ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2024

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 ACL, see Note 1 – Summary of Significant Accounting Policies.

At December 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 December 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 December 31, 2024, the ACL increased by $14.8 million compared to December 31, 2023. The provision for credit losses for 2024, reflected adjustments of $60.2 million related to loan volume, $12.6 million from loss rate model and $13.4 million in specific reserves, $8.6 million related to four U.S. commercial loans, 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 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 net charge-offs for 2024, amounted to $67.8 million, an increase of $15.9 million when compared to the same period of 2023. The increase is due to $17.0 million from auto loans and $9.0 million from consumer loans mainly as a result of higher loan volume, partially offset by a decrease of $8.8 million from commercial loans. Net charge-offs for 2024 include $3.5 million from previously and fully-reserved nonperforming paycheck protection program (“PPP”) loans, partially offset by by a recovery of $2.6 million from the sale of older, previously fully charged-off auto and consumer loans.

The following tables present the activity in OFG’s ACL by segment for 2024, 2023 and 2022:




















	Year Ended December 31, 2024
	Commercial		Mortgage		Consumer		Auto		Total
	(In thousands)
Non-PCD:
Balance at beginning of year	$	44,041	$	7,998	$	27,086	$	73,485	$	152,610
Provision for (recapture of) credit losses	6,922		(2,546)		33,832		49,514		87,722
Charge-offs	(8,217)		(126)		(33,266)		(61,651)		(103,260)
Recoveries	2,068		1,069		4,166		26,334		33,637
Balance at end of year	$	44,814	$	6,395	$	31,818	$	87,682	$	170,709
PCD:
Balance at beginning of year	$	1,113	$	7,351	$	7	$	25	$	8,496
Recapture of provision for credit losses	(935)		(3,985)		(58)		(197)		(5,175)
Charge-offs	(967)		(178)		—		(25)		(1,170)
Recoveries	1,411		1,326		62		204		3,003
Balance at end of year	$	622	$	4,514	$	11	$	7	$	5,154
Total allowance for credit losses at end of year	$	45,436	$	10,909	$	31,829	$	87,689	$	175,863



















	Year Ended December 31, 2023
	Commercial		Mortgage		Consumer		Auto		Total
	(In thousands)
Non-PCD:
Balance at beginning of year	$	39,158	$	9,571	$	23,264	$	69,848	$	141,841

Provision for (recapture of) credit losses	18,200		(2,031)		23,302		22,294		61,765
Charge-offs	(14,191)		(759)		(23,655)		(43,764)		(82,369)
Recoveries	874		1,217		4,175		25,107		31,373
Balance at end of year	$	44,041	$	7,998	$	27,086	$	73,485	$	152,610
PCD:
Balance at beginning of year	$	1,388	$	9,359	$	14	$	71	$	10,832

Provision for (recapture of) credit losses	901		(2,389)		518		(518)		(1,488)
Charge-offs	(2,794)		(317)		(621)		(170)		(3,902)
Recoveries	1,618		698		96		642		3,054
Balance at end of year	$	1,113	$	7,351	$	7	$	25	$	8,496
Total allowance for credit losses at end of year	$	45,154	$	15,349	$	27,093	$	73,510	$	161,106

Total net charge-offs for 2023 included $10.5 million charge-offs of US commercial loans and $906 thousand for a small portfolio of non-performing small business commercial loans that were transferred to the held for sale category and sold subsequently; partially offset by a recovery of $3.7 million from the sale of older, previously fully charged-off auto and consumer loans.


	Year Ended December 31, 2022
	Commercial		Mortgage		Consumer		Auto		Total
			(In thousands)
Non-PCD:
Balance at beginning of year	$	32,262	$	15,299	$	19,141	$	65,363	$	132,065

Provision for (recapture of) credit losses	19,076		(8,758)		16,084		16,016		42,418
Charge-offs	(13,380)		(284)		(15,198)		(32,662)		(61,524)
Recoveries	1,200		3,314		3,237		21,131		28,882
Balance at end of year	$	39,158	$	9,571	$	23,264	$	69,848	$	141,841
PCD:
Balance at beginning of year	$	4,508	$	19,018	$	34	$	312	$	23,872

(Recapture of) provision for credit losses	(6,855)		(10,629)		62		(588)		(18,010)
Charge-offs	(69)		(1,695)		(176)		(310)		(2,250)
Recoveries	3,804		2,665		94		657		7,220

Balance at end of year	$	1,388	$	9,359	$	14	$	71	$	10,832
Total allowance for credit losses at end of year	$	40,546	$	18,930	$	23,278	$	69,919	$	152,673

Total commercial charge-offs for 2022 included $12.3 million charge-offs that were previously reserved for four commercial loans; two of them were sold during 2022. Total recoveries for 2022 included $2.8 million recovery from a Puerto Rico government public corporation PCD commercial loan repaid during the first quarter of 2022 and $1.1 million recoveries associated with the final settlement of the past due mortgage loans transferred to held for sale during the fourth quarter of 2021 and subsequently sold during the first quarter of 2022.