OFG Bancorp (OFG)

Puerto Rican financial services company OFG Bancorp (NYSE:OFG) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 5.3% year on year to $184 million. Its GAAP profit of $1.16 per share was 0.9% below analysts’ consensus estimates.

Company Overview

Originally founded in 1964 as a federal savings and loan institution, OFG Bancorp (NYSE:OFG) provides banking and financial services including commercial and consumer lending, wealth management, insurance, and trust services primarily in Puerto Rico and the U.S. Virgin Islands.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

OFG Bancorp's main competitors in Puerto Rico include Popular, Inc. (NASDAQ:BPOP), First BanCorp (NYSE:FBP), and Citibank. In its U.S. mainland commercial lending activities, it competes with regional and national banks that serve middle-market businesses.

Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities. Luckily, OFG Bancorp’s revenue grew at a decent 6.4% compounded annual growth rate over the last five years. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. OFG Bancorp’s recent performance shows its demand has slowed as its annualized revenue growth of 3.8% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, OFG Bancorp’s revenue grew by 5.3% year on year to $184 million, missing Wall Street’s estimates.

Net interest income made up 79.8% of the company’s total revenue during the last five years, meaning lending operations are OFG Bancorp’s largest source of revenue.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last five years, OFG Bancorp’s efficiency ratio has swelled by 14 percentage points, going from 60.5% to 52.3%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

In Q3, OFG Bancorp’s efficiency ratio was 52.5%, falling short of analysts’ expectations by 100.5 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

For the next 12 months, Wall Street expects OFG Bancorp to maintain its trailing one-year ratio with a projection of 52.8%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

OFG Bancorp’s EPS grew at an astounding 38.7% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For OFG Bancorp, its two-year annual EPS growth of 7.5% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, OFG Bancorp reported EPS of $1.16, up from $1 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects OFG Bancorp’s full-year EPS of $4.40 to grow 4.1%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

OFG Bancorp’s TBVPS grew at an incredible 12.1% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 17.3% annually over the last two years from $21.01 to $28.92 per share.

Over the next 12 months, Consensus estimates call for OFG Bancorp’s TBVPS to grow by 8.8% to $31.47, decent growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, OFG Bancorp has averaged a Tier 1 capital ratio of 14.2%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, OFG Bancorp has averaged an ROE of 15.2%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows OFG Bancorp has a strong competitive moat.

It was encouraging to see OFG Bancorp beat analysts’ tangible book value per share expectations this quarter. On the other hand, its revenue missed and its EPS fell a bit short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.6% to $40.22 immediately after reporting.

Updated: December 4, 2025 at 11:31 PM EST

Before making an investment decision, investors should account for OFG Bancorp’s business fundamentals and valuation in addition to what happened in the latest quarter.

OFG Bancorp has some positive attributes, but it isn’t one of our picks. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its admirable net interest margin a wonderful starting point for the overall profitability of the business. Be wary, however, as OFG Bancorp’s declining net interest margin shows its loan book is becoming less profitable.

OFG Bancorp’s P/B ratio based on the next 12 months is 1.3x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $48.25 on the company (compared to the current share price of $40.58).