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OFG Bancorp (NYSE:OFG) Q4 2025 Earnings call January 22, 2026 10:00 AM ET Company ParticipantsJosé Rafael Fernández - CEO and Chairman of the Board of DirectorsBrett Rabatin - Director of ResearchKelly Motta - Director of Equity ResearchCésar Ortiz - Chief Risk OfficerTimur Braziler - Director of Mid-Cap Bank Equity ResearchMaritza Arizmendi - CFOConference Call ParticipantsManuel Navas - Managing Director and Senior Research AnalystArren Cyganovich - Senior AnalystOperatorGood morning. Thank you for joinin ...

Financial Data and Key Metrics Changes - Earnings per share diluted increased by 17% year-over-year, driven by a 2% growth in total core revenues [3] - Total assets grew by 8.4% to a record $12.5 billion, while core deposits increased by 5% to $9.9 billion [4] - Loans grew by 5.3% to $8.2 billion, with commercial loans now representing 43% of the loan book [4] - The efficiency ratio was reported at 56.7%, with a return on average assets of 1.81% and return on tangible common equity at 17.2% [10] Business Line Data and Key Metrics Changes - Core revenues totaled $185 million, reflecting an increase of $1.4 million, while total interest income decreased by $3 million [8] - New loan production increased by 11.5% to $2.6 billion, with average loan balances at $8 billion [11] - Wealth management revenues increased due to $2.3 million in annual insurance commission recognition [8] Market Data and Key Metrics Changes - The Puerto Rico economy is showing positive growth, with robust business activity and resilient consumer behavior [4][16] - The company reported a 4% growth in retail customers, attributed to the success of its digital-first strategy [7] Company Strategy and Development Direction - The company is focusing on enhancing customer experience through technology and product differentiation, particularly with its Libre and Elite accounts [5][16] - There is a strategic emphasis on commercial loan growth, with expectations of a 5%-6% increase in commercial loans [36] - The company aims to leverage its digital offerings to attract new customers and deepen existing relationships [5][86] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainable long-term growth of the Puerto Rican economy, supported by public reconstruction funds and private investments [16] - The company anticipates continued growth in loans and deposits, driven by its digital offerings and customer-focused strategies [14][36] - Management acknowledged the need to monitor global macroeconomic uncertainties that could impact Puerto Rico [16] Other Important Information - The company repurchased $40 million of common shares in the fourth quarter and plans to continue returning capital to shareholders through dividends and buybacks [3][15] - The net interest margin for 2025 was reported at 5.27%, with expectations for 2026 to range between 4.95%-5.05% [15] Q&A Session Summary Question: Can you provide additional color into the larger Puerto Rico charge-offs this quarter? - The charge-offs were primarily due to a sale that released $17 million in non-performing loans, which triggered charge-offs but resulted in a gain of $3.9 million [21][23] Question: What is the outlook for loan growth? - The company expects low single-digit loan growth, with commercial loans projected to increase by 5%-6% [25][36] Question: Can you provide confidence in the expense guidance for 2026? - The expense range reflects continuous investment in technology and talent, with expectations for efficiencies to materialize in 2027 and 2028 [26][30] Question: What are the strategic initiatives for 2026? - The focus will be on enhancing retail efforts and translating successful strategies to the commercial side, with an emphasis on small and mid-sized clients [36] Question: How does the competitive landscape look for deposits? - The competitive landscape is intensifying, but the company is not seeing a need for high yield responses, focusing instead on product differentiation [79][86]

Financial Data and Key Metrics Changes - Earnings per share diluted increased by 17% year-over-year, driven by a 2% growth in total core revenues [3] - Total assets grew by 8.4% to a record $12.5 billion, with core deposits increasing by 5% to $9.9 billion [4] - Loans grew by 5.3% to $8.2 billion, with commercial loans now representing 43% of the loan book [4] - The efficiency ratio was reported at 56.7%, with a return on average assets of 1.81% and return on tangible common equity at 17.2% [10] Business Line Data and Key Metrics Changes - Core revenues totaled $185 million, reflecting a slight increase of $1.4 million [7] - Total interest income decreased by $3 million to $197 million, influenced by higher average balances of loans and cash at lower average yields [8] - Non-interest expenses totaled $105 million, up $8.5 million from the previous quarter, primarily due to increased professional services fees and business sizing costs [9] Market Data and Key Metrics Changes - The Puerto Rico economy remains steady with a positive outlook for economic growth, supported by public reconstruction funds and private investments [17] - The company reported a 4% growth in retail customers, attributed to the success of its digital-first strategy [6] Company Strategy and Development Direction - The company is focusing on enhancing customer experience through its digital-first strategy, which includes the introduction of the Libre and Elite accounts [5] - There is a strategic emphasis on commercial loan growth, with expectations of a 5%-6% increase in commercial loans during the year [26] - The company aims to continue investing in technology and improving operational efficiencies to support long-term growth [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustainable long-term growth, citing sound credit quality and asset management [18] - The company anticipates a net interest margin range of 4.95%-5.05% for 2026, considering potential rate cuts and changes in deposit funding [16] - The management highlighted the importance of monitoring global macroeconomic and political uncertainties that could impact Puerto Rico [17] Other Important Information - The company repurchased $40 million of common shares in the fourth quarter and increased its dividend by 20% [4] - The effective tax rate for 2026 is expected to be around 23%, excluding any discrete items [16] Q&A Session Summary Question: Can you provide additional color into the larger Puerto Rico charge-offs this quarter? - The charge-offs were a result of a sale that released $17 million in non-performing loans, which triggered charge-offs but resulted in a gain of $3.9 million [21][24] Question: What is the outlook for loan growth? - The company expects low single-digit loan growth, with auto balances projected to decrease by 2%-3% and commercial loans to increase by 5%-6% [26] Question: Can you provide confidence in the expense guidance for 2026? - The expense range reflects continuous investment in technology and talent, with expectations for efficiencies to materialize in 2027 and 2028 [27][31] Question: What are the strategic initiatives for 2026? - The focus will be on enhancing retail efforts and investing in commercial growth, particularly targeting small and mid-sized clients [36][37] Question: What is the expectation for capital return in 2026? - The company plans to continue share buybacks as a primary method of returning capital to shareholders, alongside potential dividend considerations [38] Question: Has there been any price response from other players regarding new products? - There has been no significant price response from competitors, as the Libre account is non-interest-bearing and the Elite account offers competitive rates without aggressive pricing [87][88]

Financial Performance (4Q25) - EPS reached $1.27[7] - Total core revenues amounted to $185.4 million[7] - Net Interest Margin (NIM) stood at 5.12%[7] - Provision for credit losses was $31.9 million[7] - Non-interest expense totaled $105.0 million[7] - Pre-Provision Net Revenue (PPNR) was $79.3 million[7] Financial Position (EOP 4Q25) - Total assets reached $12.5 billion[7] - Customer deposits totaled $9.9 billion[7] - Loans held for investment were $8.2 billion[7] - Investments amounted to $2.8 billion[7] - Cash holdings were $1.0 billion[7] Capital Adequacy (4Q25) - CET1 ratio was 13.97%[7] - Tier 1 Risk-Based Capital Ratio was 13.97%[7] - Total Risk-Based Capital Ratio was 15.24%[7] - Leverage Ratio was 10.71%[7] Digital Adoption (4Q25) - 96% of all routine transactions were conducted through digital channels[17] - 98% of all deposit transactions were conducted through digital channels[17] - 71% of all loan payments were made digitally[17]

Financial Performance - 4Q25 diluted EPS was $1.27, up 16.4% year-over-year from $1.09 in 4Q24, with total core revenues of $185.4 million, a 1.9% increase from $181.9 million in 4Q24[1][3] - Full year 2025 diluted EPS increased to $4.58, an 8.3% growth from $4.23 in 2024, with total core revenues reaching $729.8 million, up 2.8% from $709.6 million in 2024[2][3] - Net income available to common stockholders for 2025 was $205,103 thousand, compared to $198,170 thousand in 2024, representing a year-over-year increase of 3.9%[31] - Net income available to common shareholders for Q4 2025 was $55,893,000, an increase from $51,838,000 in Q3 2025[33] - Income before income taxes was $234.117 million, down from $253.748 million in the previous year, representing a decrease of 7.8%[34] Revenue and Income - Net interest income for Q4 2025 was $152,744 thousand, an increase from $149,138 thousand in Q4 2024, reflecting a growth of 2.2% year-over-year[29] - Total core revenues for the year ended 2025 reached $729,808 thousand, up from $709,621 thousand in 2024, indicating a growth of 2.8%[31] - Non-interest income totaled $122.976 million, a decrease from $123.249 million in 2024, indicating a slight decline of 0.2%[34] - Non-interest income for Q4 2025 was $31,576,000, slightly up from $31,453,000 in Q3 2025[33] Loans and Credit Quality - Total loans held for investment at the end of 4Q25 were $8.20 billion, a 1.0% sequential increase and a 5.25% year-over-year increase from $7.79 billion in 4Q24[14] - New loan production for 4Q25 was $605.6 million, a decrease from $623.9 million in 3Q25, but an 11.5% increase year-over-year, totaling $2.57 billion for the year[15] - The net charge-off rate for 2025 was 1.00%, up from 0.89% in 2024, indicating a deterioration in credit quality[31] - Total delinquency for loans (30 days and over past due) increased to $308,570 thousand in Q4 2025, up from $294,871 thousand in Q3 2025, representing a 0.24% increase[43] - Total nonperforming loans reached $130,063 thousand in Q4 2025, compared to $99,043 thousand in Q3 2025, indicating a significant increase of 31.4%[44] Deposits and Funding - Customer deposits at the end of 4Q25 were $9.92 billion, reflecting a 1.1% sequential increase and a 5.0% year-over-year increase from $9.45 billion in 4Q24[17] - Total deposits for 2025 were $9,999,885 thousand, an increase from $9,613,722 thousand in 2024, representing a growth of 4.0%[31] - Total deposits increased to $152.747 million from $150.280 million, showing a growth of 1.5%[34] Expenses and Provisions - Total provision for credit losses in 4Q25 was $31.9 million, up from $30.2 million in 4Q24, primarily due to increased loan volume[10] - Non-interest expense for 4Q25 was $105.0 million, an increase from $99.7 million in 4Q24, driven by various operational costs[12] - The provision for credit losses for 2025 totaled $107,513 thousand, significantly higher than $82,251 thousand in 2024, marking a 30.8% increase[31] Capital and Ratios - The CET1 ratio at the end of 4Q25 was 13.97%, down from 14.26% in 4Q24, while tangible book value per share increased to $29.96 from $25.43 in 4Q24[19] - Tangible common equity (Non-GAAP) reached $1,295,909,000, reflecting a tangible book value per common share of $29.96[49] - Common equity Tier 1 capital was reported at $1,318,632,000, with a common equity Tier 1 capital ratio of 13.97%[50] Asset Management - Total assets increased to $12,465.7 million as of December 31, 2025, up from $11,500.7 million a year earlier, representing a growth of 8.4%[35] - The company’s retained earnings increased to $904.6 million, up from $772.0 million, representing a growth of 17.1% year-over-year[35] - Total stockholders' equity rose to $1,390.0 million, compared to $1,254.4 million a year ago, indicating an increase of 10.8%[35] Interest Rates and Margins - The net interest margin for 2025 was 5.27%, down from 5.43% in 2024, suggesting a tightening in interest income[31] - Total interest income for 2025 was $780.936 million, an increase from $750.277 million in 2024, representing a growth of 4.4%[34] - Total interest-earning assets increased to $11,542,913 thousand in 2025, with a net interest income of $780,936 thousand and a net interest margin of 5.27%[39]

Core Viewpoint - OFG Bancorp is expected to report quarterly earnings of $1.16 per share, reflecting a year-over-year increase of 6.4%, with revenues projected at $184.17 million, a 0.8% increase compared to the previous year [1]. Earnings Estimates - The consensus EPS estimate for the quarter has been revised upward by 7.5% over the past 30 days, indicating a collective reassessment by analysts [2]. - Revisions to earnings estimates are significant indicators for predicting investor actions regarding the stock, with empirical research showing a strong correlation between earnings estimate trends and short-term stock price performance [3]. Key Financial Metrics - Analysts estimate the 'Efficiency Ratio' at 53.4%, down from 54.8% a year ago [4]. - The estimated 'Net Interest Income' is projected to be $153.72 million, compared to $149.14 million from the previous year [5]. - 'Wealth management revenues' are forecasted to reach $10.00 million, down from $10.63 million a year ago [5]. - 'Banking service revenues' are expected to be $16.02 million, an increase from $15.33 million year-over-year [5]. - 'Mortgage banking activities' are estimated at $4.60 million, down from $6.81 million in the same quarter last year [6]. - 'Total non-interest income, net' is projected to be $32.12 million, compared to $33.56 million in the same quarter last year [6]. Market Performance - OFG shares have experienced a decline of 2.7% over the past month, contrasting with a -0.4% change in the Zacks S&P 500 composite [6]. - With a Zacks Rank of 3 (Hold), OFG is expected to perform in line with the overall market in the near future [6].

Core Viewpoint - OFG Bancorp is set to report its fourth quarter 2025 financial results on January 22, 2026, before market opening, followed by a conference call at 10:00 AM ET [1]. Company Overview - OFG Bancorp is a diversified financial holding company operating under U.S., Puerto Rico, and U.S. Virgin Islands banking laws, with 61 years in business [3]. - The company has three principal subsidiaries: Oriental Bank, Oriental Financial Services, and Oriental Insurance, offering a variety of retail and commercial banking, lending, and wealth management products and services primarily in Puerto Rico and the U.S. Virgin Islands [3]. - The mission of the company is to facilitate progress for customers, employees, shareholders, and the communities it serves [3]. Conference Call Details - The conference call can be accessed live on OFG's website, with a replay available shortly after the call [2]. - Participants can join the call using a toll-free number (800) 579-2543 or an international number (785) 424-1789, with the conference ID being OFGQ425 [4].

Earnings Performance - Earnings per share for the third quarter of 2025 was $1.16, a 16.0% increase year-over-year, with net income of $51.8 million, unchanged from the previous quarter [242][245]. - Net income available to common shareholders increased by 10.3% to $51,838 from $47,000 in Q3 2024 [262]. - Basic EPS for Q3 2025 was $1.17, a 15.8% increase from $1.01 in Q3 2024 [262]. - Net income for the quarter was $51,838 thousand, compared to $47,000 thousand for the same quarter in 2024, representing an increase of 10.0% [300]. Interest Income and Net Interest Income - Total interest income reached $200.1 million, up 5.8% from the second quarter of 2025 and 5.9% year-over-year [246]. - Interest income for Q3 2025 was $200,145, a 5.9% increase from $189,030 in Q3 2024 [262]. - Net interest income after provision for credit losses was $126,466, remaining stable compared to $126,516 in Q3 2024 [262]. - Net interest income for the quarter ended September 30, 2025, was $154.7 million, an increase of $6.8 million from $147.9 million, driven by higher loans and investment securities income [274]. - Tax equivalent basis net interest income increased by $5.6 million, or 3.7%, to $158.8 million from $153.2 million [274]. Credit Losses and Provisions - Total provision for credit losses was $28.3 million, an increase from $21.7 million in the second quarter of 2025, primarily due to increased loan volume and specific reserves [250]. - Provision for credit losses increased by 32.3% to $28,258 from $21,359 in Q3 2024 [262]. - The provision for credit losses for the nine-month period increased by $23.5 million to $75.6 million, primarily due to adjustments related to loan volume [294]. - Provision for credit losses for the quarter ended September 30, 2025, was $28.0 million, a 31.7% increase from $21.3 million in the same quarter of 2024 [340]. Loans and Deposits - Loans held for investment decreased 0.8% sequentially to $8.12 billion but increased 4.73% year-over-year, driven by growth in commercial and consumer loans [254]. - Customer deposits totaled $9.82 billion, a decrease of $76.2 million from the previous quarter but an increase of $286.5 million year-over-year [257]. - New loan production was $623.9 million, down from $783.7 million in the second quarter of 2025 but up 9.0% year-over-year [255]. - Total deposits increased to $10,008,633 from $9,604,786 in the previous year [263]. Non-Interest Income and Expenses - Non-interest income rose 17.1% to $31,453 from $26,868 in Q3 2024 [262]. - Non-interest income for the quarter was $31.5 million, an increase of 17.1% or $4.6 million from $26.9 million, attributed to higher mortgage banking activities and other non-interest income [283]. - Total non-interest expenses for the quarter were $96,548 thousand, compared to $91,600 thousand in the same quarter of 2024, representing an increase of 5.9% [300][303]. - Non-interest expense for the quarter ended September 30, 2025, was $96.5 million, an increase of 5.4% or $4.9 million compared to $91.6 million in 2024 [286]. Capital and Ratios - The CET1 ratio improved to 14.13% from 13.99% in the second quarter of 2025, while the tangible common equity ratio rose to 10.55% [260]. - Total stockholders' equity was $1.375 billion, marking a 9.6% increase compared to $1.254 billion at the end of 2024 [355]. - Common equity tier 1 capital ratio decreased to 14.13%, down 0.9% from 14.26% [360]. - Total risk-based capital increased to $1.431 billion, reflecting a 4.6% growth from $1.368 billion [360]. Asset Management - Total assets as of September 30, 2025, amounted to $12,229,812 thousand, up from $11,461,382 thousand a year earlier, indicating a growth of 6.7% [300][303]. - Total investments and loans reached $10,874,425, up from $10,354,108 in the previous year [263]. - The investment portfolio grew by $218.7 million or 8.0%, primarily due to new mortgage-backed securities and favorable market value adjustments [313]. - Total assets managed by OFG's trust division increased to $2.475 billion from $2.262 billion, reflecting a $103.7 million rise due to market conditions [315]. Non-Performing Loans and Credit Quality - Non-performing assets increased by 14.4% to $107.1 million, representing 0.88% of total assets as of September 30, 2025 [330]. - The total allowance for credit losses (ACL) increased by 11.1% to $189.7 million from $170.7 million at December 31, 2024 [338]. - Non-performing loans reached $99.0 million, reflecting a 19.4% increase from $83.0 million at the end of 2024 [347]. - The allowance coverage ratio to non-performing loans was 199.7% as of September 30, 2025 [331]. Strategic Initiatives - The Digital First strategy is enhancing customer acquisition and retention, with AI-driven insights being introduced to improve customer financial management [243]. - The company has implemented two mortgage loan modification programs aimed at reducing losses on non-performing loans [337].

Core Insights - OFG Bancorp is considered one of the most undervalued small-cap stocks currently available for investment [1] - Wells Fargo analyst Timur Braziler reduced the price target for OFG Bancorp from $48 to $43 while maintaining an Equal Weight rating [1][2] - The company is expected to face challenges ahead, including increased deposit competition and potential rate cuts impacting net interest income through most of the first half of 2026 [2] Financial Performance - OFG Bancorp reported a diluted EPS of $1.16 for fiscal Q3 2025, an increase from $1.15 in fiscal Q2 2025 and $1.00 in fiscal Q3 2024 [3] - Total core revenue for fiscal Q3 2025 was $184.0 million, compared to $174.1 million in the same period last year, reflecting a 5.6% growth [3][4] - The CEO, José Rafael Fernández, noted a 16% year-over-year increase in Q3 EPS and highlighted strong performance and credit metrics for the quarter [4] Shareholder Actions - The company repurchased $20.4 million of common shares during the quarter, indicating a commitment to returning value to shareholders [4] Business Segments - OFG Bancorp operates through three main segments: Banking, Wealth Management, and Treasury [4]