OFG BANCORP (OFG) FY 2024 MD&A

ITEM 7. 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 “Note about Forward-Looking Statements,” Part I, Item 1 “Business,” Part I, Item 1A “Risk Factors,” and our consolidated financial statements and related notes included under Item 8 of this annual report on Form 10-K. We have omitted discussion of 2022 results where it would be redundant to the discussion previously included in Item 7 of our 2023 annual report on Form 10-K. For our discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 annual report on Form 10-K.

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RECENT DEVELOPMENTS

Capital Actions

2024 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 ending March 31, 2024. The Board of Directors

also approved a new $50.0 million stock repurchase program. The new open-ended stock repurchase program replaced the prior stock repurchase program, which had been approved by the Board of Directors in January 2022 and had $17.2 million remaining of its $100.0 million repurchase parameters. In October 2024, OFG announced that its Board of Directors approved a new $50.0 million stock repurchase program, in addition to the stock repurchase program approved in January 2024. The October stock repurchase program is also open-ended. During 2024, OFG repurchased 1,791,414 shares for a total of $70.3 million at an average price of $39.26 per share.

Announcement of Forthcoming 2025 Capital Actions

In January 2025, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.30 per common share from $0.25 per share, beginning in the quarter ending March 31, 2025.

Economic Conditions

We believe that Puerto Rico’s economy continues to demonstrate resiliency and growth and its private sector, including business investments and infrastructure projects, is expanding. The Puerto Rico Economic Activity Index, as published by the Economic Development Bank for Puerto Rico, registered 126.4 points in November 2024, which represents a decrease of 1.1% when compared to the same period of the previous year. However, according to the data published by the Economic Development Bank for Puerto Rico, wages are rising, and labor participation is increasing. Total non-farm payroll employment averaged 967 thousand jobs in November 2024, equivalent to an increase of 0.4% on a month-over-month basis, and an annual increase of 1.7%. 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 prolonged high market interest rates, inflation trends, new mainland economic policies, delays in disaster relief funding disbursements and other economic factors, and global conflicts, all of which could impact our business and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting and reporting policies followed by OFG conform with GAAP and general practices within the financial services industry. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management's historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. The following critical accounting estimate involves significant estimation uncertainty that has or is reasonably likely to have a material impact on our financial condition or results of operations. A discussion of OFG’s significant accounting policies, including further discussion of the accounting estimate described below, can be found in “Note 1– Summary of Significant Accounting Policies” to the consolidated financial statements and should be read in conjunction with this section.

Allowance for Credit Losses related to loans collectively evaluated for impairment

The most critical and complex accounting estimate is associated with the determination of the ACL. The provision for credit losses charged to current operations is based on this determination. The ACL represents management’s best estimate deemed appropriate to provide current expected future credit losses in the portfolio as of the date of the reporting period.

OFG’s management evaluates the adequacy of the ACL on a quarterly basis following a systematic methodology in order to provide for inherent risks in the loan portfolio. In developing its assessment of the adequacy of the ACL, OFG must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets. Other factors that can affect management’s estimates are the key drivers used for each macroeconomic scenario, the macroeconomic scenarios selected, and the weighting given to each scenario, among others. Significant changes in the financial condition of individual borrowers, in economic conditions, in historical loss

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experience, and in the condition of the various markets in which collateral may be sold may all affect the required level of the ACL. Consequently, the business, financial condition, liquidity, capital and results of operations could also be affected.

The ACL estimation requires management to use relevant forward-looking economic forecasts, by using variables such as employment and unemployment rate, gross national product (“GNP”), retail sales, and house price index, including in the application of reasonable and supportable forecasts. ACL estimations are performed by aggregating loans with similar risk characteristics.

OFG applied a discounted cash flow (“DCF”) method for non-purchased credit deteriorated loans (“non-PCD”) and an undiscounted cash flow (“UDCF”) method for purchased credit deteriorated (“PCD”) loans to determine the ACL for loans collectively measured for impairment, except for credit cards and overdrafts which utilize a remaining life methodology. For non-PCD, the expected cash flows are calculated for each loan and discounted using the effective yield. The discounted amount of expected cash flows is compared to the amortized cost, and any shortfall is recorded as a reserve. For PCD loans, the expected cash flows are calculated for each loan pool, pool reserve is calculated by aggregating total loss from the UDCF. Expected cash flows are resulted from applying the probability of default (“PD”), loss given default (“LGD”), and exposure at default (“EAD”). For the EAD, OFG uses a prepayment model that projects prepayments over the life of the loans.

Management’s judgment is required in selecting the macroeconomic scenarios and the weighting of the economic scenarios, which consist of baseline and moderate recession scenarios. As of December 31, 2024, management gave more weight to the baseline scenario, except for the US loan segment where the moderate recession scenario was given a greater weight. Management selects the macroeconomic forecast that is most reflective of expectations at that point in time. The applicability of qualitative adjustments includes adjustments of inherent risk not captured by the quantitative model.

OFG’s sensitivity analysis does not represent management’s view of expected credit losses at December 31, 2024. OFG evaluated sensitivities by applying 100% weight to baseline and moderate recession scenarios. The impact of assigning a 100% weight to the baseline scenario was a hypothetical decrease of 2% to the collective ACL, and the impact of assigning a 100% weight to the moderate recession scenario was a hypothetical increase of 3% to the collective ACL. These hypothetical sensitivities do not incorporate the impact of management’s judgment for qualitative factors applied in the current ACL for loans. It is possible that others performing similar sensitivity analyses could reach different conclusions or results. The sensitivity analysis excludes the ACL for off-balance sheet credit exposures.

For a detailed description of the principal factors used to determine the ACL related to loans collectively evaluated for impairment and for the principal enhancement’s management made to its methodology, please refer to “Note 1– Summary of Significant Accounting Policies” and “Note 5 – Loans” to the consolidated financial statements.

FINANCIAL HIGHLIGHTS

We believe that the quarter and year ended December 31, 2024, reflected solid performance with strong financial results. The fourth quarter of 2024 earnings-per-share (“EPS”) diluted increased 11.2% year-over-year. 2024 EPS diluted increased 10.4% year-over-year. We demonstrated consistent and excellent operational execution on our plans, with our Digital First strategy helping to grow our banking franchise and market share. Results also benefited from lower taxes, and we bought back 1.8

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million shares in 2024. We believe that this is a great way to conclude the celebration of our 60th year in business bringing progress to all our stakeholders.

Year Ended 2024:

Earnings per share diluted was $4.23 compared to $3.83 in 2023. Total net income of $198.2 million compared to $181.9 million in 2023.

Fourth Quarter of 2024:

Earnings per share diluted was $1.09 compared to $1.00 in the third quarter of 2024 and $0.98 in the fourth quarter of 2023. Net income of $50.3 million compared to $47.0 million in the third quarter of 2024 and $46.6 million in the fourth quarter of 2023.

Performance metrics: Net interest margin of 5.40%, return on average assets of 1.75%, return on average stockholders’ equity of 15.43%, and efficiency ratio of 54.82%.

Total Interest Income of $190.2 million compared to $189.0 million in the third quarter of 2024 and $176.2 million in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 increased $1.1 million, primarily reflecting higher balances and higher yields on investment securities, higher loan balances, $0.7 million accretion for commercial loan prepayments, and reduced interest income from cash.

Total Interest Expense of $41.0 million compared to $41.2 million in the third quarter of 2024 and $32.7 million in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 decreased $0.1 million, primarily reflecting slightly lower average balances and costs of core deposits and higher average balances of borrowings and brokered deposits.

Total Banking and Financial Service Revenues of $32.8 million compared to $26.3 million in the third quarter of 2024 and $32.1 million in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 included $2.1 million annual insurance commission recognition, $4.8 million favorable MSR valuation, and $0.8 million from the August 2024 acquisition of a Puerto Rico residential mortgage servicing portfolio.

Total Provision for Credit Losses of $30.2 million compared to $21.4 million in the third quarter of 2024 and $19.7 million in the fourth quarter of 2023. The fourth quarter of 2024 primarily reflected $18.1 million for increased loan volume, $7.6 million for a specific reserve related to four U.S. commercial loans, and $2.6 million recovery from the sale of auto and consumer loans. The fourth quarter of 2024 also included $5.7 million qualitative adjustment to account for uncertainty of recent increasing auto delinquency trends that the model does not fully capture.

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Credit Quality: Net charge-offs (“NCOs”) of $15.9 million (0.82% of average loans) compared to $17.1 million (0.90%) in the third quarter of 2024 and $16.3 million (0.88%) in the fourth quarter of 2023. NCOs benefited from the above-mentioned sale of auto and consumer loans. The fourth quarter of 2024 early and total delinquency rates were 2.95% and 4.38%, respectively. The nonperforming loan rate was 1.06%.

Total Non-Interest Expense of $99.7 million compared to $91.6 million in the third quarter of 2024 and $94.1 million in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 included $3.4 million in early retirement and business rightsizing, $1.4 million in annual performance incentives assessment, and the absence of $2.3 million credit and debit card processing contract renewal rebate that was recorded in the third quarter of 2024.

Income Tax Expense of $2.4 million compared to $14.8 million in the third quarter of 2024 and $21.8 million in the fourth quarter of 2023. The fourth quarter of 2024 decreased due to a reduction in the 2024 Effective Tax Rate (“ETR”) for higher than previously forecasted business activities with preferential tax treatment and $2.3 million of discrete benefit in the fourth quarter of 2024. ETR was 21.9% for the year ended 2024 compared to 31.4% for 2023. Excluding discrete items, ETR was 24.0% for the year ended 2024 compared to 32.1% for 2023.

Loans Held for Investment of $7.79 billion compared to $7.75 billion in the third quarter of 2024 and $7.53 billion in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 loans increased 0.5%, reflecting growth in auto, consumer and U.S. commercial loans, and repayments of Puerto Rico commercial and residential mortgage loans. Year over year, loans increased 3.4%.

New Loan Production of $609.0 million compared to $572.2 million in the third quarter of 2024 and $663.9 million in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 reflected increases in Puerto Rico commercial, auto and residential mortgage lending, partially offset by a decrease in U.S. commercial and Puerto Rico consumer lending.

Total Investments of $2.72 billion compared to $2.61 billion in the third quarter of 2024 and $2.69 billion in the fourth quarter of 2023. The fourth quarter of 2024 primarily reflected purchases of $264 million of mortgage-backed securities (“MBS”) yielding 5.3%, partially offset by MBS repayments of $103 million.

Customer Deposits of $9.45 billion compared to $9.53 billion in the third quarter of 2024 and $9.60 billion in the fourth quarter of 2023. Compared to the third quarter of 2024, the fourth quarter of 2024 reflected a decline in government deposits and increases in commercial and retail deposits.

Total Borrowings and Brokered Deposits of $557.2 million compared to $346.5 million in the third quarter of 2024 and $363.0 million in the fourth quarter of 2023.

Cash and Cash Equivalents of $591.1 million compared to $680.6 million in the third quarter of 2024 and $748.2 million in the fourth quarter of 2023.

Share Buybacks: $45.9 million of common shares were acquired in the fourth quarter of 2024, leaving $29.7 million in remaining repurchase authorization as of December 31, 2024.

Capital: CET1 ratio was 14.26% compared to 14.37% in the third quarter of 2024 and 14.12% in the fourth quarter of 2023. The Tangible Common Equity ratio was 10.13% compared to 10.72% in the third quarter of 2024 and 9.68% in the fourth quarter of 2023. Tangible Book Value per share was $25.43 compared to $26.15 in the third quarter of 2024 and $23.13 in the fourth quarter of 2023. Tangible Book Value per share reflected the above-mentioned share buybacks and lower other comprehensive income.

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

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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 2024 and 2023.

TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

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C - CHANGES IN NET INTEREST INCOME DUE TO:

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.

Comparison of the years ended December 31, 2024 and 2023

Net interest income of $588.4 million increased by $27.5 million from $560.9 million. Tax equivalent basis net interest income of $605.2 million increased $28.3 million, or 4.9%, from $576.9 million.

Interest rate spread decreased by 42 basis points to 5.29% from 5.71% and net interest margin decreased 36 basis points to 5.43% from 5.79%. This reflects an increase of 23 and 65 basis points, respectively, in the total average yield of interest-earning assets and the average cost of interest-bearing liabilities.

Net interest income was positively impacted by:

•A $58.9 million increase in interest income from loans driven by higher interest income from: (i) commercial loans of $28.3 million, primarily related to the upward repricing of variable rate commercial loans, increased yields on new loans originated during 2024, and higher average balance; (ii) auto loans of $29.9 million reflecting higher originations during 2024; and (iii) consumer loans of $7.3 million mainly due to an increase of $56.9 million in the average balance of this portfolio. These increases were partially offset by a decrease of $6.7 million in interest income from mortgage loans due to a reduction of $135.4 million in the average balance of this portfolio, mainly from regular paydowns and the securitization and sale of conforming loans; and

•A $42.4 million increase in interest income from investment securities, primarily due to the acquisition of higher-yield investment securities in 2023 and 2024. Purchases contributed to higher average volume of $650.3 million, which resulted in an increase in interest income of $22.9 million, and higher yield by 83 basis points, which contributed to the increase in net interest income of $19.4 million.

These increases were partially offset by higher interest expense of $73.8 million from interest paid on: (i) deposits of $74.3 million due to higher average cost of total deposits of 68 basis point and (ii) borrowings of $0.5 million reflecting FHLB advances taken in late 2023 and during 2024 and new securities under agreements to repurchase in late 2024.

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TABLE 2 - NON-INTEREST INCOME SUMMARY

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.

Comparison of the years ended December 31, 2024 and 2023

OFG's non-interest income of $123.2 million decreased by $5.2 million from $128.4 million.

Non-interest income was mainly impacted by the following decreases:

•A $3.2 million decrease in banking service revenues related to: (i) $3.6 million in reduced interchange fees mainly due to the implementation of Durbin Amendment that took effect in July 1, 2024 and (ii) lower fees on deposits of $923 thousand from lower maintenance and overdrawn fees, offset by higher merchant income of $1.2 million resulting from a higher volume of transactions and migration of USVI merchant activity; and

•A $6.3 million gain on the sale of commercial non-performing loans HFS in 2023.

These decreases were offset by:

•A $2.6 million increase in wealth management revenue primarily reflecting: (i) $1.4 million in broker-dealer fees related to higher investment advisory service fees and mutual funds retailer fees, (ii) $813 thousand in insurance income related to higher income from annuities and (iii) an increase in trust fees of $449 thousand due to higher trustee-only fees; and

•A $1.1 million loss associated with the sale of a $149.4 million short-term US treasury note AFS in 2023.

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TABLE 3 - NON-INTEREST EXPENSES SUMMARY

Non-Interest Expense

Comparison of the years ended December 31, 2024 and 2023

Non-interest expense was $375.7 million, representing an increase of 3.4%, or $12.3 million, compared to $363.4 million. The increase in non-interest expense was mainly due to:

•Increase in compensation and employee benefits of $3.9 million primarily reflecting: (i) $3.4 million in early retirement and business rightsizing and (ii) higher salaries and benefits, including payroll taxes.

•Increase in foreclosed real estate and other repossessed assets expenses, net of income, of $3.4 million primarily reflecting $2.6 million in lower gain on sale of foreclosed real estate due to lower volume of properties sold and $1.4 million unfavorable valuation adjustments;

•Increase in electronic banking charges of $1.5 million mainly due to debit and credit card expenses;

•Increase in taxes, other than payroll and income taxes, of $981 thousand related to higher municipal taxes recorded during 2024;

•Increase in advertising, business promotion, and strategic initiatives of $971 thousand due to higher expenses related to digital adoption strategy;

•Increase in insurance expenses of $758 thousand mainly related to higher FDIC deposit insurance assessment as a result of the Bank exceeding $10 billion in assets.

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The efficiency ratio was 52.94%, an improvement from 53.22%. 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 (losses) 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 efficiency ratio computation for years ended December 31, 2024 and 2023 amounted to $2.1 million and $6.5 million, respectively.

Provision for Credit Losses

Comparison of the years ended December 31, 2024 and 2023

Provision for credit losses increased $21.7 million to $82.3 million from $60.6 million. The provision for credit losses for 2024 reflected a provision of $60.2 million related to growth in loan balance, $12.6 million from the loss rate model and $13.4 million related to commercial-specific loan reserves, including $8.6 million in the US commercial loan portfolio, which was offset by a $6.0 million release from the economic model. It also included a $5.7 million qualitative adjustment to account for uncertainty of recent increasing auto delinquency trends that the model does not fully capture, net of a $2.7 million reserve release mainly due to an improved U.S. macroeconomic perspective earlier in the year.

The provision for credit losses for 2023 reflected a provision of $42.6 million related to the growth in loan balances, a provision of $13.1 million related to commercial-specific loan reserves, mainly in the US commercial loan portfolio, and $4.8 million associated with qualitative adjustments mostly to the auto loan and US commercial loan portfolios.

Income Tax Expense

Comparison of the years ended December 31, 2024 and 2023

Income tax expense decreased by $27.8 million to $55.6 million from $83.4 million. OFG’s ETR was 21.9% in 2024 compared to 31.4% in 2023. The decrease is mainly related to higher actual and forecasted business activities with preferential tax treatment under the Puerto Rico tax code, coupled with discrete benefits of $5.4 million, mainly related to a return to provision adjustment of $2.3 million, tax credit discount benefits of $1.6 million and $1.2 million from stock compensation vested during 2024.

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 net income. OFG’s methodology for allocating expenses for corporate services 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 2024 and 2023.

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Eliminations include interest income and expense for a time deposit opened by the Bank in Oriental Overseas, the IBE unit, which operates within the Bank. The time deposit with a balance of $278.4 million and $300.3 million at December 31, 2024 and 2023, respectively, to fund Oriental Overseas operations is included in the Treasury Segment with its corresponding interest expense, and the related interest income is included in the Banking Segment, 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 period was mainly as a result of lower interest rate and average balance.

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Comparison of years ended December 31, 2024 and 2023

Banking

OFG’s banking segment net income before taxes decreased by $65.8 million from $188.3 million to $122.6 million, mainly due to:

•Increase of $74.2 million in interest expense mainly related to higher costs of deposits, reflecting a $1.2 billion deposit from an existing long-standing Puerto Rico government client received in December 2023 with a variable interest rate;

•Increase of $(22.2) million in provision for credit losses, mainly due to growth in loan balances;

•Increase of $10.6 million in non-interest expenses, mainly due to: (i) $3.4 million increase in foreclosed real estate and other repossessed assets expenses, net of income, due to unfavorable valuation adjustments and lower gain on sale of foreclosed real estate from decrease in sales volume; (ii) increase in compensation and employee benefits of $2.0 million due to higher salaries and benefits, including payroll taxes and (iii) increase in electronic banking charges of $1.5 million mainly due to debit and credit card expenses;

•Decrease of $10.4 million in interest income related to Oriental Overseas’ time deposit from the Bank to fund its operations, which is eliminated in the consolidation, mainly as a result of lower interest rates and average balance in the current period; and

•Decrease of $10.4 million in non-interest income, mainly from $3.6 million in reduced interchange fees due to the implementation of Durbin Amendment that took effect in July 1, 2024 and a $6.3 million gain on the sale of commercial non-performing loans HFS during 2023.

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

•Increase of $58.9 million in interest income from loans, driven by increased yields on higher loan 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 increased from $16.0 million to $17.9 million, mainly from higher non interest income of $4.1 million, mainly related to higher broker-dealer fees from investment advisory service fees and mutual funds retailer fees, higher insurance income from annuities, and an increase in trustee-only fees, partially offset by higher salaries and employee benefits of $-1.9 million.

Treasury

Treasury segment net income before taxes increased by $52.4 million, mainly reflecting:

•Increase of $39.5 million in interest income, reflecting the purchase of agency mortgage-backed securities and US Treasury securities with higher yields during 2024 and 2023; and

•Decrease of $10.7 million in interest expense, reflecting $10.4 million lower inter-segment borrowings as a result of lower average balances.

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ANALYSIS OF FINANCIAL CONDITION

Assets Owned

At December 31, 2024, OFG’s total assets amounted to $11.501 billion, an increase of $156.2 million, when compared to $11.344 billion at December 31, 2023.

Cash and due from banks decreased by $159.1 million to $584.5 million, reflecting the effect of loan funding and lower deposit balances.

The investment portfolio increased by $33.5 million or 1.2% primarily driven by $1.326 billion new available-for-sale US Treasury and mortgage-backed securities, and $74.7 million in mortgage loan securitization. These increases were offset by the maturity of $901.7 million in US Treasury securities, principal paydowns of $310.8 million, mainly on mortgage-backed securities, and the sale of $149.4 million of 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 Puerto Rico residential mortgage loans, consumer loans, auto loans, commercial loans secured by real estate, other commercial and industrial loans, and commercial US loans. At December 31, 2024, OFG’s net loan portfolio increased by $232.2 million or 3.1% reflecting increases in commercial, retail auto and consumer loans, partially offset by regular paydowns and securitization of residential mortgage loans.

Financial Assets Managed

At December 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 retirement plans and custodian and corporate trust accounts. At December 31, 2024 and 2023, the total assets managed by OFG’s trust division amounted to $2.262 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 December 31, 2024, total assets managed by the securities broker-dealer and insurance agency subsidiaries from their customers’ investment accounts amounted to $2.247 billion, compared to $2.446 billion at December 31, 2023. The decrease in trust and broker-dealer related assets reflects the termination of services by a retirement plan customer during 2024.

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 December 31, 2024 and 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 10 – 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

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TABLE 6 - LOAN PORTFOLIO COMPOSITION

OFG’s loan portfolio is composed of commercial, mortgage, consumer, and auto loans. As shown in Table 6 above, total loans, net, amounted to $7.634 billion at December 31, 2024, a 3.1% 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 $3.103 billion (39.8% of the gross loan portfolio) compared to $3.077 billion (40.8% of the gross loan portfolio) at December 31, 2023, a 0.9% increase as a result of originations and credit lines usage during 2024. Commercial loans secured by non-owner occupied commercial real estate amounted to $796.9 million and $744.6 million at December 31, 2024 and 2023, respectively, which represented 10.2% and 9.9% of our total gross loan portfolio held for investment. Commercial US loans amounted to $704.1 million and $755.2 million at December 31, 2024 and 2023, respectively, which represented 9.0% and 10.0% of our total gross loan portfolio held for investment.

Commercial loan production decreased 19% or $213.0 million to $895.3 million in 2024 from $1.108 billion in 2023, mainly in the commercial US loan portfolio. Commercial US loans activities include the purchase of middle market senior secured cash flow loan participations and the purchase of participations of loans to small and medium sized businesses. Excluding commercial US loans activities, commercial PR loan production slightly decreased 0.7% to $739.6 million in 2024 from $744.7 million in 2023.

•Mortgage loan portfolio amounted to $1.471 billion (18.9% of the gross loan portfolio) compared to $1.563 billion (20.7% of the gross originated loan portfolio) at December 31, 2023, a 5.9% decrease resulting from regular paydowns of residential mortgages and securitization of conforming loans into mortgage-backed securities. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $48.6 million and $19.4 million at December 31, 2024 and December 31, 2023, respectively. In 2024, OFG acquired the servicing rights to a $1.7 billion mortgage loan portfolio that was being subserviced by the Bank. At the time of acquisition, defaulted loans under the GNMA buy-back option program corresponding to this servicing portfolio amounted to $24.2 million. 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 $150.3 million in 2024, which represents an increase of 13.1% from $133.0 million in 2023.

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.

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•Consumer loan portfolio amounted to $668.6 million (8.6% 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 3% or $9.1 million to $304.5 million in 2024 from $313.6 million in 2023.

•Auto loans portfolio amounted to $2.549 billion (32.7% 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 $37.1 million to $956.8 million in 2024 from $919.7 million in 2023.

The following table presents the loans held for investment portfolio as of December 31, 2024 by maturities and interest rates:

The following table includes the maturities of OFG’s lending exposure to the Puerto Rico government amounting to $66.4 million, which is limited solely to loans to municipalities secured by ad valorem property taxes, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. Deposits from the Puerto Rico government totaled $1.445 billion at December 31, 2024.

TABLE 8 - PUERTO RICO GOVERNMENT RELATED LOANS

At December 31, 2024, OFG has $66.4 million of direct credit exposure to the Puerto Rico government, a $2.1 million decrease from $68.6 million at December 31, 2023.

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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 9 through 12 set forth an analysis of activity in the ACL and present selected credit loss statistics for and as of 2024 and 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 annual report on Form 10-K and “Note 6 – 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 13 and 15). At December 31, 2024, OFG had $78.0 million of non-accrual loans held for investment, including $2.9 million PCD loans, compared to $79.4 million at December 31, 2023, reflecting decreases of $2.3 million and $1.0 million in mortgage and commercial loan portfolios, respectively (see Table 14). As of December 31, 2023, total non-accrual loans excluded $6.4 million of past due commercial loans held-for-sale, these loans were sold in 2024. There were no past due or non-accrual commercial loans held-for-sale as of December 31, 2024.

On January 1, 2023, OFG adopted ASU 2022-02 related to the elimination of the recognition and measurement of Troubled Debt Restructurings (“TDRs”) and the enhancement of disclosures for loan restructurings for borrowers experiencing financial difficulty, or financial difficulties modifications (“FDMs”), 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 FHA and 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 December 31, 2024 and 2023, the outstanding balance of these residential mortgage loans was $5.0 million and $5.8 million, respectively.

At December 31, 2024, OFG’s non-performing assets decreased by 6.4% to $93.6 million (0.81% total assets) from $100.0 million (0.88% of total assets) at December 31, 2023, mainly from non-performing loans and foreclosed real estate.

Foreclosed real estate decreased from $10.8 million at December 31, 2023 to $4.0 million at December 31, 2024 and other repossessed assets increased from $4.0 million at December 31, 2023 to $6.6 million at December 31, 2024, both recorded at fair value. OFG does not expect non-performing loans to result in significantly higher losses. At December 31, 2024, the allowance coverage ratio to non-performing loans was 211.9% (189.1% at December 31, 2023).

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, 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 is amortized as interest income over the remaining life of the pool. On a quarterly basis, management monitors 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 ceases.

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

Commercial loans - At December 31, 2024, OFG’s non-performing commercial loans amounted to $41.6 million (50.1% of OFG’s non-performing loans), a 2.3% 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 December 31, 2024, OFG’s non-performing mortgage loans totaled $17.2 million (20.7% of OFG’s non-performing loans), a 15.3% 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 December 31, 2024, OFG’s non-performing consumer loans amounted to $4.2 million (5.1% of OFG’s non-performing loans), a 24.6% 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 December 31, 2024, OFG’s non-performing auto loans amounted to $20.1 million (24.1% of OFG’s total non-performing loans), an increase of 5.2% 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 9 - ALLOWANCE FOR CREDIT LOSSES BREAKDOWN

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TABLE 10 - ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES

TABLE 11 - ALLOWANCE FOR CREDIT LOSSES SUMMARY

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TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOANS

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TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOANS (CONTINUED)

Net charge-offs in 2024 amounted to $67.8 million (0.89% of average loans), increasing by $15.9 million, when compared to $51.8 million (0.73% of average loans) in 2023.

Net charge-offs variances were as follows:

•Residential mortgage loans net recoveries in 2024 amounted to $2.1 million, increasing by $1.3 million when compared to net recoveries of $839 thousand in 2023.

•Commercial loans net charge-offs in 2024 amounted $5.7 million, decreasing by $8.8 million, when compared to $14.5 million in 2023. The charge-offs in 2024 included $3.5 million from previously and fully-reserved nonperforming paycheck protection program (“PPP”) loans. The charge-offs in 2023 included $10.5 million charge-offs recognized on three US commercial loan relationships and $906 thousand charge-offs for a small portfolio of non-performing small business commercial loans that were sold during the period.

•Consumer loans net charge-offs in 2024 amounted $29.0 million increasing by $9.0 million when compared to $20.0 million in 2023. The increase in net charge-offs in 2024 was mainly driven by an increase in business volume, partially offset by a recovery of $1.8 million from the sale of older, previously fully charged-off consumer loans.

•Auto loans net charge-offs in 2024 amounted to $35.1 million, increasing by $17.0 million, when compared to $18.2 million in 2023, reflecting post-pandemic credit normalization. The increase in net charge-offs in 2024 was also impacted by an increase in business volume, partially offset by a recovery of $800 thousand from the sale of older, previously fully charged-off auto loans.

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TABLE 13 — NON-PERFORMING ASSETS

TABLE 14 — NON-ACCRUAL LOANS

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TABLE 15 - NON-PERFORMING LOANS

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TABLE 16 - LIABILITIES SUMMARY AND COMPOSITION