OFG Bancorp Earnings Call: Growth Strong, Margins Tighten

OFG Bancorp ((OFG)) has held its Q4 earnings call. Read on for the main highlights of the call.

OFG Bancorp Earnings Call: Growth Momentum Outweighs Margin and Credit Headwinds

The earnings call from OFG Bancorp struck an overall upbeat tone, with management emphasizing strong earnings growth, record balance sheet levels, expanding customer base and robust capital returns to shareholders. While they acknowledged rising provisions, idiosyncratic credit issues and emerging net interest margin pressure from rate cuts and funding mix changes, the message was that these are manageable and largely transitory against a backdrop of solid core profitability, healthy capital and successful execution of a digital-first growth strategy.

Strong EPS and Revenue Growth Underpin Solid Year

OFG delivered a strong earnings performance in 2025, with diluted EPS rising 17% year over year in the fourth quarter and up 8.3% for the full year. This was supported by resilient top-line trends: total core revenues grew 2% sequentially in Q4 and 2.8% for the year. Management framed this as proof that the franchise can grow earnings even in a shifting rate environment, helped by disciplined pricing, stable loan demand and expanding fee-generating businesses.

Record Balance Sheet and Loan Growth

The balance sheet reached record size, with total assets up 8.4% to $12.5 billion. Loans grew 5.3% to $8.2 billion, while core deposits increased 5% to $9.9 billion, underscoring OFG’s ability to capture funding and lending opportunities across its markets. The growth was broad-based and positions the bank with a larger earning-asset base going into 2026, even as management prepares for some margin compression.

Commercial Loan Expansion and Favorable Mix Shift

Commercial lending remained a key driver, with commercial loans rising to $3.5 billion and now accounting for 43% of the loan book. New loan production for the year reached $2.6 billion, up 11.5%. This mix shift toward commercial exposures is strategically important, as it typically offers better relationship depth and cross-sell potential, though it requires continued focus on underwriting and credit monitoring as the portfolio grows.

Robust Capital Returns Through Buybacks and Dividends

Capital generation was strong enough to support both growth and meaningful returns to shareholders. OFG repurchased about $92 million of stock in 2025, including $40 million in the fourth quarter alone, and raised its dividend by 20%. Management’s willingness to buy back shares at scale, while still maintaining high capital ratios, signals confidence in the sustainability of earnings and the intrinsic value of the franchise.

Digital-First Strategy Fuels Customer and Deposit Growth

A core theme of the call was the success of OFG’s digital-first approach. The rollout of Libre (mass-market) and Elite (mass-affluent) digital accounts, along with an omnichannel platform and enhanced treasury services, drove a 4% increase in retail customers and a 5% rise in commercial customers. Notably, 75% of Libre accounts were opened by new customers, and 40% of new Libre customers are 29 or younger, highlighting that OFG is effectively attracting younger, digitally engaged households who can drive long-term value.

Strong Profitability and Capital Metrics

Profitability and capital ratios remain a key strength. Tangible book value stood at $29.96 per share, with an efficiency ratio of 56.7%, return on average assets of 1.81% and return on average tangible common equity of 17.2%. Regulatory capital is ample, with a CET1 ratio of 13.97% and total stockholders’ equity of $1.4 billion. These metrics place OFG solidly in the high-performance tier of regional banks, giving it flexibility to continue investing in growth and returning capital.

Net Interest Margin and Liquidity Remain Healthy

Despite a challenging rate backdrop, OFG’s net interest margin (NIM) remained high in 2025. Full-year NIM came in at 5.27%, with Q4 at 5.12%, both in line with management expectations. Liquidity improved, as end-of-period cash rose 41% to $1.0 billion. Management noted that borrowings are used tactically to manage liquidity and funding costs, suggesting they are proactively positioning the balance sheet for further rate moves and deposit shifts.

Operational Efficiency, Workforce Optimization and Tech Investments

OFG is actively managing its cost base while investing in technology. Management guided 2026 non-interest expense to $380–$385 million, roughly flat versus 2025 despite inflation and ongoing digital investments. Workforce optimization through reduced full-time equivalents and targeted technology projects are expected to drive efficiency gains in 2027–2028. The strategy is to absorb near-term expense and amortization impacts now to secure a leaner, more scalable operating model in the coming years.

Loan Yield Compression and Emerging NIM Headwinds

The main pressure point on the earnings outlook is margin compression. Loan yields declined to 7.73%, down 70 basis points, reflecting the impact of Fed rate cuts and loan repricing. Management expects NIM to step down in 2026 to a 4.95%–5.05% range, from 5.27% in 2025. This reflects both the interest rate path and a less favorable funding mix as certain large deposits roll off and are replaced with higher-cost wholesale funding.

Higher Provisions and Net Charge-Offs in the Quarter

Credit costs ticked higher in the fourth quarter. Provision for credit losses rose to $31.9 million, up $4 million from the prior quarter, while net charge-offs increased to $27 million, a $6.7 million sequential rise. Management framed this as partly cyclical and partly tied to specific credits rather than signaling broad-based deterioration, but investors will watch whether these levels stabilize in coming quarters.

Idiosyncratic Nonperforming Loan Drives NPL Uptick

The nonperforming loan ratio increased to 1.59% in Q4, driven largely by a single Puerto Rico telecommunications commercial loan moved to nonaccrual status. OFG also booked a $5.1 million specific reserve on this borrower. Management characterized this as idiosyncratic, emphasizing that the rest of the portfolio remains in good shape and that they do not see a systemic credit issue emerging.

Other Income Hit by Technology Amortization

Other income flipped from a $2.2 million profit in the prior quarter to a $1.11 million loss in Q4, largely due to $6.1 million of accelerated amortization of technology assets. This also contributed around $1.0 million to non-interest expense. Management presented this as a discrete accounting impact tied to tech investments that should pave the way for better digital capabilities and efficiency rather than a recurring drag.

Quarterly Rise in Non-Interest Expenses

Non-interest expenses climbed to $105 million in Q4, up $8.5 million quarter over quarter. The increase was driven by higher professional services costs (including performance-based advisory fees), $2.5 million related to business rightsizing, the acceleration of technology amortization, as well as higher bonuses and marketing spend. While this weighed on the quarter’s operating leverage, management reiterated that overall annual expenses should remain contained in 2026 as one-off items roll off.

Smaller Investment Portfolio as Cash is Redeployed

OFG trimmed its investment portfolio, with balances decreasing by $96 million to $2.8 billion. The decline was driven by principal paydowns and maturities, partially offset by modest purchases of mortgage-backed securities and residential mortgage securitizations. This shift supports liquidity and gives OFG flexibility to fund loan growth or manage funding shifts without needing to sell securities in an unfavorable market.

Funding Mix Pressure from Government Deposit Movement

A notable structural headwind is a change in the funding mix tied to Puerto Rico government deposits. Approximately $500 million of these deposits moved to an advisory account, while about $600 million remains variable. The $500 million will be replaced with wholesale funding at an estimated incremental cost of roughly 25–40 basis points, pressuring NIM. Management has incorporated this impact into its 2026 margin guidance and is using balance sheet levers to mitigate the hit over time.

Seasonal and Year-End Volatility in Asset Quality Metrics

Delinquencies rose in the fourth quarter but remain manageable. Total delinquency increased to 4.18% on a quarter-over-quarter basis, although it is down versus a year ago. Management pointed out typical year-end seasonality in higher delinquencies and nonperforming levels and suggested these metrics could normalize in subsequent quarters, reinforcing the view that the core credit environment remains stable.

Forward-Looking Outlook: Steady Credit, Moderate Growth, Lower Margins

For 2026, management expects loans to grow at a low single-digit pace, with commercial balances targeted to increase about 5–6% and auto loans expected to decline roughly 2–3%. NIM is guided to 4.95%–5.05%, incorporating assumptions of two additional 25-basis-point rate cuts and the replacement of a portion of government deposits with more expensive wholesale funding. Non-interest expenses are projected at $380–$385 million, essentially flat year over year, and the effective tax rate is expected to be around 23%, excluding discrete items. Credit quality is anticipated to remain steady near recent levels, and capital is expected to continue building from an already strong base, allowing OFG to sustain regular dividends and ongoing share buybacks.

In summary, OFG Bancorp’s earnings call painted a picture of a bank with solid growth momentum, strong profitability and ample capital, but now entering a phase of margin normalization and elevated, though manageable, credit costs. The success of its digital-first strategy, particularly in capturing younger customers, and its disciplined capital return program stand out as key positives. While investors must factor in lower NIM and funding mix pressures for 2026, the underlying franchise appears well-positioned to navigate these headwinds and continue delivering attractive returns over the medium term.