OFG Bancorp (NYSE:OFG) reported what executives described as a strong second quarter, with earnings per share up 21% from a year earlier and core revenue rising 4%, supported by loan growth, core deposit expansion, stable credit quality and balance sheet management.
Chairman and Chief Executive Officer José Rafael Fernández said the company delivered “another all-around outstanding quarter with good momentum in all areas.” He pointed to Puerto Rico’s resilient economy, citing healthy consumer and business liquidity, wage growth and historically low unemployment as supportive factors.
Second-quarter earnings and profitability improved
Chief Financial Officer Maritza Arizmendi said EPS rose to $1.39 in the quarter. OFG’s efficiency ratio was 54%, return on average assets increased to 1.93%, and return on average tangible common equity rose to nearly 18%. The loans-to-deposits ratio was 85%, while the payout ratio was 25%, reflecting higher income compared with the first quarter.
Core revenues increased $4.5 million from the prior quarter to $190 million. Total interest income rose $3 million to $197 million, driven by higher average loan balances at higher average rates, partly offset by slightly lower income from cash and securities. Arizmendi said the quarter included $4.1 million from three paid-in-full commercial loans, compared with $3.3 million from a similar loan repayment in the first quarter.
Total interest expense declined $0.5 million to $40 million, as lower average balances of brokered certificates of deposit and borrowings offset the cost of higher average core deposit balances. Banking and financial service revenues increased $1 million to $33 million, reflecting higher banking service and wealth management revenue, including $1 million in annual insurance and annuity fees.
Non-interest expense increased $8.1 million to $103 million, including $5.8 million in operational charges. In response to an analyst question, Fernández said those charges were related to operational errors, that the issue had been corrected, and that the charge was non-recurring.
Loan and deposit growth remained steady
Average loan balances grew $78 million to $8.2 billion, while end-of-period loan balances increased $62 million, or 0.8%, due to growth in Puerto Rico commercial and consumer loans. New loan production totaled $750 million, up $146 million, or nearly 24%, from the prior quarter, reflecting increases in Puerto Rico commercial, residential mortgage and consumer lending.
Average core deposit balances rose $145 million to $9.7 billion, and end-of-period balances increased $85 million, or 0.9%, supported by government, commercial and retail deposit growth. Arizmendi said $400 million of large government deposits were moved into three- and six-month time deposits, with about $175 million remaining in demand deposits.
OFG raised its outlook for net interest margin. Arizmendi said the company now expects NIM to range from 5.25% to 5.35% in the second half of 2026, compared with prior expectations of 5.10% to 5.20% for the year. She said the updated outlook reflects deposit growth and the relocation of the large government deposits, as well as the company’s expectation that there will be no rate cuts this year and one Federal Reserve rate cut next year.
Loan yield increased three basis points to 7.90%. Excluding the commercial loan repayments in both quarters, loan yield was 7.70%, compared with 7.71% in the first quarter. Core deposit cost was flat at 1.29%, while deposit cost excluding public funds was 98 basis points, down from 1.00%.
Digital strategy drives customer engagement
Fernández said OFG’s digital strategy is centered on three areas: customer-focused products, technology and “intelligent banking.” He cited Libre accounts for mass-market customers, Elite accounts for mass-affluent customers and My Biz accounts for small businesses as examples of targeted products.
OFG reported year-over-year growth of 4% in net new retail and commercial customers, 11% in active digital users, 6% in digital loan payments and 3% in virtual teller use. Fernández said 28% of Libre accounts were opened digitally year to date through June, adding that OFG is the only bank in Puerto Rico with those full digital capabilities.
The company also said it delivered more than 1.1 million personalized Smart Banking insights monthly, with more than 90% positive feedback from customers. More than 68,000 customers accessed OFG’s live remote tellers during times when other banks in Puerto Rico were closed, Fernández said.
Credit metrics improve after commercial loan sales
Chief Risk Officer César Ortiz said credit reflected “disciplined execution, proactive risk management, and continued improvement in overall portfolio quality.” Net charge-offs increased $7.4 million and were 1.0% of average loans. However, non-performing loans fell $53.6 million to 0.81% of average loans, reflecting the sale of a standalone telecom exposure previously discussed by the company and another non-performing commercial relationship.
Ortiz said those actions reduced concentration and tail risk and improved the commercial portfolio’s overall risk profile. Retail net charge-off rates improved in auto and consumer loans and remained stable in mortgages. Auto net charge-offs decreased to 1.11%, down 41 basis points, while consumer improved to 3.78%, down 62 basis points.
Provision for credit losses fell $9.5 million to $13 million. Early and total delinquency rates were 2.5% and 3.7%, respectively, which Ortiz said reflected typical seasonality and continued normalization across consumer portfolios. He said credit should remain stable in the second half, in line with seasonal patterns.
Executives maintain growth and expense outlook
Arizmendi said OFG continues to expect low single-digit loan growth for the year, with commercial growth more than offsetting an unanticipated decline in auto loans. The company also continues to anticipate deposit growth excluding the large government deposits, supported by Libre, Elite and My Biz accounts, as well as commercial and government clients.
OFG remained on track to keep expenses in a range of $380 million to $385 million for the year, and its estimated tax rate remained 22.6% excluding discrete items. Capital levels continued to build, with the common equity Tier 1 ratio increasing to 14.07%, tangible common equity ratio rising to 10.90%, and tangible book value expanding to $31.12 per share.
On share repurchases, Arizmendi said the company was not active in the second quarter after buying back a large number of shares in the first quarter. Fernández said the strategy had not changed, noting that OFG has $194 million remaining under its authorization and will remain “selective and opportunistic” in balancing shareholder returns and disciplined growth.
Fernández said Puerto Rico’s economy remains resilient, supported by federal reconstruction funding, infrastructure projects, private investment, manufacturing expansion and onshoring initiatives. He said OFG is monitoring macroeconomic conditions, particularly the interest rate outlook and geopolitical developments, but added that the company is positioned to pursue growth opportunities through its digital strategy, balance sheet discipline and risk management.
About OFG Bancorp (NYSE:OFG)
OFG Bancorp, through its principal subsidiary Oriental Bank, is a financial holding company headquartered in San Juan, Puerto Rico. The company provides a wide range of banking services, including commercial and consumer deposit accounts, small business loans, corporate lending, treasury management, and cash management solutions. Its consumer offerings encompass personal checking and savings accounts, credit cards, and electronic banking platforms designed to serve retail customers across its markets.
In addition to traditional banking products, OFG Bancorp offers mortgage origination and servicing, as well as wealth management and trust services for high‐net‐worth individuals and institutional clients.
