OFG BANCORP (OFG) stock intrinsic value fair value estimate & owner earnings analysis

OFG Bancorp owns Oriental Bank, the third-largest bank in Puerto Rico, with smaller operations in the U.S. Virgin Islands and a U.S.-mainland commercial loan book. It takes deposits on the island and lends them out as auto, consumer, mortgage and commercial loans. Its December 2019 purchase of Scotiabank's Puerto Rico and USVI businesses added about 40% to its size, so we measure the business from 2022 onward, the years that reflect today's scale and rate environment. How we measure earnings. We start from operating cash flow, remove short-term timing swings, stock compensation and the capital spending needed to maintain branches and systems, and, because this is a lender, charge the loans actually written off each year (net charge-offs of $27.7M in 2022, $51.8M in 2023, $67.8M in 2024 and $80.2M in 2025) as a real cost. Only reserves set aside beyond actual write-offs are treated as non-cash. On that basis owner earnings were $4.10, $5.33, $5.02 and $1.89 per share for 2022-2025. Those figures are distorted by tax timing, and we corrected for it. From 2021 to 2024 OFG paid far less current tax than its income statement showed while it used up tax benefits; in 2025 the pattern reversed, with $182.7M of current tax on $234.1M of pre-tax income, offset in reported profit by a $153.7M deferred-tax benefit. The 10-K ties part of this to the expiration of a tax agreement from the 2019 Scotiabank acquisition and to a valuation-allowance release. Across 2022-2025 the deferred items net to almost zero and the total tax charge averaged about 25% of pre-tax income. Restating each year at 25% gives owner earnings of $154M, $203M, $206M and $209M: a steady business, not one that halved in 2025. The median, $204.6M, is our starting level. That window spans the unusually low credit losses of 2022 and the more normal losses of 2025. On the first-half 2026 diluted share count of 42.6M it is $4.80 per share; the per-share figure is higher than in our previous analysis because OFG has kept repurchasing stock (44.8M diluted shares in 2025). Growth check. On the corrected basis owner earnings grew about 1.3% in 2025. Our base case assumes 0% in year one, below that rate. First-half 2026 pre-tax income rose 14% to $143.3M, but one half-year does not move the level, and deposits slipped from $10.26B at year-end to $9.98B at June 30, 2026. Debt. OFG is a bank. Its deposits and borrowings such as Federal Home Loan Bank advances are the raw material of its lending, and the interest on them is already deducted from the earnings we value. So in each case the value of the business is the value to shareholders, with nothing further subtracted; leverage is charged as credit risk in the bear case. Base case, $79.96 per share: owner earnings stay flat at about $204.6M a year for ten years and beyond. What keeps them going is structural and already exists: Puerto Rico banking is concentrated in three local banks (Popular, FirstBank and OFG) after Scotiabank and Santander left, giving OFG a durable deposit franchise. We credit no growth, because loan growth on the island depends on an economy whose population is shrinking and whose federal disaster-recovery funding is being phased out, as OFG itself warns. Business worth $79.96, nothing further owed, equity $79.96. Bear case, $53.09 per share, built from named risks and the island's own credit history. (1) The preferential Puerto Rico tax treatment of qualified investment income was worth $22.8M in 2025 (and $16.0M in 2024); we assume it is lost, cutting earnings about $15M a year from the start. (2) The phase-out of federal recovery funds weakens the economy and underlying earnings shrink 1.5% a year, then 1% a year after year ten. (3) One full Puerto Rico credit cycle of the kind the island suffered in 2009-2012, when local banks charged off roughly 3-4% of loans a year and several (Westernbank, R-G Premier, Eurobank, later Doral) failed. We add about $375M of after-tax losses over years two to four, on top of today's roughly 1% loss rate: equal to around three extra points of loss a year on the loan book at the peak, larger than the hurricane Maria year of 2017, when OFG's provision reached $113M. Even then, earnings stay positive in every year ($36-39M at the trough), so tangible equity of about $1.32B and a 13.97% common equity tier 1 ratio (against a 4.5% minimum and 6.5% well-capitalized threshold) are not breached and no share issue is needed, though dividends and buybacks would stop. Worth $53.09, nothing further owed, equity $53.09. That is above tangible book value of about $31 per share because, on the evidence of 2009-2012 and 2017, the survivors of a Puerto Rico downturn keep a deposit franchise in a three-bank market that keeps earning; a bank that still earns through the trough is worth more than its liquidation value. Bull case, $94.97 per share: the first-half 2026 earnings rate (about $215M a year on the corrected tax basis) holds, and loan-driven earnings grow 2% a year for five years and 1% a year for the following five, then stay flat. The evidence is OFG's own record: net interest income rose from $561M in 2023 to $608M in 2025, risk-weighted assets grew about 7% in 2025, and capital above a 12% common equity ratio can fund that growth without new shares. Worth $94.97, nothing further owed, equity $94.97. What changed since our previous analysis. The starting earnings level is unchanged at $204.6M; the per-share values are higher mainly because continued buybacks have cut the share count about 5%. The bull case rises further because first-half 2026 results confirmed a higher run rate. The bear case now models a deeper credit cycle sized on Puerto Rico's 2009-2012 experience instead of a smaller addition to losses, which offsets most of the share-count benefit there. Margin-of-safety price, $48. How sure are we of the earnings level? Fairly: four corrected years cluster between $203M and $209M except benign 2022, and first-half 2026 ran higher. The worst plausible event is a direct major hurricane combined with renewed Puerto Rico government fiscal stress, hitting the consumer and auto books, which already lose 4% and 1.5% a year. The bank's structure would survive that: it has no meaningful holding-company debt, capital well above minimums, and funding from a granular local deposit base, though it depends on one island economy and on Puerto Rico tax rules. The things we are most likely to be wrong about are the depth of the next credit cycle, the durability of the island deposit base (deposits fell in 2026's first half), and the loss of tax benefits; if all three went the wrong way the shares would be worth roughly the bear figure in the low $50s. At $48 the business pays about $1.40 a share in dividends (roughly 3%) during the holding period, and its buybacks keep raising per-share earnings. From $48 the bear case implies a modest gain, while the base case, realized over an assumed holding period of about three years and combined with the dividend, implies better than 20% a year. Above $48 the bear case would imply a loss on a single-island lender, so the margin-of-safety price is set at $48. What could not be fully reconciled: the filings do not break out the 2025 Scotiabank tax-agreement benefit separately from the other discrete tax items, so we relied on the net deferred-tax figures and the multi-year average tax rate. Total income taxes paid in 2025 ($81.5M) include $61.7M of purchased transferable tax credits, which is consistent with the higher current tax charge. The 2022 figure sits below an earnings-based cross-check because of non-cash accretion income on acquired loans, which we exclude.