OFG Bancorp’s Digital Pivot Delivers Q1 Beat Amid Puerto Rican Growth—But Risks Linger

OFG Bancorp (OFG) narrowly beat Q1 2025 earnings expectations, with EPS of $1.00 topping the FactSet consensus of $0.97, despite a 4.3% year-over-year decline in net income. The results highlight a mixed picture: steady revenue growth, a robust digital transformation driving customer acquisition, and lingering credit quality concerns in Puerto Rico’s uneven economic recovery. Let’s dissect the numbers.

The Financials: A Slowdown, But Not a Collapse
Net income fell to $45.57 million from $49.69 million in Q1 2024, but this decline is partly offset by a 2.4% revenue rise to $178.28 million. The “Digital First” strategy is bearing fruit: 96% of routine transactions, 97% of deposits, and 68% of loan payments now occur online. This efficiency has translated into a 4.7% net customer growth year-over-year, with digital loan payments surging 21% and virtual teller usage up 40%.

The net interest margin dipped to 5.42% from 5.62% in Q4 2023, as rising deposit costs pressured margins. Meanwhile, credit metrics showed modest deterioration: the net charge-off rate rose to 1.05% from 0.88%, though non-performing loans stayed flat at 1.11%. Management attributed this to “sector-specific stress,” but the $25.7 million provision for credit losses suggests caution.

Capital Strength and Shareholder Returns
OFG’s capital ratios remain fortress-like. The CET1 ratio stands at 14.27%, well above the 8% regulatory minimum, while tangible common equity is 10.30%. Total stockholders’ equity grew to $1.30 billion, a 9.3% increase from year-end . The company also raised its quarterly dividend by 20% to $0.30 per share and repurchased $23.4 million of its stock in Q1, leaving $6.3 million remaining in its buyback authorization.

Investors responded positively, pushing shares up 1.1% premarket to $36.75. The stock has risen 2.6% over the past two days, though it’s still 24% below its 2023 high.

Puerto Rico’s Economic Crossroads
OFG’s fortunes remain tied to Puerto Rico’s economy, which management described as “resilient” despite global headwinds. The island’s unemployment rate hit a record low of 4.6% in March, and public-private investments in infrastructure and tourism are fueling optimism. However, the bank is not immune to broader risks: rising deposit costs, geopolitical volatility, and lingering credit risks in sectors like construction and retail.

The long-term trajectory is compelling: since 2011, OFG has grown assets from $4 billion to $11.7 billion, loans from $1.7 billion to $7.7 billion, and deposits from $7.5 billion to $9.6 billion. Its wealth management division now oversees $4.6 billion in assets, and its mortgage servicing portfolio is $5.6 billion—a testament to its dominance in Puerto Rico’s banking landscape.

The Bottom Line: A Strong Bank, But Watch the Margins and Loans
OFG’s Q1 results underscore its resilience as a “challenger bank” in Puerto Rico. The digital strategy is clearly driving operational efficiency and customer growth, while capital ratios and shareholder returns remain healthy. However, two red flags linger: the margin pressure from deposit costs and the uptick in charge-offs.

Investors should monitor two key metrics: the net interest margin (if it dips further below 5%), and the trajectory of non-performing loans. The bank’s CET1 ratio of 14.27% provides a buffer, but a sustained rise in credit losses could test its profitability.

In the near term, OFG’s dividend hike and buybacks signal confidence, and its stock’s post-earnings pop suggests investors are pricing in a gradual recovery in Puerto Rico. For the long term, OFG’s ability to balance digital innovation with prudent credit management will determine whether it can sustain its 20-year growth streak.

In conclusion, OFG Bancorp remains a key player in Puerto Rico’s economy, leveraging technology to weather macroeconomic turbulence. The Q1 beat and strategic investments in digital infrastructure are positives, but margin pressures and credit risks mean investors should proceed with caution. The bank’s fundamentals are strong enough to navigate these challenges—but the path to sustained growth is neither smooth nor certain.