OFG Q3 Deep Dive: Digital Strategy and Commercial Lending Shape Results Amid Rising Deposit Costs

Puerto Rican financial services company OFG Bancorp (NYSE:OFG) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.5% year on year to $186.2 million. Its non-GAAP profit of $1.16 per share was 0.9% below analysts’ consensus estimates.

Is now the time to buy OFG? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

OFG Bancorp’s third quarter results came in below Wall Street expectations, with management attributing the underperformance mainly to higher deposit costs and a moderation in auto loan originations. CEO José Rafael Fernández noted that while commercial loan growth remained a strategic focus, repayments on lines of credit and planned slowdowns in auto loans weighed on net loan balances. The company’s Digital First initiative drove increased adoption of digital channels, while new product offerings such as the Libre and Elite accounts contributed to deposit growth. However, the negative market reaction reflected investor concerns around rising funding costs and the impact of selective charge-offs in the commercial loan portfolio.

Looking ahead, management is focusing on expanding its commercial loan pipeline and leveraging digital innovations to deepen customer relationships. Fernández emphasized ongoing investments in artificial intelligence to enhance both customer experience and operational efficiency, stating these efforts are unique within Puerto Rico’s banking sector. The outlook for the Puerto Rican economy, bolstered by new onshoring investments in manufacturing, supports OFG Bancorp’s growth strategy, though leadership remains watchful of global macroeconomic and geopolitical uncertainties that could impact credit trends and funding dynamics.

Key Insights from Management’s Remarks

Management identified digital adoption, targeted product strategies, and shifts in loan mix as central to recent performance, while also addressing rising costs and credit quality.

• Digital First strategy momentum: OFG Bancorp reported that nearly all routine retail transactions were processed through digital or self-service channels, reflecting an 8% year-over-year rise in digital enrollment. This adoption is helping attract new customers and improve operational efficiency.
• Targeted deposit products: The Libre and Elite accounts, designed for mass market and affluent clients, respectively, saw strong uptake. The Libre account recorded a 17% increase in new customers, with 27% of these accounts opened digitally, while Elite accounts gained traction by offering higher rates to attract wealthier clients, raising overall deposit costs.
• Loan mix and commercial focus: Commercial lending continued to grow as a strategic pillar, offsetting anticipated declines in auto loan originations. Management noted that repayments on commercial lines of credit affected end-of-quarter balances, but expressed confidence in the commercial loan pipeline moving forward.
• Credit trends and charge-offs: Provision for credit losses rose due to specific reserves for two commercial loans—one in the U.S. and one in Puerto Rico. While charge-offs increased sequentially, management described these as idiosyncratic rather than systemic, with overall credit quality remaining stable.
• AI-driven customer insights: OFG Bancorp is leveraging artificial intelligence to provide tailored financial insights and budgeting tools to customers. These efforts have received positive feedback and are seen as a differentiator in the competitive landscape, with management also piloting AI to drive efficiency gains in banking operations.

Drivers of Future Performance

OFG Bancorp’s outlook is shaped by commercial loan growth, digital innovation, and broader economic trends in Puerto Rico.

• Commercial lending pipeline: Management is prioritizing expansion in commercial loans, citing a robust pipeline both in Puerto Rico and on the U.S. mainland. Success in this area is expected to drive core revenue and offset slower growth in consumer lending.
• Deposit cost management: With deposit costs rising due to targeted products for affluent clients, the company aims to deepen customer relationships through bundled offerings and digital engagement. Management is monitoring funding mix and interest rate changes as key variables impacting net interest margin.
• Efficiency and technology investment: Continued investment in digital and AI-driven tools is expected to boost operational efficiency and customer satisfaction. Management believes these enhancements will support long-term profitability, though near-term expenses may remain elevated as new capabilities are rolled out.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory analyst team will focus on (1) commercial loan origination trends and the sustainability of the pipeline, (2) the impact of deposit cost management and customer acquisition strategies on net interest margin, and (3) progress in deploying AI-driven efficiencies and digital capabilities. The evolving economic environment in Puerto Rico and the flow of new manufacturing investments will also be key indicators to watch.

OFG Bancorp currently trades at $39.60, down from $42.17 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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