OFG Bancorp (NYSE:OFG) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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The full earnings call is available at https://events.q4inc.com/attendee/887785138
Summary
OFG Bancorp reported a strong financial performance with a 26% year-over-year increase in diluted earnings per share and a 4% growth in total core revenues, driven by loan growth and high-quality credit performance.
The company’s core digital strategy, focusing on targeted customer segments and leveraging technology, is driving strong market adoption and deeper customer relationships, with a notable increase in digital enrollments and transactions.
OFG Bancorp anticipates continued growth in 2026, with expectations for low single-digit loan growth and a net interest margin ranging from 5.10% to 5.20%, despite uncertainties related to geopolitical factors and potential government deposit withdrawals.
Full Transcript
OPERATOR
Good Morning. Thank you for joining OFG Bancorp’s conference call. My name is Nikki. I will be your operator today. Our speakers are Jose Rafael Fernandez, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arismendi, Chief Financial Officer and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today’s remarks. It can be found on the homepage of the OFG website under the First Quarter 2026 section. This call may feature certain forward looking statements about management’s goals, plans and expectations. These statements are subject to risks and uncertainties outlined in the Risk Factors section of OFG’s SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernandez.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Good morning and thank you for joining us. We are pleased to report our first quarter results. Let’s go to page three of our presentation. We started the year with a strong financial performance. Earnings per share diluted were up 26% year over year on 4% growth in total core revenues. This was driven by ongoing loan growth, high quality credit performance, core deposit strength expense and proactive balance sheet management. Loans grew 5% year over year and new loan production grew 9%. Reported core deposits declined 1%. Excluding the previously announced $500 million government deposit transfer, core deposits grew more than 4% year over year. This demonstrates how our strategies and operating model continue to deliver. Supported by momentum in our businesses and disciplined execution across the franchise. We furthered our commitment to Capital Management, repurchasing $44.5 million of common shares and increasing the dividend 17%. Despite growing geopolitical uncertainties and their effect on energy prices, Puerto Rico economy continues to grow and businesses and consumers balance sheets are solid with high liquidity levels. Please turn to page four. Our core digital strategy consists of three main pillars. The first is our service offerings. We are targeting specific customer segments with accounts that meet their needs. Libre for the mass market, elite for the mass affluent and my biz for small businesses. This targeted approach is driving strong market adoption and deeper customer relationship. The second pillar is technology. Our Omni Channel platform allows customers to interact with us seamlessly across all touch points. This is driving continued data adoption resulting in efficiency and savings that we reinvest in new ways to serve our customers. The third pillar is intelligent banking. We’re leveraging data and real time insights to help customers better manage their finances while increasingly seeing real customer connections being built through our digital channels. Please turn to page four as proof of our success. We’re driving innovation year over year. Retail digital enrollments are up by 10%, digital loan payments 5% and virtual teller usage up by 4.7%. Net new retail and commercial customers each grew by close to 3%. The added benefit is that this enables us to free up more of our teams to provide personal value added services, focus on sales to expand our market share and develop new digital products and services. Now here’s Maritza to go over the financials in more detail.
Maritza Arismendi (Chief Financial Officer)
Thank you, Jose. Let’s turn to page six to review our financial highlights. All comparisons are to the fourth quarter unless otherwise noted. Core revenues at $186 million were approximately level. Total interest income was $194 million, a decrease of $3 million. This reflected lower average balances of cash and investment securities at lower average yields. This was partially offset by higher average balances of loans at higher average yields. First quarter interest income included $3.3 million from a PCD loan paid in full. There were two fewer days in the first quarter. This negatively affected interest income by about $3.1 million. Total interest expense was $40 million, a decrease of $4 million. This reflected lower average balances of core deposits at lower average yields. This was partially offset by higher average balances of brokerage CDs and borrowings at lower average yields. The two fewer days reduced interest expense by approximately $1 million. Total banking and financial service revenues were $32 million, a decrease of $0.6 million. This reflected favorable MSR valuation of about $1.3 million, while the fourth quarter included $2.3 million in annual insurance commission recognition. The other income category was compared to a loss of $1.1 million. The change reflected the absence of several previously reported Items. From the fourth quarter. Non interest expense totaled $95 million, down $10.3 million from the fourth quarter. The first quarter included $1 million in merit raises, $0.7 million in payroll taxes costs, $1 million in costs related to a capital market readiness and registration process, $3.6 million in business related volume incentives compared to $3.1 million a year ago and $2.5 million cost savings. The fourth quarter included net $6.8 million in previously reported expense items. Income tax was $14.9 million compared to a benefit of 8.5 in the fourth quarter. The first quarter ETR was 21.60%. Looking at some other metrics, tangible book value was $30.14, efficiency ratio was 51%. Return on average assets was 1.78% and return on common equity was 16.4%. Now let’s turn to page seven to review our operational highlights. Average loan balances were $8.2 billion, up $$50 million from the fourth quarter. This reflected increases in Puerto Rico and US commercial loans partially offset by lower balances in residential mortgage, auto and consumer. Loan yield was 7.87% up 14 basis points excluding the first quarter loan recovery. Loan yield was 7.71% down 2 basis points from the fourth quarter. New loan production was $609 million. This mainly reflected an increase in auto loan production year over year. New loan production increased 9% primarily reflecting increases in new commercial loans with auto moderating. As anticipated. Average core deposit balances were $9.6 billion, down 4% from the fourth quarter. This reflected the $500 million government deposit transfer to wealth management early in the first quarter. By the end of the quarter, this was partially offset by increases in retail and commercial deposits totaling more than $150 million across all categories, demand savings and to a lower extent tax deposits. Core deposit cost was 1.29% down 13 basis points. This was mainly due to the previously mentioned government deposit withdrawal combined with lower average rates. Excluded public funds. Cost of deposit was 1% compared to 1.02%. Also reported average non interest bearing deposits total $7 billion in the first quarter, an increase of 1.41% sequentially and 4.55% year over year. Investment totaled $2.8 billion down $55 million. This reflected principal pay downs and maturities. This was partially offset by purchases of $49.2 million of mortgage backed, securities and residential mortgage securitization of $23.5 million. Average borrowings and brokerage deposits totaled $929 million compared to $787 million in the fourth quarter. The aggregate rate paid was 3.98% down 5 basis points by the end of the first quarter. Balances were down to $747 million due to intentional runoff compared to $897 million. Quarter end of period cash End of period cash at $636 million was 39% lower due to the government deposit transfer. Net interest margin was 5.36% deflecting the previously mentioned $3.3 million interest recovery and lower cost of deposits and borrowings. Cesar will provide more detail about credit quality in a moment, but first let me summarize the quarter. We demonstrated year over year long growth and production in line with expectation and continue to expect low single digit growth. With our expanding presence in commercial more than offsetting a declining auto, our Digital first strategy is continuing to lead to more customer and digital and debit card transactions. Digital first also help grow deposit in line with our strategies. We continue to anticipate growth this year with our Libre Elite and my Biz accounts. We now expect net interest margin to range from 5.10 to 5.20%. This updated range assumes no additional rate cuts in 2026 compared to two cuts previously expected and incorporates the exit of the large remaining government deposit later this year. Non interest expense were maintained within our expected run range. We remain on track to keep expenses in a range of $380 to $385 million this year. Based on our first quarter results, the estimated tax rate for 2026 is anticipated to be 22.3% excluding any discrete items. We were very active returning capital to shareholders. We will continue to be selective and opportunistic balancing shareholder returns with disciplined growth now here.
Cesar Ortiz (Chief Risk Officer)
Cesar thank you Marica. Please turn to page eight before getting into the details. Let me start with the key highlights for the quarter. Our thesis that customer higher customer liquidity in the first quarter drives better credit metrics was reinforced. We saw that most clearly across the retail portfolios where early stage and total delinquency trends improved sequentially, consistent with normal seasonality. Net charge offs totaled $21 million, down $5.5 million, reflecting normal portfolio activity with continued improvement in retail loss trends. Net charge offs reflected $3.9 million from a final settlement of a previously reserved U.S. loan, while the fourth quarter included $4.8 million related to a non performing loan sale. The net charge jobs rate was 1.05%, an improvement on 27 basis points from the fourth quarter. The auto net charge off rate declined sequentially to 1.52%, an improvement of 29 basis points. The consumer net charge off rate also improved to 4.40%, 15 basis points better from the fourth quarter. Provision for credit losses was $22.5 million, down $9 million from the fourth quarter. This reflected $17.5 million from increased loan volume, $3.7 million in added reserves for a previously reserved commercial loan and $1 million for newly classified small commercial loans. Allowance coverage remains strong at 2.48% of loans and reserve levels continue to appropriately reflect the risk profile of the portfolio. Looking at other retail credit metrics, early and total delinquency rates declined meaningfully from the fourth quarter to 2.2% and 3.4% respectively. These improvements were broad based across the retail portfolios with auto, consumer and mortgage all showing better early stage performance. The non performing loan rate was 1.47% down 12 basis points. Retail non performing loan rates improved sequentially in auto and consumer while remaining stable in mortgage. Overall retail credit behavior was consistent with the seasonal improvement we typically see in the first quarter, supported by higher customer liquidity and strong employment conditions in Puerto Rico. Turning to commercial the nonperforming loan rate declined to 2.36% from 2.50 last quarter, reflecting sequential improvement. Commercial asset quality outside of one specific credit continues to perform as expected. As we discussed last quarter, the commercial portfolio continues to include a single name telecommunications exposure that moved to new accrual late last year. This exposure remains well understood and idiosyncratic and does not represent a broader trend within the commercial portfolio. Overall credit continues to perform well. While we remain mindful that there are various geopolitical and economic headwinds that may increase the cost of living or inflationary pressures in Puerto Rico, the first quarter performance benefited from strong employment conditions and higher seasonal customer liquidity. Credit metrics remain well controlled and within our risk appetite and the portfolio is performing in line with our expectations and risk framework. Here’s Jose to wrap up.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Thank you Cesar. Please turn to page 9. The Puerto Rico economy continues to perform well. Business and consumer liquidity levels are strong and unemployment is at historically low levels. Public reconstruction funds, private investments and new onshoring projects continue producing economic tailwinds. And as Cesar mentioned, we are closely watching geopolitical macroeconomic uncertainties and their impact on the island, particularly with higher energy prices and overall inflation. Against this economic backdrop, OFG remains very well positioned. Our digital strategy is driving unique customer experiences, attracting deposits and growing our customer base steadily. Our culture of continuous improvement and investments in people, technology and automation are producing tangible efficiencies. We continue to have a solid commercial loan pipeline, stable credit trends and strong risk management and disciplined asset liability. All these factors combined with Puerto Rico level of business activity positions us well for continued growth. Before I end my prepared remarks, I want to highlight the recognition we received in the first quarter where we were honored with a 2026 Gallup exceptional workplace Award. For us, this recognition goes well beyond employment engagement scores. It reinforces a culture we’ve been intentionally building for many years One that emphasizes agility, openness to challenge and innovation. At ofg, our teams are encouraged to question how things have always been done, to move quickly in responding to customer and market needs, and to continuously improve how we operate. That mindset enables faster decision making, more innovation across our digital and operating platforms, and better execution in a dynamic environment. This recognition highlights how our people, culture and strategy are united by a shared sense of purpose driving meaningful progress for all our stakeholders. It is this commitment to purpose that empowers us to consistently achieve strong long term results while making a positive impact across all our stakeholders. With this, we end our formal presentation. Operator, Please open the call for Q and A.
OPERATOR
Thank you. If you have a question at this time, please press star1 on your telephone keypad. If you wish to remove yourself from the queue, press Star two. We’ll take our first question from Brett Rabadin with Stonex. Please go ahead. Your line is open.
Brett Rabadin (Equity Analyst)
Hey, good morning, Maritza and Jose Rafael. Hi Brad. Good. Wanted to start just on, you know, the margin. Even excluding the 3.3 million, you know, that would have made it about 5.24%. You know, that was obviously better than anticipated. And you know, when I look at the cost of deposits, if I heard correctly, 1% excluding the government deposits in the quarter, you know, it seems, it seems like things turned out better than expected on the margin. And I know the guidance is for a slightly lower level from here, but you know, just any thoughts on the potential positives for the margin relative to the guidance, you know, whether it be loan pricing or any other factors, it seems like you’re probably getting close to a bottom here on funding costs.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
So Brett, before I let Marica give you the specifics, let’s just be clear here. For us to provide guidance on the margin is a little tricky given the uncertainty on when and how much of the large government deposit will exit and how those funds will be replaced. So when we give a guidance on the nim, we’re using the most conservative guidance possible because we just really don’t want to promise something that we really don’t want to not deliver on. So bear that in mind. We still have a significant deposit from the government that has been telegraphed to us that it will depart sometime. We don’t know if it’s tomorrow or if it’s next year. So replacing those deposits, we certainly bet that our business team, the commercial team, as well as the retail team, as they did this first quarter, will deliver and deliver substantially better than what we expected in the first quarter. It Definitely has a lot to do with the economic background that we’re living in Puerto Rico. And sometimes we undermine that in our own forecast, given the 22 or 23 years that we’ve operated in the island. But bear that in mind before I pass now I’ll pass the answer to Marisa so she can give you the specific details.
Maritza Arismendi (Chief Financial Officer)
Yeah, thanks for that color. And the thing is that for the first quarter, definitely the fact that deposits increased at a higher rate than expected, it was a very good momentum for us. The reality is that going forward, we don’t see thinking about the rated scenario that we’re managing with no cost. We don’t see much of flexibility to push down more the cost of deposits. So we will continue to see deposit at the same level as we saw during the first quarter. And the other element that is embedded within the range that I provide is the asset composition, because we will continue to see gradually commercial book being having a higher proportion as auto continues to go down, as I share with you in the prepared remarks. So that means we also have some impact in the long yield that during this quarter went down 2 basis points. So we are seeing the asset sensitivity and the liability sensitivity somehow compensating between the two of them. And since the NIM that we saw during the quarter going, you know, keeping it stable, maybe 5 basis point down, 5 basis point up. But that’s why we’re giving the 5.10 to 5.20% range guidance. So for the quarter, if we exclude the recovery, 1.5, and we will need to manage liquidity through the year as Jose was mentioning. So that’s why we’re giving that base case scenario as a range.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
And you guys know us, we’re going to be conservative on our guidance in all the guidance that we provide. We’ve been doing that for many years. So that’s kind of where we stand. Brett. Okay.
Brett Rabadin (Equity Analyst)
And can you remind me, Jose Rafael, how much of the government deposit piece is left? And it sounds like you’re unsure of the timing, but just any thoughts on
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
around $600 million on the one deposit. Remember, the other 500 went to our broker dealers, so we’re getting a little bit of a fee there. So that’s where it stands right now. Okay.
Brett Rabadin (Equity Analyst)
And then on credit quality, I heard the comments and totally, if you look at the numbers, it makes sense. There’s some, there’s some seasonality related to early stage delinquencies, but there was some nice improvement this quarter. You know, was there anything else that might have been Driving the improvement Other than seasonality and customers having higher liquidity during 1Q were you seeing any other, any other broad based things that were improving credit?
Cesar Ortiz (Chief Risk Officer)
Well, back in 2022, at the late stage of 2022, we adjusted, we improved the underwriting standards to that. We didn’t book higher because that was record breaking period. So we didn’t, we wanted to make sure that we used that moment to improve our portfolio quality. So now we’re seeing the results of those improvements in the credit quality where the auto portfolio is now 91% prime. So we are starting to see the benefits in the credit metrics of those, those adjustments that we did back in the 2022 year. When you think about it, Brett, the seasonality of the vintage that is coming due in 26 is one that already has 80 plus percent in prime. So we expect to have lower loss content in the vintages that are becoming seasoned in the next couple of years. So that part of an additional kind of element of our consumer credit portfolio.
Brett Rabadin (Equity Analyst)
Okay, and then just last one for me around just the broad macro. You know, I saw this morning that construction in Puerto Rico slightly off in January, maybe February. But you know, all this stuff going on with higher oil prices, inflation. Just wanted to hear you know, any, any anything you’re seeing in terms of macro and Puerto Rico and maybe opportunities or challenges.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Yep. Yeah. So you, you heard, heard me before talk about Puerto Rico economy and it remains very constructive, very positive. You know, Puerto Rico is its best economic position in many, many, many decades. So if you think about it right now Puerto rico has only 30% debt to GDP. Puerto Rico has the lowest levels of unemployment in 70 some years. Puerto Rico receives around 4 to 6 billion dollars in reconstruction funds a year and will continue to receive them for the next five to seven years. Puerto Rico is benefiting from onshoring of medical devices, pharmaceutical and leveraging that infrastructure that has been in place for many years. Remember Puerto Rico’s manufacturing. Puerto Rico’s manufacturing is around 40, 45% of the entire economy in the island. So that is also helping. So I think Puerto Rico going back to our history, we are back on the limelight in terms of our geopolitical geographic positioning. And you saw it when the military went into Venezuela, it all came from Puerto Rico. And they’re hiring, they’re increasing their military presence in the island. So when you look at all that, it’s just a very good economic backdrop that will certainly have to face threats and those threats will come from the geopolitical that is going on around the world and the inflationary pressures and the United States potentially going into a recession and will get some of those effects. But Puerto Rico is in a much stronger position today than several decades ago to embark in those challenges. So when you think of the quarter to quarter or month to month changes in economic data points and stuff, yeah, they’re real. But at the same time, what we’re seeing on the ground is high levels of liquidity, liquidity, strong interest in building infrastructure, strong private investments. And we’re meeting with commercial clients. I had lunch yesterday with commercial clients that are really putting money to play in the island in different industries. And I think the next several years in Puerto Rico are going to continue to be pretty steady growth. And that’s what we’re seeing, Bret. We’re seeing a pretty solid positive economic environment that is not exempt of threats and it’s not exempt of risks. But I think we’ve been managing them for many years and we’re confident that we continue to grow our client base, will continue to grow our loans, our deposits. We have been doing the last several decades being very strategic, being very, very intentional and again, as I said, highlighting our team, our people are really focused on trying to be the challenger bank in the island and gaining market share out of it. So that’s kind of my 10 cents that turned out to be more than 25 cents.
Brett Rabadin (Equity Analyst)
Well, I appreciate all the color and it has been good to see the onshorings. Thanks.
OPERATOR
Yep. Thank you. We will move next with Erin Sikonovich with Tourist Securities. Please go ahead. Your line is open.
Erin Sikonovich (Equity Analyst)
Thanks. Good morning. The deposit growth surprised me to the upside. With the government deposit that you had guided coming out, you had pretty strong growth in the quarter to cover that where I thought it would actually come into the borrowing side. Maybe you could talk a little bit about. You mentioned that Libre and Elite and Mybiz all contributed. Are you seeing any particular growth in any one of those particular products and were you doing anything special to kind of drive that growth in the first quarter? Yep.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Very, very. I agree with you 100%. The three products are the driving for, for us as an offering. Very targeted, very focused. We don’t have 50 different deposit accounts. We have one for MAs, one for mass affluent and one for small business. And that’s how we keep our focus of our team members. And we also have excellent, excellent benefits for each of those accounts. And that is what’s driving the, the adoption and driving the account opening and driving the customer growth. So it’s all across the Board. What we saw with Libre this quarter and Elite on the retail side showed increasing deposits. Libre is not interest bearing, mostly a digital account type of thing where you can open it online if you want to. So we continue to see great adoption there. Growing client base on a monthly basis steadily on the mass affluent. We also saw great growth too in terms of deposits. We continue to see steadily. Those are higher balances. We continue to see steadily the penetration of different services within the elite. What I mean by that is we are seeing more and more elite customers deepening the relationship on the lending side within Oriental with the OFG and then on my biz. It’s our flagship. Our team members go out there and we do have a very good solid cash management offering. And the platform is very, very good and solid compared to the one that banks in the States have. So customers are starting to identify all those benefits and we’re seeing the results. Certainly all of that has to do with the economy too. So there’s a lot of liquidity, so that helps. But I don’t want to underestimate the power of our strategy and how we’re executing on it.
Erin Sikonovich (Equity Analyst)
Great, that’s helpful. Slide 5. You know, you’ve always kind of talked about the digital first aspect of banking and the statistics are pretty impressive. What are you doing or any particular new investments that you’re looking at from the technology side where you can kind of continue to improve upon those statistics.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
So we’ve made investments throughout the last several years and some of what you’re seeing today is the, the deployment of those or the benefits of those investments. And we continue to invest and right now the biggest focus for us as we finalize our data kind of management and making sure that we have the data readily accessible for us to be able then to continue to extract insights for our customers and to improve their lives and give them them value add. And that’s something that we’re already doing and we are expanding that and we have a team working on it for many years now. And that’s something that we’re focusing on. I think the benefits of artificial intelligence are first and foremost on the efficiency side. And when you heard Marica talk about expenses, you see the guidance being flat versus last year. As we talked about in the fourth quarter, we continue to see good opportunities for us to leverage AI and bring efficiencies to the bottom line for 27 and beyond. And then the other side is value add to our customers. How do we make their lives simple? And those are the things that we’re investing in right now and it’s tricky and we’re probably going to hit a good investment here or there in terms of the deployment to our customers and we might miss some, but that’s kind of how we operate. We do bet on the innovation. We think banking will require innovation going forward and Puerto Rico is way behind on that innovation curve and OFG is the one who’s driving that innovation. Puerto Rico.
OPERATOR
Thank you. We will move next with Kelly Mota with kbw. Please go ahead. Your line is open.
Kelly Mota (Equity Analyst)
Hi, good morning. Thanks for the question. Just a real quick one. Just a point of guidance clarification from Marisa, that 5 to 10 to 520 margin, just wanted to clarify is that for the full year or the the balance of 2020 quarters?
Maritza Arismendi (Chief Financial Officer)
Yeah, it’s for the full year and I already share a little bit on how we’re seeing and why we’re seeing that range and also provide, you know, how tricky is to forecast the timing of the, of the big government deposit transfer. So so that considered that and the fact that we are not seeing costs during the year. So got it.
Kelly Mota (Equity Analyst)
That’s really helpful. And then similarly, I thought a real strength of the quarter was the core deposits. I know Puerto Rico has believe a government tax rebate. Just wondering if you saw any positive impacts from that in 1Q or if not, just if you could help us out with the timing of where you expect that. Thanks.
Maritza Arismendi (Chief Financial Officer)
That’s usually at the end of the quarter. We saw a little bit at the end of the quarter certainly and I think that plays out throughout the first half of the year. So we see the child tax credit. We also see the tax refunds in general and that plays out throughout the first half of the year.
Kelly Mota (Equity Analyst)
Great. That’s really helpful. And then maybe to turn to capital, you guys announced a pretty meaningful dividend raise earlier in the quarter and you guys were also more active with the buyback. With a new authorization out, capital looks very healthy here. Can you remind us any guideposts or thoughts around the capital size of things?
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Thanks. Yep. Everything starts with how do we deploy our capital? Capital management, we want to deploy it first and foremost in our business here in Puerto Rico. So if there are some opportunities for us to deploy it in a growing balance sheet, we will certainly do that. And that’s kind of the first level of thinking. We also certainly see the buyback as a way for us to continue to return capital to shareholders. We’re methodical about it and opportunistic and we, we’ve shown it in the first quarter will continue to be so during the rest of the year. And the dividend, we look at it also and we feel very confident about the earnings power that we have and how we manage the capital. With a 14 close to 14% CET1, I think it was a little lower this year this quarter given the buybacks, but it’s around 13 and 3/4 CET1 and we feel that part of our capital management strategy is to deploy back capital to shareholders and we will continue to do so. Kelly.
Kelly Mota (Equity Analyst)
Okay, great. That’s helpful. Maybe last ticky tacky question for me. Just modeling based. I appreciate the color on margin you had. The interest recovery. Just looking at your average balance sheet, it looks like there was a jump up in PCD interest income. Just to confirm, was that where that interest recovery came in? Okay, great.
Maritza Arismendi (Chief Financial Officer)
Yes. It was full of a loan that was within that book.
Kelly Mota (Equity Analyst)
Yes. Great. Thank you for confirming. I’ll step back. Really nice quarter, guys.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Yeah, thank you. Thank you, Kayla.
OPERATOR
Thank you. We will move next with Manuel Navas with Piper Sandler. Please go ahead. Your line is open.
Manuel Navas (Equity Analyst)
Hi. How much do the taking out of Fed rate cuts help that NIM Guide? And if we did get one rate cut, what would you expect the impact to be?
Maritza Arismendi (Chief Financial Officer)
Well, thank you, Manuel. We continue to be asset sensitive, but the reality is that, you know, a ramp in a ramp 50 basis point cut will have a very low impact, less than 1%. But the reality is that we are taking that into consideration in this new guidance because we were expecting two cuts mid year and then at the end of the year and that’s no longer impacting the commercial book. So that’s why it is impacting positively the guidance that we provide. And we move it like 10 basis points. Not necessarily fully related to the change in the expectation on record, but also it’s a combination with the fact that the funding mix is better than expected because of the inflow that we received during the first quarter. It’s encouraging us with the perspective that we had for the rest of the year. So we are expecting to core deposit to continue growing. So that will help funding mix in front of the potential exit of the government deposit. And that’s what is embedded without that guidance.
Manuel Navas (Equity Analyst)
I appreciate that. So the success you’re having with the new account types, as long as they keep growing, they can replace borrowings and that should only benefit your funding. Is that kind of message you’re driving home?
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Yep. And it also has another component that we don’t talk about it often, but it’s also the large commercial book and business that we have. We do have some good sized commercial accounts that have been long standing clients of ours that also are benefiting from higher liquidity levels too. Great. And on that front I know your, your, your loan growth is commercial led this year a little bit less on the auto side. How do pipelines look? Any update to the mix, the mix of loan growth from last quarter? It seems like it seems pretty consistent but just trying to check in on a seasonal improvement in growth. Yeah, we do have a pretty good pipeline and we are continuing to stick with our guidance of low single digits simply because, not because we don’t feel comfortable with the commercial pipeline but more importantly because we are modeling a reduction on the auto business auto loan book that it’s hard to predict given the landscape here in Puerto Rico. But we’re very happy with the business on the commercial side. We continue to grow it, we continue to have a very strong pipeline.
Manuel Navas (Equity Analyst)
Manuel, and I guess my last question is on credit, is this kind of improvement in past dues, which is somewhat seasonal, could that drive a bit lower net charge off levels for the year? I think we’re looking at closer to
Cesar Ortiz (Chief Risk Officer)
1% plus we talked about the 1% last quarter too. I don’t want to project this quarter because it’s a better quarter because of the seasonality as you mentioned. So I would stick to my 1% through the year and hopefully it’s going to be better because we mentioned already the improvements of the FICO quality of the portfolio which should may equate into a better charge up rate. But as of now I would say 1%.
Manuel Navas (Equity Analyst)
I appreciate it. Thank you. Thank you for your question.
OPERATOR
Thank you again. If you would like to ask a question, press star then the number one on your telephone keypad. One moment while we queue. And at this time there are no further questions. I will now turn the call back over to Mr. Fernandez for, for closing remarks.
Jose Rafael Fernandez (Chief Executive Officer and Chairman of the Board of Directors)
Thank you operator. Thanks again to all our team members and thank you to all our shareholders who have listened in. Have a great day.
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