OFG Bancorp (OFG) Q3 2026 earnings review
OFG Bancorp lends more, but earns less on every dollar
OFG Bancorp lent more to Puerto Rico businesses but earned less on each dollar, so revenue barely grew. Loans rose 4% from a year ago on island commercial borrowers, while the gap between what the bank earns on loans and pays for deposits narrowed. Chief executive José Rafael Fernández called it another strong quarter; profit per share rose 15% because loan-loss charges fell and the share count shrank.
| Core revenue | $185.7M +1.0% from a year ago |
|---|---|
| Profit per share | $1.33 +15% from a year ago |
| Net interest margin | 5.23% 5.45% last quarter; the company's second-half range was 5.25–5.35% |
| Full-year tax rate outlook | 22.53% 22.64% three months ago |
⚖️ Verdict: 🔴 Bearish
The story got worse because the lending margin fell below the range the company set in July, so this year's two raises now look like the high point. The good news: loan growth picked up again and loan losses hit a five-quarter low, which supports profit while revenue stands still.
The question now is whether the margin has found its level or keeps sliding as government money moves into certificates of deposit. If it holds near 5.2% while loans grow, interest income rises again; if deposit costs keep climbing, new loans only replace what the margin loses. The fourth-quarter margin will tell.
🐂 Bull Case
Puerto Rico Businesses Now Drive OFG's Loan Growth
OFG Bancorp lends to car buyers, homeowners and businesses in Puerto Rico, plus a book of US commercial loans. Three months ago loan growth had slowed to about 1% from a year ago, because auto and mortgage balances were shrinking.
This quarter Puerto Rico businesses borrowed again. Commercial loans on the island rose $179 million in three months, and total loans grew 1.8% from June. Chief executive José Rafael Fernández said the results reflect "continued momentum in commercial loan growth", and the outlook slide points to "continued opportunities for disciplined loan growth".
- Commercial loans in Puerto Rico: $2.93 billion, up 15% from a year ago
- Auto loans: $2.60 billion, down 2% from a year ago
- Total loans: $8.45 billion, up 4% from a year ago
- Island commercial loan production: $258 million, down from a record $333 million in June
The shift matters because commercial loans are now 45% of the book, so they set the pace for the whole balance sheet. But the comparison is easy, because loans had dipped a year ago after summer repayments, and new island commercial lending fell 23% from the second quarter.
What to watch: fourth-quarter commercial loan growth in Puerto Rico. A second increase above $100 million would mean the pipeline, not a single large draw, is behind this quarter's jump.
Loan Losses Fell to a Five-Quarter Low
A loan-loss charge is the money a bank sets aside each quarter for loans it expects not to collect. Last year OFG Bancorp booked large charges for a Puerto Rico telecom borrower and for US commercial loans, and in June it sold the telecom loan at a loss it had already reserved.
- Loan-loss charge: $18.1 million, against $28.3 million a year ago
- Net charge-offs: 0.70% of loans, the lowest in five quarters
- Nonperforming loans: 0.74% of loans, down from 1.22% a year ago
- Commercial nonperforming loans: $25.7 million, down from $61.2 million
- US commercial loans: a net recovery, after net losses in each of the previous five quarters
The charge is the swing factor in profit because revenue is hardly growing. The bank said $17.5 million of this quarter's charge covered loan growth, so a bigger book carries a bigger charge even with losses this low.
What to watch: the fourth-quarter net charge-off rate. The bank said delinquency rises in the second half, so a rate back above 1% would mean this quarter was the low point rather than a new level.
Digital Accounts Keep Adding Customers and Fee Income
OFG sells deposit accounts aimed at three groups: Libre for the mass market, Elite for wealthier households and My Biz for small businesses, under what it calls a "digital bank with a human touch". Chief executive José Rafael Fernández said these accounts "are attracting new clients and helping our bankers deepen existing relationships".
- Customers: up 4.7% from a year ago
- Active digital users: up 24.2%
- Libre accounts: up 7.1% this year, with digital openings up 17.6%
- Banking service revenues: $17.7 million, up 11% from a year ago
Fee income matters because interest income is not growing: banking service fees have risen for four straight quarters while net interest income fell 0.8% from a year ago. But new customers have not stopped deposits from leaking, because balances outside public funds slipped $48 million in the quarter, all of it from commercial clients.
What to watch: banking service revenues and customer growth next quarter. Fee growth near 10% with deposits still flat would mean the digital push wins customers but not their main balances.
Buybacks Resumed With Regulatory Capital at a High
OFG Bancorp pays a $0.35 quarterly dividend and buys back shares. It bought none in the second quarter after $44.5 million in the first, and resumed with $13.5 million this quarter, which chief executive José Rafael Fernández said reinforces "our commitment to creating long-term shareholder value".
- Common equity tier 1 ratio, the main regulatory capital measure: 14.10%, the highest in six quarters
- Diluted share count: 42.4 million, down 5% from a year ago
The buyback matters because it turns 9% profit growth into 15% growth per share. One caution concerns book value. Tangible book value per share fell to $29.66 from $31.12 in three months. The company attributed the drop to the change in accumulated other comprehensive loss, the line that holds unrealized losses on bonds it has not sold. Those losses more than tripled, to $139 million. Regulatory capital ignores that mark, so buyback capacity is intact, but the tangible equity ratio dropped to 10.34% from 10.90%.
What to watch: fourth-quarter buybacks. A repurchase above this quarter's $13.5 million would mean the bank is spending its capital cushion rather than waiting for book value to recover.
🐻 Bear Case
Lending Margin Fell Below the Range OFG Set
Net interest margin is the gap between what a bank earns on loans and bonds and what it pays for deposits and borrowings, as a share of its earning assets. In July the company set a range of 5.25% to 5.35% for the second half, after raising its full-year range twice as rate cuts failed to arrive and a large government deposit stayed.
The third quarter came in at 5.23%, below the bottom of that range and down from 5.45% in the second quarter. The June quarter included $4.1 million of interest from three commercial loans whose borrowers repaid early; by our math the margin without them was about 5.31%, so the underlying drop is about 0.08 points.
- Loan yield: 7.68%, down 0.22 points from the second quarter
- Cost of core deposits: 1.34%, up from 1.29%
- Average certificates of deposit: up $447 million in the quarter, paying 3.21%
- Public-fund deposits: about $1.27 billion, down $32 million in the quarter, by our math
Both sides moved. On the asset side, the yield on loans OFG acquired in a past purchase fell to 6.51% from 7.93%. On the funding side, the release cites "higher average balances of deposits at a higher cost": government money that sat in checking accounts has moved into certificates, which is the repricing risk the deposit relocation always carried.
What to watch: the fourth-quarter margin against the 5.25% floor. A second reading below it would mean the twice-raised outlook has become a cut rather than a pause.
Auto Loan Delinquency Rose From a Year Ago
Chief executive José Rafael Fernández said the quarter showed "stable credit quality", and the release says delinquency rates "declined year over year compared to 3Q25". That holds for the total. Auto loans, 31% of the book, tell a different story: more car borrowers are behind on payments than a year ago, even though the auto book is shrinking.
- Auto loans 30 to 89 days late: 6.73%, up from 6.43% a year ago
- Auto loans 30 days or more late: 7.38%, up from 7.03%
- Auto reserve: 3.59% of auto loans, up from 3.39%
- Auto net charge-offs: 1.34%, down from 1.45%
The bank booked $1.3 million of extra reserves for a "seasonal adjustment for auto delinquency", so it reads the rise as the usual second-half pattern. Charge-offs have not followed yet, because recoveries on repossessed cars covered $7.4 million of the $16.1 million written off. But the headline decline came from commercial and mortgage loans, which hides the consumer trend.
What to watch: the auto early-delinquency rate at year-end against 6.75% last December. A reading above it would mean the second-half rise is more than seasonal and the auto reserve keeps growing.
Revenue Grew 1% and Operating Profit Stood Still
Chief executive José Rafael Fernández opened with the headline: "We delivered another strong quarter, with year-over-year increases of 14.7% in EPS and 1.0% in core revenues." The second number describes the business. Core revenue, interest income plus fees, rose 1.0% from a year ago while net interest income fell 0.8%. Pre-provision profit, revenue minus operating costs, came in at $89.9 million, flat from a year ago for the second quarter running.
Profit per share still rose because of two levers below the revenue line. The loan-loss charge fell 36% from a year ago, which lifted pre-tax profit 17%. Buybacks then shrank the diluted share count by 5%, so each share got a larger slice.
Costs are the third lever, and they are now the plan's weak point. In July the company set a full-year range for non-interest expense of $380 million to $385 million. Nine months of spending are already on the books. By our math that leaves $86 million to $91 million for the fourth quarter, below any quarter in the past two years.
- Non-interest expense: $96.3 million, down $6.6 million from the second quarter
- Administrative costs: 22.0% of core revenue, down 3.1 points from June
- Staff: 2,156 full-time employees, down 61 from a year ago
- Lowest quarterly expense in the past two years: $94.7 million, in the first quarter
What to watch: fourth-quarter non-interest expense. Anything above $91 million means the bank missed the range it held for three quarters, and revenue growing 1% leaves no cover for a cost overrun.
Risks This Quarter Didn't Answer
Three standing concerns got no new reading in the release or the presentation. They live in the quarterly filing and in the call commentary, neither of which sits among the published results materials, so each one stays open until those arrive.
- Government certificates of deposit: the $400 million moved into three- and six-month certificates was due to start maturing around the end of the quarter; the filing's public-fund table will show how much rolled over and at what rate.
- The second quarter's $5.8 million operational charge: Fernández said in July it came from operational errors, but the cause, any customer impact and the control changes remain undisclosed.
- Rate sensitivity: about 60% of commercial loans carry variable rates, management said last quarter, so any Federal Reserve cut would show in the loan yield before it shows in deposit costs.
👓 Other Themes
Puerto Rico's Economy Still Reads as Stable
Chief executive José Rafael Fernández said: "Puerto Rico’s economy remains stable, supported by a healthy labor market and ongoing expansion by local and mainland businesses." The quarter's early delinquency rate of 2.65% sits below last year's 2.84%, so the loan book agrees so far. The presentation adds infrastructure projects and manufacturing on-shoring on the plus side, and lists "higher energy costs, interest rates and inflation" as the conditions the bank watches.
💲 Other KPIs
Falling for a third quarter: down 0.8% from June and 1.6% from a year ago. Customer deposits are all deposits except brokered ones. Demand and savings balances fell while certificates of deposit grew, so the mix moved toward the most expensive deposit type the bank has.
Up $131 million from June and 24% from a year ago, the highest level in the series. OFG said the increase was "for liquidity management purposes", after cash fell $179 million on bond purchases and loan growth. This wholesale funding costs about 4%, three times the core deposit rate, so the mix adds to interest expense.
Down 8% from the second quarter's $755 million but up 11% from a year ago. Puerto Rico commercial, auto and mortgage lending all slipped from June, while US commercial and consumer lending rose. Production counts only new loans, not renewals, so it shows demand before it reaches the balance sheet.
🔮 Guidance
Lowered. OFG now expects a 22.53% tax rate for 2026, down from 22.64% three months ago and above the 22.34% it gave in April. The three quarters reported so far each ran near 21%; by our math the nine-month rate is 21.3%. The rate matters because last year's fourth quarter carried a large one-off tax benefit, so fourth-quarter profit faces a hard comparison.
❓ Key Questions
Does the 5.25–5.35% second-half margin range still stand?
The third quarter came in at 5.23%, below the floor set in July. Investors need to know whether the fourth quarter recovers or whether the range has quietly become a ceiling, and what deposit mix the bank now assumes.
What caused the second quarter's $5.8 million operational charge?
Fernández said in July the charge came from operational errors that had been fixed. The release still gives no cause, no customer impact and no control change, so the risk of a repeat cannot be judged.
When do the government certificates mature, and at what rate?
About $400 million of public money moved into three- and six-month certificates paying about 3%. The rollover date and rate decide whether deposit costs keep rising into 2027.
Can fourth-quarter expenses really fall below $91 million?
By our math the full-year range of $380–385 million leaves $86–91 million for the fourth quarter, below any quarter in two years, while headcount is down only 61 from a year ago. Which costs come out?
How much of the auto delinquency rise is seasonal?
Auto loans 30 to 89 days late reached 6.73%, above last year's 6.43%. The bank calls the rise seasonal, but a year-over-year increase needs a vintage or underwriting explanation.