

At March 31, 2024, OFG’s total stockholders’ equity was $1.216 billion, a 1.9% increase when compared to $1.193 billion at December 31, 2023. This increase reflects an increase in retained earnings of $33.1 million and legal surplus of $4.8 million, mainly due to $49.7 million in net income, partially offset by $11.8 million in common stock dividends, and an increase in accumulated other comprehensive loss, net of tax, of $14.7 million from unfavorable market value adjustments on available-for-sale investment securities during the quarter ended March 31, 2024.

Regulatory Capital

OFG and the Bank are subject to regulatory capital requirements established by the FRB and the FDIC. The current risk-based capital standards applicable to OFG and the Bank (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of March 31, 2024, the capital ratios of OFG and the Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

On January 1, 2020, OFG implemented CECL using the modified retrospective approach, with an impact to capital of $25.5 million, net of its corresponding deferred tax effect. On March 27, 2020, in response to the Covid-19 pandemic, U.S. banking regulators issued an interim final rule that OFG adopted to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). During the two-year delay, OFG added back to common equity tier 1 (“CET1”) capital 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the ACL (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL are being phased out of CET1 capital over a three-year period.

The risk-based capital ratios presented in Table 16 include common equity tier 1, tier 1 capital, total capital and leverage capital as of March 31, 2024 and December 31, 2023 and are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.

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The following are OFG’s consolidated capital ratios under the Basel III capital rules at March 31, 2024 and December 31, 2023:

TABLE 16 — CAPITAL, DIVIDENDS AND STOCK DATA

			March 31,						December 31,						Variance
			2024						2023						%
			(Dollars in thousands, except per share data)
Capital data:
Stockholders’ equity			$	1,215,653					$	1,193,480					1.9		%
Regulatory Capital Ratios data:
Common equity tier 1 capital ratio			14.45		%				14.12		%				2.3		%
Minimum common equity tier 1 capital ratio required			4.50		%				4.50		%				0.0		%
Actual common equity tier 1 capital			$	1,205,231					1,174,205						2.6		%
Minimum common equity tier 1 capital required			$	375,218					374,301						0.2		%
Minimum capital conservation buffer required (2.5%)			$	208,454					207,945						0.2		%
Excess over regulatory requirement			$	621,559					591,959						5.0		%
Risk-weighted assets			$	8,338,168					8,317,802						0.2		%
Tier 1 risk-based capital ratio			14.45		%				14.12		%				2.3		%
Minimum tier 1 risk-based capital ratio required			6.00		%				6.00		%				0.0		%
Actual tier 1 risk-based capital			$	1,205,231					$	1,174,205					2.6		%
Minimum tier 1 risk-based capital required			$	500,290					$	499,068					0.2		%
Minimum capital conservation buffer required (2.5%)			$	208,454					207,945						0.2		%
Excess over regulatory requirement			$	496,487					$	467,192					6.3		%
Risk-weighted assets			$	8,338,168					$	8,317,802					0.2		%
Total risk-based capital ratio			15.71		%				15.37		%				2.2		%
Minimum total risk-based capital ratio required			8.00		%				8.00		%				0.0		%
Actual total risk-based capital			$	1,309,893					$	1,278,537					2.5		%
Minimum total risk-based capital required			$	667,053					$	665,424					0.2		%
Minimum capital conservation buffer required (2.5%)			$	208,454					207,945						0.2		%
Excess over regulatory requirement			$	434,386					$	405,168					7.2		%
Risk-weighted assets			$	8,338,168					$	8,317,802					0.2		%
Leverage capital ratio			10.76		%				11.03		%				(2.4)		%
Minimum leverage capital ratio required			4.00		%				4.00		%				0.0		%
Actual tier 1 capital			$	1,205,231					$	1,174,205					2.6		%
Minimum tier 1 capital required			$	447,862					$	425,911					5.2		%
Excess over regulatory requirement			$	757,369					$	748,294					1.2		%
Tangible common equity to total assets			9.97		%				9.60		%				3.9		%
Tangible common equity to risk-weighted assets			13.34		%				13.09		%				1.9		%
Total equity to total assets			10.89		%				10.52		%				3.5		%
Total equity to risk-weighted assets			14.58		%				14.35		%				1.6		%
Stock data:
Outstanding common shares			47,216,571						47,065,156						0.3		%
Book value per common share			$	25.75					$	25.36					1.5		%
Tangible book value per common share			$	23.55					$	23.13					1.8		%
Market price at end of period			$	36.81					$	37.48					-1.8		%
Market capitalization at end of period			$	1,738,042					$	1,764,002					-1.5		%

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From December 31, 2023 to March 31, 2024, leverage capital ratio decreased from 11.03% to 10.76% as average assets increased, tier 1 risk-based capital ratio and common equity tier 1 capital ratio increased from 14.12% to 14.45%, total risk-based capital ratio increased from 15.37% to 15.71%, and tangible common equity to tangible total assets increased from 9.68% to 10.06%. The increases in capital ratios reflected an increase in retained earnings from net income, net of dividends and CECL transition, partially offset by an increase in risk-weighted assets of $20.4 million. Risk-weighted assets increased mainly due to an increase in unused commitments, from repayment of credit lines, and an increase in loans.

The following table presents a reconciliation of OFG’s total stockholders’ equity to tangible common equity and total assets to tangible assets at March 31, 2024 and December 31, 2023:

			March 31,						December 31,
			2024						2023
			(In thousands, except share or per share information)
Total stockholders’ equity			$	1,215,653					$	1,193,480
Goodwill			(84,241)						(84,241)
Other intangible assets			(19,216)						(20,694)
Total tangible common equity (non-GAAP)			$	1,112,196					$	1,088,545
Total assets			$	11,159,235					11,344,453
Goodwill			(84,241)						(84,241)
Core deposit intangible			(14,716)						(15,848)
Customer relationship intangible			(4,500)						(4,846)
Total tangible assets			$	11,055,778					$	11,239,518
Tangible common equity to tangible assets			10.06		%				9.68		%
Common shares outstanding at end of period			47,216,571						47,065,156
Tangible book value per common share			$	23.55					$	23.13

The tangible common equity to tangible assets ratio and tangible book value per common share are non-GAAP measures and, unlike tier 1 capital and common equity tier 1 capital, are not codified in the federal banking regulations. Management and many stock analysts use the tangible common equity to tangible assets ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which OFG calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. To mitigate these limitations, OFG has procedures in place to calculate these measures using the appropriate GAAP or regulatory components. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

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The following table presents OFG’s capital adequacy information under the Basel III capital rules:

			March 31,						December 31,						Variance
			2024						2023						%
			(Dollars in thousands)
Risk-based capital:
Common equity tier 1 capital			$	1,205,231					$	1,174,205					2.6		%
Tier 1 capital			1,205,231						1,174,205						2.6		%
Additional Tier 2 capital			104,662						104,332						0.3		%
Total risk-based capital			$	1,309,893					$	1,278,537					2.5		%
Risk-weighted assets:
Balance sheet items			$	7,749,150					$	7,768,828					(0.3)		%
Off-balance sheet items			589,018						548,974						7.3		%
Total risk-weighted assets			$	8,338,168					$	8,317,802					0.2		%
Ratios:
Common equity tier 1 capital (minimum required, including capital conservation buffer - 7%)			14.45		%				14.12		%				2.3		%
Tier 1 capital (minimum required, including capital conservation buffer - 8.5%)			14.45		%				14.12		%				2.3		%
Total capital (minimum required, including capital conservation buffer - 10.5%)			15.71		%				15.37		%				2.2		%
Leverage ratio (minimum required - 4%)			10.76		%				11.03		%				(2.4)		%

The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action. The table below shows the Bank’s regulatory capital ratios at March 31, 2024 and December 31, 2023:

			March 31,						December 31,						Variance
			2024						2023						%
			(Dollars in thousands)
Oriental Bank Regulatory Capital Ratios:
Common Equity Tier 1 Capital to Risk-Weighted Assets			13.14%						13.01%						1.0		%
Actual common equity tier 1 capital			$	1,088,220					$	1,075,487					1.2		%
Minimum capital requirement (4.5%)			$	372,660					$	371,913					0.2		%
Minimum capital conservation buffer requirement (2.5%)			$	207,034					$	206,618					0.2		%
Minimum to be well capitalized (6.5%)			$	538,287					$	537,208					0.2		%
Tier 1 Capital to Risk-Weighted Assets			13.14%						13.01%						1.0		%
Actual tier 1 risk-based capital			$	1,088,220					$	1,075,487					1.2		%
Minimum capital requirement (6%)			$	496,880					$	495,884					0.2		%
Minimum capital conservation buffer requirement (2.5%)			$	207,034					$	206,618					0.2		%
Minimum to be well capitalized (8%)			$	662,507					$	661,179					0.2		%
Total Capital to Risk-Weighted Assets			14.40%						14.27%						0.9		%
Actual total risk-based capital			$	1,192,181					$	1,179,164					1.1		%
Minimum capital requirement (8%)			$	662,507					$	661,179					0.2		%
Minimum capital conservation buffer requirement (2.5%)			$	207,034					$	206,618					0.2		%
Minimum to be well capitalized (10%)			$	828,134					$	826,474					0.2		%
Total Tier 1 Capital to Average Total Assets			9.82%						10.20%						(3.7)		%
Actual tier 1 capital			$	1,088,220					$	1,075,487					1.2		%
Minimum capital requirement (4%)			$	443,045					$	421,660					5.1		%
Minimum to be well capitalized (5%)			$	553,807					$	527,075					5.1		%

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OFG’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At March 31, 2024 and December 31, 2023, OFG’s market capitalization for its outstanding common stock was $1.738 billion ($36.81 per share) and $1.764 billion ($37.48 per share), respectively.

The following table provides the high and low prices and dividends per share of OFG’s common stock for each quarter of the last three calendar years:

															Cash
			Price												Dividend
			High						Low						Per share
2024
March 31, 2024			$	38.51					$	34.78					$	0.25
2023
December 31, 2023			$	38.29					$	28.67					$	0.22
September 30, 2023			$	33.82					$	26.14					$	0.22
June 30, 2023			$	27.80					$	22.80					$	0.22
March 31, 2023			$	30.42					$	24.37					$	0.22
2022
December 31, 2022			$	28.90					$	25.50					$	0.20
September 30, 2022			$	29.45					$	24.66					$	0.20
June 30, 2022			$	29.22					$	25.40					$	0.15
March 31, 2022			$	30.54					$	26.21					$	0.15

In January 2024, OFG announced the approval by the Board of Directors of a stock repurchase program for the purchase of up to $50 million. There were no repurchases of stock under this program during the quarter ended March 31, 2024. Under the prior stock program, OFG repurchased 104,800 shares for a total of $2.9 million at an average price of $27.61 per share during the quarter ended March 31, 2023.

OFG did not repurchase any shares of its common stock during the March 31, 2024 and 2023, other than through its publicly announced stock repurchase program in prior year quarter.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Background

OFG’s risk management policies are established by its Board of Directors (the “Board”) and implemented by management through the adoption of a risk management program, which is overseen and monitored by the Chief Risk Officer, the Board’s Risk and Compliance Committee, the executive Risk and Compliance Team, the executive Credit Risk Team, and the executive Asset/Liability Team (“ALT”). OFG has continued to refine and enhance its risk management program by strengthening policies, processes and procedures necessary to maintain effective risk management.

All aspects of OFG’s business activities are susceptible to risk. Consequently, risk identification and monitoring are essential to risk management. As discussed in greater detail below, OFG’s primary risk exposures include market, interest rate, credit, liquidity, operational and concentration risks.

Market Risk

Market risk is the risk to earnings or capital arising from adverse movements of interest rate or prices. OFG evaluates market risk together with interest rate risk. OFG’s financial results and capital levels are constantly exposed to market risk. The Board and management are primarily responsible for ensuring that the market risk assumed by OFG complies with the guidelines established by policies approved by the Board. The Board has delegated the management of this risk to ALT which is composed of certain executive officers from the risk management, treasury and finance areas. One of ALT’s primary goals is to ensure that the market risk assumed by OFG is within the parameters established in such policies.

In March 2023, the market reacted with volatility as a result of the collapse of three large US regional banks, which became the biggest bank failures since 2008, after they experienced a run on deposits mainly driven by a significant decrease in the value of their investments. Market reactions to recession concerns and inflationary pressure, combined with aggressive interest rate

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increases as part of the FRB’s efforts to control inflation during 2022 and 2023, had a significant impact on bond prices, including those guaranteed by the US government or by a US government-sponsored entity. Nevertheless, we believe that OFG has strong capital and liquidity levels that facilitate holding securities until the recovery of their amortized cost basis. We also believe that our market risk management practices have allowed us to effectively manage the market volatility over time and remained strong under these conditions. After the events triggered by such bank failures, our customer deposits base has increased. Total core deposits at March 31, 2024 amounted to $9.546 billion compared to $9.600 billion at December 31, 2023. The FDIC covers up to $250,000 per account owner by ownership category for retail and commercial deposit accounts. This coverage extends to both principal and accrued interest while the account balance remains within the limits. At March 31, 2024 and December 31, 2023, the aggregate amount of our uninsured deposits was $4.891 billion and $4.885 billion, respectively. We have $1.590 billion of deposits from the Puerto Rico government, its instrumentalities and municipalities, which represents 17% of our total deposits as of March 31, 2024, mainly from a $1.2 billion deposit received in December 2023, as we continue to build and strengthen our customer relationships. These public funds are collateralized with securities and commercial loans amounting to $1.694 billion and $1.645 billion at March 31, 2024 and December 31, 2023, respectively. The amount of these deposits may fluctuate depending on the financial condition and liquidity of these entities, as well as on our ability to maintain these customer relationships. We believe that our clients are confident in the resiliency and strong position of the Bank.

Interest Rate Risk

Interest rate risk is the exposure to decline in earnings or capital due to changes in interest rates. To actively monitor the interest rate risk, the Board of Directors created ALT whose principal responsibilities consist in overseeing the management of the Bank’s assets and liabilities to balance its risk exposures. In executing its responsibilities, ALT considers different methods to enhance profitability while maintaining acceptable levels of interest rate risks by implementing investment, pricing and financial strategies that help manage OFG’s vulnerability to changes in interest rates.

On a quarterly basis, OFG performs net interest income simulation analysis on a consolidated basis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a five-year time horizon, assuming certain upward and downward interest rate movements, achieved during a twelve-month period. Market scenarios that include instantaneous and parallel interest rate movements as well as other scenarios with gradual interest rate ramps, speed of interest rate changes, and changes in the slope of the yield curve are also modeled. In addition to the change in interest rates, the results of the analysis could be affected by prepayments, caps, and floors. Management exercises its best judgment in formulating assumptions regarding events that management can influence such as non-maturity deposits repricing, as well as events outside management’s control such as customer behavior on loans and deposits activity and the effects that competition has on both lending and deposits pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors.

OFG uses a software application to project future movements in OFG’s balance sheet and income statement. The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations.

The following table presents the results of the simulations for the most likely scenarios at March 31, 2024. The left of the table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and parallel shift in the yield curve over a 12-month horizon. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The right side of the table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from parallel gradual interest rates ramps over a 12-month horizon.

			Net Interest Income Risk (one-year projection)
			Instantaneous Changes in Interest Rates												Gradual Changes in Interest Rates
			Amount Change						Percent Change						Amount Change						Percent Change
Change in interest rate			(Dollars in thousands)
+ 50 Basis points			$	8,685					1.46		%				$	2,970					0.50		%
+ 100 Basis points			$	17,307					2.91		%				$	6,049					1.02		%
+ 200 Basis points			$	34,593					5.81		%				$	12,119					2.03		%
- 50 Basis points			$	(9,732)					-1.63		%				$	(3,480)					-0.58		%
'-100 Basis points			$	(19,682)					-3.30		%				$	(6,854)					-1.15		%
'-200 Basis points			$	(38,520)					-6.47		%				$	(14,356)					-2.41		%

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The scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities will perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. OFG strategic management of the balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag changes in market rates. Also, the ability of many borrowers to service their debts may decrease in the event of an interest rate increase. ALT strategies consider all these factors as part of the monitoring of the exposure to interest rate risk.

Future net interest income could be affected by OFG’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and any structured repurchase agreements and advances from the FHLB in which it may enter into from time to time. As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of OFG’s assets and liabilities, OFG has executed, in the past, certain transactions which included extending the maturity and the re-pricing frequency of the liabilities to longer terms and using hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings. At March 31, 2024, OFG did not have derivative instruments.

During 2023, OFG redeployed its high cash levels and maturing treasury positions into longer-term mortgage-backed securities. These moves position OFG’s balance sheet better for the expected lower interest rate environment in the second half of 2024.

Credit Risk

Credit risk is the possibility of loss arising from a borrower or counterparty in a credit-related contract failing to perform in accordance with its terms. The principal source of credit risk for OFG is its lending activities. In Puerto Rico, OFG’s principal market, we believe that recent macroeconomic conditions continue to show strength. However, as demonstrated by Hurricane Fiona in September 2022, the January 2020 earthquakes and Hurricanes Irma and Maria in 2017, Puerto Rico is susceptible to natural disasters, which can have a disproportionate impact because of the logistical difficulties of bringing relief to an island far from the United States mainland. The effects of climate change may further increase the risk of natural disasters in the future and the correlative risk that the physical impact of such events could adversely affect our customers, operations, and business. Moreover, the Puerto Rico government’s fiscal challenges and Puerto Rico’s unique relationship with the United States also complicate any relief efforts after a natural disaster. These events increase credit risk as debtors may no longer be capable of operating their businesses and the collateral securing OFG’s loans may suffer significant damages.

OFG manages its credit risk through a comprehensive credit policy which we believe establishes sound underwriting standards by monitoring and evaluating loan portfolio quality, and by the constant assessment of reserves and loan concentrations. OFG also employs proactive collection and loss mitigation practices.

OFG may also encounter risk of default in relation to its securities portfolio. The securities held by OFG are mostly agency mortgage-backed securities and US Treasury securities. Thus, these instruments are guaranteed by mortgages, a U.S. government-sponsored entity, or the full faith and credit of the U.S. government.

OFG’s executive Credit Risk Team, composed of its Chief Risk Officer, Chief Credit Officer and other senior executives, has primary responsibility for setting strategies to achieve OFG’s credit risk goals and objectives. Those goals and objectives are set forth in OFG’s Credit Policy as approved by the Board.

Liquidity Risk

Liquidity risk is the risk of OFG not being able to generate sufficient cash from either assets or liabilities to meet obligations as they become due without incurring substantial losses. The Board has established a policy to manage this risk. OFG’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as these mature, and funding of new and existing investments as required.

OFG’s business requires continuous access to various funding sources. Liquidity to support growth in loans held for investment has been fulfilled primarily through growth in customer deposits. OFG’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships. In December 2023, OFG received a $1.2 billion deposit in an interest-bearing checking account from an existing long-standing Puerto Rico government client who had an isolated inflow of liquidity

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resulting in a total of $1.590 billion and $1.616 billion deposits from the Puerto Rico government and its instrumentalities as of March 31, 2024 and December 31, 2023, respectively. OFG is not relying on this deposit as part its long-term funding management strategies, even though these funds could remain in the Bank for a longer period. Deposit volumes as well as the customer deposit base, excluding the Puerto Rico government deposit mentioned above, have remained stable. While OFG is able to fund its operations through deposits as well as through advances from the FHLB and other alternative sources, OFG’s business may at times need to rely upon other external wholesale funding sources. OFG has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements, brokered deposits, and subordinated notes, but depending on its assets and liabilities management strategies, it could use them in the future.

In the ordinary course of OFG’s operations, it has entered into certain contractual obligations and has made other commitments to make future payments. OFG believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates, bear variable interest rate and may require payment of a fee. Since the commitments may expire unexercised, the total commitment amounts do not necessarily represent future cash requirements. OFG evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by OFG upon extension of credit, is based on management’s credit evaluation of the customer. Loan commitments, which represent unused lines of credit, increased to $1.354 billion at March 31, 2024 ($141.4 million with maturity of one year or less and $1.213 billion with maturity over one year) compared to $1.256 billion at December 31, 2023 ($111.4 million with maturity of one year or less and $1.144 billion with maturity over one year) as a result of seasonal paydowns of commercial lines of credit, and standby letters of credit provided to customers amounted to $24.7 million and $24.0 million at March 31, 2024 and December 31, 2023, respectively. Loans sold with recourse at March 31, 2024 and December 31, 2023 amounted to $96.4 million and $98.7 million, respectively.

In the case of loans serviced by OFG for FNMA, OFG is required to advance to the owners the payment of principal and interest on a scheduled basis for six months even when such payment was not collected from the borrower due to payment forbearance granted or payment delinquency. Such amounts advanced are recorded as a receivable by OFG and are expected to be collected from the borrower and/or government agency (FNMA).

At March 31, 2024 and December 31, 2023, OFG maintained other non-credit commitments amounting to $19.1 million and $18.9 million, respectively, primarily for the acquisition of other investments. These cash requirements are expected to be satisfied with OFG’s unrestricted cash. In addition, as we continue to transform OFG with a focus on simplification and building a culture of excellence and customer service, we continue to invest in technology. Some of our technology investments are integrated at our long-term financial plan and required to continuously upgrade our systems. Others require us to focus our technology on investments that drive our strategy, namely digital, data analytics, cloud migration, cyber security, and our sales and service capabilities. At March 31, 2024 and December 31, 2023, OFG had commitments for capital expenditures in technology amounting to $6.0 million and $7.8 million, respectively, which are expected to be satisfied with OFG’s unrestricted cash.

OFG expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. Our liquidity risk management practices have allowed us to effectively manage the market volatility in the past, as with the Covid-19 pandemic, and in the present, with the disruption in the banking industry caused by certain high-profile bank failures in 2023. Liquidity has grown from the federal stimulus programs Puerto Rico has received following Hurricane Maria in 2017, the January 2020 earthquakes, the Covid-19 pandemic, and Hurricane Fiona in 2022. However, liquidity can be further affected by a number of factors such as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the current economic uncertainty resulting from inflation, recent geopolitical events, and increasing recessionary risk in the US, we continue monitoring our liquidity position, specifically cash on hand to meet customer demands.

In addition, as OFG is a holding company, separate from the Bank, OFG’s primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. Management believes that these limitations will not impact OFG’s ability to meet its ongoing short-term cash obligations.

Although OFG expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms. In a period of financial disruption or if negative developments occur with respect to OFG, the availability and cost of OFG’s funding sources could be adversely affected. In that event, OFG’s cost of funds may increase, thereby reducing its net interest income, or OFG may need to dispose of a portion of its investment portfolio, which depending upon market conditions, could result in realizing a loss or experiencing other adverse accounting consequences upon any such dispositions. OFG’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global or US securities markets or other reductions in liquidity driven by OFG or market-related events. In the event that such sources of funds are reduced or

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eliminated and OFG is not able to replace these on a cost-effective basis, OFG may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.

As of March 31, 2024, OFG had approximately $754.4 million in unrestricted cash and cash equivalents, $825.4 million in investment securities that are not pledged as collateral, $457.5 million in borrowing capacity at the FHLB and a secured line of credit through the FRB discount window with $1.922 billion in loans pledged (borrowing capacity $1.198 billion).

Operational Risk

Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events. All functions, products and services of OFG are susceptible to operational risk.

OFG faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products and services. Coupled with external influences such as the risk of natural disasters, market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. In order to mitigate and control operational risk, OFG has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these policies and procedures is to provide reasonable assurance that OFG’s business operations are functioning within established limits. OFG also maintains a cybersecurity risk management framework in place to assess, identify and manage risks from cybersecurity threats. Refer to “Item 1C. Cybersecurity” in our 2023 Form 10-K for further discussion on OFG’s cybersecurity risk management framework.

OFG classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, OFG has specialized groups, such as Information Security, Enterprise Risk Management, Legal and Corporate Compliance, Information Technology, and Operations. These groups assist our lines of business in the development and implementation of risk management practices specific to the needs of our business groups. All these matters are reviewed and discussed by the executive Risk and Compliance Team and the executive Consumer Compliance Team. OFG also has a Business Continuity Plan to address situations where its capacity to perform critical functions is affected. Under such circumstances, a Crisis Management Team is activated to restore such critical functions within established timeframes.

OFG is subject to extensive United States federal and Puerto Rico regulations, and OFG has established and continues to enhance procedures based on legal and regulatory requirements that are reasonably designed to ensure compliance with all applicable statutory and regulatory requirements. OFG has a corporate compliance function headed by the General Counsel who reports to the Chief Executive Officer and supervises the BSA Officer and Regulatory Compliance Officer. The General Counsel is responsible for the oversight of regulatory compliance and implementation of a company-wide compliance program, including the Bank Secrecy Act/Anti-Money Laundering compliance program.

As a result of the 2023 bank failures, regulatory agencies may propose certain actions, including reforms to existing regulatory and prudential frameworks that may impose different capital and liquidity requirements, including increased requirements to issue debt or raise capital. In November 2023, the FDIC finalized a rule to recover losses to the FDIC deposit insurance fund as a result of bank failures during the first half of 2023. Under the rule, the FDIC will collect a special assessment based on a calculation using an insured depository institution’s estimated amount of uninsured deposits. In particular, the special assessment will be imposed on insured depository institutions based on their estimated uninsured deposits in excess of $5 billion. Given that OFG has uninsured deposits under $5 billion, this special assessment does not apply to us. However, in the future there may be additional special assessments imposed on insured depository institutions that may apply to us. It is not yet possible to quantify the scope of any of these actions or the potential impact on our operations.

Concentration Risk

Most of OFG’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico. As a consequence, OFG’s profitability and financial condition may be adversely affected by an extended economic slowdown, adverse political, fiscal or economic developments in Puerto Rico, or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

OFG’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of OFG’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of OFG’s disclosure controls and procedures. Based upon such evaluation, the CEO and CFO have concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, OFG’s disclosure controls and procedures provided reasonable assurance of effectiveness in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by OFG in the reports that it files or submits under the Securities Exchange Act of 1934. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within OFG to disclose material information otherwise required to be set forth in OFG’s periodic reports.

Internal Control over Financial Reporting

There have not been any changes in OFG’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, OFG’s internal control over financial reporting.

PART - II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. OFG is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on OFG’s financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K, except as set forth in our subsequent quarterly reports on Form 10-Q. In addition to other information set forth in this quarterly report, you should carefully consider the risk factors included in our 2023 Form 10-K, as updated by this report or other filings we make with the SEC under the Exchange Act. Additional risks and uncertainties not presently known to OFG at this time or OFG currently deems immaterial may also adversely affect OFG’s business, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None.

(b) None.

(c) None.

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ITEM 6. EXHIBITS

Exhibit No.						Description of Document:
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101						The following materials from OFG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Statements of Financial Condition, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OFG BANCORP

By:			/s/ José Rafael Fernández						Dated: May 8, 2024
José Rafael Fernández President and Chief Executive Officer
By:			/s/ Maritza Arizmendi Díaz						Dated: May 8, 2024
Maritza Arizmendi Díaz Chief Financial Officer

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ATTACHMENTS / EXHIBITS

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