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OFG BANCORP (OFG)·Q2 2025 Earnings Summary

Executive Summary

  • EPS diluted was $1.15, a clear beat vs Wall Street consensus of $1.05, driven by higher average loan balances and solid non-interest income; total core revenues were $182.2M, up 2.2% q/q and 1.5% y/y . EPS beats also occurred in Q1 2025 ($1.00 vs $0.968) and Q4 2024 ($1.09 vs $0.965)*.
  • Net interest margin compressed to 5.31% (from 5.42% in Q1), reflecting proactive liquidity build (new $200M FHLB at 4.13%); management expects NIM to expand as loan growth continues .
  • Loan growth strong: loans HFI (EOP) reached $8.18B (+4.2% q/q, +7.1% y/y) with new loan production of $783.7M; guidance for FY25 loan growth raised to 5–6% (from 3–4%) .
  • Capital actions: Board approved new $100M share repurchase (open-ended); company repurchased 186,024 shares in Q2; dividend maintained at $0.30 per share for the September quarter, payable Oct 15 .
  • Estimates context: EPS beat; revenue comparison depends on definition—company “total core revenues” were $182.2M, while S&P revenue actual was $160.7M vs consensus $181.7M, suggesting a miss on S&P’s revenue definition; consensus recommendation unavailable*.

What Went Well and What Went Wrong

What Went Well

  • Strong loan growth across all channels in Puerto Rico and U.S.; pipeline remained robust, contributing to higher net interest income q/q .
  • Digital-first momentum: nearly all routine retail transactions processed through digital/self-service; new offerings (Oriental Marketplace; U.S. government money market fund) deepen relationships and drive efficiency. “Nearly all of our routine teller retail customer transactions and deposits… were made through our digital and self-service channels” .
  • Credit metrics improved sequentially: net charge-offs down to $12.8M (0.64%), early delinquency 2.46%, total delinquency 3.59%, NPL rate ~1.19% .

What Went Wrong

  • NIM contraction to 5.31% due to timing/decision to add wholesale liquidity (FHLB at 4.13%) ahead of expected loan growth .
  • Provision for credit losses remained elevated at $21.7M, including $17.2M for volume and $3.7M specific reserves on four commercial loans .
  • Pricing pressure in commercial lending and seasonal uptick in early-stage auto delinquencies; management cited competitive loan pricing and noted tariffs briefly boosted auto demand, potentially impacting future mix/spreads .

Financial Results

Summary vs Prior Periods

MetricQ4 2024Q1 2025Q2 2025
EPS diluted ($)$1.09 $1.00 $1.15
Total Core Revenues ($USD Millions)$181.9 $178.3 $182.2
Net Interest Margin (%)5.40% 5.42% 5.31%
ROA (%)1.75% 1.56% 1.73%
ROTCE (%)16.71% 15.28% 16.96%
Efficiency Ratio (%)54.82% 52.42% 52.04%

Non-Interest Income Components

Metric ($USD Millions)Q4 2024Q1 2025Q2 2025
Banking Service Revenues$15.33 $15.98 $15.98
Wealth Management Revenues$10.63 $8.46 $8.92
Mortgage Banking Activities$6.81 $4.78 $5.35

Production, Balances, Liquidity

MetricQ4 2024Q1 2025Q2 2025
New Loan Production ($USD Millions)$609.0 $558.9 $783.7
Loans HFI (EOP) ($USD Billions)$7.79 $7.85 $8.18
Customer Deposits (EOP) ($USD Billions)$9.60 $9.76 $9.90
Cash & Equivalents (EOP) ($USD Millions)$591.1 $710.6 $851.8

Loan Portfolio Breakdown (EOP)

Category ($USD Billions)Q4 2024Q1 2025Q2 2025
Mortgage (ex-GNMA)$1.47 $1.39 $1.37
GNMA Buy-back Option$0.049 $0.045 $0.043
Commercial PR$2.40 $2.43 $2.60
Commercial US$0.70 $0.73 $0.83
Consumer$0.669 $0.671 $0.681
Auto$2.549 $2.593 $2.662
Total Loans HFI$7.79 $7.85 $8.18

KPIs and Credit Quality

KPIQ4 2024Q1 2025Q2 2025
CET1 Ratio (%)14.26% 14.27% 13.99%
TCE Ratio (%)10.13% 10.30% 10.20%
TBVPS ($)$25.43 $26.66 $27.67
Net Charge-off Rate (%)0.82% 1.05% 0.64%
Early Delinquency (30–89 dpd) (%)2.95% 2.19% 2.46%
Total Delinquency (≥30 dpd) (%)4.38% 3.49% 3.59%
NPL Rate (%)1.06% 1.11% 1.19%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan Growth (Balance)FY 20253–4% 5–6% Raised
Net Interest Margin20255.30–5.40% 5.30–5.40%; expect expansion as loans grow Maintained with positive bias
Non-Interest ExpenseQuarterly 2025$95–$96M $95–$96M; remained in range Maintained
Effective Tax RateFY 202526.14% (Q1 view) 24.90% (ex-discrete items) Lowered
Government DepositsRolling“Roll over several more quarters” SameMaintained
Share RepurchaseOpen-endedPrior program in place New $100M authorization Raised
DividendQ3 2025$0.30 (increased 20% in Q1) $0.30 declared, payable Oct 15 Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Digital/OmnichannelEmphasis on digital-first; MSR portfolio acquisition boosted fee mix Launch of omnichannel app, Smart Banking, Apple Pay; customer growth High digital adoption; launch of Oriental Marketplace and DGI money market fund Strengthening
Puerto Rico MacroStable; resilient despite global uncertainty Stable; monitoring geopolitical risks “Constructively positive” with resilient consumers/businesses Positive/stable
NIM & FundingNIM ~5.40%; mix shift to securities NIM 5.42%; two fewer business days affected NII NIM 5.31%; added FHLB funding; expected NIM expansion with loan growth Near-term compression → expansion expected
Loan GrowthBalanced growth; pipeline noted Growth in auto and U.S. commercial Broad-based surge; guidance raised to 5–6% Accelerating
CreditElevated provision due to specific reserves; NCOs aided by recoveries NCOs up; early delinquencies seasonally improved NCOs down; delinquencies stable; vintages improved Improving sequentially
Deposit DynamicsGovernment deposits down; retail/commercial up Demand/savings/time up; renewal of $200M FHLB Deposit cost noise tied to variable-rate government funds; retail growth expected Mixed; manageable costs
Regulatory/Macro (Energy)Noted uncertainties —Energy grid challenges ongoing; limited economic impact Noisy but contained

Management Commentary

  • CEO: “It was another strong quarter, ending with record assets of more than $12 billion and record loans of more than $8 billion… diluted earnings per share of $1.15… strong loan origination and core deposit flows” .
  • CFO on NIM and liquidity: “Excluding the new Federal Home Loan Bank advance, NIM would have been around the higher end of our 5.30%-5.40% range… as loan growth continues, we should see NIM expand” .
  • CEO on deposits: “Government deposits are tied to a variable rate treasury bill… we are seeing good momentum… overall retail customer deposits will continue to grow in the second half” .
  • CEO on loan growth: “We expect loan balances to grow for the full 2025, now closer to the 5%, 6% versus the 3%, 4% that we previously guided” .
  • Capital return: “We announced a new $100 million… buyback authorization and bought back more shares” ; Board approved a new $100M plan .

Q&A Highlights

  • Deposit costs: Variable-rate government deposits drove quarter-to-quarter noise; retail deposit growth expected through 2H25 and into 2026; competition from Florida-based bank CDs and U.S. credit unions remains rational .
  • Funding strategy/NIM: Added $200M FHLB mid-quarter at 4.13% to pre-fund expected loan growth; NIM expected to expand as liquidity is deployed .
  • Loan growth cadence & pricing: Strong pipeline across PR and U.S.; some pricing pressure on commercial lending; auto originations saw pre-tariff pull-forward .
  • Credit outlook: Seasonality explains higher early-stage auto delinquency vs Q1; vintages since 2022 performing better, supporting improved NCO/delinquency trajectory .
  • Tax rate clarification: FY25 ETR guided to 24.90% excluding discrete items (vs Q1’s 26.14% view); Q2 benefited from $1.7M discrete items .

Estimates Context

  • EPS: OFG beat EPS in Q2 ($1.15 vs $1.05), Q1 ($1.00 vs $0.968), and Q4 ($1.09 vs $0.965)*.
  • Revenue: Company “total core revenues” were $182.2M in Q2; S&P Global’s revenue actual for Q2 was $160.7M vs consensus $181.7M*, implying a miss under that definition. Note: OFG reports “total core revenues” as net interest income plus core non-interest income; S&P’s revenue methodology may differ materially.
  • Target Price Consensus Mean: $48.25*; Consensus recommendation unavailable*.
MetricQ4 2024Q1 2025Q2 2025
EPS Consensus Mean ($)*0.9650.96751.05
EPS Actual ($)$1.09 $1.00 $1.15
Revenue Consensus Mean ($USD Millions)*176.146175.162181.684
Revenue Actual (S&P)* ($USD Millions)152.505152.900160.681
Company Core Revenues ($USD Millions)$181.9 $178.3 $182.2

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • EPS momentum and operational execution are intact; NIM compression appears transitory given targeted liquidity build and rising loan balances—setup for margin expansion in 2H25 as loans absorb funding .
  • Commercial lending is the key growth lever (PR and U.S.); management raised FY25 loan growth guidance to 5–6% and cites strong, diversified pipelines—watch for pricing pressure offset by volume .
  • Credit quality improved sequentially; vintage improvements since 2022 and seasonality explain auto trends—expect steadier NCO/delinquency trajectory barring macro shocks .
  • Capital return remains a catalyst (open-ended $100M buyback; ongoing $0.30 dividend), supported by CET1 13.99% and rising TBVPS—buyback deployment pace could support shares .
  • Deposit dynamics manageable: retail growth expected; government deposit cost volatility is a known factor but not thesis-breaking—monitor mix shift and cost trajectory .
  • Tactical funding (FHLB, brokered) boosted liquidity; as production remains strong, incremental spread capture should lift NII—track NIM vs 5.30–5.40% range guidance .
  • Narrative drivers: digital adoption, fee mix from mortgage/wealth, Puerto Rico macro resilience, and prudently managed risk—any policy/regulatory developments (e.g., energy grid) are noise near term but worth monitoring .