Puerto Rican financial services company OFG Bancorp (NYSE: OFG) met Wall Streets revenue expectations in Q4 CY2025, with sales up 1.9% year on year to $185.4 million. Its non-GAAP profit of $1.27 per share was 10.4% above analysts’ consensus estimates.

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StockStory’s Take

OFG Bancorp’s fourth quarter results met Wall Street’s revenue expectations, but the market responded negatively, reflecting concerns around credit costs and margin compression. Management attributed the quarter’s performance to growth in commercial lending, robust acceptance of digital deposit products like Libre and Elite, and sound asset quality despite elevated provision for credit losses. CEO José Rafael Fernández highlighted, “Earnings per share diluted were up 17% year over year on 2% growth in total core revenues,” crediting disciplined operations and a favorable tax benefit. The company also noted continued share repurchases and capital growth, though the quarter included nonrecurring technology amortization costs and higher professional service expenses linked to efficiency initiatives.

Looking ahead, OFG Bancorp’s guidance centers on further loan and deposit growth, continued investment in digital banking, and managing funding costs amid anticipated rate cuts. Management believes that expense reductions from technology investments will become more visible in 2027 and 2028, while the current year will see flat non-interest expenses. CEO Fernández emphasized, “In 2026, our focus is going to be much more on commercial,” highlighting opportunities in Puerto Rico’s resilient economy and ongoing efforts to deepen client relationships. However, the team remains cautious about competitive deposit pricing and the impact of broader economic and political uncertainties.

Key Insights from Management’s Remarks

Management identified digital product momentum, robust commercial lending, and ongoing efficiency efforts as central to fourth quarter outcomes, while also acknowledging elevated one-off credit and technology expenses.

• Digital deposit growth: The Libre and Elite accounts, targeting mass market and affluent customers respectively, continued to attract new deposits, with 75% of Libre accounts opened by new clients and 40% of these under age 29. Management attributes this to the digital-first onboarding experience and enhanced value propositions beyond rate.

• Commercial lending expansion: Commercial loans now comprise 43% of the overall loan book, driven by 5% growth in commercial customers in 2025 and increased adoption of the Oriental Biz platform. Management intends to further leverage technology for small and mid-sized business banking.

• Technology investments and expense control: OFG launched an omnichannel banking platform and intelligent banking features, aiming to improve customer service and deliver process efficiencies. While non-interest expenses rose due to advisory fees and upfront technology amortization, management expects these investments to support long-term cost reductions.

• Credit performance and portfolio mix: Credit quality remained within historical ranges, though provision for credit losses rose, partly due to a specific Puerto Rico telecommunications loan and seasonal increases in delinquencies. Asset quality is being managed proactively through sales of nonperforming loans and tighter underwriting standards, especially in auto lending.

• Capital deployment: OFG repurchased $40 million in shares during the quarter, and management reiterated its intent to prioritize buybacks and dividends as capital continues to build, particularly given current valuation multiples relative to peers.

Drivers of Future Performance

OFG Bancorp’s outlook is shaped by steady economic conditions in Puerto Rico, a digital-first strategy, and the need to adapt to changing funding costs and competitive pressures.

• Commercial and digital banking growth: Management expects loan growth in low single digits, with commercial lending anticipated to rise 5-6% and digital offerings driving new customer acquisition. Retail and commercial deposits are projected to increase, supported by ongoing enhancements to digital account platforms.

• Expense management and efficiency gains: While non-interest expenses are forecast to remain flat in 2026, management anticipates material cost savings from technology and process improvements to emerge in subsequent years. The company is actively reducing back-office headcount and redeploying talent to client-facing roles, leveraging automation and robotics.

• Interest rate and funding challenges: The exit of $500 million in government deposits and their replacement with higher-cost wholesale funding will pressure net interest margin, which management expects to range between 4.95% and 5.05% in 2026. Further rate cuts are expected to impact asset yields, though core deposit growth may partially offset higher funding costs.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace of commercial loan and core deposit growth, especially as digital and omnichannel offerings mature; (2) expense trends, including whether technology investments translate into meaningful efficiency gains; and (3) changes in net interest margin as funding mix shifts and rate cuts play out. Additionally, credit quality trends and competitive dynamics in Puerto Rico’s banking sector will be closely watched for signs of sustained differentiation.

OFG Bancorp currently trades at $38.98, down from $42.58 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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