OFG Q1 Deep Dive: Digital Banking Drives Customer Growth Amid Stable Credit Trends

Puerto Rican financial services company OFG Bancorp (NYSE:OFG) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 1.4% year on year to $182.4 million. Its GAAP profit of $1.15 per share was 9.5% above analysts’ consensus estimates.

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StockStory’s Take

OFG Bancorp’s first quarter results were met positively by the market, reflecting management’s consistent focus on digital transformation and core banking growth in Puerto Rico. CEO Jose Rafael Fernandez credited strong operating execution and an expanding customer base as central to the company’s solid start to the year. Digital engagement saw notable increases, with Fernandez highlighting that “96% of all retail customer transactions” now occur through digital channels. Management also pointed to continued loan and deposit growth, as well as stable credit quality, as key drivers behind the quarter’s performance.

Looking ahead, OFG Bancorp expects its Digital First strategy and investment in new banking tools to further differentiate its business and maintain efficiency. Management highlighted ongoing innovations in digital banking, including the recent launch of proprietary mobile applications and Apple Pay, which they believe will strengthen customer relationships and drive future deposit growth. CFO Maritza Arizmendi noted that margin performance will depend on funding mix and government deposit renewals, stating, “We will keep looking at the funding side and manage the asset liability as we’ve been more attributes.” The company also remains attentive to potential economic headwinds and evolving credit trends.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to robust digital adoption, seasonal factors influencing loan and deposit activity, and a continued focus on operational efficiency.

• Digital adoption accelerates: The company reported a 12% year-over-year rise in digital banking enrollment, with over 96% of transactions now completed through digital or self-service channels. This shift has increased efficiency and customer engagement, supporting the company’s Digital First strategy.
• New technology rollouts: OFG Bancorp launched three digital tools this quarter: an omni-channel mobile app, Smart Banking Insights for financial advice, and Apple Pay for debit and credit cards. These are firsts in Puerto Rico’s banking sector and are designed to enhance the customer experience and drive further digital channel usage.
• Loan and deposit growth: Average loan balances increased, driven by gains in auto, consumer, and both U.S. and Puerto Rico commercial lending. Deposit balances also rose, with management noting a 5% year-over-year increase in net customer growth and successful retention of government deposits.
• Stable credit quality: Credit metrics remained steady, with net charge-off rates unchanged year-over-year and improvements in delinquency rates. Chief Risk Officer Cesar Ortiz highlighted positive trends in auto loan recoveries and tighter credit standards implemented in recent vintages.
• Expense management: Non-interest expenses were in line with expectations, aided by efficiency initiatives and volume incentive payments, despite seasonal increases in compensation and electronic banking costs. Management emphasized that maintaining efficiency ratios will be an ongoing focus.

Drivers of Future Performance

OFG Bancorp’s outlook centers on digital innovation, funding mix, and external economic factors impacting credit and customer growth.

• Sustained digital transformation: Management plans to build on its Digital First strategy by introducing more innovations aimed at enhancing the banking experience and streamlining operations. They expect ongoing digital adoption to help deepen customer relationships and support deposit and loan growth.
• Funding and margin dynamics: The renewal of government deposits and the overall funding mix will play a significant role in net interest margin trends. CFO Maritza Arizmendi indicated that replacing government funds with wholesale funding could modestly increase funding costs, impacting margins if not offset by higher-yielding assets.
• Economic environment and credit trends: The company remains vigilant regarding macroeconomic and geopolitical volatility. Management expects credit quality to remain stable, but acknowledges that normalization of consumer charge-offs and external shocks could affect lending and asset quality.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will be monitoring (1) the pace of digital channel adoption and its impact on customer acquisition, (2) trends in deposit retention and the renewal of large government deposit accounts, and (3) the evolution of credit quality, particularly in auto and consumer portfolios. Continued innovation in digital services and adaptation to external economic conditions will also be key factors to watch.

OFG Bancorp currently trades at $47.74, up from $43.92 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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