UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2019

or☐

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-12647

OFG Bancorp

Incorporated in the Commonwealth of Puerto Rico, IRS Employer Identification No. 66-0538893

Principal Executive Offices:

254 Muñoz Rivera Avenue

San Juan, Puerto Rico 00918

Telephone Number: (787) 771-6800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No☐☑ No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ xNo ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐

Accelerated Filer ☑

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

~~Large Accelerated Filer~~ ☐ ~~Accelerated Filer~~ ý ~~Non-Accelerated Filer~~ ☐ ~~Smaller Reporting Company~~ ☐ ~~(Do not check if a smaller reporting company)~~

~~Emerging Growth Company~~ ☐

~~If an~~ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ ☐No x☑

Number of shares outstanding of the registrant’s common stock, as of the latest practicable date:

~~43,947,442~~51,329,431 common shares ($1.00 par value per share) outstanding as of ~~October 31, 2017~~April 30, 2019

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION			Page
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition		1
	Unaudited Consolidated Statements of Operations		43
	Unaudited Consolidated Statements of Comprehensive Income		65
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity		76
	Unaudited Consolidated Statements of Cash Flows		87
	Notes to Unaudited Consolidated Financial Statements

		Note 1 – Organization, Consolidation and Basis of Presentation	119
		Note 2 – ~~Significant Events~~Restricted Cash	13 11
		Note 3 – ~~Restricted Cash~~Investment Securities	1312
		Note 4 – ~~Investment Securities~~Loans	1517
		Note 5 – ~~Loans~~Allowance for Loan and Lease Losses	2241
		Note 6 – ~~Allowance for Loan~~Foreclosed Real Estate	47
		Note 7 – Derivatives	48
		Note 8 – Accrued Interest Receivable and ~~Lease Losses~~Other Assets	49
		Note 9 – Deposits and Related Interest	50
		Note 710 – ~~FDIC Indemnification Asset~~Borrowings and ~~True-Up Payment Obligation~~Related Interest	52
		Note 11 – Offsetting of Financial Assets and Liabilities	54
		Note 12 – Income Taxes	56
		Note 13 – Regulatory Capital Requirements	57
		Note 14 – Stockholders’ Equity	59
		Note 15 – Accumulated Other Comprehensive Income	60
		Note 16 – Earnings per Common Share	62
		Note 817 – ~~Foreclosed Real Estate~~Guarantees	6162
		Note 918 – ~~Derivatives~~Commitments and Contingencies	6364
		Note 1019 – ~~Accrued Interest Receivable and Other Assets~~Operating Leases	6665
		Note 1120 – ~~Deposits and Related Interest~~	67
		~~Note 12 – Borrowings and Related Interest~~Fair Value of Financial Instruments	68
		Note 1321 – ~~Offsetting of~~Banking and Financial ~~Assets and Liabilities~~	71
		~~Note 14 – Income Taxes~~	73
		~~Note 15 – Regulatory Capital Requirements~~Service Revenues	74
		Note ~~16 – Stockholders’ Equity~~	76
		~~Note 17 – Accumulated Other Comprehensive Income~~	77
		~~Note 18 – Earnings per Common Share~~	80
		~~Note 19 – Guarantees~~	81
	~~Note 20 – Commitments and Contingencies~~		82
	~~Note 21 – Fair Value of Financial Instruments~~		84
	~~Note~~ 22 – Business Segments		92
	~~Note 23 – Subsequent Events~~		9476

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9578
		Critical Accounting Policies and Estimates	9579
		Overview of Financial ~~Performance:~~Performance	9580
		Selected Financial Data	9780
		Financial Highlights of the ~~Third~~First Quarter of ~~2017~~2019	9982
		Analysis of Results of Operations	~~100~~82
		Analysis of Financial Condition	~~116~~94
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		~~144~~119
Item 4.	Controls and Procedures		~~148~~123
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		~~149~~124
Item 1A.	Risk Factors		~~149~~124
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		~~150~~124
Item 3.	Default upon Senior Securities		~~150~~124
Item 4.	Mine Safety Disclosures		~~150~~124
Item 5.	Other Information		~~150~~124
Item 6.	Exhibits		~~151~~125
~~SIGNATURES~~Signatures			~~152~~126

FORWARD-LOOKING STATEMENTS

The information included in this quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the financial condition, results of operations, plans, objectives, future performance and business of OFG Bancorp (“we,” “our,” “us” or “Oriental”), including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Oriental’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which by their nature are beyond Oriental’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

· the rate of growth in the economy and employment levels, as well as general business and economic conditions;

· changes in interest rates, as well as the magnitude of such changes;

· ~~the~~a credit default by municipalities of the government of Puerto Rico;

· amendments to the fiscal plan approved by the Financial Oversight and Management Board offor Puerto Rico;

· determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations;

· the impact of property, credit and other losses in Puerto Rico as a result of hurricanes, ~~Irma~~earthquakes and ~~Maria;~~other natural disasters;

· the amount of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, which suffered catastrophic damages caused by hurricane Maria;

· the pace and magnitude of Puerto Rico’s economic recovery;

·~~the potential impact of damages from future hurricanes and natural disasters in Puerto Rico;~~

· the fiscal and monetary policies of the federal government and its agencies;

· changes in federal bank regulatory and supervisory policies, including required levels of capital;

· the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico;

· the performance of the stock and bond markets;

· competition in the financial services industry; and

· possible legislative, tax or regulatory changes.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; Oriental’s ability to grow its core businesses; decisions to downsize, sell or close units or otherwise change Oriental’s business mix; and management’s ability to identify and manage these and other risks.

All forward-looking statements included in this quarterly report on Form 10-Q are based upon information available to Oriental as of the date of this report, and other than as required by law, including the requirements of applicable securities laws, Oriental assumes no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

~~ITEM 1.~~ ~~FINANCIAL STATEMENTS~~

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF ~~SEPTEMBER 30, 2017~~MARCH 31, 2019 AND DECEMBER 31, ~~2016~~2018

	September 30,		December 31,			March 31,		December 31,
	2017		2016			2019		2018
	(In thousands)					(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	714,196	$	504,833		$	498,328	$	442,103
Money market investments		6,530		5,606			7,665		4,930
Total cash and cash equivalents		720,726		510,439			505,993		447,033
Restricted cash		3,030		3,030			3,030		3,030
Investments:
Trading securities, at fair value, with amortized cost of $667 (December 31, 2016 - $667)		284		347
Investment securities available-for-sale, at fair value, with amortized cost of $611,936 (December 31, 2016 - $749,867)		613,423		751,484
Investment securities held-to-maturity, at amortized cost, with fair value of $525,830 (December 31, 2016 - $592,763)		530,178		599,884
Trading securities, at fair value, with amortized cost of $647 (December 31, 2018 - $647)							381		360
Investment securities available-for-sale, at fair value, with amortized cost of $1,248,749 (December 31, 2018 - $854,511)							1,239,469		841,857
Investment securities held-to-maturity, at amortized cost, with fair value of $410,353 at December 31, 2018							-		424,740
Federal Home Loan Bank (FHLB) stock, at cost		14,016		10,793			12,800		12,644
Other investments		3		3			3		3
Total investments		1,157,904		1,362,511			1,252,653		1,279,604
Loans:
Loans held-for-sale, at lower of cost or fair value		12,114		12,499			7,682		10,368
Loans held for investment, net of allowance for loan and lease losses of $154,161 (December 31, 2016 - $115,937)		3,952,458		4,135,193
Loans held for investment, net of allowance for loan losses of $162,488 (December 31, 2018 - $164,231)							4,393,719		4,421,226
Total loans		3,964,572		4,147,692			4,401,401		4,431,594
Other assets:
FDIC indemnification asset		-		14,411
Foreclosed real estate		47,275		47,520			30,865		33,768
Accrued interest receivable		22,736		20,227			33,152		34,254
Deferred tax asset, net		126,041		124,200			112,744		113,763
Premises and equipment, net		67,994		70,407			69,017		68,892
Customers' liability on acceptances		16,486		23,765			25,791		16,937
Servicing assets		9,818		9,858			10,623		10,716
Derivative assets		809		1,330			110		347
Goodwill		86,069		86,069			86,069		86,069
Operating lease right-of-use assets							20,860		-
Other assets		64,757		80,365			50,883		57,345
Total assets	$	6,288,217	$	6,501,824		$	6,603,191	$	6,583,352

See notes to unaudited financial statements
See notes to unaudited consolidated financial statements					See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF ~~SEPTEMBER 30, 2017~~MARCH 31, 2019 AND DECEMBER 31, ~~2016~~2018 (CONTINUED)

	September 30,		December 31,			March 31,		December 31,
	2017		2016			2019		2018
	(In thousands)					(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	1,925,721	$	1,939,764		$	2,218,186	$	2,191,802
Savings accounts		1,360,080		1,196,232			1,252,157		1,212,259
Time deposits		1,540,603		1,528,491			1,426,758		1,504,054
Total deposits		4,826,404		4,664,487			4,897,101		4,908,115
Borrowings:
Securities sold under agreements to repurchase		283,080		653,756			431,566		455,508
Advances from FHLB		100,091		105,454			81,111		77,620
Subordinated capital notes		36,083		36,083			36,083		36,083
Other borrowings		-		61			286		1,214
Total borrowings		419,254		795,354			549,046		570,425
Other liabilities:
Derivative liabilities		1,677		2,437			439		333
Acceptances executed and outstanding		16,486		23,765			25,791		16,937
Operating lease liabilities							22,618		-
Accrued expenses and other liabilities		86,766		95,370			87,004		87,665
Total liabilities		5,350,587		5,581,413			5,581,999		5,583,475
Commitments and contingencies (See Note 20)
Commitments and contingencies (See Note 18)
Stockholders’ equity:
Preferred stock; 10,000,000 shares authorized;
1,340,000 shares of Series A, 1,380,000 shares of Series B, and 960,000 shares of Series D issued and outstanding,
December 31, 2016 - 1,340,000 shares; 1,380,000 shares; and 960,000 shares) $25 liquidation value		92,000		92,000
84,000 shares of Series C issued and outstanding (December 31, 2016 - 84,000 shares); $1,000 liquidation value		84,000		84,000
Common stock, $1 par value; 100,000,000 shares authorized; 52,625,869 shares issued: 43,947,442 shares outstanding (December 31, 2016 - 52,625,869;
43,914,844)		52,626		52,626
1,340,000 shares of Series A, 1,380,000 shares of Series B, and 960,000 shares of Series D issued and outstanding
(December 31, 2018 - 1,340,000 shares; 1,380,000 shares; and 960,000 shares) $25 liquidation value							92,000		92,000
Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 51,328,431 shares outstanding (December 31, 2018 - 59,885,234;
51,293,924)							59,885		59,885
Additional paid-in capital		541,302		540,948			619,828		619,381
Legal surplus		79,795		76,293			92,621		90,167
Retained earnings		191,567		177,808			268,101		253,040
Treasury stock, at cost, 8,678,427 shares (December 31, 2016 - 8,711,025 shares)		(104,502)		(104,860)
Accumulated other comprehensive income, net of tax of $223 (December 31, 2016 $983)		842		1,596
Treasury stock, at cost, 8,556,803 shares (December 31, 2018 - 8,591,310 shares)							(103,196)		(103,633)
Accumulated other comprehensive loss, net of tax of $1,562 (December 31, 2018 - $1,677)							(8,047)		(10,963)
Total stockholders’ equity		937,630		920,411			1,021,192		999,877
Total liabilities and stockholders’ equity	$	6,288,217	$	6,501,824		$	6,603,191	$	6,583,352

See notes to unaudited financial statements
See notes to unaudited consolidated financial statements					See notes to unaudited consolidated financial statements

OFG BANCORP

~~UNAUDITED~~UNADUTIED CONSOLIDATED STATEMENTS OF ~~FINANCIAL CONDITION~~OPERATIONS

~~AS OF SEPTEMBER 30, 2017~~FOR THE QUARTERS ENDED MARCH 31, 2019 AND ~~DECEMBER 31, 2016 (CONTINUED)~~2018

	Quarter Ended March 31,
	2019		2018
	(In thousands, except per share data)
Interest income:
Loans	$	84,119	$	74,612
Mortgage-backed securities		7,925		7,051
Investment securities and other		2,666		1,507
Total interest income		94,710		83,170
Interest expense:
Deposits		9,049		7,298
Securities sold under agreements to repurchase		2,785		1,076
Advances from FHLB and other borrowings		563		374
Subordinated capital notes		524		428
Total interest expense		12,921		9,176
Net interest income		81,789		73,994
Provision for loan losses, net		12,249		15,460
Net interest income after provision for loan and lease losses		69,540		58,534
Non-interest income:
Banking service revenue		10,465		10,463
Wealth management revenue		5,882		6,019
Mortgage banking activities		1,206		1,757
Total banking and financial service revenues		17,553		18,239

Other non-interest income		103		275
Total non-interest income, net		17,656		18,514

See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2019 AND ~~NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016~~

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2017

2016

2017

2016

(In thousands, except per share data)
Interest income:

        Loans
$
82,467

$
82,604

$
237,355

$
243,431
        Mortgage-backed securities

6,245

6,997

20,728

23,215
        Investment securities and other

1,643

983

4,390

3,152
                    Total interest income

90,355

90,584

262,473

269,798
Interest expense:

        Deposits

7,601

7,331

22,606

21,822
        Securities sold under agreements to repurchase

1,282

4,272

6,260

14,629
        Advances from FHLB and other borrowings

596

1,237

1,799

5,574
        Subordinated capital notes

398

817

1,149

2,559
                    Total interest expense

9,877

13,657

31,814

44,584
Net interest income

80,478

76,927

230,659

225,214
Provision for loan and lease losses, net

44,042

23,469

88,232

51,703
Net interest income after provision for loan and lease losses

36,436

53,458

142,427

173,511
Non-interest income:

        Banking service revenue

9,923

10,330

31,007

30,667
        Wealth management revenue

6,016

6,526

18,747

19,719
        Mortgage banking activities

1,274

1,421

2,820

3,300
                    Total banking and financial service revenues

17,213

18,277

52,574

53,686

        FDIC shared-loss benefit (expense), net

-

(3,296)

1,403

(10,745)
        Net gain (loss) on:

            Sale of securities

4

-

6,896

12,207
            Derivatives

-

17

103

4
            Early extinguishment of debt

-

-

(80)

(12,000)
            Other non-interest income

695

5,217

976

5,721
                    Total non-interest income, net

17,912

20,215

61,872

48,873

See notes to unaudited financial statements

~~OFG BANCORP~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016~~2018 (CONTINUED)

	Quarter Ended September 30,				Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2017		2016		2019		2018
	(In thousands, except per share data)								(In thousands, except per share data)
Non-interest expense:
Compensation and employee benefits		19,882		19,168		59,546		57,864		20,341		20,608
Occupancy, equipment and infrastructure costs										7,746		7,768
Electronic banking charges										5,065		4,966
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses										3,366		3,645
Professional and service fees		3,113		2,889		9,575		8,685		3,208		2,694
Occupancy and equipment		8,276		7,353		24,012		22,995
Taxes, other than payroll and income taxes										2,154		2,260
Information technology expenses										2,507		2,009
Insurance		1,052		1,242		3,834		7,547		1,146		1,478
Electronic banking charges		5,021		5,077		15,373		15,613
Information technology expenses		2,046		1,862		6,114		5,124
Advertising, business promotion, and strategic initiatives		1,405		1,347		4,205		4,133		1,211		1,347
Loss on sale of foreclosed real estate and other repossessed assets		1,395		2,970		4,508		9,063
Loan servicing and clearing expenses		1,134		2,844		3,592		6,940		1,209		1,161
Taxes, other than payroll and income taxes		2,243		2,385		7,007		7,386
Communication		855		748		2,682		2,434		741		885
Printing, postage, stationary and supplies		586		602		1,889		1,927		578		644
Director and investor relations		221		233		775		812		230		240
Credit related expenses		1,714		3,719		6,557		8,177
Other		1,526		2,487		5,300		4,908		2,650		2,416
Total non-interest expense		50,469		54,926		154,969		163,608		52,152		52,121
Income before income taxes		3,879		18,747		49,330		58,776		35,044		24,927
Income tax expense		560		3,627		13,757		15,146		11,574		8,010
Net income		3,319		15,120		35,573		43,630		23,470		16,917
Less: dividends on preferred stock		(3,465)		(3,465)		(10,396)		(10,396)		(1,628)		(3,465)
(Loss) income available to common shareholders	$	(146)	$	11,655	$	25,177	$	33,234
Income available to common shareholders									$	21,842	$	13,452
Earnings per common share:
Basic	$	-	$	0.27	$	0.57	$	0.76	$	0.43	$	0.31
Diluted	$	-	$	0.26	$	0.56	$	0.76	$	0.42	$	0.30
Average common shares outstanding and equivalents		51,102		51,111		51,095		51,091		51,626		51,121
Cash dividends per share of common stock	$	0.06	$	0.06	$	0.18	$	0.18	$	0.07	$	0.06


See notes to unaudited consolidated financial statements	See notes to unaudited consolidated financial statements								See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED MARCH 31, 2019 AND ~~NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016~~2018


	Quarter Ended September 30,				Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2017		2016		2019		2018
	(In thousands)								(In thousands)

Net income	$	3,319	$	15,120	$	35,573	$	43,630	$	23,470	$	16,917
Other comprehensive income before tax:
Other comprehensive income (loss) before tax:
Unrealized gain (loss) on securities available-for-sale		1,445		(315)		6,766		12,049		3,374		(11,326)
Realized gain on investment securities included in net income		(4)		-		(6,896)		(12,207)
Unrealized gain on cash flow hedges		56		853		136		1,504
Other comprehensive income before taxes		1,497		538		6		1,346
Unrealized (loss) gain on cash flow hedges										(343)		656
Other comprehensive gain (loss) before taxes										3,031		(10,670)
Income tax effect		(348)		(499)		(760)		501		(115)		1,434
Other comprehensive (loss) income after taxes		1,149		39		(754)		1,847
Other comprehensive income (loss) after taxes										2,916		(9,236)
Comprehensive income	$	4,468	$	15,159	$	34,819	$	45,477	$	26,386	$	7,681

See notes to unaudited consolidated financial statements	See notes to unaudited consolidated financial statements								See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE ~~NINE-MONTH PERIODS~~QUARTERS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2019 AND ~~2016~~2018


	Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Preferred stock:
Balance at beginning of period	$	176,000	$	176,000	$	92,000	$	176,000
Balance at end of period		176,000		176,000		92,000		176,000
Common stock:
Balance at beginning of period		52,626		52,626		59,885		52,626
Balance at end of period		52,626		52,626		59,885		52,626
Additional paid-in capital:
Balance at beginning of period		540,948		540,512		619,381		541,600
Stock-based compensation expense		811		1,014		447		291
Stock-based compensation excess tax benefit recognized in income		(99)		-		-		(127)
Lapsed restricted stock units		(358)		(834)		-		(360)
Balance at end of period		541,302		540,692		619,828		541,404
Legal surplus:
Balance at beginning of period		76,293		70,435		90,167		81,454
Transfer from retained earnings		3,502		4,353		2,454		1,684
Balance at end of period		79,795		74,788		92,621		83,138
Retained earnings:
Balance at beginning of period		177,808		148,886		253,040		200,878
Lease standard initial adoption						(736)		-
Net income		35,573		43,630		23,470		16,917
Cash dividends declared on common stock		(7,916)		(7,909)		(3,591)		(2,638)
Cash dividends declared on preferred stock		(10,396)		(10,396)		(1,628)		(3,465)
Transfer to legal surplus		(3,502)		(4,353)		(2,454)		(1,684)
Balance at end of period		191,567		169,858		268,101		210,008
Treasury stock:
Balance at beginning of period		(104,860)		(105,379)		(103,633)		(104,502)
Lapsed restricted stock units		358		505
Lapsed restricted stock units and options						437		360
Balance at end of period		(104,502)		(104,874)		(103,196)		(104,142)
Accumulated other comprehensive income, net of tax:
Accumulated other comprehensive loss, net of tax:
Balance at beginning of period		1,596		13,997		(10,963)		(2,949)
Other comprehensive (loss) income, net of tax		(754)		1,847
Other comprehensive (loss), net of tax:						2,916		(9,236)
Balance at end of period		842		15,844		(8,047)		(12,185)
Total stockholders’ equity	$	937,630	$	924,934	$	1,021,192	$	946,849

See notes to unaudited consolidated financial statements	See notes to unaudited consolidated financial statements				See notes to unaudited consolidated financial statements


	Quarter Ended March 31,
	2019		2018
	(In thousands)
Cash flows from operating activities:
Net income	$	23,470	$	16,917
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan origination fees and fair value premiums on acquired loans		809		1,118
Amortization of investment securities premiums, net of accretion of discounts		1,113		1,614
Amortization of core deposit and customer relationship intangibles		292		330
Net change in operating leases		10		-
Depreciation and amortization of premises and equipment		2,095		2,277
Deferred income tax expense, net		1,344		586
Provision for loan losses, net		12,249		15,460
Stock-based compensation		447		291
Stock-based compensation excess tax benefit recognized in income		-		(127)
(Gain) loss on:
Sale of loans		(167)		(87)
Foreclosed real estate and other repossessed assets		1,137		1,284
Sale of other repossessed assets		39		217
Originations of loans held-for-sale		(18,282)		(23,292)
Proceeds from sale of loans held-for-sale		5,923		5,945
Net (increase) decrease in:
Trading securities		(21)		(102)
Accrued interest receivable		1,102		14,828
Servicing assets		93		(712)
Other assets		6,703		10,448
Net (decrease) in:
Accrued interest on deposits and borrowings		(991)		(359)
Accrued expenses and other liabilities		(16,687)		(11,235)
Net cash provided by operating activities		20,678		35,401

See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE-MONTH PERIODS~~QUARTERS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2019 AND ~~2016~~2018 (CONTINUED)

Nine-Month Period Ended September 30,

2017

2016

(In thousands)
Cash flows from operating activities:

Net income
$
35,573

$
43,630
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred loan origination fees, net of costs

2,526

2,849
Amortization of fair value premiums, net of discounts, on acquired loans

5

39
Amortization of investment securities premiums, net of accretion of discounts

6,108

6,541
Amortization of core deposit and customer relationship intangibles

1,105

1,258
Amortization of fair value premiums on acquired deposits

-

268
FDIC shared-loss (benefit) expense, net

(1,403)

10,745
Depreciation and amortization of premises and equipment

6,654

7,229
Deferred income tax expense, net

(2,619)

15,176
Provision for loan and lease losses, net

88,232

51,703
Stock-based compensation

811

1,014
Stock-based compensation excess tax benefit recognized in income

(99)

-
(Gain) loss on:

   Sale of securities

(6,896)

(12,207)
   Sale of mortgage loans held-for-sale

(792)

(1,294)
   Derivatives

(103)

78
   Early extinguishment of debt

80

12,000
   Foreclosed real estate

4,938

10,580
   Sale of other repossessed assets

146

(1,498)
   Sale of premises and equipment

(539)

12
Originations of loans held-for-sale

(103,194)

(134,189)
Proceeds from sale of mortgage loans held-for-sale

68,758

51,238
Net (increase) decrease in:

   Trading securities

63

(92)
   Accrued interest receivable

(2,509)

2,671
   Servicing assets

40

(938)
   Other assets

14,260

(13,394)
Net increase (decrease) in:

   Accrued interest on deposits and borrowings

(345)

(1,013)
   Accrued expenses and other liabilities

(4,745)

(5,594)
Net cash provided by operating activities

106,055

46,812

See notes to unaudited consolidated financial statements

	Quarter Ended March 31,
	2019		2018
	(In thousands)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale		(207)		(173,162)
FHLB stock		(1,101)		(35,775)
Maturities and redemptions of:
Investment securities available-for-sale		44,758		23,408
Investment securities held-to-maturity		-		19,844
FHLB stock		945		38,271
Proceeds from sales of:
Foreclosed real estate and other repossessed assets, including write-offs		11,948		(619)
Origination and purchase of loans, excluding loans held-for-sale		(258,082)		(286,129)
Principal repayment of loans		254,992		197,622
Additions to premises and equipment		(2,220)		(1,580)
Net cash provided by (used in) investing activities	$	51,033	$	(218,120)

~~OFG BANCORP~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016 (CONTINUED)~~

Nine-Month Period Ended September 30,

2017

2016

(In thousands)
Cash flows from investing activities:

Purchases of:

   Investment securities available-for-sale

(128,969)

(676)
   Investment securities held-to-maturity

-

(81,261)
   FHLB stock

(26,730)

(20,398)
Maturities and redemptions of:

   Investment securities available-for-sale

83,669

112,444
   Investment securities held-to-maturity

65,877

56,058
   FHLB stock

23,507

28,469
Proceeds from sales of:

   Investment securities available-for-sale

256,996

300,483
   Foreclosed real estate and other repossessed assets, including write-offs

31,829

36,983
   Proceeds from sale of loans held-for-sale

-

1,149
   Premises and equipment

569

48
Origination and purchase of loans, excluding loans held-for-sale

(546,616)

(555,658)
Principal repayment of loans, including covered loans

571,098

616,518
(Repayments to) reimbursements from the FDIC on shared-loss agreements, net

(10,125)

824
Additions to premises and equipment

(4,271)

(3,804)
Net change in restricted cash

-

319
Net cash provided by investing activities

316,834

491,498

See notes to unaudited consolidated financial statements

~~OFG BANCORP~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016 – (CONTINUED)~~


	Nine-Month Period Ended September 30,
	2017		2016
	(In thousands)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		180,958		35,449		12,850		40,198
Securities sold under agreements to repurchase		(369,816)		(287,865)		(23,766)		81,000
FHLB advances, federal funds purchased, and other borrowings		(5,436)		(228,157)		2,547		(55,221)
Subordinated capital notes		-		(66,550)
Exercise of stock options and restricted units lapsed, net		-		(329)
Restricted units lapsed						437		-
Dividends paid on preferred stock		(10,396)		(10,396)		(1,229)		(3,465)
Dividends paid on common stock		(7,912)		(7,906)		(3,590)		(2,638)
Net cash used in financing activities	$	(212,602)	$	(565,754)
Net change in cash and cash equivalents		210,287		(27,444)
Cash and cash equivalents at beginning of period		510,439		536,709
Cash and cash equivalents at end of period	$	720,726	$	509,265
Net cash (used in) provided by financing activities					$	(12,751)	$	59,874
Net change in cash, cash equivalents and restricted cash						58,960		(122,845)
Cash, cash equivalents and restricted cash at beginning of period						450,063		488,233
Cash, cash equivalents and restricted cash at end of period					$	509,023	$	365,388
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
Cash and due from banks					$	498,328	$	354,930
Money market investments						7,665		7,428
Restricted cash						3,030		3,030
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period					$	509,023	$	365,388

Interest paid	$	30,777	$	44,316	$	13,513	$	9,103
Income taxes paid	$	23	$	7,389
Operating lease liabilities paid					$	1,519	$	-
Mortgage loans securitized into mortgage-backed securities	$	69,148	$	71,315	$	15,163	$	17,954
Transfer from held-to-maturity securities to available-for-sale securities					$	424,740	$	-
Transfer from loans to foreclosed real estate and other repossessed assets	$	37,852	$	32,535	$	10,995	$	11,179
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio	$	33,647	$	123,137
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio	$	112	$	182	$	49	$	1,247

Financed sales of foreclosed real estate					$	186	$	369
Loans booked under the GNMA buy-back option					$	12,942	$	12,515
Initial recognition of operating lease right-of-use assets					$	21,930	$	-
Initial recognition of operating lease liabilities					$	23,689	$	-
See notes to unaudited consolidated financial statements	See notes to unaudited consolidated financial statements				See notes to unaudited consolidated financial statements

108

OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Nature of Operations

OFG Bancorp (“Oriental”) is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. Oriental operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer, Oriental Financial Services Corp. (“Oriental Financial Services”), an insurance agency, Oriental Insurance LLC. (“Oriental Insurance”) ~~and~~, a retirement plan administrator, Oriental Pension Consultants, Inc. (“OPC”), and two operating subsidiaries of the Bank, OFG USA LLC ("OFG USA") and Oriental International Bank Inc. (“OIB”). Through these subsidiaries and their respective divisions, Oriental provides a wide range of banking and financial services such as commercial, consumer and mortgage lending, auto loans, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.

On April 30, 2010, the Bank acquired certain assets and assumed certain deposits and other liabilities of Eurobank, a Puerto Rico commercial bank, in an FDIC-assisted acquisition. On February 6, 2017, the Bank and the FDIC agreed to terminate the shared-loss agreements related to the Eurobank Acquisition. On December 18, 2012, Oriental acquired a group of Puerto Rico-based entities that included Banco Bilbao Vizcaya Argentaria Puerto Rico (“BBVAPR”), a Puerto Rico commercial bank, as well as a securities broker-dealer and an insurance agency, which is referred to herein as the “BBVAPR Acquisition.” ~~The~~These acquired businesses ~~acquired in these acquisitions~~ have been integrated with Oriental’s existing business.

~~Recent~~New Accounting ~~Developments~~Updates Adopted in 2019

~~Scope of Modification Accounting.~~Leases. In ~~May 2017,~~February 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2017-09 that clarifies when changes~~2016-02 (Topic 842), the FASB issued ASU No. 2016-02, under the new guidance, lessees are required to recognize the ~~terms or conditions~~following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a ~~share-based payment award must be accounted~~lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as ~~modifications. Entities~~it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will ~~apply~~classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures are required by lessees and lessors to meet the ~~modification accounting guidance if~~objective of enabling users of financial statements to assess the ~~value, vesting conditions~~amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. All entities are required to use a modified retrospective approach for leases that exist or ~~classification~~are entered into after the beginning of the ~~award changes.~~earliest comparative period in the financial statements. As Oriental elected the transition option provided in ASU No. ~~2017-08 is effective~~2018-11 (see below), the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2017). Oriental also elected certain relief options offered in ASU 2016-02 including the package of practical expedients and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). Oriental also elected the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets. Oriental has several lease agreements, mainly branch locations, which are considered operating leases, and therefore, were not previously recognized on Oriental’s consolidated statements of financial condition. The new guidance requires these lease agreements to be recognized on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. The new guidance did not have a material impact on the consolidated statements of operations or the consolidated statements of cash flows. See Note 19 Leases for fiscal years, and interim periods, beginning after December 15, 2018, with early adoption permitted. Oriental's Omnibus Plan provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and dividend equivalents, as well as equity-based performance awards. If any change occurs in the future to the Omnibus Plan, Oriental will evaluate it under this guideline.more information.

~~Premium Amortization on Purchased Callable Debt Securities Receivables~~Leases - Targeted Improvements. In July 2018, the FASB issued ASU No. 2018-11 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for Oriental). Oriental adopted ASU 2018-11 on its required effective date of January 1, 2019 and elected both transition options mentioned above. ASU 2018-11 did not have a material impact on Oriental’s consolidated financial statements.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Narrow-Scope Improvements for Lessors. In December 2018, the FASB issued ASU No. 2018-20 which allows lessors to make an accounting policy election of presenting sales taxes and other similar taxes collected from lessees on a net basis, (2) requires a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf and include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense, and (3) clarifies that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in the new leases standard for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component. Oriental adopted ASU 2018-20 on its required effective date of January 1, 2019 and elected to present sales taxes and other similar taxes collected from lessees on a net basis as described in (1) above. ASU 2018-20 did not have a material impact on Oriental’s consolidated financial statements.

Leases: Codification Improvements. In March 2019, the FASB issued ASU No. 2019-01 which states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement; (2) clarifies that lessors in the scope of ASC 942 (such as Oriental) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows; and (3) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. To coincide with the adoption of ASU No. 2016-02, Oriental elected to early adopt ASU 2019-01 on January 1, 2019. The adoption of this ASU did not have a material impact on Oriental’s consolidated financial statements.

Targeted Improvements to Accounting for Hedging Activities. In August 2017, the FASB issued ASU No. ~~2017-08,~~2017-12 with the objectives to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. This guideline allows the entity to elect whether to perform quantitative or qualitative assessments for their hedge accounting transactions. In addition, the guideline provides that “an entity may reclassify a debt security from held-to-maturity (HTM) to available-for-sale (AFS) if the debt security is eligible to be hedged under the last-of-layer method in accordance with paragraph 815-20-25-12A. Any unrealized gain or loss at the date of the transfer shall be recorded in accumulated other comprehensive income in accordance with paragraph 320-10-35-10(c).” Transition elections must be adopted within the timeframe outlined in paragraphs 815-20-65-3(f) to 65-3(g). This includes the transition election available for the transfer of eligible securities from the HTM to the AFS category. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. Oriental elected to maintain its current quantitative assessment for the existing hedge accounting transaction. In addition, Oriental elected to reclassify all of the securities in its held-to-maturity portfolio amounting to $424.7 million to its available-for-sale portfolio, as they were debt securities that qualified as eligible to be hedged under the last-of-layer method. The new guidance did not have a material impact on the consolidated statements of operations or the consolidated statement of cash flows.

New Accounting Updates Not Yet Adopted

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, ASU 2018-15 requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU also requires the ~~amortization~~entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the ~~premium on callable debt securities to~~hosting arrangement, which includes reasonably certain renewals. This ASU is the ~~earliest call date. The amortization period~~final version of Proposed Accounting Standards Update 2018–230—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for ~~callable debt securities purchased at~~Implementation Costs Incurred in a ~~discount would not be impacted by the ASU.~~Cloud Computing Arrangement That Is a Service Contract, which has been deleted. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, ~~2018.~~ 2019. Early adoption is permitted. The ~~ASU is~~effects of this standard on our consolidated statement of financial position, results of operations or cash flows are not expected to ~~have a~~be material ~~impact on Oriental's consolidated financial position or results of operations. At September 30, 2017, Oriental does not have callable debt securities.~~.

~~Plan Accounting: Defined Benefit Pension Plans~~Fair Value Measurement (Topic ~~960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965)~~820): ~~Employee Benefit Plan Master Trust Reporting (a consensus of~~Disclosure Framework—Changes to the ~~Emerging Issues Task Force).~~Disclosure Requirements for Fair Value Measurement. In ~~February 2017,~~August 2018, the FASB issued ASU ~~No. 2017-06,~~2018-13, which ~~intended~~modifies disclosure requirements related to ~~reduce diversity and improve the usefulness of information provided by employee benefit plans that hold interests~~fair value measurement. The amendments in ~~master trusts. This~~this ASU ~~will be applied prospectively~~are effective for ~~annual~~fiscal years, and interim periods inwithin those fiscal years, beginning after

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

December 15, ~~2018.~~2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU ~~is not expected to have a material impact on Oriental's consolidated financial position or results~~while delaying adoption of ~~operations.~~the additional disclosures until their effective date.

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, which simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2019. ~~We will assess the impact that the adoption~~The effects of ~~ASU 2017-04 will have~~this standard on our consolidated statement of financial ~~statements and related disclosures before implementation.~~position, results of operations or cash flows are not expected to be material.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~Restricted Cash.~~ In November 2016, the FASB issued ASU No. 2016-18, which amends Topic 230 (Statement of Cash Flows) and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU No. 2016-18 is intended to reduce diversity in practice in how restricted cash or restricted cash equivalents are presented and classified in the statement of cash flows. ASU No. 2016-18 is effective for fiscal years, and interim periods, beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of ASU No. 2016-18 will change the presentation and classification of restricted cash and restricted cash equivalents in our consolidated statements of cash flows.

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU No. 2016-13 is effective for fiscal years, and interim periods, beginning after December 15, 2019. Oriental will implement ASU No. 2016-13 on January 1, 2020. While we continue to assess the impact of ASU No. 2016-13, we have developed a roadmap with time schedules in place from 2016 to implementation date. ~~Oriental is~~Oriental's cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We have selected the software and are in the process of assessing the methodology ~~and the software~~ to be ~~used.~~

~~Leases.~~ ~~In February 2016,~~used in order to develop an acceptable model to estimate the ~~FASB issued~~expected credit losses. After the model has been developed, reviewed and validated in accordance with our governance policies, Oriental will keep disclosing relevant information of concerning implementation process and impact of ASU No. ~~2016-02, which requires lessees to recognize~~2016-13, as well as the updating of policies, procedures and internal controls, in preparation for performing a ~~right-of-use asset and related lease liability for leases classified as operating leases at~~full parallel run. Oriental’s preliminary evaluation indicates the ~~commencement date that have lease terms~~provisions of ~~more than 12 months. This ASU retains the classification distinction between finance leases and operating leases.~~ ASU No. ~~2016-02 is effective for fiscal years, and interim periods, beginning after December 15, 2018. We~~2016-13 are ~~currently assessing the~~expected to impact ~~the adoption of ASU 2016-02 will have on our~~Oriental’s consolidated financial statements, in particular the level of the reserve for credit losses. Oriental is continuing to evaluate the extent of the potential impact and ~~related disclosures.~~

~~Revenue from Contracts with Customers.~~ ~~In May 2014, the FASB issued ASU No. 2014-09, which supersedes the revenue recognition requirements Topic 605 (Revenue Recognition),~~expects that portfolio composition and most industry-specific guidance. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognizedeconomic conditions at the ~~date~~time of initial application (modified retrospective method). In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 by one year to fiscal years beginning after December 15, 2017. ASU No. 2015-14 also permits early adoption of ASU No. 2014-09, but not before the original effective date, which was for fiscal years beginning after December 15, 2016. While the new guidance does not apply to revenue associated with loans or securities, Oriental identified the customer contracts within the scope of the new guidance, assessed the related revenues, and has determined that it will ~~not materially impact its consolidated financial position or results of operations. There will not~~ be ~~any accounting or significant internal control changes as~~ a ~~result of the new provisions. The timing of Oriental’s revenue recognition is not expected to materially change.~~factor.

Other than the accounting pronouncements disclosed above, there are no other new accounting pronouncements issued during the first quarter of 2017 that could have a material impact on Oriental's financial position, operating results or financial statements disclosures.

NOTE 2 – RESTRICTED CASH

The following table includes the composition of Oriental’s restricted cash:

	March 31,		December 31,
	2019		2018
	(In thousands)
Cash pledged as collateral to other financial institutions to secure:
Derivatives	$	1,980	$	1,980
Obligations under agreement of loans sold with recourse		1,050		1,050
	$	3,030	$	3,030

At March 31, 2019 and December 31, 2018, the Bank’s international banking entities, OIB and Oriental Overseas, a division of the Bank, held short-term highly liquid securities in the amount of $305 thousand and $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. These instruments cannot be withdrawn or transferred by OIB or Oriental Overseas without prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (the "OCFI").

As part of its derivative activities, Oriental has entered into collateral agreements with certain financial counterparties. At both March 31, 2019 and December 31, 2018, Oriental had delivered approximately $2.0 million of cash as collateral for such derivatives activities.

Oriental has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both March 31, 2019 and December 31, 2018, Oriental delivered as collateral cash amounting to approximately $1.1 million.

1211

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTE 2~~ – ~~SIGNIFICANT EVENTS~~

~~Hurricanes Irma and Maria~~

During the third quarter of 2017, Oriental was impacted by Hurricanes Irma and Maria, which struck the island on September 7, 2017 and September 20, 2017, respectively. Hurricane Maria caused catastrophic damages throughout Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and public facilities. It caused an unprecedented crisis when it ravaged the Island’s electric power grid less than two weeks after hurricane Irma left over a million Puerto Rico residents without power. Over a month after the hurricanes, most of Puerto Rico remains without electricity, many businesses are unable to operate, and government authorities are still struggling to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays.

Almost all of Oriental’s operations and clients are located in Puerto Rico. Although Oriental’s business operations were disrupted by major damages to Puerto Rico’s critical infrastructure, including its electric power grid and telecommunications network, Oriental’s digital channels, core banking and electronic funds transfer systems continued to function uninterrupted during and after the hurricanes. Within days after hurricane Maria, and upon securing a continuing supply of diesel fuel for its electric power generators, Oriental was able to open its main offices and many of its branches and ATMs in addition to its digital and phone trade channels.

As a result of this event, and based on current assessments of information available for the impact of the hurricanes on our credit portfolio, third quarter 2017 results included an additional $27.0 million in loan loss provision, pre-tax. Refer to footnotes for further disclosure associated to this significant event.

~~NOTE 3~~ ~~– RESTRICTED CASH~~

~~The following table includes the composition of Oriental’s restricted cash~~:

September 30,

December 31,

2017

2016

(In thousands)
Cash pledged as collateral to other financial institutions to secure:

Derivatives
$
1,980

$
1,980
Obligations under agreement of loans sold with recourse

1,050

1,050

$
3,030

$
3,030

~~At September 30, 2017,~~ the Bank’s international banking entities, Oriental International Bank Inc. (“OIB”) and Oriental Overseas, a division of the Bank, held an unencumbered certificate of deposit and other short-term highly liquid securities in the amount of ~~$300~~ ~~thousand~~ ~~and $325~~ ~~thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. At~~ ~~December 31, 2016,~~ ~~they held an unencumbered certificate of deposit and other short-term highly liquid securities in the amount~~ of ~~$300~~ ~~thousand as the required legal reserve.~~ The certificate of deposit and other securities cannot be withdrawn or sold by OIB or Oriental Overseas without prior written approval of the Office of the Commissioner of Financial Institutions ("OCFI").

As part of its derivative activities, Oriental has entered into collateral agreements with certain financial counterparties. At both September 30, 2017 and December 31, 2016, Oriental had delivered approximately $2.0 million of cash as collateral for such derivatives activities.

As part of the BBVA Acquisition, Oriental assumed a contract with FNMA which required collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both September 30, 2017 and December 31, 2016, Oriental delivered as collateral cash amounting to approximately $1.1 million.

The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits. The amount of those minimum average reserve balances for the week that covered ~~September 30, 2017~~March 31, 2019 was ~~$167.3~~ $212.2 million (December 31, ~~2016~~2018 - ~~$161.0~~$211.6

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

million). At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Bank complied with ~~the~~this requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

NOTE 4 3 – INVESTMENT SECURITIES

Money Market Investments

Oriental considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, money market instruments included as part of cash and cash equivalents amounted to ~~$6.5~~$7.7 million and ~~$5.6~~$4.9 million, respectively.

Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by Oriental at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 were as follows:

	September 30, 2017									March 31, 2019
			Gross		Gross				Weighted			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized		Fair		Average	Amortized		Unrealized		Unrealized		Fair		Average
	Cost		Gains		Losses		Value		Yield	Cost		Gains		Losses		Value		Yield
	(In thousands)									(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	344,581	$	2,464	$	1,462	$	345,583	2.36%	$	947,332	$	2,504	$	12,558	$	937,278	2.37%
GNMA certificates		162,993		2,197		423		164,767	2.94%		224,157		3,072		671		226,558	3.15%
CMOs issued by US government-sponsored agencies		86,905		6		1,038		85,873	1.90%		62,927		-		1,538		61,389	1.90%
Total mortgage-backed securities		594,479		4,667		2,923		596,223	2.45%		1,234,416		5,576		14,767		1,225,225	2.49%
Investment securities
US Treasury securities		10,269		-		51		10,218	1.26%		10,933		-		74		10,859	1.37%
Obligations of US government-sponsored agencies		3,121		-		29		3,092	1.38%		2,238		-		42		2,196	1.38%
Obligations of Puerto Rico government and public instrumentalities		2,455		-		249		2,206	5.55%
Other debt securities		1,612		72		-		1,684	3.00%		1,162		27		-		1,189	2.99%
Total investment securities		17,457		72		329		17,200	2.42%		14,333		27		116		14,244	1.50%
Total securities available for sale	$	611,936	$	4,739	$	3,252	$	613,423	2.44%	$	1,248,749	$	5,603	$	14,883	$	1,239,469	2.47%

Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates	$	530,178	$	367	$	4,715	$	525,830	2.09%

1512

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2016									December 31, 2018
			Gross		Gross				Weighted			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized		Fair		Average	Amortized		Unrealized		Unrealized		Fair		Average
	Cost		Gains		Losses		Value		Yield	Cost		Gains		Losses		Value		Yield
	(In thousands)									(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	422,168	$	6,354	$	3,036	$	425,486	2.59%	$	561,878	$	404	$	8,951	$	553,331	2.59%
GNMA certificates		163,614		2,241		620		165,235	2.95%		211,947		1,050		2,827		210,170	3.10%
CMOs issued by US government-sponsored agencies		103,990		64		2,223		101,831	1.88%		66,230		-		2,166		64,064	1.90%
Total mortgage-backed securities		689,772		8,659		5,879		692,552	2.57%		840,055		1,454		13,944		827,565	2.66%
Investment securities
US Treasury securities		49,672		-		618		49,054	1.73%		10,924		-		119		10,805	1.36%
Obligations of US government-sponsored agencies		3,903		-		19		3,884	1.38%		2,325		-		60		2,265	1.38%
Obligations of Puerto Rico government and public instrumentalities		4,680		-		607		4,073	5.55%
Other debt securities		1,840		81		-		1,921	3.00%		1,207		15		-		1,222	2.99%
Total investment securities		60,095		81		1,244		58,932	2.04%		14,456		15		179		14,292	1.50%
Total securities available-for-sale	$	749,867	$	8,740	$	7,123	$	751,484	2.53%	$	854,511	$	1,469	$	14,123	$	841,857	2.64%

Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates	$	599,884	$	145	$	7,266	$	592,763	2.15%	$	424,740	$	-	$	14,387	$	410,353	2.07%

On January 1, 2019, Oriental adopted the Accounting Standard Update ("ASU") No. 2017-12 and reclassified all of its mortgage backed securities with a carrying value of $424.7 million and an unrealized losses of $14.4 million from the held-to-maturity portfolio into the available-for-sale portfolio.

The amortized cost and fair value of Oriental’s investment securities at ~~September 30, 2017,~~March 31, 2019, by contractual maturity, are shown in the next table. Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 30, 2017								March 31, 2019
	Available-for-sale				Held-to-maturity				Available-for-sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)								(In thousands)
Mortgage-backed securities
Due from 1 to 5 years
FNMA and FHLMC certificates	$	7,160	$	7,246	$	-	$	-	$	3,056	$	3,054
Total due from 1 to 5 years		7,160		7,246		-		-		3,056		3,054
Due after 5 to 10 years
CMOs issued by US government-sponsored agencies	$	76,877	$	75,884	$	-	$	-	$	55,367	$	53,936
FNMA and FHLMC certificates		132,716		132,163		-		-		267,310		266,195
GNMA certificates										94		98
Total due after 5 to 10 years		209,593		208,047		-		-		322,771		320,229
Due after 10 years
FNMA and FHLMC certificates	$	204,705	$	206,174	$	530,178	$	525,830	$	676,966	$	668,029
GNMA certificates		162,993		164,767		-		-		224,063		226,460
CMOs issued by US government-sponsored agencies		10,028		9,989		-		-		7,560		7,453
Total due after 10 years		377,726		380,930		530,178		525,830		908,589		901,942
Total mortgage-backed securities		594,479		596,223		530,178		525,830		1,234,416		1,225,225
Investment securities
Due less than one year
US Treasury securities	$	324	$	323	$	-	$	-	$	10,933	$	10,859
Obligations of Puerto Rico government and public instrumentalities		2,455		2,206		-		-
Total due in less than one year		2,779		2,529		-		-		10,933		10,859
Due from 1 to 5 years
US Treasury securities	$	9,945	$	9,895	$	-	$	-
Obligations of US government and sponsored agencies		3,121		3,092		-		-
Obligations of US government-sponsored agencies									$	2,238	$	2,196
Other debt securities										100		100
Total due from 1 to 5 years		13,066		12,987		-		-		2,338		2,296
Due from 5 to 10 years
Other debt securities		1,612		1,684		-		-		1,062		1,089
Total due after 5 to 10 years		1,612		1,684		-		-		1,062		1,089
Total investment securities		17,457		17,200		-		-		14,333		14,244
Total	$	611,936	$	613,423	$	530,178	$	525,830	$	1,248,749	$	1,239,469

During the quarter ended March 31, 2019, Oriental retained securitized GNMA pools totaling $15.1 million amortized cost, at a yield of 3.84% from its own originations while during the year ended March 31, 2018 that amount totaled $18.0 million amortized cost, at a yield of 3.26%.

During the quarters ended March 31, 2019 and 2018, Oriental did not sell mortgage-backed securities or investment securities.

1714

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~During the nine-month period ended~~ ~~September 30, 2017Oriental retained securitized GNMA pools totaling $69.3~~ ~~million amortized cost, at a yield of 3.14% from its own originations while during the nine-month period ended~~ ~~September 30, 2016~~ ~~that amount totaled $71.8~~ ~~million, amortized cost, at a yield of 2.99~~%.

~~During the nine-month period~~ ~~ended~~ ~~September 30, 2017~~, Oriental sold $166.0 million of mortgage-backed securities and $84.1 million of US Treasury securities, and recorded a net gain on sale of securities of $6.9 million. During the nine-month period ended ~~September 30, 2016, Oriental sold $277.2 million on mortgage-backed securities and $11.1 million of Puerto Rico government bonds, and recorded a net gain on sale of securities of $12.2 million.~~

Nine-Month Period Ended September 30, 2017

Book Value

Description
Sale Price

at Sale

Gross Gains

Gross Losses

(In thousands)
Sale of securities available-for-sale

    Mortgage-backed securities

        FNMA and FHLMC certificates
$
107,510

$
102,311

$
5,199

$
-
        GNMA certificates

65,284

63,704

1,580

-
    Investment securities

        US Treasury securities

84,202

84,085

117

-
Total
$
256,996

$
250,100

$
6,896

$
-

Nine-Month Period Ended September 30, 2016

Book Value

Description
Sale Price

at Sale

Gross Gains

Gross Losses

(In thousands)
Sale of securities available-for-sale

    Mortgage-backed securities

        FNMA and FHLMC certificates
$
293,505

$
277,181

$
16,324

$
-
    Investment securities

        Obligations of PR government and public instrumentalities

6,978

11,095

-

4,117
            Total mortgage-backed securities
$
300,483

$
288,276

$
16,324

$
4,117

The following tables show Oriental’s gross unrealized losses and fair value of investment securities available-for-sale at March 31, 2019 and held-to-maturity at March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss ~~position at~~ position:~~September 30, 2017 and December 31, 2016:~~

	March 31, 2019
	12 months or more
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	$	62,927	$	1,538	$	61,389
FNMA and FHLMC certificates		686,773		12,558		674,215
Obligations of US Government and sponsored agencies		2,238		42		2,196
GNMA certificates		73,290		670		72,620
US Treasury Securities		9,983		74		9,909
	$	835,211	$	14,882	$	820,329

	Less than 12 months
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
GNMA certificates		20		1		19
	$	20	$	1	$	19

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies	$	62,927	$	1,538	$	61,389
FNMA and FHLMC certificates		686,773		12,558		674,215
Obligations of US government and sponsored agencies		2,238		42		2,196
GNMA certificates		73,310		671		72,639
US Treasury Securities		9,983		74		9,909
	$	835,231	$	14,883	$	820,348

1815

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30, 2017

12 months or more

Amortized

Unrealized

Fair

Cost

Loss

Value

(In thousands)
Securities available-for-sale

    CMOs issued by US government-sponsored agencies
$
58,328

$
869

$
57,459
    FNMA and FHLMC certificates

8,196

175

8,021
    Obligations of US government and sponsored agencies

3,121

29

3,092
    Obligations of Puerto Rico government and public instrumentalities

2,455

249

2,206

$
72,100

$
1,322

$
70,778
Securities held to maturity

    FNMA and FHLMC certificates
$
44,759

$
884

$
43,875


Less than 12 months

Amortized

Unrealized

Fair

Cost

Loss

Value

(In thousands)
Securities available-for-sale

    CMOs issued by US government-sponsored agencies
$
27,413

$
169

$
27,244
    FNMA and FHLMC certificates

146,578

1,287

145,291
    GNMA certificates

29,243

423

28,820
    US Treasury Securities

10,269

51

10,218

$
213,503

$
1,930

$
211,573
Securities held-to-maturity

    FNMA and FHLMC Certificates
$
386,995

$
3,831

$
383,164


Total

Amortized

Unrealized

Fair

Cost

Loss

Value

(In thousands)
Securities available-for-sale

    CMOs issued by US government-sponsored agencies
$
85,741

$
1,038

$
84,703
    FNMA and FHLMC certificates

154,774

1,462

153,312
    Obligations of Puerto Rico government and public instrumentalities

2,455

249

2,206
    Obligations of US government and sponsored agencies

3,121

29

3,092
    GNMA certificates

29,243

423

28,820
    US Treasury Securities

10,269

51

10,218

$
285,603

$
3,252

$
282,351
Securities held-to-maturity

    FNMA and FHLMC certificates
$
431,754

$
4,715

$
427,039

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

	December 31, 2016						December 31, 2018
	12 months or more						12 months or more
	Amortized		Unrealized		Fair		Amortized		Unrealized		Fair
	Cost		Loss		Value		Cost		Loss		Value
	(In thousands)						(In thousands)
Securities available-for-sale
Obligations of Puerto Rico government and public instrumentalities	$	4,680	$	607	$	4,073
CMOs issued by US government-sponsored agencies		33,883		793		33,090
CMOs issued by US Government-sponsored agencies							$	66,230	$	2,166	$	64,064
FNMA and FHLMC certificates								357,955		8,603		349,352
Obligations of US Government and sponsored agencies								2,325		60		2,265
GNMA certificates								131,044		2,739		128,305
US Treasury Securities								9,977		119		9,858
	$	38,563	$	1,400	$	37,163	$	567,531	$	13,687	$	553,844
Securities held-to-maturity
FNMA and FHLMC certificates							$	424,740	$	14,387	$	410,353

							Less than 12 months
							Amortized		Unrealized		Fair
							Cost		Loss		Value
							(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates								109,772		348		109,424
GNMA certificates								17,126		88		17,038
US Treasury Securities								323		-		323
							$	127,221	$	436	$	126,785

	Less than 12 months						Total
	Amortized		Unrealized		Fair		Amortized		Unrealized		Fair
	Cost		Loss		Value		Cost		Loss		Value
	(In thousands)						(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies		67,777		1,430		66,347
CMOs issued by US Government-sponsored agencies								66,230		2,166		64,064
FNMA and FHLMC certificates		184,782		3,036		181,746		467,727		8,951		458,776
Obligations of US government and sponsored agencies		3,903		19		3,884		2,325		60		2,265
GNMA certificates		29,445		620		28,825		148,170		2,827		145,343
US Treasury Securities		49,172		618		48,554		10,300		119		10,181
	$	335,079	$	5,723	$	329,356	$	694,752	$	14,123	$	680,629
Securities held to maturity
Securities held-to-maturity
FNMA and FHLMC certificates	$	525,258	$	7,266	$	517,992	$	424,740	$	14,387	$	410,353


	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies		101,660		2,223		99,437
FNMA and FHLMC certificates		184,782		3,036		181,746
Obligations of Puerto Rico government and public instrumentalities		4,680		607		4,073
Obligations of US government and sponsored agencies		3,903		19		3,884
GNMA certificates		29,445		620		28,825
US Treasury Securities		49,172		618		48,554
	$	373,642	$	7,123	$	366,519
Securities held to maturity
FNMA and FHLMC certificates	$	525,258	$	7,266	$	517,992

2016

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Oriental performs valuations of the investment securities on a monthly basis. Moreover, Oriental conducts quarterly reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairment. Any portion of a decline in value associated with credit loss is recognized in the statements of operations with the remaining noncredit-related component recognized in other comprehensive income (loss). A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.” Other-than-temporary impairment analysis is based on estimates that depend on market conditions and are subject to further change over time. In addition, while Oriental believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing ~~refinement,~~improvement, including those made as a result of market developments. Consequently, it is reasonably possible that changes in estimates or conditions could result in the need to recognize additional other-than-temporary impairment charges in the future.

~~Most~~All of the investments ($~~714.9~~ 835.2 million, amortized ~~cost, or 99.7~~%)cost) with an unrealized loss position at ~~September 30, 2017~~March 31, 2019 consist of securities issued or guaranteed by the U.S. Treasury or U.S. government-sponsored agencies, all of which are highly liquid securities that have a large and efficient secondary market. Their aggregate losses and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthiness of the issuers or guarantors of such securities.

~~The sole exposure to PR bond ($2.5~~ ~~million, amortized cost, or 0.3~~%) with an unrealized loss position at September 30, 2017 consists of an obligation issued by the Puerto Rico Highways and Transportation Authority ("PRHTA") secured by a pledge of toll revenues from the Teodoro Moscoso Bridge operated through a public-private partnership. The decline in the market value of this security is mainly attributed to the significant economic and fiscal challenges that Puerto Rico is facing, which is expected to result in a significant restructuring of the government under the supervision of a federally created Fiscal Oversight Board. All other Puerto Rico government securities were sold during the first quarter of 2016. The PRHTA bond had an aggregate fair value of $~~2.2~~ million at September 30, 2017 (90% of the bond's amortized cost) and matures on July 1, 2018. The discounted cash flow analysis for the investment showed a cumulative default probability at maturity of ~~6.6~~%, thus reflecting that it is more likely than not that the bond will not default during its remaining term. Based on this analysis, Oriental determined that it is more likely than not that it will recover all interest and principal invested in this Puerto Rico government bond and is, therefore, not required to recognize a credit loss as of September 30, 2017. Also, Oriental’s conclusion is based on the assessment of the specific source of repayment of the outstanding bond, which continues to perform. PRHTA started principal repayments on July 1, 2014. All scheduled principal and interest payments to date have been collected. As a result of the aforementioned analysis, no other-than-temporary losses were recorded during the period ended September 30, 2017.

As of September 30, 2017, Oriental performed a cash flow analysis of its Puerto Rico government bond to calculate the cash flows expected to be collected and determine if any portion of the decline in market value of this investment was considered an other-than-temporary impairment. The analysis derives an estimate of value based on the present value of risk-adjusted future cash flows of the underlying investment, and included the following components:

·The contractual future cash flows of the bond are projected based on the key terms as set forth in the official statements for the investment. Such key terms include among others the interest rate, amortization schedule, if any, and maturity date.

·The risk-adjusted cash flows are calculated based on a monthly default probability and recovery rate assumptions based on the credit rating of the investment. Constant monthly default rates are assumed throughout the life of the bond which is based on the respective security’s credit rating as of the date of the analysis.

·The adjusted future cash flows are then discounted at the original effective yield of the investment based on the purchase price and expected risk-adjusted future cash flows as of the purchase date of the investment.

~~The following table presents a rollforward of credit-related impairment losses recognized in earnings for the nine-month periods ended September 30, 2017 and 2016~~ ~~on available-for-sale securities~~:

Nine-Month Period Ended September 30,

2017

2016

(In thousands)
Balance at beginning of period

$
-

$
1,490
Reductions for securities sold during the period (realized)

-

(1,490)
Balance at end of period

$
-

$
-

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

NOTE 54 - LOANS

Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans. ~~Acquired Eurobank loans were purchased subject to loss-sharing agreements with the FDIC, which were terminated on February 6, 2017.~~

As a result of the devastation caused by hurricanes Irma and Maria, Oriental offered an automatic three-month forbearance for the payment due on auto and personal loans for customers whose payments were not over 89 days past due at August 31, 2017. These payments, together with any additional accrued interest, will be paid in three installments after the original maturity of the loans. Residential mortgage loans will have the same forbearance, but the payments subject to the forbearance on non-conforming loans will be payable in aggregate as a balloon payment at the maturity of the loan and on conforming mortgage loans the repayment terms will be established on a case by case basis at the end of the forbearance period. For credit cards, that were not over 29 days past due at August 31, 2017, the minimum payment amount will be skipped until December 31, 2017. Oriental also offered an automatic one-month forbearance for the payment of principal and interest for commercial loans, for customers whose payments were not over 30 days past due at August 31, 2017, and the flexibility of extending it up to two additional months, based on the customer's needs. Oriental had approximately 100 ~~thousand loans under the automatic three-month forbearance program with a UPB of $3.7~~ ~~billion at September 30, 2017.~~

~~The composition of Oriental’s loan portfolio at~~ ~~September 30, 2017 and December 31, 2016~~ ~~was as follows~~:

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

September 30,

December 31,

2017

2016

(In thousands)
Originated and other loans and leases held for investment:

        Mortgage
$
694,476

$
721,494
        Commercial

1,245,711

1,277,866
        Consumer

316,357

290,515
        Auto and leasing

831,437

756,395

3,087,981

3,046,270
        Allowance for loan and lease losses on originated and other loans and leases

(87,541)

(59,300)

3,000,440

2,986,970
        Deferred loan costs, net

6,592

5,766
    Total originated and other loans loans held for investment, net

3,007,032

2,992,736
Acquired loans:

    Acquired BBVAPR loans:

     Accounted for under ASC 310-20 (Loans with revolving feature and/or

        acquired at a premium)

        Commercial

4,612

5,562
        Consumer

29,464

32,862
        Auto

26,562

53,026

60,638

91,450
        Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20

(3,363)

(4,300)

57,275

87,150
     Accounted for under ASC 310-30 (Loans acquired with deteriorated

         credit quality, including those by analogy)

        Mortgage

532,948

569,253
        Commercial

244,359

292,564
        Consumer

1,598

4,301
        Auto

49,258

85,676

828,163

951,794
         Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30

(40,110)

(31,056)

788,053

920,738
    Total acquired BBVAPR loans, net

845,328

1,007,888
Acquired Eurobank loans:

        Loans secured by 1-4 family residential properties

68,996

73,018
        Commercial

53,028

81,460
        Consumer

1,220

1,372
    Total acquired Eurobank loans

123,244

155,850
        Allowance for loan and lease losses on Eurobank loans

(23,146)

(21,281)
    Total acquired Eurobank loans, net

100,098

134,569
    Total acquired loans, net

945,426

1,142,457
Total held for investment, net

3,952,458

4,135,193
Mortgage loans held-for-sale

12,114

12,499
Total loans, net
$
3,964,572

$
4,147,692

2317

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The composition of Oriental’s loan portfolio at March 31, 2019 and December 31, 2018 was as follows:

	March 31,		December 31,
	2019		2018
	(In thousands)
Originated and other loans and leases held for investment:
Mortgage	$	651,423	$	668,809
Commercial		1,569,551		1,597,588
Consumer		350,543		348,980
Auto and leasing		1,167,482		1,129,695
		3,738,999		3,745,072
Allowance for loan and lease losses on originated and other loans and leases		(94,035)		(95,188)
		3,644,964		3,649,884
Deferred loan costs, net		8,254		7,740
Total originated and other loans held for investment, net		3,653,218		3,657,624
Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		2,405		2,546
Consumer		22,768		23,988
Auto		2,336		4,435
		27,509		30,969
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20		(1,968)		(2,062)
		25,541		28,907
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		484,578		492,890
Commercial		176,908		182,319
Auto		9,866		14,403
		671,352		689,612
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30		(42,133)		(42,010)
		629,219		647,602
Total acquired BBVAPR loans, net		654,760		676,509
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		62,649		63,392
Commercial		46,588		47,826
Consumer		856		846
Total acquired Eurobank loans		110,093		112,064
Allowance for loan and lease losses on Eurobank loans		(24,352)		(24,971)
Total acquired Eurobank loans, net		85,741		87,093
Total acquired loans, net		740,501		763,602
Total held for investment, net		4,393,719		4,421,226
Mortgage loans held-for-sale		7,682		10,368
Total loans, net	$	4,401,401	$	4,431,594

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Originated and Other Loans and Leases Held for Investment

Oriental’s originated and other loans held for investment are encompassed within four portfolio segments: mortgage, commercial, consumer, and auto and leasing.

The ~~following~~ tables below present the aging of the recorded investment in gross originated and other loans held for investment a~~t September 30, 2017~~at March 31, 2019 and December 31, ~~2016,~~2018, by class of loans. Mortgage loans past due include delinquent loans in the GNMA buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that ~~option~~option..

September 30, 2017

Loans 90+

Days Past

Due and

30-59 Days

60-89 Days

90+ Days

Total Past

Still

Past Due

Past Due

Past Due

Due

Current

Total Loans

Accruing

(In thousands)

Mortgage

    Traditional (by origination year):

        Up to the year 2002
$
278

$
1,469

$
3,074

$
4,821

$
42,086

$
46,907

$
283
        Years 2003 and 2004

242

3,388

5,963

9,593

74,405

83,998

-
        Year 2005

-

2,465

3,231

5,696

39,363

45,059

-
        Year 2006

179

1,965

5,536

7,680

55,883

63,563

-
        Years 2007, 2008
            and 2009

252

1,706

7,859

9,817

59,451

69,268

98
        Years 2010, 2011, 2012, 2013

349

2,213

7,274

9,836

118,409

128,245

414
        Years 2014, 2015, 2016 and 2017

-

184

1,247

1,431

120,538

121,969

-

1,300

13,390

34,184

48,874

510,135

559,009

795
        Non-traditional

-

506

3,529

4,035

14,670

18,705

-
        Loss mitigation program

12,621

7,456

15,941

36,018

67,472

103,490

2,576

13,921

21,352

53,654

88,927

592,277

681,204

3,371
    Home equity secured personal loans

-

-

12

12

261

273

-
    GNMA's buy-back option program

-

-

12,999

12,999

-

12,999

-

13,921

21,352

66,665

101,938

592,538

694,476

3,371
Commercial

    Commercial secured by real estate:

        Corporate

-

-

-

-

209,000

209,000

-
        Institutional

-

-

254

254

45,922

46,176

-
        Middle market

-

303

3,545

3,848

233,829

237,677

-
        Retail

292

461

9,471

10,224

233,701

243,925

-
        Floor plan

-

-

-

-

3,607

3,607

-
        Real estate

-

-

-

-

15,473

15,473

-

292

764

13,270

14,326

741,532

755,858

-
   Other commercial and industrial:

        Corporate

-

-

-

-

163,192

163,192

-
        Institutional

-

-

-

-

118,091

118,091

-
        Middle market

2

-

881

883

81,061

81,944

-
        Retail

608

1,053

1,219

2,880

85,289

88,169

-
        Floor plan

8

-

53

61

38,396

38,457

-

618

1,053

2,153

3,824

486,029

489,853

-

910

1,817

15,423

18,150

1,227,561

1,245,711

-

2419

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	March 31, 2019
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Mortgage
Traditional (by origination year):
Up to the year 2002	$	243	$	972	$	2,695	$	3,910	$	35,619	$	39,529	$	164
Years 2003 and 2004		144		2,715		4,934		7,793		66,079		73,872		-
Year 2005		86		1,668		3,098		4,852		33,355		38,207		-
Year 2006		228		1,658		4,729		6,615		47,844		54,459		-
Years 2007, 2008 and 2009		-		810		5,832		6,642		51,783		58,425		55
Years 2010, 2011, 2012, 2013		286		722		7,001		8,009		103,092		111,101		307
Years 2014, 2015, 2016, 2017 and 2018		-		707		1,844		2,551		139,629		142,180		-
		987		9,252		30,133		40,372		477,401		517,773		526
Non-traditional		-		364		2,617		2,981		10,225		13,206		-
Loss mitigation program		11,639		4,533		19,026		35,198		72,059		107,257		1,645
		12,626		14,149		51,776		78,551		559,685		638,236		2,171
Home equity secured personal loans		-		-		9		9		236		245		-
GNMA's buy-back option program		-		-		12,942		12,942		-		12,942		-
		12,626		14,149		64,727		91,502		559,921		651,423		2,171
Commercial
Commercial secured by real estate:
Corporate		-		-		-		-		272,698		272,698		-
Institutional		-		-		1,167		1,167		67,759		68,926		-
Middle market		9,966		-		6,510		16,476		189,673		206,149		-
Retail		593		522		8,036		9,151		221,814		230,965		-
Floor plan		-		-		-		-		4,098		4,098		-
Real estate		-		-		-		-		18,664		18,664		-
		10,559		522		15,713		26,794		774,706		801,500		-
Other commercial and industrial:
Corporate		150		-		-		150		148,258		148,408		-
Institutional		-		-		-		-		146,380		146,380		-
Middle market		464		298		5,982		6,744		85,771		92,515		-
Retail		743		89		1,200		2,032		330,094		332,126		-
Floor plan		-		-		17		17		48,605		48,622		-
		1,357		387		7,199		8,943		759,108		768,051		-
		11,916		909		22,912		35,737		1,533,814		1,569,551		-

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 30, 2017														March 31, 2019
													Loans 90+														Loans 90+
													Days Past														Days Past
													Due and														Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still		30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing		Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)														(In thousands)
Consumer
Credit cards	$	1,000	$	363	$	565	$	1,928	$	26,082	$	28,010	$	-	$	803	$	281	$	732	$	1,816	$	26,110	$	27,926	$	-
Overdrafts		45		12		19		76		189		265		-		35		-		-		35		137		172		-
Personal lines of credit		103		31		9		143		2,201		2,344		-		89		3		29		121		1,808		1,929		-
Personal loans		3,777		1,694		732		6,203		264,691		270,894		-		4,566		1,746		1,025		7,337		297,271		304,608		-
Cash collateral personal loans		447		32		18		497		14,347		14,844		-		261		11		292		564		15,344		15,908		-
		5,372		2,132		1,343		8,847		307,510		316,357		-		5,754		2,041		2,078		9,873		340,670		350,543		-
Auto and leasing		43,331		28,275		10,831		82,437		749,000		831,437		-		65,490		22,010		12,163		99,663		1,067,819		1,167,482		-
Total	$	63,534	$	53,576	$	94,262	$	211,372	$	2,876,609	$	3,087,981	$	3,371	$	95,786	$	39,109	$	101,880	$	236,775	$	3,502,224	$	3,738,999	$	2,171

2621

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2016														December 31, 2018
													Loans 90+														Loans 90+
													Days Past														Days Past
													Due and														Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still		30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing		Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)														(In thousands)
Mortgage
Traditional (by origination year):
Up to the year 2002	$	196	$	2,176	$	3,371	$	5,743	$	44,542	$	50,285	$	158	$	77	$	1,516	$	2,707	$	4,300	$	36,344	$	40,644	$	168
Years 2003 and 2004		156		3,872		7,272		11,300		79,407		90,707		-		91		2,412		5,632		8,135		67,707		75,842		-
Year 2005		-		1,952		4,306		6,258		43,751		50,009		-		-		552		3,531		4,083		35,004		39,087		-
Year 2006		506		2,905		6,261		9,672		59,628		69,300		-		255		1,693		5,074		7,022		49,213		56,235		-
Years 2007, 2008 and 2009		409		1,439		11,732		13,580		63,149		76,729		398		255		1,059		6,677		7,991		52,781		60,772		56
Years 2010, 2011, 2012, 2013		349		1,772		10,417		12,538		127,322		139,860		583		253		328		8,697		9,278		104,429		113,707		270
Years 2014, 2015 and 2016		47		123		1,357		1,527		106,672		108,199		-
Years 2014, 2015, 2016 and 2017																-		483		1,462		1,945		139,500		141,445		-
		1,663		14,239		44,716		60,618		524,471		585,089		1,139		931		8,043		33,780		42,754		484,978		527,732		494
Non-traditional		-		498		4,730		5,228		17,631		22,859		-		-		116		3,085		3,201		11,072		14,273		-
Loss mitigation program		8,911		7,205		16,541		32,657		70,871		103,528		1,724		10,793		6,258		19,389		36,440		70,393		106,833		2,223
		10,574		21,942		65,987		98,503		612,973		711,476		2,863		11,724		14,417		56,254		82,395		566,443		648,838		2,717
Home equity secured personal loans		-		-		-		-		337		337		-		9		-		-		9		241		250		-
GNMA's buy-back option program		-		-		9,681		9,681		-		9,681		-		-		-		19,721		19,721		-		19,721		-
		10,574		21,942		75,668		108,184		613,310		721,494		2,863		11,733		14,417		75,975		102,125		566,684		668,809		2,717
Commercial
Commercial secured by real estate:
Corporate		-		-		-		-		242,770		242,770		-		-		-		-		-		289,052		289,052		-
Institutional		-		-		254		254		26,546		26,800		-		-		-		1,200		1,200		68,413		69,613		-
Middle market		-		60		3,319		3,379		231,602		234,981		-		-		1,430		5,202		6,632		200,831		207,463		-
Retail		154		350		6,594		7,098		242,630		249,728		-		1,641		463		8,570		10,674		213,440		224,114		-
Floor plan		-		-		-		-		2,989		2,989		-		-		-		-		-		4,184		4,184		-
Real estate		-		-		-		-		16,395		16,395		-		-		-		-		-		19,009		19,009		-
		154		410		10,167		10,731		762,932		773,663		-		1,641		1,893		14,972		18,506		794,929		813,435		-
Other commercial and industrial:
Corporate		-		-		-		-		136,438		136,438		-		-		-		-		-		179,885		179,885		-
Institutional		-		-		-		-		180,285		180,285		-		-		-		-		-		156,410		156,410		-
Middle market		-		-		-		-		81,633		81,633		-		917		-		6,020		6,937		81,030		87,967		-
Retail		930		100		969		1,999		71,706		73,705		-		571		546		817		1,934		308,278		310,212		-
Floor plan		8		-		61		69		32,073		32,142		-		-		-		46		46		49,633		49,679		-
		938		100		1,030		2,068		502,135		504,203		-		1,488		546		6,883		8,917		775,236		784,153		-
		1,092		510		11,197		12,799		1,265,067		1,277,866		-		3,129		2,439		21,855		27,423		1,570,165		1,597,588		-

2722

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2016															December 31, 2018
														Loans 90+														Loans 90+
														Days Past														Days Past
									��					Due and														Due and
	30-59 Days		60-89 Days		90+ Days		Total Past							Still		30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due			Current		Total Loans		Accruing		Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)															(In thousands)
Consumer
Credit cards	$	527	$	283	$	525	$	1,335		$	25,023	$	26,358	$	-	$	725	$	363	$	411	$	1,499	$	26,535	$	28,034	$	-
Overdrafts		16		12		5		33			174		207		-		10		-		-		10		204		214		-
Personal lines of credit		41		4		32		77			2,327		2,404		-		57		11		22		90		1,827		1,917		-
Personal loans		2,474		1,489		1,081		5,044			241,228		246,272		-		3,966		1,740		1,262		6,968		296,151		303,119		-
Cash collateral personal loans		240		20		4		264			15,010		15,274		-		74		339		3		416		15,280		15,696		-
		3,298		1,808		1,647		6,753			283,762		290,515		-		4,832		2,453		1,698		8,983		339,997		348,980		-
Auto and leasing		42,714		19,014		8,173		69,901			686,494		756,395		-		58,094		27,945		13,494		99,533		1,030,162		1,129,695		-
Total	$	57,678	$	43,274	$	96,685	$	197,637		$	2,848,633	$	3,046,270	$	2,863	$	77,788	$	47,254	$	113,022	$	238,064	$	3,507,008	$	3,745,072	$	2,717

At ~~September 30, 2017~~both March 31, 2019, and December 31, ~~2016,~~2018, Oriental had a carrying balance of $~~94.9~~ ~~million and $136.6~~91.4 million in current status, respectively, in originated and other loans held for investment granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities as part of the institutional commercial loan segment. All originated and other loans granted to the Puerto Rico government are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. ~~On June 30, 2017, Oriental entered into an agreement to sell a performing originated municipal loan, which was due in July 2018, for $28.8~~ ~~million.~~ ~~The sale reduced near-term risk associated with a likely refinancing. The loan was moved to other loans held-for-sale at June 30, 2017 with a balance of~~ ~~$33.7~~ ~~million, and included a principal payment of $4.8~~ ~~million received~~ ~~by Oriental on July 1, 2017~~. ~~The sale transaction settled on July 5, 2017~~.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Acquired Loans

Acquired loans were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC ~~310-20 (Non-refundable fees and Other Costs).~~310-20. We have acquired loans in ~~two~~the acquisitions of BBVAPR and Eurobank.

Acquired BBVAPR Loans

Accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

Credit cards, retail and commercial revolving lines of credits, floor plans and performing auto loans with FICO scores over 660 acquired at a premium are accounted for under the guidance of ASC 310-20, which requires that any contractually required loan payment receivable in excess of Oriental’s initial investment in the loans be accreted into interest income on a level-yield basis over the life of the loan. Loans accounted for under ASC 310-20 are placed on non-accrual status when past due in accordance with Oriental’s non-accrual policy, and any accretion of discount or amortization of premium is discontinued. Acquired BBVAPR loans that were accounted for under the provisions of ASC 310-20 are removed from the acquired loan category at the end of the reporting period upon refinancing, renewal or normal re-underwriting.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present the aging of the recorded investment in gross acquired BBVAPR loans accounted for under ASC 310-20 as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, by class of loans:

	September 30, 2017														March 31, 2019
													Loans 90+														Loans 90+
													Days Past														Days Past
													Due and														Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still		30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing		Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)														(In thousands)
Commercial
Commercial secured by real estate
Retail	$	-	$	-	$	95	$	95	$	26	$	121	$	-	$	-	$	-	$	54	$	54	$	-	$	54	$	-
Floor plan		-		-		936		936		393		1,329		-		-		-		878		878		77		955		-
		-		-		1,031		1,031		419		1,450		-		-		-		932		932		77		1,009		-
Other commercial and industrial
Retail		296		71		82		449		2,711		3,160		-		17		50		-		67		1,329		1,396		-
Floor plan		-		-		2		2		-		2		-
		296		71		84		451		2,711		3,162		-		17		50		-		67		1,329		1,396		-
		296		71		1,115		1,482		3,130		4,612		-		17		50		932		999		1,406		2,405		-
Consumer
Credit cards		977		567		467		2,011		24,797		26,808		-		486		137		391		1,014		19,608		20,622		-
Personal loans		75		8		39		122		2,534		2,656		-		55		21		35		111		2,035		2,146		-
		1,052		575		506		2,133		27,331		29,464		-		541		158		426		1,125		21,643		22,768		-
Auto		1,635		1,141		453		3,229		23,333		26,562		-		210		150		100		460		1,876		2,336		-
Total	$	2,983	$	1,787	$	2,074	$	6,844	$	53,794	$	60,638	$	-	$	768	$	358	$	1,458	$	2,584	$	24,925	$	27,509	$	-

2924

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2016														December 31, 2018
													Loans 90+														Loans 90+
													Days Past														Days Past
													Due and														Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still		30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing		Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)														(In thousands)
Commercial
Commercial secured by real estate
Retail	$	33	$	-	$	110	$	143	$	-	$	143	$	-	$	-	$	-	$	54	$	54	$	-	$	54	$	-
Floor plan		-		-		219		219		2,171		2,390		-		-		-		888		888		94		982		-
		33		-		329		362		2,171		2,533		-		-		-		942		942		94		1,036		-
Other commercial and industrial
Retail		97		34		121		252		2,775		3,027		-		30		11		8		49		1,461		1,510		-
Floor plan		-		-		2		2		-		2		-
		97		34		123		254		2,775		3,029		-		30		11		8		49		1,461		1,510		-
		130		34		452		616		4,946		5,562		-		30		11		950		991		1,555		2,546		-
Consumer
Credit cards		736		369		708		1,813		28,280		30,093		-		499		147		380		1,026		20,796		21,822		-
Personal loans		48		14		120		182		2,587		2,769		-		64		32		18		114		2,052		2,166		-
		784		383		828		1,995		30,867		32,862		-		563		179		398		1,140		22,848		23,988		-
Auto		3,652		1,355		517		5,524		47,502		53,026		-		405		241		200		846		3,589		4,435		-
Total	$	4,566	$	1,772	$	1,797	$	8,135	$	83,315	$	91,450	$	-	$	998	$	431	$	1,548	$	2,977	$	27,992	$	30,969	$	-

Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

Acquired BBVAPR loans, except for credit cards, retail and commercial revolving lines of credits, floor plans and performing auto loans with FICO scores over 660 acquired at a premium, are accounted for by Oriental in accordance with ASC 310-30.

The carrying amount corresponding to acquired BBVAPR loans with deteriorated credit quality, including those accounted under ASC 310-30 by analogy, in the statements of financial condition at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 is as follows:

	September 30,		December 31,		March 31,		December 31,
		2017		2016		2019		2018
		(In thousands)				(In thousands)
Contractual required payments receivable:	$	1,503,630	$	1,669,602	$	1,279,147	$	1,304,545
Less: Non-accretable discount		364,548		363,107		342,902		345,423
Cash expected to be collected		1,139,082		1,306,495		936,245		959,122
Less: Accretable yield		310,919		354,701		264,893		269,510
Carrying amount, gross		828,163		951,794		671,352		689,612
Less: allowance for loan and lease losses		40,110		31,056		42,133		42,010
Carrying amount, net	$	788,053	$	920,738	$	629,219	$	647,602

3025

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, Oriental had ~~$49.7~~$44.1 million and ~~$66.2~~$44.5 million, respectively, in loans granted to ~~the~~ Puerto Rico ~~government, including its instrumentalities, public corporations and~~ municipalities as part of its acquired BBVAPR loans accounted for under ASC 310-30. These loans are primarily secured municipal general obligations and funds recovered under a Puerto Rico escheat law. During the third quarter of 2017, Oriental received the scheduled payments of principal from the municipal general obligations and settled the loan payable from funds recovered under the escheat law that was in default.obligations.

The following tables describe the accretable yield and non-accretable discount activity of acquired BBVAPR loans accounted for under ASC 310-30 for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017, and 2016~~:2018:

	Quarter Ended September 30, 2017										Quarter Ended March 31, 2019
	Mortgage		Commercial		Auto		Consumer		Total		Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)										(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	270,148	$	56,038	$	4,853	$	1,486	$	332,525	$	232,199	$	36,508	$	243	$	560	$	269,510
Accretion		(7,434)		(7,114)		(1,350)		(384)		(16,282)		(6,350)		(2,656)		(216)		(298)		(9,520)
Change in expected cash flows		-		3,716		13		37		3,766		-		3,265		3		298		3,566
Transfer (to) from non-accretable discount		(6,158)		(2,950)		(8)		26		(9,090)
Transfer from (to) non-accretable discount												1,058		262		150		(133)		1,337
Balance at end of period	$	256,556	$	49,690	$	3,508	$	1,165	$	310,919	$	226,907	$	37,379	$	180	$	427	$	264,893

Non-Accretable Discount Activity:
Balance at beginning of period	$	306,504	$	16,867	$	23,960	$	19,431	$	366,762	$	291,887	$	10,346	$	24,245	$	18,945	$	345,423
Change in actual and expected losses		(2,310)		(8,679)		(191)		(124)		(11,304)		(729)		(173)		(39)		(243)		(1,184)
Transfer from (to) accretable yield		6,158		2,950		8		(26)		9,090
Transfer from accretable yield												(1,058)		(262)		(150)		133		(1,337)
Balance at end of period	$	310,352	$	11,138	$	23,777	$	19,281	$	364,548	$	290,100	$	9,911	$	24,056	$	18,835	$	342,902

	Nine-Month Period Ended September 30, 2017										Quarter Ended March 31, 2018
	Mortgage		Commercial		Auto		Consumer		Total		Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)										(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	292,115	$	50,366	$	8,538	$	3,682	$	354,701	$	258,498	$	46,764	$	2,766	$	885	$	308,913
Accretion		(23,018)		(16,608)		(5,273)		(1,542)		(46,441)		(7,073)		(3,685)		(869)		(256)		(11,883)
Change in expected cash flows		2		19,907		163		123		20,195		-		3,156		426		58		3,640
Transfer (to) from non-accretable discount		(12,543)		(3,975)		80		(1,098)		(17,536)		(3,046)		(524)		(597)		(38)		(4,205)
Balance at end of period	$	256,556	$	49,690	$	3,508	$	1,165	$	310,919	$	248,379	$	45,711	$	1,726	$	649	$	296,465

Non-Accretable Discount Activity:
Balance at beginning of period	$	305,615	$	16,965	$	22,407	$	18,120	$	363,107	$	299,501	$	10,596	$	23,050	$	19,284	$	352,431
Change in actual and expected losses		(7,806)		(9,802)		1,450		63		(16,095)		(1,440)		(389)		(204)		(13)		(2,046)
Transfer from (to) accretable yield		12,543		3,975		(80)		1,098		17,536
Transfer from accretable yield												3,046		524		597		38		4,205
Balance at end of period	$	310,352	$	11,138	$	23,777	$	19,281	$	364,548	$	301,107	$	10,731	$	23,443	$	19,309	$	354,590

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquired Eurobank Loans

The carrying amount of acquired Eurobank loans at March 31, 2019 and December 31, 2018 is as follows:

	March 31		December 31,
	2019		2018
	(In thousands)
Contractual required payments receivable	$	151,917	$	156,722
Less: Non-accretable discount		2,542		2,959
Cash expected to be collected		149,375		153,763
Less: Accretable yield		39,282		41,699
Carrying amount, gross		110,093		112,064
Less: Allowance for loan and lease losses		24,352		24,971
Carrying amount, net	$	85,741	$	87,093

The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters ended March 31, 2019 and 2018:

	Quarter Ended March 31, 2019
	Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	37,734		3,310		655		-		-		41,699
Accretion		(1,351)		(1,165)		-		(12)		(46)		(2,574)
Change in expected cash flows		(423)		(44)		-		(31)		87		(411)
Transfer (to) from non-accretable discount		408		159		(1)		43		(41)		568
Balance at end of period	$	36,368	$	2,260	$	654	$	-	$	-	$	39,282

Non-Accretable Discount Activity:
Balance at beginning of period	$	1,276		-		1,550		-		133		2,959
Change in actual and expected losses		7		159		-		43		(58)		151
Transfer from (to) accretable yield		(408)		(159)		1		(43)		41		(568)
Balance at end of period	$	875	$	-	$	1,551	$	-	$	116	$	2,542

3127

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended September 30, 2016

Mortgage

Commercial

Auto

Consumer

Total

(In thousands)
Accretable Yield Activity:

Balance at beginning of period
$
283,823

$
52,307

$
14,103

$
4,885

$
355,118
    Accretion

(8,197)

(6,686)

(3,107)

(662)

(18,652)
    Change in actual and expected losses

(1)

1,763

618

(241)

2,139
    Transfer from (to) non-accretable discount

24,056

(1,013)

(525)

233

22,751
Balance at end of period
$
299,681

$
46,371

$
11,089

$
4,215

$
361,356

Non-Accretable Discount Activity:

Balance at beginning of period
$
336,153

$
18,001

$
22,121

$
18,225

$
394,500
    Change in actual and expected losses

(2,591)

(1,216)

(309)

121

(3,995)
    Transfer (to) from accretable yield

(24,056)

1,013

525

(233)

(22,751)
Balance at end of period
$
309,506

$
17,798

$
22,337

$
18,113

$
367,754

	Nine-Month Period Ended September 30, 2016										Quarter Ended March 31, 2018
	Mortgage		Commercial		Auto		Consumer		Total		Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)										(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	268,794	$	65,026	$	21,578	$	6,290	$	361,688	$	41,474	$	6,751	$	1,447		-	$	-	$	49,672
Accretion		(24,798)		(20,973)		(10,934)		(2,470)		(59,175)		(1,605)		(1,606)		-		(34)		(96)		(3,341)
Change in actual and expected losses		(1)		4,745		1,249		(242)		5,751
Transfer (to) from non-accretable discount		55,686		(2,427)		(804)		637		53,092
Change in expected cash flows												(144)		898		-		(63)		178		869
Transfer from (to) non-accretable discount												(103)		(427)		(91)		97		(82)		(606)
Balance at end of period	$	299,681	$	46,371	$	11,089	$	4,215	$	361,356	$	39,622	$	5,616	$	1,356	$	-	$	-	$	46,594

Non-Accretable Discount Activity:
Balance at beginning of period	$	374,772	$	18,545	$	22,039	$	18,834	$	434,190	$	4,576	$	276	$	758	$	-	$	235	$	5,845
Change in actual and expected losses		(9,580)		(3,174)		(506)		(84)		(13,344)		(200)		(703)		-		97		(98)		(904)
Transfer from (to) accretable yield		(55,686)		2,427		804		(637)		(53,092)
Transfer (to) from accretable yield												103		427		91		(97)		82		606
Balance at end of period	$	309,506	$	17,798	$	22,337	$	18,113	$	367,754	$	4,479	$	-	$	849	$	-	$	219	$	5,547

3228

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Acquired Eurobank Loans~~

~~The carrying amount of acquired Eurobank loans at~~ ~~September 30, 2017 and December 31, 2016 is as follows:~~

September 30

December 31

2017

2016

(In thousands)
Contractual required payments receivable:
$
182,562

$
232,698
Less: Non-accretable discount

6,935

12,340
Cash expected to be collected

175,627

220,358
Less: Accretable yield

52,383

64,508
Carrying amount, gross

123,244

155,850
Less: Allowance for loan and lease losses

23,146

21,281
Carrying amount, net
$
100,098

$
134,569

~~The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and nine-month periods ended~~ ~~September 30, 2017, and 2016:~~

Quarter Ended September 30, 2017

Loans Secured by 1-4 Family Residential Properties

Commercial

Construction & Development Secured by 1-4 Family Residential Properties

Leasing

Consumer

Total

(In thousands)
Accretable Yield Activity:

Balance at beginning of period
$
43,012

9,157

1,906

-

-

54,075
    Accretion

(1,736)

(2,480)

(39)

(11)

(73)

(4,339)
    Change in expected cash flows

18

106

39

(49)

346

460
    Transfer from (to) non-accretable discount

1,094

1,448

(142)

60

(273)

2,187
Balance at end of period
$
42,388

$
8,231

$
1,764

$
-

$
-

$
52,383

Non-Accretable Discount Activity:

Balance at beginning of period
$
6,687

2,010

299

-

14

9,010
    Change in actual and expected losses

20

126

(39)

60

(55)

112
    Transfer from (to) accretable yield

(1,094)

(1,448)

142

(60)

273

(2,187)
Balance at end of period
$
5,613

$
688

$
402

$
-

$
232

$
6,935

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Nine-Month Period Ended September 30, 2017

Loans Secured by   1-4 Family Residential Properties

Commercial

Construction & Development Secured by 1-4 Family Residential Properties

Leasing

Consumer

Total

(In thousands)
Accretable Yield Activity:

Balance at beginning of period
$
45,839

$
16,475

$
2,194

$
-

$
-

$
64,508
    Accretion

(5,564)

(11,051)

(82)

(22)

(268)

(16,987)
    Change in expected cash flows

119

1,427

82

(214)

730

2,144
    Transfer from (to) non-accretable discount

1,994

1,380

(430)

236

(462)

2,718
Balance at end of period
$
42,388

$
8,231

$
1,764

$
-

$
-

$
52,383

Non-Accretable Discount Activity:

Balance at beginning of period
$
8,441

$
3,880

$
11

$
-

$
8

$
12,340
    Change in actual and expected losses

(834)

(1,812)

(39)

236

(238)

(2,687)
    Transfer from (to) accretable yield

(1,994)

(1,380)

430

(236)

462

(2,718)
Balance at end of period
$
5,613

$
688

$
402

$
-

$
232

$
6,935

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Quarter Ended September 30, 2016

Loans Secured by   1-4 Family Residential Properties

Commercial

Construction & Development Secured by 1-4 Family Residential Properties

Leasing

Consumer

Total

(In thousands)
Accretable Yield Activity:

Balance at beginning of period
$
48,336

$
29,142

$
2,204

-

$
-

$
79,682
    Accretion

(2,217)

(6,570)

-

(62)

(490)

(9,339)
    Change in actual and expected losses

646

1,719

(8)

62

490

2,909
    Transfer from (to) non-accretable discount

3,737

(188)

(146)

-

-

3,403
Balance at end of period
$
50,502

$
24,103

$
2,050

$
-

$
-

$
76,655

Non-Accretable Discount Activity:

Balance at beginning of period
$
11,555

$
-

$
-

$
-

$
-

$
11,555
    Change in actual and expected losses

(845)

617

10

-

-

(218)
    Transfer (to) from accretable yield

(3,737)

188

146

-

-

(3,403)
Balance at end of period
$
6,973

$
805

$
156

$
-

$
-

$
7,934

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Nine-Month Period Ended September 30, 2016

Loans Secured by   1-4 Family Residential Properties

Commercial

Construction & Development Secured by 1-4 Family Residential Properties

Leasing

Consumer

Total

(In thousands)
Accretable Yield Activity:

Balance at beginning of period
$
51,954

$
26,970

$
2,255

$
-

$
3,212

$
84,391
    Accretion

(6,746)

(15,193)

(47)

(60)

(1,751)

(23,797)
    Change in expected cash flows

1,432

14,431

(31)

(15)

(1,456)

14,361
    Transfer from (to) non-accretable discount

3,862

(2,105)

(127)

75

(5)

1,700
Balance at end of period
$
50,502

$
24,103

$
2,050

$
-

$
-

$
76,655

Non-Accretable Discount Activity:

Balance at beginning of period
$
12,869

$
-

$
-

$
-

$
8,287

$
21,156
    Change in actual and expected cash flows

(2,034)

(1,300)

29

75

(8,292)

(11,522)
    Transfer (to) from accretable yield

(3,862)

2,105

127

(75)

5

(1,700)
Balance at end of period
$
6,973

$
805

$
156

$
-

$
-

$
7,934

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Non-accrual Loans

The following table presents the recorded investment in loans in non-accrual status by class of loans as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

	September 30,		December 31,		March 31,		December 31
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Originated and other loans and leases held for investment
Mortgage
Traditional (by origination year):
Up to the year 2002	$	2,789	$	3,336	$	2,529	$	2,538
Years 2003 and 2004		6,107		7,668		5,217		5,818
Year 2005		3,367		4,487		3,098		3,600
Year 2006		5,537		6,746		4,729		5,140
Years 2007, 2008 and 2009		8,110		11,526		5,850		6,697
Years 2010, 2011, 2012, 2013		6,858		10,089		6,694		8,427
Years 2014, 2015, 2016 and 2017		1,248		1,404
Years 2014, 2015, 2016, 2017 and 2018						1,844		1,462
		34,016		45,256		29,961		33,682
Non-traditional		3,529		4,730		2,617		3,085
Loss mitigation program		17,365		20,744		22,170		22,107
		54,910		70,730		54,748		58,874
Home equity secured personal loans		12		-
Home equity loans, secured personal loans						9		-
		54,922		70,730		54,757		58,874
Commercial
Commercial secured by real estate
Institutional		254		-		9,760		9,911
Middle market		3,848		4,682		7,114		7,266
Retail		14,358		11,561		15,950		16,123
		18,460		16,243		32,824		33,300
Other commercial and industrial
Middle market		968		1,278		6,401		6,481
Retail		2,220		1,950		2,251		2,629
Floor plan		53		61		17		46
		3,241		3,289		8,669		9,156
		21,701		19,532		41,493		42,456
Consumer
Credit cards		565		525		732		411
Overdrafts		19		-
Personal lines of credit		9		32		38		31
Personal loans		1,834		1,420		2,907		2,909
Cash collateral personal loans		18		4		294		3
		2,445		1,981		3,971		3,354
Auto and leasing		11,811		9,052		12,163		13,494
Total non-accrual originated loans	$	90,879	$	101,295	$	112,384	$	118,178

3729

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Acquired BBVAPR loans accounted for under ASC 310-20
Commercial
Commercial secured by real estate
Retail	$	121	$	143	$	54	$	54
Floor plan		936		1,149		878		888
		1,057		1,292		932		942
Other commercial and industrial
Retail		82		121		-		8
Floor plan		2		2
		84		123		-		8
		1,141		1,415		932		950
Consumer
Credit cards		467		708		391		380
Personal loans		39		120		35		18
		506		828		426		398
Auto		481		552		100		200
Total non-accrual acquired BBVAPR loans accounted for under ASC 310-20		2,128		2,795		1,458		1,548
Total non-accrual loans	$	93,007	$	104,090	$	113,842	$	119,726

Loans accounted for under ASC 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses or are accounted under the cost recovery method.

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due, but are not placed in non-accrual status until they become 1812 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans. In addition, these loans are excluded from the impairment analysis.

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, loans whose terms have been extended and which are classified as troubled-debt restructurings that are not included in non-accrual loans amounted to ~~$109.8~~ $113.1 million and ~~$98.1~~ $112.9million, respectively, as they are performing under their new terms.

At March 31, 2019 and December 31, 2018, loans that are current in their monthly payments, but placed in non-accrual due to credit deterioration amounted to $30.6 million and $21.2 million, respectively.

3830

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Impaired Loans

Oriental evaluates all loans, some individually and others as homogeneous groups, for purposes of determining impairment. The total investment in impaired commercial loans that were individually evaluated for impairment was ~~$67.8~~ $89.4 million and ~~$54.3~~ $82.0 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. The impairments on these commercial loans were measured based on the fair value of collateral or the present value of cash flows, including those identified as troubled-debt ~~restructurings.~~restructurings. The allowance for loan and lease losses for these impaired commercial loans amounted to ~~$5.2~~ $10.9 million and ~~$1.8~~ $8.4 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was ~~$86.5~~ ~~million and $91.6~~$83.4 million and $84.2 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. Impairment on mortgage loans assessed as troubled-debt restructurings was measured using the present value of cash flows. The allowance for loan losses for these impaired mortgage loans amounted to ~~$9.5~~ $11.1 million and ~~$7.8~~ $10.2million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

Originated and Other Loans and Leases Held for Investment

Oriental’s recorded investment in commercial and mortgage loans categorized as originated and other loans and leases held for investment that were individually evaluated for impairment and the related allowance for loan and lease losses at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as follows:

	September 30, 2017							March 31, 2019
	Unpaid		Recorded		Related			Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage	Principal		Investment		Allowance		Coverage
	(In thousands)							(In thousands)
Impaired loans with specific allowance:
Commercial	$	33,159	$	30,465	$	5,223	17%	$	61,854	$	56,408	$	10,828	19%
Residential impaired and troubled-debt restructuring		95,680		86,511		9,524	11%		94,964		83,406		11,135	13%
Impaired loans with no specific allowance:
Commercial		42,520		36,574		N/A	0%		38,512		32,207		N/A	0%
Total investment in impaired loans	$	171,359	$	153,550	$	14,747	10%	$	195,330	$	172,021	$	21,963	13%

	December 31, 2016							December 31, 2018
	Unpaid		Recorded		Related			Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage	Principal		Investment		Allowance		Coverage
	(In thousands)							(In thousands)
Impaired loans with specific allowance:
Commercial	$	13,183	$	11,698	$	1,626	14%	$	54,636	$	49,092	$	8,434	17%
Residential impaired and troubled-debt restructuring		100,101		91,650		7,761	8%		95,659		84,174		10,186	12%
Impaired loans with no specific allowance
Commercial		49,038		41,441		N/A	0%		38,241		32,137		N/A	0%
Total investment in impaired loans	$	162,322	$	144,789	$	9,387	6%	$	188,536	$	165,403	$	18,620	11%

3931

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquired BBVAPR Loans Accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

Oriental’s recorded investment in acquired BBVAPR commercial loans accounted for under ASC 310-20 that were individually evaluated for impairment and the related allowance for loan and lease losses at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as follows:


	September 30, 2017							March 31, 2019
	Unpaid		Recorded		Related			Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage	Principal		Investment		Allowance		Coverage
	(In thousands)							(In thousands)
Impaired loans with specific allowance
Commercial	$	926	$	748	$	12	2%	$	926	$	747	$	24	3%
Impaired loans with no specific allowance
Commercial	$	-	$	-		N/A	0%	$	-	$	-		N/A	0%
Total investment in impaired loans	$	926	$	748	$	12	2%	$	926	$	747	$	24	3%


	December 31, 2016							December 31, 2018
	Unpaid		Recorded		Specific			Unpaid		Recorded		Specific
	Principal		Investment		Allowance		Coverage	Principal		Investment		Allowance		Coverage
	(In thousands)							(In thousands)
Impaired loans with specific allowance
Commercial	$	944	$	929	$	141	15%	$	926	$	747	$	14	2%
Impaired loans with no specific allowance
Commercial	$	240	$	221		N/A	0%	$	-	$	-		N/A	0%
Total investment in impaired loans	$	1,184	$	1,150	$	141	12%	$	926	$	747	$	14	2%

Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

Oriental’s recorded investment in acquired BBVAPR loan pools accounted for under ASC 310-30 that have recorded impairments and their related allowance for loan and lease losses at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as ~~follows~~follows::

	September 30, 2017							March 31, 2019
							Coverage							Coverage
	Unpaid		Recorded				to Recorded	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment	Principal		Investment		Allowance		Investment
	(In thousands)							(In thousands)
Impaired loan pools with specific allowance:
Mortgage	$	554,175	$	532,948	$	8,931	2%	$	489,638	$	484,577	$	17,901	4%
Commercial		254,006		242,334		23,941	10%		162,612		156,682		20,733	13%
Auto		49,347		49,258		7,238	15%		10,336		9,866		3,499	35%
Total investment in impaired loan pools	$	857,528	$	824,540	$	40,110	5%	$	662,586	$	651,125	$	42,133	6%

4032

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31 , 2016							December 31 , 2018
							Coverage							Coverage
	Unpaid		Recorded				to Recorded	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment	Principal		Investment		Allowance		Investment
	(In thousands)							(In thousands)
Impaired loan pools with specific allowance:
Mortgage	$	595,757	$	569,250	$	2,682	0%	$	498,537	$	492,890	$	15,225	3%
Commercial		199,092		195,528		23,452	12%		188,413		180,790		20,641	11%
Auto		92,797		85,676		4,922	6%		14,551		14,403		6,144	43%
Total investment in impaired loan pools	$	887,646	$	850,454	$	31,056	4%	$	701,501	$	688,083	$	42,010	6%

The tables above only present information with respect to acquired BBVAPR loan pools accounted for under ASC 310-30 if there is a recorded impairment to such loan pools and a specific allowance for loan losses.

Acquired Eurobank Loans

Oriental’s recorded investment in acquired Eurobank loan pools that have recorded impairments and their related allowance for loan and lease losses as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~ 2018 are as ~~follows~~follows::

	September 30, 2017							March 31, 2019
							Coverage							Coverage
	Unpaid		Recorded				to Recorded	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment	Principal		Investment		Allowance		Investment
	(In thousands)							(In thousands)
Impaired loan pools with specific allowance:
Loans secured by 1-4 family residential properties	$	81,679	$	68,996	$	14,219	21%	$	66,713	$	60,642	$	15,110	25%
Commercial		58,043		51,523		8,922	17%		38,447		39,319		9,242	24%
Consumer		15		1,220		5	0%
Total investment in impaired loan pools	$	139,737	$	121,739	$	23,146	19%	$	105,160	$	99,961	$	24,352	24%

	December 31, 2016							December 31, 2018
							Coverage							Coverage
	Unpaid		Recorded		Specific		to Recorded	Unpaid		Recorded		Specific		to Recorded
	Principal		Investment		Allowance		Investment	Principal		Investment		Allowance		Investment
	(In thousands)							(In thousands)
Impaired loan pools with specific allowance
Loans secured by 1-4 family residential properties	$	88,017	$	73,018	$	11,947	16%	$	70,153	$	63,406	$	15,382	24%
Commercial		81,992		72,140		9,328	13%		47,342		47,820		9,585	20%
Consumer		29		1,372		6	0%		15		4		4	100%
Total investment in impaired loan pools	$	170,038	$	146,530	$	21,281	15%	$	117,510	$	111,230	$	24,971	22%

The tables above only present information with respect to acquired Eurobank loan pools accounted for under ASC 310-30 if there is a recorded impairment to such loan pools and a specific allowance for loan losses.

4133

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the interest recognized in commercial and mortgage loans that were individually evaluated for impairment, which excludes loans accounted for under ASC 310-30, for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017 and 2016:~~ 2018:

	Quarter Ended September 30,								Quarter Ended March 31,
	2017				2016				2019				2018
	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
	(In thousands)								(In thousands)
Originated and other loans held for investment:
Impaired loans with specific allowance
Commercial	$	306	$	24,178	$	162	$	73,729	$	399	$	50,890	$	263	$	51,331
Residential troubled-debt restructuring		576		86,694		765		91,345		667		83,657		720		84,754
Impaired loans with no specific allowance
Commercial		675		36,133		259		62,946		305		32,246		176		17,764
		1,557		147,005		1,186		228,020		1,371		166,793		1,159		153,849
Acquired loans accounted for under ASC 310-20:
Impaired loans with specific allowance
Commercial		-		751		15		323		-		747		-		747
Impaired loans with no specific allowance
Commercial		-		-		-		952		-		-		-		-
Total interest income from impaired loans	$	1,557	$	147,756	$	1,201	$	229,295	$	1,371	$	167,540	$	1,159	$	154,596

Nine-Month Period Ended September 30,

2017

2016

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

(In thousands)
Originated and other loans held for investment:

Impaired loans with specific allowance

        Commercial
$
612

$
17,298

$
202

$
155,094
         Residential troubled-debt restructuring

1,685

87,951

2,321

90,881
Impaired loans with no specific allowance

         Commercial

1,350

41,519

749

42,050
            Total interest income from impaired loans
$
3,647

$
146,768

$
3,272

$
288,025

Acquired loans accounted for under ASC 310-20:

Impaired loans with specific allowance

        Commercial
$
-

$
810

$
45

$
108
Impaired loans with no specific allowance

        Commercial

-

-

-

736
            Total interest income from impaired loans
$
3,647
��
$
147,578

$
3,317

$
288,869

Modifications

The following tables present the troubled-debt restructurings in all loan portfolios during the quarters ended March 31, 2019 and 2018.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2019
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	38	$	4,494	5.52%	387	$	4,242	4.60%	353
Commercial	1		7	11.50%	36		7	11.50%	24
Consumer	71		963	15.20%	65		967	11.86%	73


	Quarter Ended March 31, 2018
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	38	$	5,747	5.69%	397	$	5,339	5.08%	363
Commercial	3		1,559	4.75%	72		1,555	4.75%	72
Consumer	28		354	15.75%	47		355	11.60%	69

The following table presents troubled-debt restructurings for which there was a payment default during the twelve month periods ended March 31, 2019 and 2018:

	Twelve month Period Ended March 31,
	2019			2018
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)
Mortgage	27	$	3,011	36	$	3,310
Commercial	4	$	1,981	4	$	398
Consumer	43	$	587	23	$	243

4235

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Modifications~~

~~The following tables present the troubled-debt restructurings in all loan portfolios during the quarters and nine-month periods ended September 30, 2017 and 2016.~~

Quarter Ended September 30, 2017

Number of contracts

Pre-Modification Outstanding Recorded Investment

Pre-Modification Weighted Average Rate

Pre-Modification Weighted Average Term (in Months)

Post-Modification Outstanding Recorded Investment

Post-Modification Weighted Average Rate

Post-Modification Weighted Average Term (in Months)

(Dollars in thousands)
Mortgage
15

$
1,796

6.18%

401

$
1,804

4.28%

409
Commercial
2

154

7.99%

53

154

8.45%

51
Consumer
30

383

11.52%

61

383

11.21%

68
Auto
2

23

6.42%

63

23

8.13%

31

Nine-Month Period Ended September 30, 2017

Number of contracts

Pre-Modification Outstanding Recorded Investment

Pre-Modification Weighted Average Rate

Pre-Modification Weighted Average Term (in Months)

Post-Modification Outstanding Recorded Investment

Post-Modification Weighted Average Rate

Post-Modification Weighted Average Term (in Months)

(Dollars in thousands)
Mortgage
74

$
9,149

6.27%

390

$
9,132

4.26%

384
Commercial
20

3,527

6.51%

55

3,528

5.55%

66
Consumer
93

1,262

11.87%

64

1,301

10.79%

70
Auto
9

134

7.24%

66

135

11.75%

37

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Quarter Ended September 30, 2016

Number of contracts

Pre-Modification Outstanding Recorded Investment

Pre-Modification Weighted Average Rate

Pre-Modification Weighted Average Term (in Months)

Post-Modification Outstanding Recorded Investment

Post-Modification Weighted Average Rate

Post-Modification Weighted Average Term (in Months)

(Dollars in thousands)
Mortgage
20

$
2,737

6.28%

297

$
2,768

4.72%

387
Commercial
5

7,352

5.31%

65

7,352

5.89%

130
Consumer
20

183

14.73%

72

210

12.72%

54

Nine-Month Period Ended September 30, 2016

Number of contracts

Pre-Modification Outstanding Recorded Investment

Pre-Modification Weighted Average Rate

Pre-Modification Weighted Average Term (in Months)

Post-Modification Outstanding Recorded Investment

Post-Modification Weighted Average Rate

Post-Modification Weighted Average Term (in Months)

(Dollars in thousands)
Mortgage
72

$
9,558

6.00%

347

$
9,284

4.69%

462
Commercial
13

8,675

5.53%

63

8,676

5.95%

120
Consumer
67

739

13.63%

74

813

11.12%

67

~~The following table presents troubled-debt restructurings for which there was a payment default during the twelve month periods ended September 30, 2017 and 2016:~~

Twelve Month Period Ended September 30,

2017

2016

Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

(Dollars in thousands)
Mortgage
28

$
2,663

23

$
3,437
Commercial
8

$
868

2

$
157
Consumer
22

$
248

7

$
68

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Credit Quality Indicators

Oriental categorizes originated and other loans and acquired loans accounted for under ASC 310-20 into risk categories based on relevant information about the ability of borrowers to service their debt, such as economic conditions, portfolio risk characteristics, prior loss experience, and the results of periodic credit reviews of individual loans.

Oriental uses the following definitions for risk ratings:

Pass:Loans classified as “pass” have a well-defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry ~~standards.~~standards.

Special Mention:Loans classified as “special mention” have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future ~~date.~~date.

Substandard:Loans classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not ~~corrected.~~corrected.

Doubtful:Loans classified as “doubtful” have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, questionable and ~~improbable.~~improbable.

Loss:Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the ~~future.~~future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, and based on the most recent analysis performed, the risk category of gross originated and other loans and BBVAPR acquired loans accounted for under ASC 310-20 subject to risk rating by class of loans is as follows:

	March 31, 2019
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Commercial - originated and other loans held for investment
Commercial secured by real estate:
Corporate	$	272,698	$	230,648	$	17,502	$	24,548	$	-	$	-
Institutional		68,926		58,976		-		9,950		-		-
Middle market		206,149		149,873		33,394		22,882		-		-
Retail		230,965		205,603		3,902		21,460		-		-
Floor plan		4,098		2,817		-		1,281		-		-
Real estate		18,664		18,664		-		-		-		-
		801,500		666,581		54,798		80,121		-		-
Other commercial and industrial:
Corporate		148,408		123,288		25,120		-		-		-
Institutional		146,380		146,380		-		-		-		-
Middle market		92,515		81,395		3,711		7,409		-		-
Retail		332,126		322,540		304		9,282		-		-
Floor plan		48,622		45,463		2,959		200		-		-
		768,051		719,066		32,094		16,891		-		-
Total		1,569,551		1,385,647		86,892		97,012		-		-

Commercial - acquired loans (under ASC 310-20)
Commercial secured by real estate:
Retail		54		-		-		54		-		-
Floor plan		955		77		-		878		-		-
		1,009		77		-		932		-		-
Other commercial and industrial:
Retail		1,396		1,396		-		-		-		-
		1,396		1,396		-		-		-		-
Total		2,405		1,473		-		932		-		-

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30, 2017

Risk Ratings

Balance

Special

Outstanding

Pass

Mention

Substandard

Doubtful

Loss

(In thousands)
Commercial - originated and other loans held for investment

Commercial secured by real estate:

    Corporate
$
209,000

$
192,513

$
14,550

$
1,937

$
-

$
-
    Institutional

46,176

34,348

-

11,828

-

-
    Middle market

237,677

198,479

11,020

28,178

-

-
    Retail

243,925

214,924

7,585

21,416

-

-
    Floor plan

3,607

2,287

1,320

-

-

-
    Real estate

15,473

15,473

-

-

-

-

755,858

658,024

34,475

63,359

-

-
Other commercial and industrial:

    Corporate

163,192

163,192

-

-

-

-
    Institutional

118,091

118,091

-

-

-

-
    Middle market

81,944

65,530

8,618

7,796

-

-
    Retail

88,169

83,729

891

3,549

-

-
    Floor plan

38,457

35,368

3,036

53

-

-

489,853

465,910

12,545

11,398

-

-
      Total

1,245,711

1,123,934

47,020

74,757

-

-

Commercial - acquired loans
      (under ASC 310-20)

Commercial secured by real estate:

    Retail

121

-

-

121

-

-
    Floor plan

1,329

393

-

936

-

-

1,450

393

-

1,057

-

-
Other commercial and industrial:

    Retail

3,160

3,154

-

6

-

-
    Floor plan

2

-

-

2

-

-

3,162

3,154

-

8

-

-
      Total

4,612

3,547

-

1,065

-

-

	March 31, 2019
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Retail - originated and other loans held for investment
Mortgage:
Traditional		517,773		487,640		-		30,133		-		-
Non-traditional		13,206		10,589		-		2,617		-		-
Loss mitigation program		107,257		88,231		-		19,026		-		-
Home equity secured personal loans		245		236		-		9		-		-
GNMA's buy-back option program		12,942		-		-		12,942		-		-
		651,423		586,696		-		64,727		-		-

Consumer:
Credit cards		27,926		27,194		-		732		-		-
Overdrafts		172		137		-		35		-		-
Unsecured personal lines of credit		1,929		1,900		-		29		-		-
Unsecured personal loans		304,608		303,582		-		1,026		-		-
Cash collateral personal loans		15,908		15,616		-		292		-		-
		350,543		348,429		-		2,114		-		-
Auto and Leasing		1,167,482		1,155,319		-		12,163		-		-
Total		2,169,448		2,090,444		-		79,004		-		-

Retail - acquired loans (accounted for under ASC 310-20)
Consumer:
Credit cards		20,622		20,232		-		390		-		-
Personal loans		2,146		2,111		-		35		-		-
		22,768		22,343		-		425		-		-
Auto		2,336		2,236		-		100		-		-
		25,104		24,579		-		525		-		-
	$	3,766,508	$	3,502,143	$	86,892	$	177,473	$	-	$	-

4638

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30, 2017

Risk Ratings

Balance

Special

Outstanding

Pass

Mention

Substandard

Doubtful

Loss

(In thousands)
Retail - originated and other loans held for investment

Mortgage:

    Traditional

559,009

524,825

-

34,184

-

-
    Non-traditional

18,705

15,176

-

3,529

-

-
    Loss mitigation program

103,490

87,549

-

15,941

-

-
    Home equity secured personal loans

273

261

-

12

-

-
    GNMA's buy-back option program

12,999

-

-

12,999

-

-

694,476

627,811

-

66,665

-

-

Consumer:

    Credit cards

28,010

27,445

-

565

-

-
    Overdrafts

265

190

-

75

-

-
    Unsecured personal lines of credit

2,344

2,335

-

9

-

-
    Unsecured personal loans

270,894

270,160

-

734

-

-
    Cash collateral personal loans

14,844

14,826

-

18

-

-

316,357

314,956

-

1,401

-

-
    Auto and Leasing

831,437

820,606

-

10,831

-

-
      Total

1,842,270

1,763,373

-

78,897

-

-

Retail - acquired loans (accounted for under ASC 310-20)

Consumer:

    Credit cards

26,808

26,342

-

466

-

-
    Personal loans

2,656

2,617

-

39

-

-

29,464

28,959

-

505

-

-
    Auto

26,562

26,109

-

453

-

-

56,026

55,068

-

958

-

-

$
3,148,619

$
2,945,922

$
47,020

$
155,677

$
-

$
-

	December 31, 2018
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Commercial - originated and other loans held for investment
Commercial secured by real estate:
Corporate	$	289,052	$	246,711	$	26,544	$	15,797	$	-	$	-
Institutional		69,613		59,509		-		10,104		-		-
Middle market		207,463		151,638		32,638		23,187		-		-
Retail		224,114		198,402		3,996		21,716		-		-
Floor plan		4,184		2,890		-		1,294		-		-
Real estate		19,009		19,009		-		-		-		-
		813,435		678,159		63,178		72,098		-		-
Other commercial and industrial:
Corporate		179,885		154,629		25,256		-		-		-
Institutional		156,410		156,410		-		-		-		-
Middle market		87,967		63,876		13,737		10,354		-		-
Retail		310,212		307,160		318		2,734		-		-
Floor plan		49,679		47,092		2,541		46		-		-
		784,153		729,167		41,852		13,134		-		-
Total		1,597,588		1,407,326		105,030		85,232		-		-

Commercial - acquired loans (under ASC 310-20)
Commercial secured by real estate:
Retail		54		-		-		54		-		-
Floor plan		982		94		-		888		-		-
		1,036		94		-		942		-		-
Other commercial and industrial:
Retail		1,510		1,510		-		-		-		-
		1,510		1,510		-		-		-		-
Total		2,546		1,604		-		942		-		-

4739

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

December 31, 2016

Risk Ratings

Balance

Special

Outstanding

Pass

Mention

Substandard

Doubtful

Loss

(In thousands)
Commercial - originated and other loans held for investment

Commercial secured by real estate:

    Corporate
$
242,770

$
226,768

$
16,002

$
-

$
-

$
-
    Institutional

26,800

16,067

9,090

1,643

-

-
    Middle market

234,981

194,913

11,689

28,379

-

-
    Retail

249,728

222,205

8,559

18,964

-

-
    Floor plan

2,989

2,989

-

-

-

-
    Real estate

16,395

16,395

-

-

-

-

773,663

679,337

45,340

48,986

-

-
Other commercial and industrial:

    Corporate

136,438

136,438

-

-

-

-
    Institutional

180,285

180,185

100

-

-

-
    Middle market

81,633

63,556

16,150

1,927

-

-
    Retail

73,705

68,743

731

4,231

-

-
    Floor plan

32,142

29,267

2,814

61

-

-

504,203

478,189

19,795

6,219

-

-
      Total

1,277,866

1,157,526

65,135

55,205

-

-

Commercial - acquired loans
      (under ASC 310-20)

Commercial secured by real estate:

    Retail

143

-

-

143

-

-
    Floor plan

2,390

905

337

1,148

-

-

2,533

905

337

1,291

-

-
Other commercial and industrial:

    Retail

3,027

3,014

-

13

-

-
    Floor plan

2

-

-

2

-

-

3,029

3,014

-

15

-

-
      Total

5,562

3,919

337

1,306

-

-

	December 31, 2018
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention			Substandard		Doubtful		Loss
	(In thousands)
Retail - originated and other loans held for investment
Mortgage:
Traditional		527,732		493,952		-			33,780		-		-
Non-traditional		14,273		11,188		-	��		3,085		-		-
Loss mitigation program		106,833		87,444		-			19,389		-		-
Home equity secured personal loans		250		250		-			-		-		-
GNMA's buy-back option program		19,721		-		-			19,721		-		-
		668,809		592,834		-			75,975		-		-

Consumer:
Credit cards		28,034		27,623		-			411		-		-
Overdrafts		214		204		-			10		-		-
Unsecured personal lines of credit		1,917		1,895		-			22		-		-
Unsecured personal loans		303,119		301,857		-			1,262		-		-
Cash collateral personal loans		15,696		15,693		-			3		-		-
		348,980		347,272		-			1,708		-		-
Auto and Leasing		1,129,695		1,116,201		-			13,494		-		-
Total		2,147,484		2,056,307		-			91,177		-		-

Retail - acquired loans (under ASC 310-20)
Consumer:
Credit cards		21,822		21,442		-			380		-		-
Personal loans		2,166		2,148		-			18		-		-
		23,988		23,590		-			398		-		-
Auto		4,435		4,235		-			200		-		-
Total		28,423		27,825		-			598		-		-
	$	3,776,041	$	3,493,062	$	105,030		$	177,949	$	-	$	-

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

December 31, 2016

Risk Ratings

Balance

Special

Outstanding

Pass

Mention

Substandard

Doubtful

Loss

(In thousands)
Retail - originated and other loans held for investment

Mortgage:

    Traditional

585,089

540,373

-

44,716

-

-
    Non-traditional

22,859

18,129

-

4,730

-

-
    Loss mitigation program

103,528

86,987

-

16,541

-

-
    Home equity secured personal loans

337

337

-

-

-

-
    GNMA's buy-back option program

9,681

-

-

9,681

-

-

721,494

645,826

-

75,668

-

-

Consumer:

    Credit cards

26,358

25,833

-

525

-

-
    Overdrafts

207

174

-

33

-

-
    Unsecured personal lines of credit

2,404

2,372

-

32

-

-
    Unsecured personal loans

246,272

245,190

-

1,082

-

-
    Cash collateral personal loans

15,274

15,270

-

4

-

-

290,515

288,839

-

1,676

-

-
    Auto and Leasing

756,395

748,221

-

8,174

-

-
      Total

1,768,404

1,682,886

-

85,518

-

-

Retail - acquired loans
      (under ASC 310-20)

Consumer:

    Credit cards

30,093

29,386

-

707

-

-
    Personal loans

2,769

2,649

-

120

-

-

32,862

32,035

-

827

-

-
    Auto

53,026

52,510

-

516

-

-
      Total

85,888

84,545

-

1,343

-

-

$
3,137,720

$
2,928,876

$
65,472

$
143,372

$
-

$
-

4940

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 65 – ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of Oriental’s allowance for loan and lease losses at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 was as ~~follows~~:follows:

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Allowance for loans and lease losses:
Originated and other loans and leases held for investment:
Mortgage	$	22,308	$	17,344	$	16,689	$	19,783
Commercial		24,278		8,995		32,154		30,326
Consumer		15,793		13,067		16,085		15,571
Auto and leasing		25,162		19,463		29,107		29,508
Unallocated		-		431
Total allowance for originated and other loans and lease losses		87,541		59,300		94,035		95,188

Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		41		169		32		22
Consumer		2,591		3,028		1,869		1,905
Auto		731		1,103		67		135
		3,363		4,300		1,968		2,062
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		8,931		2,682		17,901		15,225
Commercial		23,941		23,452		20,733		20,641
Auto		7,238		4,922		3,499		6,144
		40,110		31,056		42,133		42,010
Total allowance for acquired BBVAPR loans and lease losses		43,473		35,356		44,101		44,072
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		14,219		11,947		15,110		15,382
Commercial		8,922		9,328		9,242		9,585
Consumer		5		6		-		4
Total allowance for acquired Eurobank loan and lease losses		23,146		21,281		24,352		24,971
Total allowance for loan and lease losses	$	154,160	$	115,937	$	162,488	$	164,231

Oriental maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. Oriental’s allowance for loan and lease losses policy provides for a detailed quarterly analysis of probable losses. The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors. While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond Oriental’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition, and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition.

During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effect of the hurricanes on Oriental's loan portfolio is difficult to predict at this time,

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.~~

The framework for the analysis was based on our current ALLL methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment.

For commercial portfolios, Oriental contacted its clients to evaluate the impact of the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of repayment. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output. For retail portfolios (residential mortgage, consumer and auto), management established assumptions based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (for all portfolios) and the location of the collateral (for residential loans).

~~Based on our assessment of the facts related to these hurricanes, we have increased our provision for loan losses $27.0~~ ~~million. The increase in the allowance corresponding to our originated loan portfolio was $16.8~~ ~~million: $3.8~~ ~~million in mortgage loans, $7.6~~ ~~million in commercial loans, $800~~ ~~thousand in consumer loans, and $4.6~~ ~~million in auto loans. The increase in the allowance corresponding to our acquired loan portfolio was $10.2~~ ~~million: $2.7~~ ~~million in mortgage loans, $7.0~~ ~~million in commercial loans, $100~~ ~~thousand in consumer loans, and $400~~ ~~thousand in auto loans.~~

The documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental will continue to assess the impact to our customers and our businesses as a result of the hurricanes and refine our estimates as more information becomes available.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Allowance for Originated and Other Loan and Lease Losses Held for Investment

The following tables ~~presents~~present the activity in our allowance for loan and lease losses and the related recorded investment of the originated and other loans held for investment portfolio by segment for the periods indicated:

Quarter Ended September 30, 2017

Mortgage

Commercial

Consumer

Auto and Leasing

Unallocated

Total

(In thousands)
Allowance for loan and lease losses for originated and other loans:

      Balance at beginning of period
$
18,664

$
17,279

$
14,981

$
18,742

$
-

$
69,666
          Charge-offs

(834)

(727)

(4,424)

(9,387)

-

(15,372)
          Recoveries

341

654

168

2,394

-

3,557
          Provision for originated and other loans and lease losses

4,137

7,072

5,068

13,413

-

29,690
      Balance at end of period
$
22,308

$
24,278

$
15,793

$
25,162

$
-

$
87,541

Nine-Month Period Ended September 30, 2017

Mortgage

Commercial

Consumer

Auto and Leasing

Unallocated

Total

(In thousands)
Allowance for loan and lease losses for originated and other loans:

      Balance at beginning of period
$
17,344

$
8,995

$
13,067

$
19,463

$
431

$
59,300
          Charge-offs

(5,375)

(6,424)

(11,792)

(24,726)

-

(48,317)
          Recoveries

458

880

1,113

9,864

-

12,315
          Provision for originated and other loans and lease losses

9,881

20,827

13,405

20,561

(431)

64,243
      Balance at end of period
$
22,308

$
24,278

$
15,793

$
25,162

$
-

$
87,541

September 30, 2017

Mortgage

Commercial

Consumer

Auto and Leasing

Unallocated

Total

(In thousands)
Allowance for loan and lease losses on originated and other loans:

    Ending allowance balance attributable
      to loans:

        Individually evaluated for impairment
$
9,524

$
5,223

$
-

$
-

$
-

$
14,747
        Collectively evaluated for impairment

12,784

19,055

15,793

25,162

-

72,794
                Total ending allowance balance
$
22,308

$
24,278

$
15,793

$
25,162

$
-

$
87,541
Loans:

        Individually evaluated for impairment
$
86,511

$
67,039

$
-

$
-

$
-

$
153,550
        Collectively evaluated for impairment

607,965

1,178,672

316,357

831,437

-

2,934,431
                Total ending loan balance
$
694,476

$
1,245,711

$
316,357

$
831,437

$
-

$
3,087,981

5241

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended September 30, 2016												Quarter Ended March 31, 2019
	Mortgage		Commercial		Consumer		Auto and Leasing		Unallocated		Total		Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)												(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	18,537	$	63,144	$	11,771	$	19,259	$	101	$	112,812	$	19,783	$	30,326	$	15,571	$	29,508	$	95,188
Charge-offs		(1,656)		(56,700)		(3,173)		(7,804)		-		(69,333)		(587)		(1,086)		(4,121)		(11,371)		(17,165)
Recoveries		21		93		120		3,747		-		3,981		287		147		263		3,982		4,679
Provision (recapture) for originated and other loan and lease losses		1,625		5,770		3,571		3,800		(58)		14,708
(Recapture) provision for loan and lease losses														(2,794)		2,767		4,372		6,988		11,333
Balance at end of period	$	18,527	$	12,307	$	12,289	$	19,002	$	43	$	62,168	$	16,689	$	32,154	$	16,085	$	29,107	$	94,035

Nine-Month Period Ended September 30, 2016

Mortgage

Commercial

Consumer

Auto and Leasing

Unallocated

Total

(In thousands)
Allowance for loan and lease losses for originated and other loans:

      Balance at beginning of period
$
18,352

$
64,791

$
11,197

$
18,261

$
25

$
112,626
          Charge-offs

(4,692)

(58,544)

(8,310)

(24,267)

-

(95,813)
          Recoveries

204

407

355

9,969

-

10,935
          Provision (recapture) for originated and other loan and lease losses

4,663

5,653

9,047

15,039

18

34,420
                Balance at end of period
$
18,527

$
12,307

$
12,289

$
19,002

$
43

$
62,168

	March 31, 2019
	Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)
Allowance for loan and lease losses on originated and other loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	11,135	$	10,828	$	-	$	-	$	21,963
Collectively evaluated for impairment		5,554		21,326		16,085		29,107		72,072
Total ending allowance balance	$	16,689	$	32,154	$	16,085	$	29,107	$	94,035
Loans:
Individually evaluated for impairment	$	83,406	$	88,615	$	-	$	-	$	172,021
Collectively evaluated for impairment		568,017		1,480,936		350,543		1,167,482		3,566,978
Total ending loan balance	$	651,423	$	1,569,551	$	350,543	$	1,167,482	$	3,738,999

December 31, 2016

Mortgage

Commercial

Consumer

Auto and Leasing

Unallocated

Total

(In thousands)
Allowance for loan and lease losses on originated and other loans:

    Ending allowance balance attributable
      to loans:

        Individually evaluated for impairment
$
7,761

$
1,626

$
-

$
-

$
-

$
9,387
        Collectively evaluated for impairment

9,583

7,369

13,067

19,463

431

49,913
                Total ending allowance balance
$
17,344

$
8,995

$
13,067

$
19,463

$
431

$
59,300
Loans:

        Individually evaluated for impairment
$
91,650

$
53,139

$
-

$
-

$
-

$
144,789
        Collectively evaluated for impairment

629,844

1,224,727

290,515

756,395

-

2,901,481
                Total ending loan balance
$
721,494

$
1,277,866

$
290,515

$
756,395

$
-

$
3,046,270

	Quarter Ended March 31, 2018
	Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	20,439	$	30,258	$	16,454	$	25,567	$	92,718
Charge-offs		(968)		(1,149)		(4,258)		(8,982)		(15,357)
Recoveries		314		182		240		3,777		4,513
(Recapture) provision for originated and other loan and lease losses		(802)		3,883		5,587		6,290		14,958
Balance at end of period	$	18,983	$	33,174	$	18,023	$	26,652	$	96,832

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2018
	Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)
Allowance for loan and lease losses on originated and other loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	10,186	$	8,434	$	-	$	-	$	18,620
Collectively evaluated for impairment		9,597		21,892		15,571		29,508		76,568
Total ending allowance balance	$	19,783	$	30,326	$	15,571	$	29,508	$	95,188
Loans:
Individually evaluated for impairment	$	84,174	$	81,229	$	-	$	-	$	165,403
Collectively evaluated for impairment		584,635		1,516,359		348,980		1,129,695		3,579,669
Total ending loan balance	$	668,809	$	1,597,588	$	348,980	$	1,129,695	$	3,745,072

Allowance for BBVAPR Acquired Loan Losses

Loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

The following tables present the activity in our allowance for loan losses and related recorded investment of the associated loans in our BBVAPR acquired loan portfolio accounted for under ASC 310-20, for the periods ~~indicated~~:indicated:

	Quarter Ended March 31, 2019
	Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Balance at beginning of period	$	22	$	1,905	$	135	$	2,062
Charge-offs		-		(440)		(85)		(525)
Recoveries		3		40		90		133
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		7		364		(73)		298
Balance at end of period	$	32	$	1,869	$	67	$	1,968

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended September 30, 2017

Commercial

Consumer

Auto

Total

(In thousands)
Allowance for loan and lease losses
    for acquired BBVAPR loans
    accounted for under ASC 310-20:

      Balance at beginning of period
$
41

$
2,623

$
684

$
3,348
          Charge-offs

-

(711)

(222)

(933)
          Recoveries

1

33

202

236
          Provision (recapture) for acquired BBVAPR
          loan and lease losses accounted for
          under ASC 310-20

(1)

646

67

712
                Balance at end of period
$
41

$
2,591

$
731

$
3,363

	March 31, 2019
	Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	24	$	-	$	-	$	24
Collectively evaluated for impairment		8		1,869		67		1,944
Total ending allowance balance	$	32	$	1,869	$	67	$	1,968
Loans:
Individually evaluated for impairment	$	747	$	-	$	-	$	747
Collectively evaluated for impairment		1,658		22,768		2,336		26,762
Total ending loan balance	$	2,405	$	22,768	$	2,336	$	27,509

	Nine-Month Period Ended September 30, 2017								Quarter Ended March 31, 2018
	Commercial		Consumer		Auto		Total		Commercial		Consumer		Auto		Total
	(In thousands)								(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Balance at beginning of year	$	169	$	3,028	$	1,103	$	4,300
Balance at beginning of period									$	42	$	3,225	$	595	$	3,862
Charge-offs		(132)		(2,367)		(705)		(3,204)		-		(1,022)		(125)		(1,147)
Recoveries		6		392		1,251		1,649		3		54		228		285
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		(2)		1,538		(918)		618
Balance at end of year	$	41	$	2,591	$	731	$	3,363
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20										(8)		402	-	(210)		184
Balance at end of period									$	37	$	2,659	$	488	$	3,184

5444

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30, 2017

Commercial

Consumer

Auto

Total

(In thousands)
Allowance for loan and lease losses
for acquired BBVAPR loans
accounted for under ASC 310-20:

    Ending allowance balance attributable
      to loans:

        Individually evaluated for impairment
$
12

$
-

$
-

$
12
        Collectively evaluated for impairment

29

2,591

731

3,351
                Total ending allowance balance
$
41

$
2,591

$
731

$
3,363
Loans:

        Individually evaluated for impairment
$
748

$
-

$
-

$
748
         Collectively evaluated for impairment

3,864

29,464

26,562

59,890
                Total ending loan balance
$
4,612

$
29,464

$
26,562

$
60,638

Quarter Ended September 30, 2016

Commercial

Consumer

Auto

Total

(In thousands)
Allowance for loan and lease losses
    for acquired BBVAPR loans
    accounted for under ASC 310-20:

      Balance at beginning of period
$
21

$
3,002

$
1,464

$
4,487
          Charge-offs

(2)

(889)

(475)

(1,366)
          Recoveries

16

67

461

544
          Provision (recapture) for acquired
            loan and lease losses accounted for
            under ASC 310-20

(17)

766

(201)

548
                Balance at end of period
$
18

$
2,946

$
1,249

$
4,213

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Nine-Month Period Ended September 30, 2016

Commercial

Consumer

Auto

Total

(In thousands)
    Allowance for loan and lease losses
    for acquired BBVAPR loans
    accounted for under ASC 310-20:

      Balance at beginning of year
$
26

$
3,429

$
2,087

$
5,542
          Charge-offs

(21)

(2,714)

(1,783)

(4,518)
          Recoveries

56

236

1,505

1,797
          Provision (recapture) for acquired
            loan and lease losses accounted for
            under ASC 310-20

(43)

1,995

(560)

1,392
                Balance at end of period
$
18

$
2,946

$
1,249

$
4,213

	December 31, 2016								December 31, 2018
	Commercial		Consumer		Auto		Total		Commercial		Consumer		Auto		Total
	(In thousands)								(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	141	$	-	$	-	$	141	$	14	$	-	$	-	$	14
Collectively evaluated for impairment		28		3,028		1,103		4,159		8		1,905		135		2,048
Total ending allowance balance	$	169	$	3,028	$	1,103	$	4,300	$	22	$	1,905	$	135	$	2,062
Loans:
Individually evaluated for impairment	$	1,150	$	-	$	-	$	1,150	$	747	$	-	$	-	$	747
Collectively evaluated for impairment		4,412		32,862		53,026		90,300		1,799		23,988		4,435		30,222
Total ending loan balance	$	5,562	$	32,862	$	53,026	$	91,450	$	2,546	$	23,988	$	4,435	$	30,969

Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

For loans accounted for under ASC ~~310- 30,~~310-30, as part of the evaluation of actual versus expected cash flows, Oriental assesses on a quarterly basis the credit quality of these loans based on delinquency, severity factors and risk ratings, among other assumptions. Migration and credit quality trends are assessed at the pool level, by comparing information from the latest evaluation period through the end of the reporting period.

The following tables present the activity in our allowance for loan losses and related recorded investment of the acquired BBVAPR loan portfolio accounted for under ASC 310-30 for the periods ~~indicated~~:indicated:

	Quarter Ended March 31, 2019
	Mortgage		Commercial		Consumer			Auto	Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	15,225	$	20,641	$	-	$	6,144	42,010
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30		2,733		850		-		(2,314)	1,269
Allowance de-recognition		(57)		(758)		-		(331)	(1,146)
Balance at end of period	$	17,901	$	20,733	$	-	$	3,499	42,133

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended September 30, 2017								Quarter Ended March 31, 2018
	Mortgage		Commercial		Auto		Total		Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)								(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	4,141	$	25,614	$	7,739	$	37,494	$	14,085	$	23,691	$	18	$	7,961	$	45,755
Provision for BBVAPR loans and lease losses accounted for under ASC 310-30		4,790		6,810		- 501		11,099
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30										314		752		-		(887)		179
Allowance de-recognition		-		(8,483)		-		(8,483)		(68)		(2,396)		-		(304)		(2,768)
Balance at end of period	$	8,931	$	23,941	$	7,238	$	40,110	$	14,331	$	22,047	$	18	$	6,770	$	43,166


	Nine-Month Period Ended September 30, 2017
	Mortgage		Commercial		Auto		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	2,682	$	23,452	$	4,922	$	31,056
Provision (recapture) for BBVAPR loans and lease losses accounted for under ASC 310-30		6,345		9,768		2,685		18,798
Allowance de-recognition		(96)		(9,279)		(369)		(9,744)
Balance at end of period	$	8,931	$	23,941	$	7,238	$	40,110

Allowance for Acquired Eurobank Loan Losses

The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters ended March 31, 2019 and 2018 were as follows:

	Quarter Ended March 31, 2019
	Loans Secured by 1-4 Family Residential Properties		Commercial		Consumer		Total
	(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:
Balance at beginning of period	$	15,382	$	9,585	$	4	$	24,971
(Recapture) for loan and lease losses, net		(202)		(449)		-		(651)
Allowance de-recognition		(70)	$	106	$	(4)		32
Balance at end of period	$	15,110	$	9,242	$	-	$	24,352

	Quarter Ended March 31, 2018
	Loans secured by 1-4 Family Residential Properties		Commercial		Consumer		Total
	(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:
Balance at beginning of period	$	15,187	$	9,983	$	4	$	25,174
Provision (recapture) for acquired Eurobank loan and lease losses, net		179		(40)		-		139
Allowance de-recognition		48		49		-		97
Balance at end of period	$	15,414	$	9,992	$	4	$	25,410

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Quarter Ended September 30, 2016

Mortgage

Commercial

Auto

Total

(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:

      Balance at beginning of period
$
1,585

$
15,863

$
5,353

$
22,801
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30

1,079

6,324

-

7,403
Allowance de-recognition

-

(189)

(196)

(385)
                Balance at end of period
$
2,664

$
21,998

$
5,157

$
29,819

Nine-Month Period Ended September 30, 2016

Mortgage

Commercial

Auto

Total

(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:

      Balance at beginning of period
$
1,678

$
21,245

$
2,862

$
25,785
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30

1,000

9,552

2,693

13,245
Loan pools fully charged-off

(14)

(66)

(202)

(282)
Allowance de-recogntion

-

(8,733)

(196)

(8,929)
                Balance at end of period
$
2,664

$
21,998

$
5,157

$
29,819

5846

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 6 ~~Allowance for Acquired Eurobank Loan Losses~~— FORECLOSED REAL ESTATE

The following tables present the activity related to foreclosed real estate for the quarters ended March 31, 2019 and 2018:

~~The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters and nine-month periods ended September 30, 2017 and 2016 were as follows:~~

	Quarter Ended March 31, 2019
	Originated and other loans and leases held for investment		Acquired BBVAPR loans		Acquired Eurobank loans		Total
		(In thousands)

Balance at beginning of period	$	9,571	$	14,617	$	9,580	$	33,768
Decline in value		(168)		(1,157)		(421)		(1,746)
Additions		2,354		1,055		495		3,904
Sales		(1,673)		(1,718)		(1,567)		(4,958)
Other adjustments		(72)		(31)		-		(103)
Balance at end of period	$	10,012	$	12,766	$	8,087	$	30,865


	Quarter Ended March 31, 2018
	Originated and other loans and leases held for investment		Acquired BBVAPR loans		Acquired Eurobank loans		Total
		(In thousands)

Balance at beginning of period	$	14,283	$	18,347		11,544	$	44,174
Decline in value		(488)		(1,036)		(462)		(1,986)
Additions		1,487		1,649		113		3,249
Sales		(1,917)		(2,465)		(741)		(5,123)
Balance at end of period	$	13,365	$	16,495	$	10,454	$	40,314

Quarter Ended September 30, 2017

Loans Secured by   1-4 Family Residential Properties

Commercial

Consumer

Total

(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:

      Balance at beginning of period
$
13,651

$
8,131

$
5

$
21,787
          Provision for (recapture) acquired Eurobank loans and lease losses, net

1,139

1,402

-

2,541
          Allowance de-recognition

(571)

(611)

-

(1,182)
                Balance at end of period
$
14,219

$
8,922

$
5

$
23,146

Nine-Month Period Ended September 30, 2017

Loans Secured by   1-4 Family Residential Properties

Commercial

Consumer

Total

(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:

      Balance at beginning of period
$
11,947

$
9,328

$
6

$
21,281
          Provision for (recapture) acquired Eurobank loans and lease losses, net

4,011

$
562

-

4,573
          Allowance de-recognition

(1,739)

(968)

(1)

(2,708)
                Balance at end of period
$
14,219

$
8,922

$
5

$
23,146

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Quarter Ended September 30, 2016

Loans secured by 1-4 Family Residential Properties

Commercial

Consumer

Total

(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:

      Balance at beginning of period
$
11,016

$
11,096

$
4

$
22,116
          Provision for (recapture) acquired Eurobank loan and lease losses, net

893

(74)

-

819
          Loan pools fully charged-off

818

-

-

818
          Allowance de-recognition

(459)

(478)

(4)

(941)
                Balance at end of period
$
12,268

$
10,544

$
-

$
22,812

Nine-Month Period Ended September 30, 2016

Loans secured by 1-4 Family Residential Properties

Commercial

Consumer

Total

(In thousands)
Allowance for loan and lease losses for Eurobank loans:

      Balance at beginning of period
$
22,570

$
67,365

$
243

$
90,178
          Provision for (recapture) acquired Eurobank loan and lease losses, net

1,077

1,585

(7)

2,655
          FDIC shared-loss portion of provision for covered loan and lease losses, net

3,213

-

-

3,213
          Loan pools fully charged-off

-

(134)

-

(134)
          Allowance de-recognition

(14,592)

(58,272)

(236)

(73,100)
                Balance at end of period
$
12,268

$
10,544

$
-

$
22,812

6047

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE ~~7- FDIC INDEMNIFICATION ASSET, TRUE-UP PAYMENT OBLIGATION, AND FDIC SHARED-LOSS EXPENSE~~7 — DERIVATIVES

On February 6, 2017, the Bank and the FDIC agreed to terminate the single family and commercial shared-loss agreements related to the FDIC assisted acquisition of Eurobank on April 30, 2010. As part of the loss share termination transaction, the Bank made a payment of $~~10.1~~ ~~million to the FDIC and recorded a net benefit of $1.4~~ million. Such termination payment took into account the anticipated reimbursements over the life of the shared-loss agreements and the true-up payment liability of the Bank anticipated at the end of the ten year term of the single family shared-loss agreement. All rights and obligations of the parties under the shared-loss agreements terminated as of the closing date of the agreement.

Pursuant to the terms of the shared-loss agreements, the FDIC would reimburse the Bank for 80% of all qualifying losses with respect to assets covered by such agreements, and the Bank would reimburse the FDIC for 80% of qualifying recoveries with respect to losses for which the FDIC reimbursed the Bank. The single family shared-loss agreement provided for FDIC loss sharing and the Bank’s reimbursement to the FDIC to last for ten years, and the commercial shared-loss agreement provided for FDIC loss sharing and the Bank’s reimbursement to the FDIC to last for five years, with additional recovery sharing for three years thereafter.

~~The following table presents the activity in the FDIC indemnification asset and true-up payment obligation for the quarters and nine-month periods ended September 30, 2017 and 2016:~~

Quarter Ended September 30,
Nine-Month Period Ended September 30,

2017

2016

2017

2016

(In thousands)
FDIC indemnification asset:

Balance at beginning of period
$
-

$
18,426

$
14,411

$
22,599
    Shared-loss agreements reimbursements from the FDIC

-

(87)

-

(824)
    Increase in expected credit losses to be
      covered under shared-loss agreements, net

-

818

-

3,213
    FDIC indemnification asset benefit (expense)

-

(1,910)

1,403

(6,179)
    Net expenses incurred under shared-loss agreements

-

(577)

-

(2,139)
    Shared-loss termination settlement

-

-

(15,814)

-
Balance at end of period
$
-

$
16,670

$
-

$
16,670

True-up payment obligation:

Balance at beginning of period
$
-

$
25,771

$
26,786

$
24,658
    Change in true-up payment obligation

-

508

-

1,621
    Shared-loss termination settlement

-

-

(26,786)

-
Balance at end of period
$
-

$
26,279

$
-

$
26,279

Oriental recognized an FDIC shared-loss (benefit) expense, net in the consolidated statements of operations, which consists of the following, for the quarters and nine-month periods ended September 30, 2017 and 2016:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2017

2016

2017

2016

(In thousands)
FDIC indemnification asset expense (benefit)

$
-

$
1,910

$
(1,403)

$
6,179
Change in true-up payment obligation

-

508

-

1,621
Reimbursement to FDIC for recoveries

-

878

-

2,945
Total FDIC shared-loss expense (benefit), net

$
-

$
3,296

$
(1,403)

$
10,745

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~NOTE 8~~ — ~~FORECLOSED REAL ESTATE~~

~~The following tables present the activity related to foreclosed real estate for the quarters and nine month periods ended~~ ~~September 30, 2017 and 2016~~:

Quarter Ended September 30, 2017

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

      Balance at beginning of period
$
15,842

$
21,671

$
12,710

$
50,223
           Decline in value

(592)

(680)

(340)

(1,612)
          Additions

1,482

2,122

665

4,269
           Sales

(1,996)

(2,410)

(1,108)

(5,514)
          Other adjustments

(59)

(32)

-

(91)
                Balance at end of period
$
14,677

$
20,671

$
11,927

$
47,275

Nine-Month Period Ended September 30, 2017

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

      Balance at beginning of period
$
12,389

$
21,379

$
13,752

$
47,520
           Decline in value

(1,672)

(2,309)

(1,610)

(5,591)
          Additions

9,338

9,210

2,597

21,145
           Sales

(5,235)

(7,464)

(2,812)

(15,511)
          Other adjustments

(143)

(145)

-

(288)
                Balance at end of period
$
14,677

$
20,671

$
11,927

$
47,275

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Quarter Ended September 30, 2016

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

      Balance at beginning of period
$
10,401

$
23,894

$
16,925

$
51,220
           Decline in value

(794)

(1,662)

(1,036)

(3,492)
          Additions

1,866

1,800

692

4,358
           Sales

(1,717)

(3,191)

(1,440)

(6,348)
          Other adjustments

2

-

-

2
                Balance at end of period
$
9,758

$
20,841

$
15,141

$
45,740

Nine-Month Period Ended September 30, 2016

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

       Balance at beginning of period
$
9,738

$
26,757

$
21,681

$
58,176
           Decline in value

(1,442)

(5,566)

(4,518)

(11,526)
           Additions

6,295

4,855

2,399

13,549
          Sales

(4,836)

(5,205)

(4,421)

(14,462)
           Other adjustments

3

-

-

3
                Balance at end of period
$
9,758

$
20,841

$
15,141

$
45,740

During the third quarter of 2017, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Management is evaluating the potential impact these two events brought to Oriental’s foreclosed real estate, considering the related underlying insurance coverage. Taking into consideration all available information and the status of the analysis to date, we believed the fair value of these properties will not be materially impacted.

~~NOTE 9~~ — ~~DERIVATIVES~~

The following table presents Oriental’s derivative assets and liabilities at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

	March 31,		December 31,
	2019		2018
	(In thousands)
Derivative assets:
Interest rate swaps designated as cash flow hedges	$	-	$	14
Interest rate swaps not designated as hedges		33		126
Interest rate caps		77		207
	$	110	$	347
Derivative liabilities:
Interest rate swaps designated as cash flow hedges	$	329	$	-
Interest rate swaps not designated as hedges		33		126
Interest rate caps		77		207
	$	439	$	333

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

September 30,

December 31,

2017

2016

(In thousands)
Derivative assets:

    Interest rate swaps not designated as hedges
$
757

$
1,187
    Interest rate caps

52

143

$
809

$
1,330
Derivative liabilities:

    Interest rate swaps designated as cash flow hedges

868

1,004
    Interest rate swaps not designated as hedges

757

1,187
    Interest rate caps

52

139
    Other

-

107

$
1,677

$
2,437

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Interest Rate Swaps

Oriental enters into interest rate swap contracts to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in a predetermined variable index rate. The interest rate swaps effectively fix Oriental’s interest payments on an amount of forecasted interest expense attributable to the variable index rate corresponding to the swap notional stated rate. These swaps are designated as cash flow hedges for the forecasted wholesale borrowing transactions and are properly documented as ~~such, and~~such; therefore, qualify for cash flow hedge accounting. Any gain or loss associated with the effective portion of the cash flow hedges is recognized in other comprehensive income (loss) and is subsequently reclassified into operations in the period during which the hedged forecasted transactions affect earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income to the extent there is no significant ineffectiveness in the cash flow hedging relationships. Currently, Oriental does not expect to reclassify any amount included in other comprehensive income (loss) related to these interest rate swaps to operations in the next twelve months.

The following table shows a summary of these swaps and their terms at ~~September 30, 2017:~~March 31, 2019:

Notional

Fixed

Variable

Trade

Settlement

Maturity

Notional

Fixed

Variable

Trade

Settlement

Maturity

Type

Amount

Rate

Rate Index

Date

Amount

Rate

Rate Index

Date

(In thousands)

Interest Rate Swaps

35,487

2.4210%

1-Month LIBOR

07/03/13

08/01/23

33,175

2.4210%

1-Month LIBOR

07/03/13

08/01/23

35,487

33,175

An accumulated unrealized loss of $$329 ~~868~~ thousand and a gain of $14 thousand ~~and $1.0~~ ~~million was~~were recognized in accumulated other comprehensive income ~~(loss)~~ related to the valuation of these swaps at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, and the related asset or liability is being reflected in the consolidated statements of financial condition.

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, interest rate swaps not designated as hedging instruments that were offered to clients represented an asset of ~~$757~~$33 thousand and ~~$1.2 million,~~$126 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial position. The credit risk to these clients stemming from these derivatives, if any, is not material. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, interest rate swaps not designated as hedging instruments that are the mirror-images of the derivatives offered to clients represented a liability of ~~$757~~$33 thousand and ~~$1.2 million,~~$126 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition.

~~The following table shows a summary of these interest rate swaps not designated as hedging instruments and their terms at September 30, 2017:~~

Notional

Fixed

Variable

Settlement

Maturity
Type

Amount

Rate

Rate Index

Date

Date

(In thousands)

Interest Rate Swaps - Derivatives Offered to Clients

$
12,500

5.5050%

1-Month LIBOR

04/11/09

04/11/19

$
12,500

Interest Rate Swaps - Mirror Image Derivatives

$
12,500

5.5050%

1-Month LIBOR

04/11/09

04/11/19

$
12,500

6548

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table shows a summary of these interest rate swaps not designated as hedging instruments and their terms at March 31, 2019:

	Notional		Fixed	Variable	Settlement	Maturity
Type	Amount		Rate	Rate Index	Date	Date
	(In thousands)
Interest Rate Swaps - Derivatives Offered to Clients	$	12,500	5.5050%	1-Month LIBOR	04/11/09	04/11/19
	$	12,500

Interest Rate Swaps - Mirror Image Derivatives	$	12,500	5.5050%	1-Month LIBOR	04/11/09	04/11/19
	$	12,500

Interest Rate Caps

Oriental has entered into interest rate cap transactions with various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. In these cases, Oriental simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting, and therefore, they are marked to market through earnings. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, the outstanding total notional amount of interest rate caps was $~~135.3~~ 42.4 million and $~~136.1~~ $150.9 million, respectively. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the interest rate caps sold to clients represented a liability of ~~$52~~$77 thousand and ~~$139~~$207 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the interest rate caps purchased as mirror-images represented an asset of ~~$52~~$77 thousand and ~~$143~~$207 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial condition.

NOTE 108 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS

Accrued interest receivable at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 consists of the following:

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Loans, excluding acquired loans	$	19,768	$	16,706	$	29,373	$	30,409
Investments		2,968		3,521		3,779		3,845
	$	22,736	$	20,227	$	33,152	$	34,254

~~Other~~OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other assets at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 consist of the ~~following~~following::

	September 30,			December 31,	March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Prepaid expenses	$	13,070	$	17,096	$	7,391	$	9,788
Other repossessed assets		3,829		3,224		3,574		2,986
Core deposit and customer relationship intangibles		5,055		6,160		3,076		3,369
Mortgage tax credits		4,277		6,277
Tax credits						277		2,277
Investment in Statutory Trust		1,083		1,083		1,083		1,083
Accounts receivable and other assets		37,443		46,525		35,482		37,842
	$	64,757	$	80,365	$	50,883	$	57,345

Prepaid expenses amounting to ~~$13.1~~$7.4 million and ~~$17.1~~$9.8 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, include prepaid municipal, ~~state accident insurance fund,~~ property and income taxes aggregating to $$4.0~~7.5~~ million and ~~$12.5~~$5.5 million, respectively.

Other repossessed assets totaled $3.6 million and $3.0 million at March 31, 2019 and December 31, 2018, respectively, that consist mainly of repossessed automobiles, which are recorded at their net realizable value.

In connection with the FDIC-assisted acquisition and the BBVAPR Acquisition, Oriental recorded a core deposit intangible representing the value of checking and savings deposits acquired. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 this core deposit intangible amounted to ~~$3.6~~$2.3 million and ~~$4.3~~$2.5 million, respectively. In addition, Oriental recorded a customer relationship intangible representing the value of customer relationships acquired with the acquisition of the securities broker-dealer and insurance agency in the BBVAPR Acquisition. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, this customer relationship intangible amounted to ~~$1.5~~$796 ~~million~~thousand and ~~$1.9~~$888 ~~million,~~thousand, respectively.

~~Other repossessed assets totaled $3.8 million and $3.2 million at September 30, 2017~~At March 31, 2019 and December 31, ~~2016, respectively, include repossessed automobiles amounting to $3.6~~ 2018, tax credits for Oriental totaled $277 thousand and $2.3 million, respectively. These tax credits do not have an expiration date.

~~million~~NOTE 9— DEPOSITS AND RELATED INTEREST

Total deposits, including related accrued interest payable, as of March 31, 2019 and ~~$3.0~~ December 31, 2018 consist of the following:~~million, respectively, which are recorded at their net realizable value.~~

	March 31,		December 31,
	2019		2018
	(In thousands)
Non-interest bearing demand deposits	$	1,092,488	$	1,105,324
Interest-bearing savings and demand deposits		2,356,868		2,274,423
Retail certificates of deposit		810,670		805,712
Institutional certificates of deposit		185,849		197,559
Total core deposits		4,445,875		4,383,018
Brokered deposits		451,226		525,097
Total deposits	$	4,897,101	$	4,908,115

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~At September 30, 2017 and December 31, 2016, tax credits for Oriental totaled $4.3 million and $6.3 million, respectively. These tax credits do not have an expiration date.~~

~~NOTE 11~~— ~~DEPOSITS AND RELATED INTEREST~~

~~Total deposits, including related accrued interest payable, as of September 30, 2017 and December 31, 2016 consist of the following:~~

September 30,

December 31,

2017

2016

(In thousands)
Non-interest bearing demand deposits
$
900,063

$
848,502
Interest-bearing savings and demand deposits

2,337,174

2,219,452
Individual retirement accounts

235,265

265,754
Retail certificates of deposit

596,854

563,965
Institutional certificates of deposit

221,448

190,419
       Total core deposits

4,290,804

4,088,092
Brokered deposits

535,600

576,395
       Total deposits
$
4,826,404

$
4,664,487

Brokered deposits include $~~487.0~~ ~~million in certificates of deposits and $48.6~~ ~~million in money market accounts at September 30, 2017, and $508.4~~$430.2 million in certificates of deposits and ~~$68.0~~ $21.0 million in money market accounts at March 31, 2019, and $500.8 million in certificates of deposits and $24.3million in money market accounts at December 31, ~~2016.~~2018.

The weighted average interest rate of Oriental’s deposits was ~~0.65~~0.74 % and ~~0.62~~0.67%, respectively, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016 respectively.~~2018. Interest expense for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017 and 2016~~2018 was as follows:

	Quarter Ended September 30,				Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2017		2016		2019		2018
	(In thousands)								(In thousands)
Demand and savings deposits	$	2,715	$	3,035	$	8,563	$	9,061	$	3,411	$	2,812
Certificates of deposit		4,886		4,296		14,043		12,761		5,638		4,486
	$	7,601	$	7,331	$	22,606	$	21,822	$	9,049	$	7,298

At December 31, 2016, demand and interest-bearing deposits and certificates of deposit included uncollateralized deposits of Puerto Rico Cash & Money Market Fund, Inc. ("the Fund”), which amounted to $~~15.3~~ ~~million, with a weighted average rate of 0.77%. On April 3, 2017, the Fund was liquidated in anticipation of its dissolution.~~

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $$338.5 ~~364.7~~ million and ~~$344.0~~$346.0 million, respectively. Such amounts include public funds time deposits from various Puerto Rico government municipalities, agencies and corporations of $$14.1 ~~13.3~~ million and $$19.6 ~~2.1~~ million at a weighted average rate of ~~0.67~~127.0 % and ~~0.50~~116.4% at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to ~~$135.8~~$228.8 million and ~~$170.7~~ $207.4 million, respectively. These public funds were collateralized with commercial loans and securities amounting to ~~$174.3~~$278.2 million and ~~$209.2~~$281.2 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

Excluding accrued interest of approximately $2.2 million, the scheduled maturities of certificates of deposit at March 31, 2019 and December 31, 2018 are as follows:

	March 31,		December 31,
		2019		2018
	(In thousands)
Within one year:
Three (3) months or less	$	275,976	$	305,088
Over 3 months through 1 year		469,477		545,363
		745,453		850,451
Over 1 through 2 years		508,568		484,197
Over 2 through 3 years		94,306		89,340
Over 3 through 4 years		33,099		34,018
Over 4 through 5 years		43,117		42,998
	$	1,424,543	$	1,501,004

The table of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $578 thousand and $1.1 million as of March 31, 2019 and December 31, 2018, respectively.

6751

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Excluding accrued interest of approximately $2.1~~ ~~million, the scheduled maturities of certificates of deposit at September 30, 2017 and December 31, 2016 are as follows:~~

September 30, 2017

December 31, 2016

(In thousands)
Within one year:

    Three (3) months or less
$
271,981

$
277,621
    Over 3 months through 1 year

577,067

534,548

849,048

812,169
Over 1 through 2 years

448,068

488,440
Over 2 through 3 years

168,084

154,545
Over 3 through 4 years

37,303

29,701
Over 4 through 5 years

35,981

41,949

$
1,538,484

$
1,526,804

~~The table of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.~~

~~The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $593~~ ~~thousand and $575~~ ~~thousand as of September 30, 2017 and December 31, 2016, respectively.~~

NOTE 12 10—BORROWINGS AND RELATED INTEREST

Securities Sold under Agreements to Repurchase

At ~~September 30, 2017,~~ March 31, 2019, securities underlying agreements to repurchase were delivered to, and are being held by, the counterparties with whom the repurchase agreements were transacted. The counterparties have agreed to resell to Oriental the same or similar securities at the maturity of these agreements. The purpose of these transactions is to provide financing for Oriental’s securities portfolio.

~~At September 30, 2017 and December 31, 2016, securities sold under~~The following table shows Oriental’s repurchase agreements, ~~to repurchase (classified by counterparty),~~ excluding accrued interest in the amount of ~~$581~~ $609 thousand and ~~$1.5~~ $785~~million, respectively, were~~ thousand at March 31, 2019 and December 31, 2018, respectively:

	March 31,		December 31,
	2019		2018
	(In thousands)
Short-term fixed-rate repurchase agreements, interest ranging from 2.45% to 2.95% (December 31, 2018 2.45% to 2.95%)	$	190,957	$	214,723
Long-term fixed-rate repurchase agreements, interest ranging from 1.72% to 2.86% (December 31, 2018; 1.72% to 2.86%)		240,000		240,000
Total assets sold under agreements to repurchase	$	430,957	$	454,723

Repurchase agreements mature as follows:

September 30,

December 31,

2017

2016

Fair Value of

Fair Value of

Borrowing

Underlying

Borrowing

Underlying

Balance

Collateral

Balance

Collateral

(In thousands)
PR Cash and Money Market Fund

-

-

70,010

74,538
JP Morgan Chase Bank NA

172,500

185,848

350,219

376,674
Credit Suisse Securities (USA) LLC

-

-

232,000

249,286
Federal Home Loan Bank

110,000

115,836

-

-
Total
$
282,500

$
301,684

$
652,229

$
700,498

	March 31,		December 31,
	2019		2018
	(In thousands)
Less than 90 days	$	190,957	$	214,723
Over 90-days		240,000		240,000
Total	$	430,957	$	454,723

The following securities were sold under agreements to repurchase:

	March 31, 2019
	Amortized				Approximate		Weighted
	Cost of				Fair Value		Average
	Underlying		Balance of		of Underlying		Interest Rate
Underlying Securities	Securities		Borrowing		Securities		of Security
	(Dollars in thousands)
FNMA and FHLMC Certificates	$	464,669	$	430,957	$	461,092		3.03%
Total	$	464,669	$	430,957	$	461,092		3.03%


	December 31, 2018
	Amortized				Approximate		Weighted
	Cost of				Fair Value		Average
	Underlying		Balance of		of Underlying		Interest Rate
Underlying Securities	Securities		Borrowing		Securities		of Security
	(Dollars in thousands)
FNMA and FHLMC Certificates	$	496,814	$	454,723	$	487,181		3.01%
Total	$	496,814	$	454,723	$	487,181		3.01%

6852

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~The following table shows a summary of Oriental’s repurchase agreements and their terms, excluding accrued interest in the amount of $581 thousand, at~~ ~~September 30, 2017~~:

Weighted-

Borrowing

Average

Maturity
Year of Maturity

Balance

Coupon

Settlement Date

Date

(In thousands)

2018

172,500

1.42%

12/10/2012

4/29/2018

2019

50,000

1.72%

3/2/2017

9/3/2019

2020

60,000

1.85%

3/2/2017

3/2/2020

$
282,500

1.56%

~~A repurchase agreement in the original amount of $500~~ ~~million with an original term of ten years was modified in February 2016 to partially terminate, before maturity, $268.0~~ ~~million at a cost of $12.0 million included as a loss on early extinguishment of debt in the consolidated statements of operations. The remaining balance of this repurchase agreement of $232.0~~ ~~million matured on March 2, 2017. During the second quarter of 2017, repurchase agreements in the original amounts of $25.0~~ ~~million and $75.0~~ million, respectively, with original terms of June 2019 and December 2019, respectively, were terminated before maturity at a cost of $80 thousand included as a loss on early extinguishment of debt in consolidated statement of operations.

The following table presents the repurchase liability associated with the repurchase agreement transactions (excluding accrued interest) by maturity. Also, it includes the carrying value and approximate market value of collateral (excluding accrued interest) at September 30, 2017 and December 31, 2016. There was no cash collateral at September 30, 2017 and December 31, 2016.

September 30, 2017

Market Value of Underlying Collateral

Weighted

FNMA and

Repurchase

Average
FHLMC

Liability

Rate

Certificates

Total

(Dollars in thousands)
Over 90 days

282,500

1.56%

301,684

301,684
Total
$
282,500

1.56%

$
301,684

$
301,684

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

December 31, 2016

Market Value of Underlying Collateral

Weighted

FNMA and

US Treasury

Repurchase

Average
FHLMC

GNMA

Treasury

Liability

Rate

Certificates

Certificates

Notes
Total

(Dollars in thousands)
Less than 90 days
$
349,729

$
3.35%

248,288

$
75,536

$
48,954

$
372,778
Over 90 days

302,500

1.44%

327,627

93

-

327,720
Total
$
652,229

2.47%

$
575,915

$
75,629

48,954

700,498

Advances from the Federal Home Loan Bank of New York

Advances are received from the ~~Federal Home Loan Bank of New York (the “FHLB-NY”)~~FHLB-NY under an agreement whereby Oriental is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, these advances were secured by mortgage and commercial loans amounting to ~~$1.3~~ $871.2 ~~billion~~ million and ~~$1.4~~ $847.3~~billion,~~ million, respectively. Also, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, Oriental had an additional borrowing capacity with the FHLB-NY of ~~$849.5~~ $790.3 million and ~~$1.2~~ $762.0~~billion,~~ million, respectively. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, the weighted average remaining maturity of FHLB’s advances was ~~5.1 months~~ 28.0 months and ~~10.6~~26.6 months,, respectively. The original terms of these advances range between one ~~month~~day and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of ~~September 30, 2017.~~ March 31, 2019.

The following table shows a summary of ~~these~~the advances and their terms, excluding accrued interest in the amount of ~~$312~~ $192 thousand and $176thousand, at ~~September 30, 2017~~March 31, 2019 and December 31, 2018, respectively::

Weighted-

Borrowing

Average

Maturity
Year of Maturity

Balance

Coupon

Settlement Date

Date

(In thousands)

2017

$
35,487

1.29%

9/1/2017

10/2/2017

35,487

2018

30,000

2.19%

1/16/2013

1/16/2018

25,000

2.18%

1/16/2013

1/16/2018

55,000

2020

9,292

2.59%

7/19/2013

7/20/2020

$
99,779

1.90%


	March 31		December 31
		2019		2018
		(In thousands)
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.67% (December 31, 2018 - 2.61%)	$	33,175	$	33,572
Long-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.90% (December 31, 2018 - 2.89%)		47,744		43,872
	$	80,919	$	77,444

Advances from FHLB mature as follows:


		March 31
		2019
		(In thousands)
Under 90 days	$	33,175
Over one to three years		8,780
Over three to five years		34,514
Over five years		4,450
	$	80,919

All of the advances referred to above with maturity dates up to the date of this report were renewed as one-month short-term advances.

Subordinated Capital Notes

Subordinated capital notes amounted to $36.1 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016, for both periods~~.2018.

7053

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1311 – OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

Oriental’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty. In addition, Oriental’s securities purchased under agreements to resell and securities sold under agreements to repurchase have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default, each party has a right of set-off against the other party for amounts owed in the related agreements and any other amount or obligation owed in respect of any other agreement or transaction between them. Security collateral posted to open and maintain a master netting agreement with a counterparty, in the form of cash and securities, may from time to time be segregated in an account at a third-party custodian pursuant to a an account control agreement.

The following table presents the potential effect of rights of set-off associated with Oriental’s recognized financial assets and liabilities at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018:

September 30, 2017

March 31, 2019

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts

Net Amount of

Gross Amounts

Net Amount of

Offset in the

Assets Presented

Offset in the

Assets Presented

Gross Amount

Statement of

in Statement

Cash

Gross Amount

Statement of

in Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Net

of Recognized

Financial

of Financial

Financial

Collateral

Net

Assets

Condition

Instruments

Received

Amount

Assets

Condition

Instruments

Received

Amount

(In thousands)

Derivatives

809

2,021

(1,212)

110

2,076

(1,966)

December 31, 2016

December 31, 2018

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts

Net amount of

Gross Amounts

Net amount of

Offset in the

Assets Presented

Offset in the

Assets Presented

Gross Amount

Statement of

in Statement

Cash

Gross Amount

Statement of

in Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Net

of Recognized

Financial

of Financial

Financial

Collateral

Net

Assets

Condition

Instruments

Received

Amount

Assets

Condition

Instruments

Received

Amount

(In thousands)

Derivatives

1,330

2,003

(673)

347

2,037

(1,690)

7154

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30, 2017
March 31, 2019													March 31, 2019
							Gross Amounts Not Offset in the Statement of Financial Condition													Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amount of													Net Amount of
			Gross Amounts		Liabilities											Gross Amounts		Liabilities
			Offset in the		Presented											Offset in the		Presented
	Gross Amount		Statement of		in Statement				Cash					Gross Amount		Statement of		in Statement				Cash
	of Recognized		Financial		of Financial		Financial		Collateral		Net			of Recognized		Financial		of Financial		Financial		Collateral		Net
	Liabilities		Condition		Condition		Instruments		Provided		Amount			Liabilities		Condition		Condition		Instruments		Provided		Amount
	(In thousands)													(In thousands)
Derivatives	$	1,677	$	-	$	1,677	$	-	$	1,980	$	(303)		$	439	$	-	$	439	$	-	$	1,980	$	(1,541)
Securities sold under agreements to repurchase		282,500		-		282,500		301,684		-		(19,184)			430,957		-		430,957		461,092		-		(30,135)
Total	$	284,177	$	-	$	284,177	$	301,684	$	1,980	$	(19,487)		$	431,396	$	-	$	431,396	$	461,092	$	1,980	$	(31,676)


December 31, 2016
December 31, 2018													December 31, 2018
							Gross Amounts Not Offset in the Statement of Financial Condition													Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amount of													Net Amount of
			Gross Amounts		Liabilities											Gross Amounts		Liabilities
			Offset in the		Presented											Offset in the		Presented
	Gross Amount		Statement of		in Statement				Cash					Gross Amount		Statement of		in Statement				Cash
	of Recognized		Financial		of Financial		Financial		Collateral		Net			of Recognized		Financial		of Financial		Financial		Collateral		Net
	Liabilities		Condition		Condition		Instruments		Provided		Amount			Liabilities		Condition		Condition		Instruments		Provided		Amount
	(In thousands)													(In thousands)
Derivatives	$	2,437	$	-	$	2,437	$	-	$	1,980	$	457		$	333	$	-	$	333	$	-		1,980	$	(1,647)
Securities sold under agreements to repurchase		652,229		-		652,229		700,498		-		(48,269)			454,723		-		454,723		487,181		-		(32,458)
Total	$	654,666	$	-	$	654,666	$	700,498	$	1,980	$	(47,812)		$	455,056	$	-	$	455,056	$	487,181	$	1,980	$	(34,105)

7255

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1412 —INCOME TAXES

Oriental is subject to the provisions of the Puerto Rico Internal Revenue Code of 2011, as amended (the “Code”), which imposes a maximum statutory corporate tax rate of 37.5% on a corporation’s net taxable income. Under the Code, all corporations are treated as separate taxable entities and are not entitled to file consolidated tax returns. Such entities are subject to Puerto Rico regular income tax or the alternative minimum tax (“AMT”) on income earned from all sources pursuant to the Code. The AMT is payable if it exceeds regular income tax. The excess of AMT over regular income tax paid in any one year may be used to offset regular income tax in future years, subject to certain limitations.

Oriental also has operations in the United States mainland through its wholly owned subsidiary, OPC, a retirement plan administrator based in Florida. In October 2017, Oriental expanded its operations in the United States through the Bank’s wholly owned subsidiary, OFG USA. Both subsidiaries are subject to federal income taxes at the corporate level. In addition, OPC is subject to Florida state taxes and OFG USA is subject to North Carolina state taxes.

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, Oriental’s net deferred tax asset amounted to ~~$126.0~~$112.7 million and ~~$124.2~~$113.8 million, respectively. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is mainly dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax asset ~~are~~is deductible, management believes it is more likely than not that Oriental will realize the deferred tax asset, net of the existing valuation allowances recorded at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018. The amount of the deferred tax asset that is considered realizable could be reduced in the near term if there are changes in estimates of future taxable ~~income during the carry forward period are reduced.~~income.

~~At September 30, 2017~~Oriental maintained an effective tax rate lower than statutory rate for the quarters ended March 31, 2019 and ~~December 31, 2016, Oriental International Bank Inc. (“OIB”)~~2018 of 33.0 % and 32.0%, ~~the Bank’s~~respectively, mainly by investing in tax-exempt obligations, doing business through its international banking entity, ~~subsidiary, had $5~~ ~~thousand~~ and ~~$117~~ ~~thousand, respectively,~~by expanding its operations in ~~income tax effect of unrecognized gain on available-for-sale securities included in other comprehensive income. Following~~ the ~~change in OIB’s applicable tax rate from 5% to 0% as~~U.S, which are taxed at a result of a Puerto Rico law adopted in 2011, this remaining tax balance will flow through income as these securities are repaid or sold in future periods. During the quarters ended September 30, 2017 and 2016, $1 ~~thousand and $9~~ thousand, respectively, related to this residual tax effect from OIB was reclassified from accumulated other comprehensive income (loss) into income tax provision. During the nine-month period ended September 30, 2017 and 2016, $103 ~~thousand and $24~~ ~~thousand, respectively, related to this residual tax effect from OIB was reclassified from accumulated other comprehensive income (loss) into income tax provision.~~lower rate.

Oriental classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At ~~September 30, 2017 the amount of~~March 31, 2019 and December 31, 2018, unrecognized tax benefits ~~was $1.2~~ ~~million (December 31, 2016 - $2.0~~amounted at $891 ~~million).~~thousand and $875 thousand, respectively. Oriental had accrued ~~$73~~$17 thousand at ~~September 30, 2017~~March 31, 2019 (December 31, ~~2016~~2018 - ~~$229~~$81 thousand) for the payment of interest and penalties relating to unrecognized tax ~~benefits and released $877~~ ~~thousand related to amounts accrued for periods whose statute of limitation expired.~~benefits.

~~Oriental is subject to the dispositions of the 2011 Puerto Rico Internal Revenue Code, as amended (the "Code"). The Code imposes a maximum corporate tax rate of~~ 39 %. ~~Oriental maintained a lower effective tax rate for the nine-month periods ended September 30, 2017 and 2016 of 29.8% and 28.8%, respectively.~~

Income tax expense for the quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018, was ~~$560 thousand and $3.6 million, respectively. Income tax expense for the nine-month periods ended September 30, 2017 and 2016 was $13.8~~$11.6 million and ~~$15.1~~$8.0 million, ~~respectively.~~respectively

7356

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 15 13 — REGULATORY CAPITAL REQUIREMENTS

Regulatory Capital Requirements

~~Oriental~~OFG Bancorp (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Oriental’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Oriental and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Pursuant to the Dodd-Frank Act, federal banking regulators adopted capital rules ~~that~~based on the framework of the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”), which became effective January 1, 2015 for Oriental and the Bank (subject to certain phase-in periods through January 1, 2019) and that replaced their general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules. Among other matters, the ~~new~~Basel III capital rules: (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to prior regulations. The ~~current~~Basel III capital rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the ~~current~~previous four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, and resulting in higher risk weights for a variety of asset classes.

Pursuant to the ~~current~~Basel III capital rules, the minimum capital ratios requirements are as follows:

4.5% CET1 to risk-weighted assets;

6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known

as the “leverage ratio”).

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016, Oriental~~2018, OFG Bancorp and the Bank met all capital adequacy requirements to which they are subject. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, the Bank is “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the tables presented below.

7457

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

OFG Bancorp’s and the Bank’s actual capital amounts and ratios as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as follows:

				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio		Amount	Ratio
	(Dollars in thousands)
OFG Bancorp Ratios
As of March 31, 2019
Total capital to risk-weighted assets	$	1,012,112	20.77%	$	389,824	8.00%	$	487,281	10.00%
Tier 1 capital to risk-weighted assets	$	949,794	19.49%	$	292,368	6.00%	$	389,824	8.00%
Common equity tier 1 capital to risk-weighted assets	$	832,924	17.09%	$	219,276	4.50%	$	316,732	6.50%
Tier 1 capital to average total assets	$	949,794	14.64%	$	259,456	4.00%	$	324,320	5.00%
As of December 31, 2018
Total capital to risk-weighted assets	$	990,499	20.48%	$	386,977	8.00%	$	483,721	10.00%
Tier 1 capital to risk-weighted assets	$	928,577	19.20%	$	290,233	6.00%	$	386,977	8.00%
Common equity tier 1 capital to risk-weighted assets	$	811,707	16.78%	$	217,675	4.50%	$	314,419	6.50%
Tier 1 capital to average total assets	$	928,577	14.22%	$	261,125	4.00%	$	326,406	5.00%



				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
Bank Ratios
As of March 31, 2019
Total capital to risk-weighted assets	$	966,848	19.91%	$	388,573	8.00%	$	485,716	10.00%
Tier 1 capital to risk-weighted assets	$	904,813	18.63%	$	291,429	6.00%	$	388,573	8.00%
Common equity tier 1 capital to risk-weighted assets	$	904,813	18.63%	$	218,572	4.50%	$	315,715	6.50%
Tier 1 capital to average total assets	$	904,813	14.02%	$	258,183	4.00%	$	322,728	5.00%
As of December 31, 2018
Total capital to risk-weighted assets	$	949,596	19.68%	$	385,992	8.00%	$	482,490	10.00%
Tier 1 capital to risk-weighted assets	$	887,918	18.40%	$	289,494	6.00%	$	385,992	8.00%
Common equity tier 1 capital to risk-weighted assets	$	887,918	18.40%	$	217,120	4.50%	$	313,618	6.50%
Tier 1 capital to average total assets	$	887,918	13.68%	$	259,547	4.00%	$	324,434	5.00%

Minimum Capital

Minimum to be Well

Actual

Requirement

Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)
OFG Bancorp Ratios

As of September 30, 2017

Total capital to risk-weighted assets
$
885,523

20.82%

$
340,208

8.00%

$
425,260

10.00%
Tier 1 capital to risk-weighted assets
$
830,640

19.53%

$
255,156

6.00%

$
340,208

8.00%
Common equity tier 1 capital to risk-weighted assets
$
633,401

14.89%

$
191,367

4.50%

$
276,419

6.50%
Tier 1 capital to average total assets
$
830,640

14.07%

$
236,105

4.00%

$
295,131

5.00%
As of December 31, 2016

Total capital to risk-weighted assets
$
876,657

19.62%

$
357,404

8.00%

$
446,756

10.00%
Tier 1 capital to risk-weighted assets
$
819,662

18.35%

$
268,053

6.00%

$
357,404

8.00%
Common equity tier 1 capital to risk-weighted assets
$
627,733

14.05%

$
201,040

4.50%

$
290,391

6.50%
Tier 1 capital to average total assets
$
819,662

12.99%

$
252,344

4.00%

$
315,430

5.00%

Minimum Capital

Minimum to be Well

Actual

Requirement

Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)
Bank Ratios

As of September 30, 2017

Total capital to risk-weighted assets
$
867,538

20.39%

$
340,304

8.00%

$
425,380

10.00%
Tier 1 capital to risk-weighted assets
$
812,833

19.11%

$
255,228

6.00%

$
340,304

8.00%
Common equity tier 1 capital to risk-weighted assets
$
812,833

19.11%

$
191,421

4.50%

$
276,497

6.50%
Tier 1 capital to average total assets
$
812,833

13.81%

$
235,364

4.00%

$
294,204

5.00%
As of December 31, 2016

Total capital to risk-weighted assets
$
857,259

19.23%

$
356,596

8.00%

$
445,745

10.00%
Tier 1 capital to risk-weighted assets
$
800,544

17.96%

$
267,447

6.00%

$
356,596

8.00%
Common equity tier 1 capital to risk-weighted assets
$
800,544

17.96%

$
200,585

4.50%

$
289,734

6.50%
Tier 1 capital to average total assets
$
800,544

12.75%

$
251,200

4.00%

$
314,000

5.00%

7558

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1614 – STOCKHOLDERS’ EQUITY

Preferred Stock and Common Stock

On October 22, 2018, Oriental completed the conversion of all of its 84,000 shares of Series C preferred stock into common stock. Each share of Series C preferred stock was converted into 86.4225 shares of common stock. Upon conversion, the Series C preferred stock is no longer outstanding and all rights with respect to the Series C preferred stock have ceased and terminated, except the right to receive the number of whole shares of common stock issuable upon conversion of the Series C preferred stock and any required cash-in-lieu of fractional shares. At both March 31, 2019 and December 31, 2018, preferred and common stock paid-in capital amounted $92.0 million and $59.9 million, respectively.

Additional Paid-in Capital

Additional paid-in capital represents contributed capital in excess of par value of common and preferred stock net of the costs of issuance. As of both ~~periods, September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, accumulated issuance costs charged against additional ~~paid in~~paid-in capital amounted to $13.6 million and $10.1 million for ~~preferred~~common and ~~common~~preferred stock, respectively.

Legal Surplus

The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income ~~or loss~~ for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Bank’s legal surplus amounted to ~~$79.8~~ $92.6 million and ~~$76.3~~$90.2 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.

Treasury Stock

Under Oriental’s current stock repurchase program, it is authorized to purchase in the open market up to $7.7 million of its outstanding shares of common stock. The shares of common stock repurchased are to be held by Oriental as treasury shares. During the ~~nine-month periods~~quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, Oriental did not ~~purchase~~repurchase any shares under the program.

At ~~September 30, 2017~~March 31, 2019 the number of shares that may yet be purchased under the $70 million program is estimated at 390,644~~844,902~~ and was calculated by dividing the remaining balance of $7.7 million by ~~$9.15~~ $19.79~~(closing~~ (closing price of Oriental's common stock at ~~September 30, 2017)~~March 31, 2019).

The activity in connection with common shares held in treasury by Oriental for the ~~nine-month periods~~quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 is set forth ~~below~~below::

	Nine-Month Period Ended September 30,						Quarter Ended March 31,
	2017			2016			2019			2018
		Dollar			Dollar			Dollar			Dollar
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
	(In thousands, except shares data)						(In thousands, except shares data)
Beginning of period	8,711,025	$	104,860	8,757,960	$	105,379	8,591,310	$	103,633	8,678,427	$	104,502
Common shares used upon lapse of restricted stock units	(32,598)		(358)	(45,810)		(505)
Common shares used upon lapse of restricted stock units and options							(34,507)		(437)	(20,900)		(360)
End of period	8,678,427	$	104,502	8,712,150	$	104,874	8,556,803	$	103,196	8,657,527	$	104,142

7659

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1715 - ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income, net of income taxes, as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 consisted of:

September 30,

December 31,

2017

2016

(In thousands)
Unrealized gain on securities available-for-sale which are not
    other-than-temporarily impaired
$
1,487

$
1,617
Income tax effect of unrealized gain on securities available-for-sale

(116)

592
    Net unrealized gain on securities available-for-sale which are not
        other-than-temporarily impaired

1,371

2,209
Unrealized loss on cash flow hedges

(868)

(1,004)
Income tax effect of unrealized loss on cash flow hedges

339

391
    Net unrealized loss on cash flow hedges

(529)

(613)
Accumulated other comprehensive (loss) income, net of income taxes
$
842

$
1,596

	March 31,		December 31,
	2019		2018
	(In thousands)
Unrealized loss on securities available-for-sale which are not other-than-temporarily impaired	$	(9,280)	$	(12,654)
Income tax effect of unrealized loss on securities available-for-sale		1,439		1,682
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired		(7,841)		(10,972)
Unrealized (loss) gain on cash flow hedges		(329)		14
Income tax effect of unrealized (loss) gain on cash flow hedges		123		(5)
Net unrealized (loss) gain on cash flow hedges		(206)		9
Accumulated other comprehensive (loss), net of income taxes	$	(8,047)	$	(10,963)

Unrealized losses on available-for-sale securities includes $14.4 million as effect of the adoption of ASU No. 2017-12 and reclassification of all of its mortgage backed securities with carrying value of $424.7 million, from the held-to-maturity portfolio into the available-for-sale portfolio.

The following table presents changes in accumulated other comprehensive income by component, net of taxes, for the quarters ended March 31, 2019 and 2018:

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2019
	Net unrealized		Net unrealized		Accumulated
	gains on		loss on		other
	securities		cash flow		comprehensive
	available-for-sale		hedges		(loss) income
	(In thousands)
Beginning balance	$	(10,972)	$	9	$	(10,963)
Other comprehensive income (loss)
Transfer of securities held-to-maturity to available-for-sale		(12,041)		-		(12,041)
Other comprehensive income (loss) before reclassifications		15,189		(432)		14,757
Amounts reclassified out of accumulated other comprehensive (loss) income		(17)		217		200
		3,131		(215)		2,916
Ending balance	$	(7,841)	$	(206)	$	(8,047)

	Quarter Ended March 31, 2018
	Net unrealized		Net unrealized		Accumulated
	gains on		loss on		other
	securities		cash flow		comprehensive
	available-for-sale		hedges		(loss) income
	(In thousands)
Beginning balance	$	(2,638)	$	(311)	$	(2,949)
Other comprehensive (loss) income before reclassifications		(9,576)		26		(9,550)
Amounts reclassified out of accumulated other comprehensive (loss) income		(60)		374		314
Other comprehensive (loss) income		(9,636)		400		(9,236)
Ending balance	$	(12,274)	$	89	$	(12,185)

The following table presents reclassifications out of accumulated other comprehensive income for the quarters ended March 31, 2019 and 2018:

	Amount reclassified out of accumulated other comprehensive income				Affected Line Item in Consolidated Statement of Operations

	Quarter Ended March 31,
		2019		2018
	(In thousands)
Cash flow hedges:
Interest-rate contracts	$	217	$	374
Available-for-sale securities:					Net interest expense
Residual tax effect from OIB's change in applicable tax rate		-		5	Net impairment losses recognized in earnings
Tax effect from changes in tax rates		(17)		(65)	Income tax expense
	$	200	$	314

7761

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~The following table presents changes in accumulated other comprehensive income by component, net of taxes, for the quarters and nine-month periods ended September 30, 2017 and 2016:~~

Quarter Ended September 30,

2017

2016

Net unrealized

Net unrealized

Accumulated

Net unrealized

Net unrealized

Accumulated

gains on

loss on

other

gains on

loss on

other

securities

cash flow

comprehensive

securities

cash flow

comprehensive

available-for-sale

hedges

(loss) income

available-for-sale

hedges

income

(In thousands)
Beginning balance
$
256

$
(563)

$
(307)

$
18,085

$
(2,280)

$
15,805
Other comprehensive loss before reclassifications

1,185

(74)

1,111

(469)

(144)

(613)
Amounts reclassified out of accumulated other comprehensive income (loss)

(70)

108

38

(63)

715

652
Other comprehensive income (loss)

1,115

34

1,149

(532)

571

39
Ending balance
$
1,371

$
(529)

$
842

$
17,553

$
(1,709)

$
15,844

Nine-Month Period Ended September 30,

2017

2016

Net unrealized

Net unrealized

Accumulated

Net unrealized

Net unrealized

Accumulated

gains on

loss on

other

gains on

loss on

other

securities

cash flow

comprehensive

securities

cash flow

comprehensive

available-for-sale

hedges

(loss) income

available-for-sale

hedges

income

(In thousands)
Beginning balance
$
2,209

(613)

1,596

16,924

(2,927)

13,997
Other comprehensive income (loss) before reclassifications

(726)

(301)

(1,027)

(1,732)

(2,550)

(4,282)
Other-than-temporary impairment amount reclassified from accumulated other comprehensive income

-

-

-

2,557

-

2,557
Amounts reclassified out of accumulated other comprehensive income (loss)

(112)

385

273

(196)

3,768

3,572
Other comprehensive income (loss)

(838)

84

(754)

629

1,218

1,847
Ending balance
$
1,371

$
(529)

$
842

$
17,553

$
(1,709)

$
15,844

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~The following table presents reclassifications out of accumulated other comprehensive income for the quarters and nine-month periods ended September 30, 2017 and 2016:~~

Amount reclassified out of accumulated other

comprehensive (loss) income

Affected Line Item in

Quarter Ended September 30,

Consolidated Statement

2017

2016

of Operations

(In thousands)

Cash flow hedges:

Interest-rate contracts
$
108

$
664

Net interest expense
Tax effect from increase in capital gains tax rate

-

51

Income tax expense
Available-for-sale securities:

Residual tax effect from OIB's change in applicable tax rate

1

9

Income tax expense
Tax effect from increase in capital gains tax rate

(71)

(72)

Income tax expense

$
38

$
652

Amount reclassified out of accumulated other

comprehensive (loss) income

Affected Line Item in

Nine-Month Period Ended September 30,

Consolidated Statement

2017

2016

of Operations

(In thousands)

Cash flow hedges:

Interest-rate contracts
$
385

$
3,468

Net interest expense
Tax effect from increase in capital gains tax rate

-

300

Income tax expense
Available-for-sale securities:

Residual tax effect from OIB's change in applicable tax rate

104

24

Income tax expense
Tax effect from increase in capital gains tax rate

(216)

(220)

Income tax expense

$
273

$
3,572

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

NOTE 1816 – EARNINGS PER COMMON SHARE

The calculation of earnings per common share for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017 and 2016~~2018 is as follows:

	Quarter Ended September 30,				Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2017		2016		2019		2018
	(In thousands, except per share data)								(In thousands, except per share data)
Net income	$	3,319	$	15,120	$	35,573	$	43,630	$	23,470	$	16,917
Less: Dividends on preferred stock
Non-convertible preferred stock (Series A, B, and D)		(1,627)		(1,627)		(4,883)		(4,883)		(1,628)		(1,627)
Convertible preferred stock (Series C)		(1,838)		(1,838)		(5,513)		(5,513)		-		(1,838)
(Loss) Income available to common shareholders	$	(146)	$	11,655	$	25,177	$	33,234
Effect of assumed conversion of the convertible ' ' preferred stock		1,838		1,838		5,513		5,513
Income available to common shareholders									$	21,842	$	13,452
Effect of assumed conversion of the convertible preferred stock										-		1,838
Income available to common shareholders assuming conversion	$	1,692	$	13,493	$	30,690	$	38,747	$	21,842	$	15,290

Weighted average common shares and share equivalents:
Average common shares outstanding		43,947		43,926		43,937		43,913		51,305		43,955
Effect of dilutive securities:
Average potential common shares-options		17		47		20		40		321		28
Average potential common shares-assuming ' ' conversion of convertible preferred stock		7,138		7,138		7,138		7,138
Total weighted average common shares ' 'outstanding and equivalents		51,102		51,111		51,095		51,091
Average potential common shares-assuming conversion of convertible preferred stock										-		7,138
Total weighted average common shares outstanding and equivalents										51,626		51,121
Earnings per common share - basic	$	-	$	0.27	$	0.57	$	0.76	$	0.43	$	0.31
Earnings per common share - diluted	$	-	$	0.26	$	0.56	$	0.76	$	0.42	$	0.30

During the last quarter of 2018, Oriental converted all of its 84,000 outstanding shares of Series C Preferred Stock into common stock. Each Series C Preferred Stock share was converted into 86.4225 shares of common stock. In computing diluted earnings per common share during the first nine months of 2018, the 84,000 shares of ~~convertible preferred stock, which remain~~Series C Preferred Stock that remained outstanding, ~~at September 30, 2017,~~ with a conversion rate, subject to certain conditions, of 86.4225 shares of common stock per share, were included as average potential common shares from the date they were issued and outstanding. Moreover, in computing diluted earnings per common share, the dividends declared during the ~~quarters and nine-month periods~~quarter ended ~~September 30, 2017 and 2016~~March 31, 2018 on the convertible preferred stock were added back as income available to common shareholders.

For the quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to ~~922,601~~28,414 and ~~927,069~~859,322, respectively. ~~For~~

NOTE 17 – GUARANTEES

At March 31, 2019 and December 31, 2018, the ~~nine-month period ended September 30, 2017~~unamortized balance of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $12.6 million and ~~2016, weighted-average stock options with an anti-dilutive effect on earnings per share not~~$23.9 million, respectively.

Oriental has a liability for residential mortgage loans sold subject to credit recourse pursuant to FNMA’s residential mortgage loan sales and securitization programs. At March 31, 2019 and December 31, 2018, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was $5.3 million and $5.4 million, respectively.

The following table shows the changes in Oriental’s liability for estimated losses from these credit recourse agreements, included in the ~~calculation amounted to 935,740~~consolidated statements of financial condition during the quarters ended March 31, 2019 and 2018. ~~and 957,670, respectively.~~

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTE 19 – GUARANTEES~~

~~At September 30, 2017 and December 31, 2016 , the unamortized balance of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $18.2~~ ~~million and $4.0~~ ~~million, respectively.~~

As a result of the BBVAPR Acquisition, Oriental assumed a liability for residential mortgage loans sold subject to credit recourse, pursuant to FNMA’s residential mortgage loan sales and securitization programs. At September 30, 2017 and December 31, 2016, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was $~~6.6~~ ~~million and $20.1~~ ~~million, respectively.~~

The following table shows the changes in Oriental’s liability for estimated losses from these credit recourse agreements, included in the consolidated statements of financial condition during the quarters and nine-month periods ended September 30, 2017 and 2016.

	Quarter Ended September 30,				Nine-Month Period Ended September 30,				Quarter Ended March 31,
	2017		2016		2017		2016		2019		2018
	(In thousands)
Balance at beginning of period	$	570	$	162	$	710	$	439	$	346	$	358
Net (charge-offs/terminations) recoveries		(118)		29		(258)		(248)		(132)		(94)
Balance at end of period	$	452	$	191	$	452	$	191	$	214	$	264

The estimated losses to be absorbed under the credit recourse arrangements were recorded as a liability when the credit recourse was assumed and are updated on a quarterly basis. The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The probability of default represents the probability that a loan in good standing would become 120 days delinquent, in which case Oriental is obligated to repurchase the loan. ~~The recourse obligation will be fully extinguished before the end of 2017.~~

If a borrower defaults, pursuant to the credit recourse provided, Oriental is required to repurchase the loan or reimburse the ~~third party~~third-party investor for the incurred loss. The maximum potential amount of future payments that Oriental would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the ~~quarter~~quarters ended ~~September 30, 2017,~~March 31, 2019 and 2018, Oriental did not repurchase any ~~unpaid principal balance in~~ mortgage loans subject to credit recourse ~~provisions. During the quarter ended 2016, Oriental repurchased approximately $133~~ thousand of unpaid principal balance in mortgage loans subject to the credit recourse provisions. During the nine-month periods ended September 30, 2017 and 2016, Oriental repurchased approximately $107 ~~thousand and $421~~ ~~thousand, respectively of unpaid principal balance in mortgage loans subject to the credit recourse provisions.~~provision. If a borrower defaults, Oriental has rights to the underlying collateral securing the mortgage loan. Oriental suffers losses on these mortgage loans when the proceeds from a foreclosure sale of the collateral property are less than the outstanding principal balance of the loan, any uncollected interest advanced, and the costs of holding and disposing the related property. At ~~September 30, 2017,~~March 31, 2019, Oriental’s liability for estimated credit losses related to loans sold with credit recourse amounted to ~~$452~~$214 thousand (December 31, ~~2016– $710~~2018– $346 thousand).

When Oriental sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. Oriental's mortgage operations division groups conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA or other private investors for cash. As required under such mortgage backed securities programs, quality review procedures are performed by Oriental to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, Oriental may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the quarter ended March 31,~~September 30, 2017~~ 2019, Oriental repurchased ~~$625~~$1.9 ~~thousand~~million (~~September 30, 2016~~March 31, 2018 – ~~$791~~$2.3 ~~thousand)~~million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred ~~above. During the nine-month periods ended~~ ~~September 30, 2017 and September 30, 2016, Oriental~~ ~~repurchased $3.0~~ ~~million and $3.1~~ ~~million, respectively,~~ ~~of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred before~~. above.

During the ~~quarter~~quarters ended March 31, ~~September 30, 2017,~~2019 and 2018, Oriental ~~did not recognize any gains or~~recognized $116 thousand and $100 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse,~~. During the quarter ended September 30, 2016, Oriental recognized $202~~ ~~thousand, in~~

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~losses from the repurchase of residential mortgage loans sold subject to credit recourse. During the quarters ended~~ ~~September 30, 2017~~ and ~~September 30, 2016, Oriental recognized $74~~$16 thousand and ~~$208~~ $1thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of ~~the customary representations and warranties. During the nine-month periods ended~~ ~~September 30, 2017 and 2016, Oriental recognized $354~~ ~~thousand and $313~~ ~~thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $517~~ ~~thousand and $1.0~~ ~~million, respectively, from the repurchase of residential mortgage loans as a result of breaches of the~~ customary representations and warranties.

Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including the FHLMC, require Oriental to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At ~~September 30, 2017~~March 31, 2019, Oriental serviced ~~$862.7~~$900.0 million (December 31, 2018 - $895.6 million) in mortgage loans for third-parties. Oriental generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, Oriental must absorb the cost of the funds it advances during the time the advance is outstanding. Oriental must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and Oriental would not receive any future servicing income with respect to that loan. At ~~September 30, 2017~~March 31, 2019, the outstanding balance of funds advanced by Oriental under such mortgage loan servicing agreements was approximately ~~$402~~$647 thousand (December 31, ~~2016~~2018 - ~~$334~~$706 thousand). To the extent the mortgage loans underlying Oriental's servicing portfolio experience increased delinquencies, Oriental would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 18— COMMITMENTS AND CONTINGENCIES

~~NOTE 20~~— ~~COMMITMENTS AND CONTINGENCIES~~

Loan Commitments

In the normal course of business, Oriental becomes a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby and commercial letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition. The contract or notional amount of those instruments reflects the extent of Oriental’s involvement in particular types of financial instruments.

Oriental’s exposure to credit losses in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit, including commitments under credit card arrangements, and commercial letters of credit is represented by the contractual notional amounts of those instruments, which do not necessarily represent the amounts potentially subject to risk. In addition, the measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are identified. Oriental uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Credit-related financial instruments at ~~September 30, 2017~~ March 31, 2019 and December 31, ~~2016~~2018 were as follows:

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Commitments to extend credit	$	457,104	$	492,885	$	588,159	$	541,423
Commercial letters of credit		1,403		2,721		121		340

Commitments to extend credit represent agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Oriental evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by Oriental upon the extension of credit, is based on management’s credit evaluation of the counterparty.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, commitments to extend credit consisted mainly of undisbursed available amounts on commercial lines of credit, construction loans, and revolving credit card arrangements. Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of these unused commitments does not necessarily represent future cash requirements. These lines of credit had a reserve of $$650 ~~667~~ thousand and $627 thousand, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively.

Commercial letters of credit are issued or confirmed to guarantee payment of customers’ payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the risk associated with these contracts.

The summary of instruments that are considered financial guarantees in accordance with the authoritative guidance related to guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, is as follows:

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2019		2018
	(In thousands)				(In thousands)
Standby letters of credit and financial guarantees	$	18,215	$	4,041	$	12,595	$	23,889
Loans sold with recourse		6,568		20,126		5,341		5,414

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Standby letters of credit and financial guarantees are written conditional commitments issued by Oriental to guarantee the payment and/or performance of a customer to a third party (“beneficiary”). If the customer fails to comply with the agreement, the beneficiary may draw on the standby letter of credit or financial guarantee as a remedy. The amount of credit risk involved in issuing letters of credit in the event of ~~nonperformance~~non-performance is the face amount of the letter of credit or financial guarantee. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The amount of collateral obtained, if it is deemed necessary by Oriental upon extension of credit, is based on management’s credit evaluation of the customer.

~~Lease Commitments~~

~~Oriental has entered into various operating lease agreements for branch facilities and administrative offices. Rent expense for the quarters ended September 30, 2017 and 2016, amounted to $2.0~~ ~~million, respectively. For the nine-month periods ended September 30, 2017 and 2016, rent expense amounted to $6.5~~ million, respectively, and is included in the "occupancy and equipment" caption in the unaudited consolidated statements of operations. Future rental commitments under leases in effect at September 30, 2017, exclusive of taxes, insurance, and maintenance expenses payable by Oriental, are summarized as follows:

Minimum Rent
Year Ending December 31,
(In thousands)
2017
$
2,027
2018

7,085
2019

6,928
2020

6,201
2021

5,371
Thereafter

7,881

$
35,493

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Contingencies

Oriental and its subsidiaries are defendants in a number of legal proceedings incidental to their business. In the ordinary course of business, Oriental and its subsidiaries are also subject to governmental and regulatory examinations. Certain subsidiaries of Oriental, including the Bank (and its subsidiary, OIB), Oriental Financial Services, and Oriental Insurance, are subject to regulation by various U.S., Puerto Rico and other regulators.

Oriental seeks to resolve all arbitration, litigation and regulatory matters in the manner management believes is in the best interests of Oriental and its shareholders, and contests allegations of liability or wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.

Subject to the accounting and disclosure framework under the provisions of ASC 450, it is the opinion of Oriental’s management, based on current knowledge and after taking into account its current legal accruals, that the eventual outcome of all matters would not be likely to have a material adverse effect on the consolidated statements of financial condition of Oriental. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse effect on Oriental’s consolidated results of operations or cash flows in particular quarterly or annual periods. Oriental has evaluated all arbitration, litigation and regulatory matters where the likelihood of a potential loss is deemed reasonably possible. Oriental has determined that the estimate of the reasonably possible loss is not significant.

NOTE 21 19— OPERATING LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, Oriental adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For Oriental, Topic 842 primarily affected the accounting treatment for operating lease agreements in which Oriental is the lessee. Oriental elected the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets. As a result of the changes to the lease terms, Oriental reduced its retained earnings by $736 thousand on the effective date, January 1, 2019.

Lessee Accounting

Right of use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset.

Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, and any impairment of the right-of-use asset. Variable lease payments are generally expensed as incurred and include certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

Oriental’s leases do not contain residual value guarantees or material variable lease payments. All leases were classified as operating leases.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Substantially all of the leases in which Oriental is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2032. All of our leases are classified as operating leases, and therefore, were previously not recognized on Oriental’s consolidated statements of financial condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. Oriental leases to others certain space in its principal offices for terms extending through 2023; all are operating leases.

Operating Lease Cost

	Quarter Ended
	March 31, 2019		Statement of Operations Classification
	(In thousands)
Lease costs	$	1,529	Occupancy and equipment
Variable lease costs		684	Occupancy and equipment
Short-term lease cost		156	Occupancy and equipment
Lease income		(155)	Occupancy and equipment
Total lease cost	$	2,214

Rent expenses for the quarter ended March 31, 2018, prior to adoption of ASU 2016-02 (Topic 842), were $2.2 million.

Operating Lease Assets and Liabilities

		Quarter Ended March 31, 2019
		Quarter Ended March 31, 2019	Statement of Financial Condition Classification
		(In thousands)
Right-of-use assets	$	20,860	Operating lease right-of-use assets
Lease Liabilities	$	22,618	Operating leases liabilities

	March 31, 2019
	March 31, 2019
	(In thousands)
Weighted-average remaining lease term		4.4 years
Weighted-average discount rate		8.0%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2019 were as follows:

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Minimum Rent
Year Ending December 31,	(In thousands)
2019	$	4,653
2020		5,636
2021		4,678
2022		3,824
2023		2,961
Thereafter		8,929
Total lease payments	$	30,681
Less imputed interest		8,063
Present value of lease liabilities	$	22,618

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2018 were as follows:

	Minimum Rent
Year Ending December 31,	(In thousands)
2019	$	5,618
2020		4,293
2021		3,360
2022		2,494
2023		1,968
Thereafter		6,679
Total future minimum lease payments	$	24,412

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Oriental follows the fair value measurement framework under U.S. Generally Accepted Accounting Principles (“GAAP”).

Fair Value Measurement

The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Money market investments

The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

Investment securities

The fair value of investment securities is based on ~~quoted market prices, when available, or market prices provided by Interactive~~valuations obtained from an independent pricing provider, ICE Data ~~Corporation ("IDC"), and independent,~~Pricing (formerly known as IDC). ICE is a well-recognized pricing ~~company.~~company and an established leader in financial information. Such securities are classified as Level 1 or Level 2 depending on the basis for determining fair value. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument, and such securities are classified as Level 3. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, Oriental did not have investment securities classified as Level 3.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Derivative instruments

The fair value of the interest rate swaps is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, the level of interest rates, as well as the expectations for rates in the future. The fair value of most of these derivative instruments is based on observable market parameters, which include discounting the instruments’ cash flows using the U.S. dollar LIBOR-based discount rates, and also applying yield curves that account for the industry sector and the credit rating of the counterparty and/or Oriental.

Certain other derivative instruments with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on their valuation methodology, derivative instruments are classified as Level 2 or Level 3. In the past, Oriental offered its customers certificates of deposit with an option tied to the performance of the S&P Index and used equity indexed option agreements with major broker-dealers to manage its exposure to changes in this index. Their fair value was obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options was linked to the average value of the S&P Index on a specific set of dates during the life of the option. The methodology used an average rate option or a cash-settled option whose payoff was based on the difference between the expected average value of the S&P Index during the remaining life of the option and the strike price at inception. The assumptions, which were uncertain and required a degree of judgment, included primarily S&P Index volatility, forward interest rate projections, estimated index dividend payout, and leverage. At September 30, 2017 and December 31, 2016, there were no options tied to the S&P Index outstanding.

Servicing assets

Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.

Impaired Loans

Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC 310-10-35 less disposition costs. Currently, the associated loans considered impaired are classified as Level 3.

Foreclosed real estate

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price option or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Other repossessed assets

Other repossessed assets include repossessed automobiles. The fair value of the repossessed automobiles may be determined using internal valuation and an external appraisal. These repossessed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:

	September 30, 2017								March 31, 2019
	Fair Value Measurements								Fair Value Measurements
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)								(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	-	$	613,423	$	-	$	613,423	$	-	$	1,239,469	$	-	$	1,239,469
Trading securities		-		284		-		284		-		381		-		381
Money market investments		6,530		-		-		6,530		7,665		-		-		7,665
Derivative assets		-		809		-		809		-		110		-		110
Servicing assets		-		-		9,818		9,818		-		-		10,623		10,623
Derivative liabilities		-		(1,677)		-		(1,677)		-		(439)		-		(439)
	$	6,530	$	612,839	$	9,818	$	629,187	$	7,665	$	1,239,521	$	10,623	$	1,257,809
Non-recurring fair value measurements:
Impaired commercial loans	$	-	$	-	$	67,788	$	67,788	$	-	$	-	$	89,362	$	89,362
Foreclosed real estate		-		-		47,275		47,275		-		-		30,865		30,865
Other repossessed assets		-		-		3,829		3,829		-		-		3,574		3,574
	$	-	$	-	$	118,892	$	118,892	$	-	$	-	$	123,801	$	123,801

	December 31, 2018
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
	(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	-	$	841,857	$	-	$	841,857
Trading securities		-		360		-		360
Money market investments		4,930		-		-		4,930
Derivative assets		-		347		-		347
Servicing assets		-		-		10,716		10,716
Derivative liabilities		-		(333)		-		(333)
	$	4,930	$	842,231	$	10,716	$	857,877
Non-recurring fair value measurements:
Impaired commercial loans	$	-	$	-	$	81,976	$	81,976
Foreclosed real estate		-		-		33,768		33,768
Other repossessed assets		-		-		2,986		2,986
	$	-	$	-	$	118,730	$	118,730

December 31, 2016

Fair Value Measurements

Level 1

Level 2

Level 3

Total

(In thousands)
Recurring fair value measurements:

    Investment securities available-for-sale
$
-

$
751,484

$
-

$
751,484
    Trading securities

-

347

-

347
    Money market investments

5,606

-

-

5,606
    Derivative assets

-

1,330

-

1,330
    Servicing assets

-

-

9,858

9,858
    Derivative liabilities

-

(2,437)

-

(2,437)

$
5,606

$
750,724

$
9,858

$
766,188
Non-recurring fair value measurements:

    Impaired commercial loans
$
-

$
-

$
54,289

$
54,289
    Foreclosed real estate

-

-

47,520

47,520
    Other repossessed assets

-

-

3,224

3,224

$
-

$
-

$
105,033

$
105,033

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2019 and ~~ine-month periods ended September 30, 2017 and 2016:~~2018:

Quarter Ended September 30, 2017

Servicing
Level 3 Instruments Only
assets

(In thousands)
Balance at beginning of period
$
9,866
    New instruments acquired

429
    Principal repayments

(152)
    Changes in fair value of servicing assets

(325)
Balance at end of period
$
9,818

Nine-Month Period Ended September 30, 2017

Servicing
Level 3 Instruments Only
assets

(In thousands)
Balance at beginning of period
$
9,858
    New instruments acquired

1,503
    Principal repayments

(478)
   Changes in fair value of servicing assets

(1,065)
Balance at end of period
$
9,818

8769

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Level 3 Instruments Only									Servicing Assets
	Quarter Ended September, 2016								(In thousands)
	Derivative				Derivative				Quarter Ended March 31,
	asset				liability				2019		2018
	(S&P				(S&P
	Purchased			Servicing	Embedded
Level 3 Instruments Only	Options)			assets	Options)		Total
	(In thousands)
Balance at beginning of period	$	187	$	7,932	$	(181)	$	7,938	$	10,716	$	9,821
Gains (losses) included in earnings		(187)		-		181		(6)
New instruments acquired		-		466		-		466		302		352
Principal repayments		-		(123)		(1)		(124)		(201)		(199)
Amortization		-		-		1		1
Changes in fair value of servicing assets		-		118		-		118		(194)		559
Balance at end of period	$	-	$	8,393	$	-	$	8,393	$	10,623	$	10,533

	Nine-Month Period Ended September, 2016
	Derivative					Derivative
	asset					liability
	(S&P					(S&P
	Purchased			Servicing		Embedded
Level 3 Instruments Only	Options)			assets		Options)		Total
	(In thousands)
Balance at beginning of period	$	1,170	$	7,455	$	(1,095)	$	7,530
Gains (losses) included in earnings		(1,170)		-		1,067		(103)
New instruments acquired		-		1,740		-		1,740
Principal repayments		-		(347)		-		(347)
Amortization		-		-		28		28
Changes in fair value of servicing assets		-		(455)		-		(455)
Balance at end of period	$	-	$	8,393	$	-	$	8,393

During the quarters ended March 31, 2019, and ~~nine-month periods ended September 30, 2017 and 2016,~~2018, there were purchases and sales of assets and liabilities measured at fair value on a recurring basis. There were no transfers into and out of Level 1 and Level 2 fair value measurements during such periods.

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

The table below presents quantitative information for all assets and liabilities measured at fair value on a recurring and non-recurring basis using significant unobservable inputs (Level 3) at March 31, 2019:~~September 30, 2017:~~

	September 30, 2017					March 31, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range	Fair Value		Valuation Technique	Unobservable Input	Range
	(In thousands)					(In thousands)

Servicing assets	$	9,818	Cash flow valuation	Constant prepayment rate	4.22% - 9.11%	$	10,623	Cash flow valuation	Constant prepayment rate	4.38% -8.96%
				Discount rate	10.00% - 12.00%				Discount rate	10.00% - 12.00%
Collateral dependant impaired loans	$	24,025	Fair value of property or collateral	Appraised value less disposition costs	22.20% - 36.20%
Collateral dependent impaired loans						$	44,717	Fair value of property or collateral	Appraised value less disposition costs	16.20% - 36.20%


Other non-collateral dependant impaired loans	$	43,763	Cash flow valuation	Discount rate	4.15% - 10.50%
Other non-collateral dependent impaired loans						$	44,645	Cash flow valuation	Discount rate	4.25% - 12.25%

Foreclosed real estate	$	47,275	Fair value of property or collateral	Appraised value less disposition costs	22.20% - 36.20%	$	30,865	Fair value of property or collateral	Appraised value less disposition costs	16.20% - 36.20%

Other repossessed assets	$	3,829	Fair value of property or collateral	Estimated net realizable value less disposition costs	34.00% - 66.00%	$	3,574	Fair value of property or collateral	Estimated net realizable value less disposition costs	40.00% - 60.00%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Servicing assets – The significant unobservable inputs used in the fair value measurement of Oriental’s servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Fair Value of Financial Instruments

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of Oriental.

The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer relationships of retail deposits, and premises and ~~equipment.~~equipment.

8971

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The estimated fair value and carrying value of Oriental’s financial instruments at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 is as follows:

	September 30,				December 31,				March 31,				December 31,
	2017				2016				2019				2018
	Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying
	Value		Value		Value		Value		Value		Value		Value		Value
	(In thousands)								(In thousands)
Level 1
Financial Assets:
Cash and cash equivalents	$	720,726	$	720,726	$	510,439	$	510,439	$	505,993	$	505,993	$	447,033	$	447,033
Restricted cash	$	3,030	$	3,030	$	3,030	$	3,030	$	3,030	$	3,030	$	3,030	$	3,030
Level 2
Financial Assets:
Trading securities	$	284	$	284	$	347	$	347	$	381	$	381	$	360	$	360
Investment securities available-for-sale	$	613,423	$	613,423	$	751,484	$	751,484	$	1,239,469	$	1,239,469	$	841,857	$	841,857
Investment securities held-to-maturity	$	525,830	$	530,178	$	592,763	$	599,884	$	-	$	-	$	410,353	$	424,740
Federal Home Loan Bank (FHLB) stock	$	14,016	$	14,016	$	10,793	$	10,793	$	12,800	$	12,800	$	12,644	$	12,644
Other investments	$	3	$	3	$	3	$	3	$	3	$	3	$	3	$	3
Derivative assets	$	809	$	809	$	1,330	$	1,330	$	110	$	110	$	347	$	347
Financial Liabilities:
Derivative liabilities	$	1,677	$	1,677	$	2,437	$	2,437	$	439	$	439	$	333	$	333
Level 3
Financial Assets:
Total loans (including loans held-for-sale)	$	3,854,106	$	3,964,572	$	3,917,340	$	4,147,692	$	4,074,348	$	4,401,401	$	4,106,628	$	4,431,594
FDIC indemnification asset	$	-	$	-	$	8,669	$	14,411
Accrued interest receivable	$	22,736	$	22,736	$	20,227	$	20,227	$	33,152	$	33,152	$	34,254	$	34,254
Servicing assets	$	9,818	$	9,818	$	9,858	$	9,858	$	10,623	$	10,623	$	10,716	$	10,716
Accounts receivable and other assets	$	37,443	$	37,443	$	46,525	$	46,525	$	35,482	$	35,482	$	37,842	$	37,842
Financial Liabilities:
Deposits	$	4,809,945	$	4,826,404	$	4,644,629	$	4,664,487	$	4,868,473	$	4,897,101	$	4,881,903	$	4,908,115
Securities sold under agreements to repurchase	$	281,786	$	283,080	$	651,898	$	653,756	$	429,250	$	431,566	$	453,135	$	455,508
Advances from FHLB	$	100,249	$	100,091	$	106,422	$	105,454	$	81,366	$	81,111	$	78,503	$	77,620
Other borrowings	$	-	$	-	$	61	$	61	$	286	$	286	$	1,214	$	1,214
Subordinated capital notes	$	31,938	$	36,083	$	30,230	$	36,083	$	35,458	$	36,083	$	36,184	$	36,083
Accrued expenses and other liabilities	$	86,766	$	86,766	$	95,370	$	95,370	$	87,004	$	87,004	$	87,664	$	87,664

9072

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following methods and assumptions were used to estimate the fair values of significant financial instruments at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

• Cash and cash equivalents (including money market investments and time deposits with other banks), restricted cash, accrued interest receivable, accounts receivable and other assets, ~~and~~ accrued expenses and other liabilities, and other borrowings have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the ~~instruments.~~instruments.

• Investments in FHLB-NY stock are valued at their redemption value.

• The fair value of investment securities, including trading securities and other investments, is based on quoted market prices, when available or prices provided from contracted pricing providers, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the ~~instrument.~~instrument.

• The fair value of the FDIC indemnification asset represented the present value of the net estimated cash payments expected to be received from the FDIC for future losses on covered assets based on the credit assumptions on estimated cash flows for each covered asset and the loss sharing percentages. The FDIC shared-loss agreements were terminated on February 6, 2017. Such termination takes into account the anticipated reimbursements over the life of the shared-loss agreements and the true-up payment liability of the Bank anticipated at the end of the ten year term of the single family shared-loss agreement. Therefore, at June 30, 2017, Oriental had no FDIC indemnification asset.

• The fair value of servicing asset is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market ~~conditions.~~conditions.

• The fair values of the derivative instruments are provided by valuation experts and counterparties. Certain derivatives with limited market activity are valued using externally developed models that consider unobservable market parameters.

• Fair value of derivative liabilities, which include interest rate swaps and forward-settlement swaps, are based on the net discounted value of the contractual projected cash flows of both the pay-fixed receive-variable legs of the contracts. The projected cash flows are based on the forward yield curve, and discounted using current estimated market ~~rates.~~rates.

• The fair value of the loan portfolio (including loans ~~held-for-sale)~~held-for-sale and non-performing loans) is based on the exit market price, which is estimated by segregating by type, such as mortgage, commercial, consumer, auto and leasing. Each loan segment is further segmented into fixed and adjustable interest ~~rates and by performing and non-performing categories.~~rates. The fair value ~~of performing loans~~ is calculated by discounting contractual cash flows, adjusted for prepayment estimates (voluntary and involuntary), if any, using estimated current market discount rates that reflect the credit and interest rate risk inherent in the loan. This fair value is not currently an indication of an exit price as that type of assumption could result in a different fair value estimate. Non-performing loans have been valued at the carrying amounts.

• The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining ~~maturities.~~maturities.

• The fair value of long-term borrowings, which include securities sold under agreements to repurchase, advances from FHLB, and subordinated capital notes is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.s.

9173

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 21 – BANKING AND FINANCIAL SERVICE REVENUES

The following table presents the major categories of banking and financial service revenues for the quarters ended March 31, 2019 and 2018:

	Quarter Ended March 31,
	2019		2018
	(In thousands)
Banking service revenues:
Checking accounts fees	$	1,473	$	1,519
Savings accounts fees		155		154
Electronic banking fees		7,892		7,571
Credit life commissions		117		119
Branch service commissions		373		327
Servicing and other loan fees		316		601
International fees		137		169
Miscellaneous income		2		3
Total banking service revenues		10,465		10,463

Wealth management revenue:
Insurance income		1,281		1,238
Broker fees		1,757		1,789
Trust fees		2,604		2,696
Retirement plan and administration fees		240		287
Investment banking fees		-		9
Total wealth management revenue		5,882		6,019

Mortgage banking activities:
Net servicing fees		944		1,754
Net gains on sale of mortgage loans and valuation		162		3
Other		100		-
Total mortgage banking activities		1,206		1,757
Total banking and financial service revenues	$	17,553	$	18,239

In May 2014 FASB issued ASU No. 2014-09 - Revenue from Contracts with Customers (ASC 606) to clarify the principles for recognizing revenue and to develop a common revenue standard that would remove inconsistencies in revenue requirements, provide a more robust framework for addressing the revenue issues, improve comparability in revenue recognition and to simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

The standard defines revenue (ASC-606-10-20) as inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

Revenue is recognized when (or as) the performance obligation is satisfied by transferring control of a promised good or service to a customer, either at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Oriental recognizes the revenue from banking services, wealth management and mortgage banking based on the nature and timing of revenue streams from contracts with customer:

Banking Services Revenue

Electronic banking fees are credit and debit card processing services, use of the Bank’s ATMs by non-customers, debit card interchange income and service charges on deposit accounts. Revenue is recorded once the contracted service has been provided.

Service charges on checking and saving accounts as consumer periodic maintenance revenue is recognized once the service is rendered, while overdraft and late charges revenue are recorded after the contracted service has been provided.

Other income as credit life commissions, servicing and other loan fees, international fees, and miscellaneous fees recognized as banking services revenue are out of the scope of the 606 guideline.

Wealth Management Revenue

Insurance income from commissions and sale of annuities are recorded once the sale has been completed.

Brokers fees consist of two categories:

·Sales commissions generated by advisors for their clients’ purchases and sales of securities and other investment products, which are collected once the stand-alone transactions are completed at trade date or as earned, and managed account fees which are fees charged to advisors’ clients’ accounts on the Company corporate advisory platform. These revenues do not cover future services, as a result there is no need to allocate the amount received to any other service.

·Fees for providing distribution services related to mutual funds, net of compensation paid to a service provider who provides such services, as well as trailer fees (also known as 12-b1 fess). These fees are considered variable and are recognized over time, as the uncertainty of the fees to be received is resolved as the net asset value of the mutual fund is determined and investor activity occurs. Fees do not cover future services, as a result there is no need to allocate the amount received to any other service.

Retirement plan and administration fees are revenues related to the payment received from the clients of OPC for assistance with the planning, design and administration of retirement plans, acting as third party administrator for such plans, and daily record keeping services of retirement plans. Fees are collected once the stand-alone transaction was completed at trade date. Fees do not cover future services, as a result there is no need to allocate the amount received to any other service.

Trust fees are revenues related to fiduciary services provided to 401K retirement plans, a unit investment trust, and retirement plans, which include investment management, payment of distributions, if any, safekeeping, custodial services of plan assets, servicing of Trust officers, on-going due diligence of the Trust, and recordkeeping of transactions. Fees are billed based on services contracted. Negotiated fees are detailed in the contract. Fees collected in advance, are amortized over the term of the contract. Fees are collected on a monthly basis once the administrative service has been completed. Monthly fee does not include future services.

Investment banking fees as compensation fees are out of the scope of the 606 guideline.

Mortgage Banking Activities

Mortgage banking activities as servicing fees, gain on sale of mortgage loans valuation and other are out of the scope of the 606 guideline.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 22 –BUSINESS SEGMENTS

Oriental segregates its businesses into the following major reportable segments of business: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. These factors are reviewed on a periodical basis and may change if the conditions warrant.

Banking includes the Bank’s branches and traditional banking products such as deposits and commercial, consumer and mortgage loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for Oriental’s own portfolio. As part of its mortgage banking activities, Oriental may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.

Wealth Management is comprised of the Bank’s trust division, Oriental Financial Services, Oriental Insurance, and OPC. The core operations of this segment are financial planning, money management and investment banking, brokerage services, insurance sales activity, corporate and individual trust and retirement services, as well as retirement plan administration services.

The Treasury segment encompasses all of Oriental’s asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings. Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices.

9276

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2019 and ~~nine-month periods ended~~ ~~September 30, 2017 and 2016:~~2018:

	Quarter Ended September 30, 2017												Quarter Ended March 31, 2019
				Wealth				Total Major				Consolidated			Wealth				Total Major				Consolidated
	Banking			Management		Treasury		Segments		Eliminations		Total	Banking		Management		Treasury		Segments		Eliminations		Total
	(In thousands)												(In thousands)
Interest income	$	82,162	$	13	$	8,180	$	90,355	$	-	$	90,355	$	83,516	$	18	$	11,176	$	94,710	$	-	$	94,710
Interest expense		(6,342)		-		(3,535)		(9,877)		-		(9,877)		(8,636)		-		(4,285)		(12,921)		-		(12,921)
Net interest income		75,820		13		4,645		80,478		-		80,478		74,880		18		6,891		81,789		-		81,789
Provision for loan and lease losses		(44,042)		-		-		(44,042)		-		(44,042)
Provision for loan and lease losses, net														(12,207)		-		(42)		(12,249)		-		(12,249)
Non-interest income		10,384		6,695		833		17,912		-		17,912		11,656		5,984		16		17,656		-		17,656
Non-interest expenses		(43,819)		(5,048)		(1,602)		(50,469)		-		(50,469)		(46,483)		(4,327)		(1,342)		(52,152)		-		(52,152)
Intersegment revenue		431		-		-		431		(431)		-		554		-		-		554		(554)		-
Intersegment expenses		-		(324)		(107)		(431)		431		-		-		(174)		(380)		(554)		554		-
Income before income taxes	$	(1,226)	$	1,336	$	3,769	$	3,879	$	-	$	3,879	$	28,400	$	1,501	$	5,143	$	35,044	$	-	$	35,044
Income tax expenses (benefit)		(475)		521		514		560		-		560
Income tax expense														10,650		563		361		11,574		-		11,574
Net income	$	(751)	$	815	$	3,255	$	3,319	$	-	$	3,319	$	17,750	$	938	$	4,782	$	23,470	$	-	$	23,470
Total assets	$	5,605,922	$	23,148	$	1,620,919	$	7,249,989	$	(961,772)	$	6,288,217	$	5,862,487	$	25,425	$	1,742,557	$	7,630,469	$	(1,027,278)	$	6,603,191



	Quarter Ended September 30, 2016												Quarter Ended March 31, 2018
				Wealth				Total Major				Consolidated			Wealth				Total Major				Consolidated
	Banking			Management		Treasury		Segments		Eliminations		Total	Banking		Management		Treasury		Segments		Eliminations		Total
	(In thousands)												(In thousands)
Interest income	$	82,564	$	15	$	8,005	$	90,584	$	-	$	90,584	$	74,374	$	12	$	8,784	$	83,170	$	-	$	83,170
Interest expense		(6,733)		-		(6,924)		(13,657)		-		(13,657)		(6,290)		-		(2,886)		(9,176)		-		(9,176)
Net interest income		75,831		15		1,081		76,927		-		76,927		68,084		12		5,898		73,994		-		73,994
Provision for loan and lease losses		(23,469)		-		-		(23,469)		-		(23,469)
Provision for loan and lease losses, net														(15,455)		-		(5)		(15,460)		-		(15,460)
Non-interest income		8,918		6,379		4,918		20,215		-		20,215		12,193		6,308		13		18,514		-		18,514
Non-interest expenses		(50,095)		(3,757)		(1,074)		(54,926)		-		(54,926)		(48,081)		(3,286)		(754)		(52,121)		-		(52,121)
Intersegment revenue		375		-		86		461		(461)		-		361		-		-		361		(361)		-
Intersegment expenses		(86)		(272)		(103)		(461)		461		-		-		(179)		(182)		(361)		361		-
Income before income taxes	$	11,474	$	2,365	$	4,908	$	18,747	$	-	$	18,747	$	17,102	$	2,855	$	4,970	$	24,927	$	-	$	24,927
Income tax expenses (benefit)		4,475		922		(1,770)		3,627		-		3,627
Income tax expense (benefit)														6,670		1,113		227		8,010		-		8,010
Net income	$	6,999	$	1,443	$	6,678	$	15,120	$	-	$	15,120	$	10,432	$	1,742	$	4,743	$	16,917	$	-	$	16,917
Total assets	$	5,715,958	$	19,433	$	1,801,752	$	7,537,143		(945,030)	$	6,592,113	$	5,661,759	$	28,377	$	1,529,912	$	7,220,048	$	(972,927)	$	6,247,121

~~OFG BANCORP~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Nine-Month Period Ended September 30, 2017




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
236,754

$
43

$
25,676

$
262,473

$
-

$
262,473
Interest expense

(19,976)

-

(11,838)

(31,814)

-

(31,814)
Net interest income

216,778

43

13,838

230,659

-

230,659
Provision for loan and lease losses, net

(88,210)

-

(22)

(88,232)

-

(88,232)
Non-interest income, net

35,387

18,952

7,533

61,872

-

61,872
Non-interest expenses

(137,275)

(13,368)

(4,326)

(154,969)

-

(154,969)
Intersegment revenue

1,243

-

140

1,383

(1,383)

-
Intersegment expenses

(140)

(889)

(354)

(1,383)

1,383

-
Income before income taxes
$
27,783

$
4,738

$
16,809

$
49,330

$
-

$
49,330
Income tax expense

10,836

1,848

1,073

13,756

-

13,757
Net income
$
16,947

$
2,890

$
15,736

$
35,574

$
-

$
35,573
Total assets
$
5,605,922

$
23,148

$
1,620,919

$
7,249,989

$
(961,772)

$
6,288,217

Nine-Month Period Ended September 30, 2016




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
243,389

$
49

$
26,360

$
269,798

$
-

$
269,798
Interest expense

(20,840)

-

(23,744)

(44,584)

-

(44,584)
Net interest income

222,549

49

2,616

225,214

-

225,214
Provision for loan and lease losses, net

(51,703)

-

-

(51,703)

-

(51,703)
Non-interest income, net

24,927

19,309

4,637

48,873

-

48,873
Non-interest expenses

(147,881)

(11,610)

(4,117)

(163,608)

-

(163,608)
Intersegment revenue

1,162

-

235

1,397

(1,397)

-
Intersegment expenses

(235)

(849)

(313)

(1,397)

1,397

-
Income (loss) before income taxes
$
48,819

$
6,899

$
3,058

$
58,776

$
-

$
58,776
Income tax expenses (benefit)

19,039

2,691

(6,584)

15,146

-

15,146
Net income
$
29,780

$
4,208

$
9,642

$
43,630

$
-

$
43,630
Total assets
$
5,715,958

$
19,433

$
1,801,752

$
7,537,143

$
(945,030)

$
6,592,113

~~NOTE 23~~ – ~~SUBSEQUENT EVENTS~~

On October 6, 2017, the Bank organized and began operating a new entity, OFG USA LLC ("OFG USA"), to provide commercial lending in the US mainland. The Bank made a capital contribution to OFG USA of $50.0 million on October 23, 2017.

9477

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion of Oriental’s financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and Oriental’s consolidated financial statements and related notes. This discussion and analysis contains forward-looking statements. Please see “Forward-Looking Statements” and the risk factors set forth in our Form 10-K for the year ended December 31, ~~2016~~2018 (the ~~“2016~~“2018 Form 10-K”), for discussion of the uncertainties, risks and assumptions associated with these statements.

Oriental is a publicly-owned financial holding company that provides a full range of banking and financial services through its subsidiaries, including commercial, consumer, auto and mortgage lending; checking and savings accounts; financial planning, insurance and securities brokerage services; and corporate and individual trust and retirement services. Oriental operates through three major business segments: Banking, Wealth Management, and Treasury, and distinguishes itself based on quality service. Oriental has 4839 branches in Puerto Rico and a subsidiary in Boca Raton, ~~Florida.~~Florida, and a non-bank operating subsidiary in Cornelius, North Carolina. Oriental’s long-term goal is to strengthen its banking and financial services franchise by expanding its lending businesses, increasing the level of integration in the marketing and delivery of banking and financial services, maintaining effective asset-liability management, growing non-interest revenue from banking and financial services, and improving operating efficiencies.

Oriental’s diversified mix of businesses and products generates both the interest income traditionally associated with a banking institution and non-interest income traditionally associated with a financial services institution (generated by such businesses as securities brokerage, fiduciary services, investment banking, insurance agency, and retirement plan administration). Although all of these businesses, to varying degrees, are affected by interest rate and financial market fluctuations and other external factors, Oriental’s commitment is to continue producing a balanced and growing revenue stream.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” of our ~~2016~~2018 Form 10-K.

In the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” section of our ~~2016~~2018 Form 10-K, we identified ~~the following~~several accounting policies as critical, including the following, because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition:

· ~~Loans and lease receivables~~Fair value measurements of financial instruments

· ~~Allowance~~Interest on loans and allowance for loan and lease losses

· ~~Financial instruments~~Accounting for purchased credit-impaired loans

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing conditions. Management has reviewed and approved these critical accounting policies and has discussed its judgments and assumptions with the Audit Committee of our Board of Directors. During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effect of the hurricanes on Oriental's loan portfolio is difficult to predict at this time, management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses. The framework for the analysis was based on our current ALLL methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment. For commercial portfolios, Oriental contacted its clients to evaluate the impact of the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of

repayment. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output. For retail portfolios (residential mortgage, consumer and auto), management established assumptions based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (for all portfolios) and the location of the collateral (for residential loans). TThe documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental will continue to assess the impact to our customers and our businesses as a result of the hurricanes and refine our estimates as more information becomes available. ~~Other than these changes, there~~here have been no material changes in the methods used to formulate these critical accounting estimates from those discussed in our ~~2016~~2018 Form 10-K.

9679

OVERVIEW OF FINANCIAL PERFORMANCE

SELECTED FINANCIAL DATA


Quarter Ended September 30,

Nine-Month Period Ended September 30,

Variance

Variance

2017

2016

%

2017

2016

%
EARNINGS DATA:
(In thousands, except per share data)
Interest income
$
90,355

$
90,584

-0.3%

$
262,473

$
269,798

-2.7%
Interest expense

9,877

13,657

-27.7%

31,814

44,584

-28.6%
    Net interest income

80,478

76,927

4.6%

230,659

225,214

2.4%
Provision for loan and lease losses, net

44,042

23,469

87.7%

88,232

51,703

70.7%
        Net interest income after provision for loan
            and lease losses

36,436

53,458

-31.8%

142,427

173,511

-17.9%
Non-interest income

17,912

20,215

-11.4%

61,872

48,873

26.6%
Non-interest expenses

50,469

54,926

-8.1%

154,969

163,608

-5.3%
    Income before taxes

3,879

18,747

-79.3%

49,330

58,776

-16.1%
Income tax expense

560

3,627

-84.6%

13,757

15,146

-9.2%
    Net income

3,319

15,120

-78.0%

35,573

43,630

-18.5%
Less: dividends on preferred stock

(3,465)

(3,465)

0.0%

(10,396)

(10,396)

0.0%
    Income available to common shareholders
$
(146)

$
11,655

-101.3%

$
25,177

$
33,234

-24.2%
PER SHARE DATA:

Basic
$
-

$
0.27

-100.0%

$
0.57

$
0.76

-25.0%
Diluted
$
-

$
0.26

-100.0%

$
0.56

$
0.76

-26.3%
Average common shares outstanding

43,947

43,926

0.0%

43,937

43,913

0.1%
Average common shares outstanding and equivalents

51,102

51,111

0.0%

51,095

51,091

0.0%
Cash dividends declared per common share
$
0.06

$
0.06

0.0%

$
0.18

$
0.18

0.0%
Cash dividends declared on common shares
$
2,638

$
2,637

0.0%

$
7,915

$
7,909

0.1%
PERFORMANCE RATIOS:

Return on average assets (ROA)

0.22%

0.91%

-75.8%

0.76%

0.85%

-10.6%
Return on average tangible common equity

-0.08%

7.06%

-101.1%

4.94%

6.82%

-27.6%
Return on average common equity (ROE)

-0.07%

6.19%

-101.1%

4.35%

5.96%

-27.0%
Equity-to-assets ratio

14.91%

14.03%

6.3%

14.91%

14.03%

6.3%
Efficiency ratio

51.66%

57.69%

-10.5%

54.71%

58.66%

-6.7%
Interest rate spread

5.56%

4.87%

14.2%

5.16%

4.68%

10.3%
Interest rate margin

5.64%

4.95%

13.9%

5.25%

4.77%

10.1%

SELECTED FINANCIAL DATA

	Quarter Ended March 31,
					Variance
	2019		2018		%
EARNINGS DATA:	(In thousands, except per share data)
Interest income	$	94,710	$	83,170	13.9%
Interest expense		12,921		9,176	40.8%
Net interest income		81,789		73,994	10.5%
Provision for loan and lease losses, net		12,249		15,460	-20.8%
Net interest income after provision for loan and lease losses		69,540		58,534	18.8%
Non-interest income		17,656		18,514	-4.6%
Non-interest expenses		52,152		52,121	0.1%
Income before taxes		35,044		24,927	40.6%
Income tax expense		11,574		8,010	44.5%
Net income		23,470		16,917	38.7%
Less: dividends on preferred stock		(1,628)		(3,465)	53.0%
Income available to common shareholders	$	21,842	$	13,452	62.4%
PER SHARE DATA:
Basic	$	0.43	$	0.31	38.7%
Diluted	$	0.42	$	0.30	40.0%
Average common shares outstanding		51,305		43,955	16.7%
Average common shares outstanding and equivalents		51,626		51,121	1.0%
Cash dividends declared per common share	$	0.07	$	0.06	16.7%
Cash dividends declared on common shares	$	3,591	$	2,638	36.1%
PERFORMANCE RATIOS:
Return on average assets (ROA)		1.42%		1.09%	30.3%
Return on average tangible common equity		10.32%		7.73%	33.5%
Return on average common equity (ROE)		9.34%		6.84%	36.5%
Efficiency ratio		52.50%		56.51%	-7.1%
Interest rate spread		5.26%		5.14%	2.3%
Interest rate margin		5.37%		5.22%	2.9%

SELECTED FINANCIAL DATA - (Continued)

	September 30,		December 31,		Variance	March 31,			December 31,		Variance
	2017		2016		%	2019			2018		%
PERIOD END BALANCES AND CAPITAL RATIOS:	(In thousands, except per share data)					(In thousands, except per share data)
Investments and loans
Investment securities	$	1,157,904	$	1,362,511	-15.0%	$	1,252,653		$	1,279,604	-2.1%
Loans and leases, net		3,964,572		4,147,692	-4.4%		4,401,401			4,431,594	-0.7%
Total investments and loans	$	5,122,476	$	5,510,203	-7.0%	$	5,654,054		$	5,711,198	-1.0%
Deposits and borrowings
Deposits	$	4,826,404	$	4,664,487	3.5%	$	4,897,101		$	4,908,115	-0.2%
Securities sold under agreements to repurchase		283,080		653,756	-56.7%		431,566			455,508	-5.3%
Other borrowings		136,174		141,598	-3.8%		117,480	��		114,917	2.2%
Total deposits and borrowings	$	5,245,658	$	5,459,841	-3.9%	$	5,446,147		$	5,478,540	-0.6%
Stockholders’ equity
Preferred stock	$	176,000	$	176,000	0.0%	$	92,000		$	92,000	0.0%
Common stock		52,626		52,626	0.0%		59,885			59,885	0.0%
Additional paid-in capital		541,302		540,948	0.1%		619,828			619,381	0.1%
Legal surplus		79,795		76,293	4.6%		92,621			90,167	2.7%
Retained earnings		191,567		177,808	7.7%		268,101			253,040	6.0%
Treasury stock, at cost		(104,502)		(104,860)	0.3%		(103,196)			(103,633)	0.4%
Accumulated other comprehensive (loss) income		842		1,596	-47.2%
Accumulated other comprehensive (loss)							(8,047)			(10,963)	26.6%
Total stockholders' equity	$	937,630	$	920,411	1.9%	$	1,021,192		$	999,877	2.1%
Per share data
Book value per common share	$	17.56	$	17.18	2.2%	$	18.30		$	17.90	2.2%
Tangible book value per common share	$	15.49	$	15.08	2.7%	$	16.56		$	16.15	2.5%
Market price at end of period	$	9.15	$	13.10	-30.2%	$	19.79		$	16.46	20.2%
Capital ratios
Leverage capital		14.07%		12.99%	8.3%		14.64%			14.22%	3.0%
Common equity Tier 1 capital ratio		14.89%		14.05%	6.0%		17.09%			16.78%	1.8%
Tier 1 risk-based capital		19.53%		18.35%	6.4%		19.49%			19.20%	1.5%
Total risk-based capital		20.82%		19.62%	6.1%		20.77%			20.48%	1.4%
Equity to assets ratio							15.47%			15.19%	1.8%
Financial assets managed
Trust assets managed	$	2,956,684	$	2,850,494	3.7%	$	2,925,982		$	2,771,462	5.6%
Broker-dealer assets gathered	$	2,272,284	$	2,350,718	-3.3%
Broker-dealer assets						$	2,302,834		$	2,116,035	8.8%

9881

FINANCIAL HIGHLIGHTS ~~OF THE THIRD QUARTER OF 2017~~

~~Our results~~Summary for the ~~third~~first quarter of ~~2017 were significantly impacted by hurricanes Irma and Maria. The intensity and extent~~2019 versus first quarter of damages caused by hurricane Maria, less than two weeks after hurricane Irma left over a million Puerto Rico residents without electric power, is unprecedented in Puerto Rico. Many areas and towns throughout Puerto Rico were devastated by hurricane Maria and at least 51 fatalities are attributed to this natural disaster. Over a month after the hurricanes, most of Puerto Rico remains without electricity, many businesses are unable to operate, and government authorities are still struggling to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays. 2018

In response to the magnitude of this natural disaster and its general adverse effects on our customers, we offered a moratorium to defer payments on our personal, auto, mortgage and commercial loan portfolios. Any eligible customer may decline the deferment by continuing to make its regularly scheduled loan payments.

Our moratorium covers all personal and auto loan customers that are not over 89 days delinquent in their loans. It consists of an optional automatic deferment of three scheduled monthly payments of principal and interest. For any customer that does not opt out, the deferred payments are due and payable in three consecutive installments after the loan’s maturity date. Such loans continue to accrue interest on their principal balances during the moratorium at their respective rates, and such customers are not charged late payment fees in connection with the deferment, nor is their credit history affected thereby.

For commercial loans, we offered a one-month optional deferment in the payment of principal and interest for loans that are not over 30 days past due, and up to two additional one-month deferrals in certain cases. For conforming mortgage loans (Rural, VA, FNMA, FHA and FHLMC), we offered a three-month optional deferment of principal and interest due and payable in January 2018, and for credit card balances that were not over 29 days past due as of August 31, 2017, we offered a waiver of minimum payments for October, November and December 2017.

· Net ~~loss available~~interest income and total banking and financial revenues increased 7.7% to ~~shareholders totaled $146 thousand. This compares to $13.6~~$99.3 million ~~or $0.30 per share fully diluted, in the second quarter~~from $92.2 million. Increased interest income from originated loans and investment securities and cash more than offset pay downs of ~~2017 and $11.7 million, or $0.26 per share fully diluted, in the year ago quarter.~~acquired loans.

· ~~Based~~Net income available to shareholders increased 62.4% to $21.8 million from $13.5 million. Results reflect increased operating leverage, reduced provision and elimination of dividends on ~~preliminary assessments of the impact of the hurricanes on~~Series C preferred stock following its ~~credit portfolio, third quarter 2017 results included an additional loan loss provision of $27.0 million.~~conversion.

· Earnings per share diluted of $0.42 compared to $0.30, a 40% increase.

·Book value per common share increased 3.0% to $18.30. Tangible book value per common share ~~was $15.92 and tangible common equity ratio was 11.26%, with common equity Tier 1 capital ratio of 15.48%, Tier 1 risk-based capital ratio of 20.09%, and total risk-based capital ratio of 21.37%.~~

~~Adjusted results of operations – Non-GAAP financial measures~~

~~Oriental prepares its consolidated financial statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition~~expanded 5.4% to ~~analyzing Oriental’s results on a reported basis, management monitors “Adjusted net income” of Oriental and excludes the impact of certain transactions~~

~~on the results of its operations.~~ $16.56.During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Oriental has excluded the impact of these events for its "Adjusted net income". Adjusted net income is a non-GAAP financial measure. Management believes that Adjusted net income and other non-GAAP financial measures provides meaningful information about the underlying performance of Oriental’s ongoing operations.

Refer to the following table for a reconciliation of the reported results to the Adjusted net income and other non-GAAP financial measures for the quarter and nine-month period ended September 30, 2017. Non-GAAP financial measures used by Oriental may not be comparable to similarly named Non-GAAP financial measures used by other companies.

Reconciliation to Non-GAAP Financial Measures adjusted to exclude the effect of hurricanes Irma and Maria:

Quarter Ended September 30, 2017

Nine-Month Period Ended September 30, 2017

(Dollars in thousands)
U.S GAAP Net income

$
3,319

$
35,573
Non-GAAP adjustments:

Additional loan loss provision from Hurricanes Irma and María

27,000

27,000
Income tax effect

(8,038)

(8,038)
Adjusted net income (Non-GAAAP)

22,281

54,535
Less: dividends on preferred stock

(3,465)

(10,396)
Adjusted income available to common shareholders (Non-GAAAP)

18,816

44,139
Plus: Effect of assumed conversion of the convertible preferred stock

1,838

1,838

$
20,654

$
45,977
Average common shares outstanding and equivalents

51,102

51,095
Adjusted earnings per common share - diluted (Non-GAAP)

$
0.40

$
0.90

Adjusted net income (Non-GAAAP)

$
22,281

$
54,535
Average assets, excluding hurricane loan provision

$
6,048,021

$
6,231,725
Return on average assets, excluding hurricane loan provision (Non-GAAP)

1.47%

1.17%

Adjusted income available to common shareholders (Non-GAAAP)

$
18,816

$
44,139
Average tangible common stockholders' equity, excluding hurricane loan provision

$
690,203

$
679,867
Return on average tangible common stockholders' equity, excluding hurricane loan provision (Non-GAAP)

10.90%

8.66%

· ~~Excluding the aforementioned impact of the hurricanes (Non-GAAP):~~Loans increased 6.5% to $4.40 billion, while deposits grew 1.3% to $4.90 billion.

☐ · ~~Adjusted net income available~~New loan origination of $276.4 million included a 41.4% increase in commercial loans due to ~~shareholders totaled $18.8 million or $0.40 per share fully diluted. That’s an increase~~the success of ~~$0.10 per share or 33.0% from the second quarter~~Oriental’s strategic targeting of ~~2017 and of $0.14 or 53.8% from the year ago quarter.~~small business customers.

☐ ·Net interest margin of 5.37%, a 15 basis points increase, while both credit quality and the efficiency ratio improved.

· Return on average assets ~~was 1.47% and~~increased 33 basis points to 1.42%, return on average tangible common equity ~~was 10.90% – 38 and 289~~expanded 259 basis points ~~higher, respectively, than the second quarter of 2017.~~to 10.32%, and capital metrics continued at new multi-year highs.

ANALYSIS OF RESULTS OF OPERATIONS

The following tables show major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017 and 2016:~~

2018:

~~100~~82

TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE	TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE										TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE QUARTERS ENDED SEPTEMBER 30, 2017 AND 2016
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018											FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018

	Interest				Average rate		Average balance				Interest				Average rate		Average balance
	September		September		September	September	September		September		March		March		March	March	March		March
	2017		2016		2017	2016	2017		2016		2019		2018		2019	2018	2019		2018
	(Dollars in thousands)										(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets	$	90,355	$	90,585	6.33%	5.83%	$	5,658,953	$	6,169,251	$	94,710	$	83,169	6.22%	5.86%	$	6,171,448	$	5,751,444
Tax equivalent adjustment		1,084		1,163	0.08%	0.07%		-		-		2,338		1,162	0.15%	0.08%		-		-
Interest-earning assets - tax equivalent		91,439		91,748	6.41%	5.90%		5,658,953		6,169,251		97,048		84,331	6.37%	5.94%		6,171,448		5,751,444
Interest-bearing liabilities		9,877		13,658	0.77%	0.96%		5,071,668		5,639,609		12,922		9,174	0.96%	0.72%		5,452,860		5,134,452
Tax equivalent net interest income / spread		81,562		78,090	5.64%	4.94%		587,285		529,642		84,126		75,157	5.41%	5.22%		718,588		616,992
Tax equivalent interest rate margin					5.72%	5.02%									5.56%	5.31%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		6,584		7,319	2.23%	2.25%		1,170,714		1,293,251		8,223		7,350	2.65%	2.40%		1,258,899		1,239,794
Interest bearing cash and money market investments		1,304		661	1.21%	0.55%		426,197		477,968		2,368		1,207	2.47%	1.51%		388,578		323,695
Total investments		7,888		7,980	1.96%	1.79%		1,596,911		1,771,219		10,591		8,557	2.61%	2.22%		1,647,477		1,563,489
Non-acquired loans
Mortgage		9,303		10,159	5.33%	5.40%		692,782		746,613		8,887		9,012	5.39%	5.28%		668,654		692,532
Commercial		21,337		15,976	6.83%	4.44%		1,239,390		1,426,216		25,202		18,322	6.42%	5.65%		1,591,415		1,315,993
Consumer		8,423		7,044	11.10%	10.77%		301,121		259,535		10,977		9,952	12.36%	11.60%		360,093		348,029
Auto and leasing		19,876		17,390	9.51%	9.48%		829,446		727,727		26,232		21,019	9.15%	9.12%		1,162,153		934,501
Total non-acquired loans		58,939		50,569	7.63%	6.35%		3,062,739		3,160,091		71,298		58,305	7.64%	7.18%		3,782,315		3,291,055
Acquired loans:
Acquired BBVAPR
Mortgage		7,434		8,197	5.54%	5.60%		532,664		580,786		6,351		7,071	5.44%	5.57%		473,517		515,226
Commercial		7,084		6,732	12.60%	9.40%		222,978		284,225		2,707		3,746	6.90%	6.96%		159,049		218,199
Consumer		2,602		2,993	17.32%	18.02%		59,596		65,902		809		760	25.30%	21.12%		12,969		14,596
Auto		2,069		4,801	10.48%	11.24%		78,358		169,423		380		1,389	15.47%	11.00%		9,962		51,211
Total acquired BBVAPR loans		19,189		22,723	8.52%	8.19%		893,596		1,100,336		10,247		12,966	6.34%	6.58%		655,497		799,232
Acquired Eurobank		4,339		9,313	16.29%	26.85%		105,707		137,605		2,574		3,341	12.12%	13.87%		86,159		97,668
Total loans		82,467		82,605	8.05%	7.45%		4,062,042		4,398,032		84,119		74,612	7.54%	7.23%		4,523,971		4,187,955
Total interest earning assets		90,355		90,585	6.33%	5.83%		5,658,953		6,169,251
Total interest-earning assets												94,710		83,169	6.22%	5.86%		6,171,448		5,751,444

~~101~~83

	Interest					Average rate		Average balance				Interest					Average rate		Average balance
	September		September			September	September	September		September		March		March			March	March	March		March
	2017		2016			2017	2016	2017		2016		2019		2018			2019	2018	2019		2018
	(Dollars in thousands)											(Dollars in thousands)
Interest-bearing liabilities:
Deposits:
NOW Accounts		880		1,314		0.34%	0.42%		1,024,480		1,243,640		1,454		899		0.53%	0.34%		1,119,612		1,059,129
Savings and money market		1,426		1,351		0.50%	0.48%		1,142,338		1,113,649		1,615		1,497		0.55%	0.50%		1,181,024		1,211,364
Individual retirement accounts		391		482		0.66%	0.71%		236,385		268,467
Retail certificates of deposits		2,482		1,632		1.67%	1.30%		590,057		497,917
Time deposits													2,944		2,800		1.20%	1.11%		992,331		1,024,740
Total core deposits		5,179		4,779		0.70%	0.62%		2,993,260		3,123,673		6,013		5,196		0.74%	0.64%		3,292,967		3,295,233
Institutional deposits		29		621		0.05%	1.00%		226,468		247,521
Brokered deposits		2,163		1,751		1.55%	1.26%		554,650		549,371		2,835		1,887		2.31%	1.64%		498,116		466,638
Total wholesale deposits		2,192		2,372		1.14%	1.20%		781,118		796,892
		7,371		7,151		0.77%	0.72%		3,774,378		3,920,565		8,848		7,083		0.95%	0.76%		3,791,083		3,761,871
Non-interest bearing deposits		-		-		0.00%	0.00%		835,255		801,833		-		-		0.00%	0.00%		1,099,624		1,020,730
Deposits fair value premium amortization		-		(78)		0.00%	0.00%		-		-
Core deposit intangible amortization		230		258		0.00%	0.00%		-		-		201		215		0.00%	0.00%		-		-
Total deposits		7,601		7,331		0.65%	0.62%		4,609,633		4,722,398		9,049		7,298		0.75%	0.62%		4,890,707		4,782,601
Borrowings:
Securities sold under agreements to repurchase		1,282		4,272		1.56%	2.73%		325,201		620,353		2,785		1,076		2.54%	1.73%		444,843		251,582
Advances from FHLB and other borrowings		596		1,237		2.35%	2.51%		100,751		195,278		563		374		2.81%	2.36%		81,226		64,186
Subordinated capital notes		398		818		4.38%	3.19%		36,083		101,581		524		427		5.89%	4.80%		36,083		36,083
Total borrowings		2,276		6,327		1.95%	2.74%		462,035		917,212		3,872		1,877		2.79%	2.16%		562,152		351,851
Total interest bearing liabilities		9,877		13,658		0.77%	0.96%		5,071,668		5,639,610		12,921		9,175		0.96%	0.72%		5,452,859		5,134,452
Net interest income / spread	$	80,478	$	76,927		5.56%	4.87%					$	81,789	$	73,994		5.26%	5.14%
Interest rate margin						5.64%	4.95%										5.37%	5.22%
Excess of average interest-earning assets over average interest-bearing liabilities								$	587,284	$	529,641								$	718,587	$	616,992
Average interest-earning assets to average interest-bearing liabilities ratio									111.58%		109.39%									113.18%		112.02%

C - CHANGES IN NET INTEREST INCOME DUE TO:	C - CHANGES IN NET INTEREST INCOME DUE TO:											C - CHANGES IN NET INTEREST INCOME DUE TO:
	Volume		Rate		Total							Volume		Rate		Total
	(In thousands)											(In thousands)
Interest Income:
Investments	$	(785)	$	693	$	(92)						$	460	$	1,574	$	2,034
Loans		(7,986)		7,848		(138)							5,977		3,530		9,507
Total interest income		(8,771)		8,541		(230)							6,437		5,104		11,541
Interest Expense:
Deposits		(175)		445		270							165		1,586		1,751
Repurchase agreements		(2,033)		(958)		(2,991)							827		882		1,709
Other borrowings		(1,108)		48		(1,060)							136		150		286
Total interest expense		(3,316)		(465)		(3,781)							1,128		2,618		3,746
Net Interest Income	$	(5,455)	$	9,006	$	3,551						$	5,309	$	2,486	$	7,795

~~102~~

TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016


Interest

Average rate

Average balance

September

September

September

September

September

September

2017

2016

2017
2016

2017

2016

(Dollars in thousands)
A - TAX EQUIVALENT SPREAD

Interest-earning assets
$
262,472

$
269,799

5.97%

5.71%

$
5,875,783

$
6,290,862
Tax equivalent adjustment

3,661

3,499

0.08%

0.07%

-

-
Interest-earning assets - tax equivalent

266,133

273,298

6.05%

5.78%

5,875,783

6,290,862
Interest-bearing liabilities

31,813

44,585

0.81%

1.03%

5,253,584

5,786,977
Tax equivalent net interest income / spread

234,320

228,713

5.24%

4.75%

622,199

503,885
Tax equivalent interest rate margin

5.33%

4.84%

B - NORMAL SPREAD

Interest-earning assets:

Investments:

Investment securities

21,996

24,420

2.29%

2.41%

1,287,594

1,351,078
Trading securities

18

28

7.40%

11.51%

325

324
Interest bearing cash and money market investments

3,104

1,919

0.99%

0.51%

417,892

497,795
        Total investments

25,118

26,367

1.97%

1.90%

1,705,811

1,849,197
Non-acquired loans

Mortgage

28,298

29,615

5.40%

5.27%

701,039

748,755
Commercial

54,023

47,214

5.79%

4.40%

1,247,249

1,428,499
Consumer

24,146

19,778

11.09%

10.68%

291,140

246,641
Auto and leasing

57,940

50,985

9.64%

9.62%

803,821

705,956
        Total non-acquired loans

164,407

147,592

7.22%

6.28%

3,043,249

3,129,851
Acquired loans:

Acquired BBVAPR

Mortgage

22,921

24,798

5.05%

5.59%

606,636

591,401
Commercial

16,617

20,985

9.14%

8.94%

243,183

312,571
Consumer

8,381

9,283

18.47%

18.17%

60,669

68,076
Auto

8,043

16,976

11.04%

11.37%

97,383

198,845
        Total acquired BBVAPR loans

55,962

72,042

7.42%

8.20%

1,007,871

1,170,893
Acquired Eurobank

16,986

23,798

19.11%

22.50%

118,854

140,921
            Total loans

237,355

243,432

7.61%

7.30%

4,169,973

4,441,665
                Total interest earning assets

262,473

269,799

5.97%

5.71%

5,875,784

6,290,862

~~103~~

Interest

Average rate

Average balance

September

September

September

September

September

September

2017

2016

2017

2016

2017

2016

(Dollars in thousands)
Interest-bearing liabilities:

Deposits:

NOW Accounts
$
2,972

$
3,914

0.37%

0.43%

$
1,065,419

$
1,208,943
Savings and money market

4,392

4,057

0.51%

0.49%

1,152,597

1,111,012
Individual retirement accounts

1,196

1,448

0.66%

0.72%

243,944

268,315
Retail certificates of deposits

5,902

4,446

1.39%

1.28%

567,853

461,685
        Total core deposits

14,462

13,865

0.65%

0.64%

3,029,813

3,049,955
Institutional deposits

1,322

1,895

0.79%

1.00%

224,826

253,618
Brokered deposits

6,132

5,555

1.44%

1.17%

568,207

631,643
        Total wholesale deposits

7,454

7,450

1.90%

1.70%

793,033

885,261

21,916

21,315

0.77%

0.72%

3,822,846

3,935,216
Non-interest bearing deposits

-

-

0.00%

-0.06%

834,325

$
784,099
Deposits fair value premium amortization

-

(268)

0.00%

0.00%

-

-
Core deposit intangible amortization

690

775

0.00%

0.00%

-

-
            Total deposits

22,606

21,822

0.65%

0.62%

4,657,171

4,719,315
Borrowings:

Securities sold under agreements to repurchase

6,260

14,629

1.83%

2.86%

456,523

682,326
Advances from FHLB and other borrowings

1,799

5,574

2.32%

2.62%

103,807

282,957
Subordinated capital notes

1,149

2,560

4.26%

3.33%

36,083

102,379
        Total borrowings

9,208

22,763

2.06%

2.84%

596,413

1,067,662
            Total interest bearing liabilities

31,814

44,585

0.81%

1.03%

5,253,584

5,786,977
Net interest income / spread
$
230,659

$
225,214

5.16%

4.68%

Interest rate margin

5.25%

4.77%

Excess of average interest-earning assets over
    average interest-bearing liabilities

$
622,199

$
503,885
Average interest-earning assets to average
    interest-bearing liabilities ratio

111.84%

108.71%

C - CHANGES IN NET INTEREST INCOME DUE TO:

Volume

Rate

Total

(In thousands)

Interest Income:

Investments
$
(2,044)

$
795

$
(1,249)

Loans

(16,473)

10,395

(6,078)

        Total interest income

(18,517)

11,190

(7,327)

Interest Expense:

Deposits

(287)

1,070

783

Repurchase agreements

(4,841)

(3,528)

(8,369)

Other borrowings

(5,181)

(5)

(5,186)

        Total interest expense

(10,309)

(2,463)

(12,772)

Net Interest Income
$
(8,208)

$
13,653

$
5,445

~~104~~84

Net Interest Income

Net interest income is a function of the difference between rates earned on Oriental’s interest-earning assets and rates paid on its interest-bearing liabilities (interest rate spread) and the relative amounts of its interest earning assets and interest-bearing liabilities (interest rate margin). Oriental constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels.

Comparison of the quarters ended ~~September 30, 2017~~March 2019 and ~~2016~~2018

Net interest income of ~~$80.5~~$81.8 million increased ~~$3.6~~$7.8 million from ~~$76.9~~$74.0 million. ~~Both interest~~Interest rate spread increased 12 basis points to 5.26% from 5.14% and net interest margin increased 6915 basis points to ~~5.56%~~5.37% from 5.22%. These increases are mainly due to the net effect of an increase of 36 basis points in the average yield of total interest-earning assets and ~~5.64%,~~an increase of 24 basis point in average cost of interest-bearing liabilities.

Net interest income increased as a result of:

·Higher interest income from investments of $2.0 million, reflecting an increase in interest rates and volume of $1.6 million and $460 thousand, respectively. Cash and money market investments increased 98 basis points and investments securities increased 25 basis points, both mainly due to an increase in Federal Reserve Bank interest rates; and

·Higher interest income from originated loans of $13.0 million, reflecting higher balances in the commercial, auto and consumer portfolios. This increase also reflects higher interest rates in the originated loan portfolio by 46 basis points.

Such increases in net interest income were adversely impacted by:

·An increase in interest expense of $3.7 million mainly from an increase in volume of repurchase agreements by $827 thousand and an increase in cost of deposits and repurchase agreements of $1.6 million and $882 thousand, respectively, and;

·A decrease of $3.5 million in the interest income from ~~4.87%~~acquired loans as such loans continue to be repaid.

Comparison of the quarters ended March 31, 2018 and ~~4.95%, respectively.~~2017

Net interest income of $74.0 million decreased $623 thousand from $74.6 million. Interest rate spread increased 11 basis points to 5.13% from 5.02% and net interest margin increased 12 basis points to 5.22% from 5.10%. These increases are mainly due to the net effect of a 50decrease of 3 basis ~~point increase~~points in the average yield of ~~interest-earning~~total interest earning assets ~~from 5.83% to 6.33%~~ and to a 19decrease of 14 basis ~~point decrease~~points in the total average ~~costs~~ of interest-bearing ~~liabilities from 0.96% to 0.77%.~~liabilities.

Net interest income was positively impacted by:

· Higher interest income from originated loans of ~~$8.4~~$4.8 million reflecting ~~the recognition of $4.8 million from the pay-off before maturity of a commercial loan previously classified as non-accrual, and from~~ higher ~~yields~~balances in the commercial and retail loan ~~portfolios;~~portfolios; and

· ~~The recognition of $3.1 million in cost recoveries from the pay-off of the Puerto Rico Housing Finance Authority (PRHFA) included as interest income from acquired BBVAPR loans;~~

·~~A decrease in~~Lower interest expenses ~~from~~on securities sold under agreements to repurchase due to decreases in volume anand interest rate of ~~$2.0~~$1.8 million and ~~$1.0 million,~~$344 thousand, respectively, mainly as a result of (i) the repayment at maturity of ~~(i)~~ a $232.0 million repurchase agreement at 4.78% in March 2017, and (ii) the unwinding of ~~(ii) $160.4~~$100.0 million ~~short-term~~ repurchase agreements ~~which were not renewed during the third quarter of 2017; and~~

·~~A decrease~~ in ~~interest expenses from a decrease in other borrowings volume of $1.1 million as a result of the repayment at maturity of $72.9 million of short term FHLB advances during the third quarter of~~June 2017.

Net interest income was adversely impacted by:

· A decrease of ~~$8.5~~$7.9 million in the interest income from the acquired BBVAPR and Eurobank loan portfolios as such loans continue to be ~~repaid;~~

·repaid~~A slight increase in interest expenses from deposits of 3.7% to $7.6 million, reflecting lower volume balances by $175 thousand, offset by $445 thousand more in interest rates; and~~

·~~A slight decrease in interest income from investments of 1.2% to $7.9 million, reflecting lower volume balances offset by higher yields on cash balances.~~

~~Comparison of nine-month periods ended September 30, 2017 and 2016~~

Net interest income of $230.7 million increased $5.5 million from $225.2 million. Both interest rate spread and net interest margin increased 48 basis points, both, to 5.16% and 5.25%, respectively, from 4.68% and 4.77%, respectively. These increases are mainly due to the net effect of a 26 basis point increase in the average yield of interest-earning assets from 5.71% to 5.97% and to a 22 basis point decrease in average costs of interest-bearing liabilities from 1.03% to 0.81%.

~~Net interest income was positively impacted by:~~

·~~Higher interest income from originated loans of $16.8 million; and~~

~~105~~85

·~~Lower interest expenses on repurchases agreements and other borrowings of $13.6 million as a result of the repayment of high cost repurchase agreements.~~

~~Net interest income was adversely impacted by:~~

·~~A decrease of $22.9 million in interest income from acquired loans as such loans continue to be repaid;~~

·~~A decrease in interest income from investments by $1.2 million due to lower volume; and~~

·~~A slight increase in interest expenses from deposits by $784 thousand.~~

TABLE 2 - NON-INTEREST INCOME SUMMARY	TABLE 2 - NON-INTEREST INCOME SUMMARY

	Quarter Ended September 30,					Nine-Month Period Ended September 30,					Quarter Ended March 31,
	2017		2016		Variance	2017		2016		Variance	2019		2018		Variance
	(Dollars in thousands)										(Dollars in thousands)
Banking service revenue	$	9,923	$	10,330	-3.9%	$	31,007	$	30,662	1.1%	$	10,465	$	10,463	0.0%
Wealth management revenue		6,016		6,526	-7.8%		18,747		19,719	-4.9%		5,882		6,019	-2.3%
Mortgage banking activities		1,274		1,421	-10.3%		2,820		3,300	-14.5%		1,206		1,757	-31.4%
Total banking and financial service revenue		17,213		18,277	-5.8%		52,574		53,681	-2.1%		17,553		18,239	-3.8%
FDIC shared-loss benefit (expense), net		-		(3,296)	100.0%		1,403		(10,745)	113.1%
Net gain (loss) on:
Sale of securities available for sale		4		-	100.0%		6,896		12,207	-43.5%
Derivatives		-		17	-100.0%		103		4	2475.0%
Early extinguishment of debt		-		-	0.0%		(80)		(12,000)	99.3%
Other non-interest income		695		5,217	-86.7%		976		5,721	-82.9%		103		275	-62.5%
		699		1,938	-63.9%		9,298		(4,813)	293.2%
Total non-interest income, net	$	17,912	$	20,215	-11.4%	$	61,872	$	48,868	26.6%	$	17,656	$	18,514	-4.6%

Non-Interest Income

Non-interest income is affected by the ~~level~~amount of the trust department assets under management, transactions generated by clients’ financial assets serviced by the securities broker-dealer and insurance agency subsidiaries, the level of mortgage banking activities, ~~and the~~ fees generated from loans and deposit ~~accounts.~~accounts, and gains on sales of assets.

Comparison of quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018

Oriental recorded non-interest income, net, in the amount of ~~$17.9~~$17.7 million, compared to ~~$20.2~~$18.5 million, a decrease of ~~11.4%~~4.6%, or ~~$2.3 million.~~$858 thousand. The net decrease in non-interest income was mainly due to:

· A decrease ~~in banking service and financial service revenue~~ of ~~5.8% to $17.2 million from $18.3 million. Oriental had lower banking,~~$551 thousand in mortgage banking ~~and wealth management activity levels in September, because~~activities, mainly from lower valuation of the ~~hurricanes Irma and María; and~~servicing asset by $804 thousand, partially offset by higher gains on loans sold by $77 thousand due to higher volume;

· A decrease of $137 thousand in ~~other non-interest~~wealth management revenue mainly from lower fee income ~~of $4.5 million reflects~~from the ~~receipt of~~trust division, commissions revenues and consulting revenues. $5.0 million during the quarter ended September 30, 2016 from a loss in 2009 related to a private label collateralized mortgage obligation, partially offset by $571 thousand received as final settlement during the quarter ended September 30, 2017.

~~106~~

The decrease in non-interest income was partially offset by the elimination of the FDIC shared-loss expense as Oriental entered into an agreement with the FDIC to terminate the shared-loss agreements covering certain assets during the first quarter of 2017. During the third quarter of 2016, Oriental recorded expenses of $3.3 million related to such agreement.

Comparison of ~~nine-month periods~~quarters ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

Oriental recorded non-interest income, net, in the amount of ~~$61.9~~$18.5 million, compared to ~~$48.9~~$19.1 million, ~~an increase~~a decrease of ~~26.6%~~2.9%, or ~~$13.0 million.~~$560 thousand. The ~~increase~~decrease in non-interest income was mainly due to:

· The termination of the FDIC shared-loss agreement during the first quarter of 2017 resulting in the recognition of a $1.4 million gain during such ~~period, compared to $10.7 million expenses related to the aforementioned agreement in the year ago period; and~~period.

·The sale of $166.0 million of its mortgage-backed securities, generating a gain of $6.9 million. As a result of this sale, Oriental unwound $100 million of repurchase agreements at a cost of $80 thousand, included as a loss on early extinguishment of debt in the consolidated statements of operations. The transaction resulted in a net benefit of $6.8 million. In the same period in 2016, Oriental sold $277.2 million in mortgage-backed securities and $11.1 million in Puerto Rico government bonds, resulting in a gain of $12.2 million. This transaction resulted in the repayment before maturity of $268.0 million of a repurchase agreement at a cost of $12.0 million, included as a loss on the early extinguishment of debt in the consolidated statements of operations. The transaction resulted in a net benefit of $207 thousand.

~~Increase~~decrease in non-interest income was partially offset ~~by a~~by:

·An increase in mortgage banking activities of $1.2 million, reflecting $881 thousand from mortgage servicing and $407 thousand from decrease in ~~other non-interest income due to the aforementioned~~ repurchased loans~~$5.0 million recognized in 2016 from a recovery of a previous loss related to a private label collateralized mortgage obligation.~~.

~~107~~86

TABLE 3 - NON-INTEREST EXPENSES SUMMARY

	Quarter Ended September 30,					Nine-Month Period Ended September 30,					Quarter Ended March 31,
	2017		2016		Variance %	2017		2016		Variance %	2019		2018		Variance %
	(Dollars in thousands)										(Dollars in thousands)
Compensation and employee benefits	$	19,882	$	19,168	3.7%	$	59,546	$	57,864	2.9%	$	20,341	$	20,608	-1.3%
Occupancy, equipment and infrastructure costs												7,746		7,768	-0.3%
Electronic banking charges												5,065		4,966	2.0%
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses												3,366		3,645	-7.7%
Professional and service fees		3,113		2,889	7.8%		9,575		8,685	10.2%		3,208		2,694	19.1%
Occupancy and equipment		8,276		7,353	12.6%		24,012		22,995	4.4%
Information technology expenses												2,507		2,009	24.8%
Taxes, other than payroll and income taxes												2,154		2,260	-4.7%
Advertising, business promotion, and strategic initiatives												1,211		1,347	-10.1%
Loan servicing and clearing expenses												1,209		1,161	4.1%
Insurance		1,052		1,242	-15.3%		3,834		7,547	-49.2%		1,146		1,478	-22.5%
Electronic banking charges		5,021		5,077	-1.1%		15,373		15,613	-1.5%
Information technology expenses		2,046		1,862	9.9%		6,114		5,124	19.3%
Advertising, business promotion, and strategic initiatives		1,405		1,347	4.3%		4,205		4,133	1.7%
Loss on sale of foreclosed real estate and other repossessed assets		1,395		2,970	-53.0%		4,508		9,063	-50.3%
Loan servicing and clearing expenses		1,134		2,844	-60.1%		3,592		6,940	-48.2%
Taxes, other than payroll and income taxes		2,243		2,385	-6.0%		7,007		7,386	-5.1%
Communication		855		748	14.3%		2,682		2,434	10.2%		741		885	-16.3%
Printing, postage, stationery and supplies		586		602	-2.7%		1,889		1,927	-2.0%		578		644	-10.2%
Director and investor relations		221		233	-5.2%		775		812	-4.6%		230		240	-4.2%
Credit related expenses		1,714		3,718	-53.9%		6,557		8,177	-19.8%
Other operating expenses		1,526		2,488	-38.7%		5,300		4,908	8.0%
Other												2,650		2,416	9.7%
Total non-interest expenses	$	50,469	$	54,926	-8.1%	$	154,969	$	163,608	-5.3%	$	52,152	$	52,121	0.1%
Relevant ratios and data:
Efficiency ratio		51.66%		57.69%			54.71%		58.66%			52.50%		56.51%
Compensation and benefits to non-interest expense		39.39%		34.94%			38.42%		35.45%			39.00%		39.54%
Compensation to average total assets owned (annualized)		1.32%		1.15%			1.91%		1.14%
Compensation to average total assets owned												1.23%		1.32%
Average number of employees		1,464		1,435			1,464		1,451			1,394		1,367
Average compensation per employee	$	13.58	$	13.40		$	40.7	$	40.0		$	14.59	$	15.08
Average loans per average employee	$	2,775	$	3,065		$	2,848	$	3,061		$	3,245	$	3,061

~~108~~87

Non-Interest Expenses

Comparison of quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018

Non-interest expense was ~~$50.5~~$52.2 million, representing ~~a decrease~~an increase of ~~8.1%~~0.1% compared to ~~$54.9~~$52.1 million.

The ~~decrease~~slight increase in non-interest expenses was driven by:

· ~~Lower credit related~~Higher professional and service fees by $514 thousand, mainly attributed to higher consulting and advisory expenses ~~by $2.0 million mainly from lower foreclosures when compared to the same quarter of 2016;~~; and

· ~~Lower loan servicing and clearing~~Higher information technology expenses by ~~$1.7 million,~~$498 thousand mainly ~~due~~attributed to higher data processing charges.

The increases in the foregoing non-interest expenses were offset by:

·Lower insurance expenses by $332 thousand mainly related to a ~~reduction of $1.1 million~~decrease in ~~mortgage servicing expense from~~ the ~~migration to in-house servicing during 2016;~~FDIC Deposit Insurance Assessment (SAIF); and

· Lower ~~losses on the sale of foreclosed real estate and other repossessed assets by $1.6 million due to lower write-downs on the valuation of mortgage properties, mainly in the acquired loan portfolios.~~

~~The decreases in the foregoing non-interest expenses were partially offset by:~~

·~~Higher occupancy and equipment expenses by $923 thousand, primarily due to an increase in rent expenses driven by less rent income and to an increase in internet services; and~~

·~~Higher~~ compensation and employee benefits by ~~$714~~$267 thousand, mainly due to ~~an increase~~a decrease in ~~average employees.~~variable compensation.

The efficiency ratio improved from 56.51% to ~~51.66% from 57.69%~~52.50%. The efficiency ratio measures how much of Oriental’s revenues is used to pay operating expenses. Oriental computes its efficiency ratio by dividing non-interest expenses by the sum of its net interest income and non-interest income, but excluding gains on the sale of investment securities, derivatives gains or losses, ~~FDIC shared-loss benefit/expense, losses on the early extinguishment of debt,~~ other gains and losses, and other income that may be considered volatile in nature. Management believes that the exclusion of those items permits consistent comparability. Amounts presented as part of non-interest income that are excluded from the efficiency ratio computation for the quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 amounted to ~~$699~~$103 thousand ~~income~~ and ~~a $1.9 million loss,~~$275 thousand, respectively.

Comparison of ~~nine-month periods~~quarters ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

Non-interest expense ~~for the nine-month period ended September 30, 2017~~ was ~~$155.0~~$52.1 million, representing a ~~decrease~~slight increase of ~~5.3%~~0.8% compared to ~~$163.6~~$51.7 million.

The ~~decrease~~increase in non-interest expenses was driven by:

· ~~Lower losses on sale of foreclosed real estate and~~Higher other ~~repossessed assets by $4.6 million due to lower write-downs on valuations of mortgage properties;~~

·~~Lower insurance~~operating expense by ~~$3.7 million as a result of a change~~$754 thousand, particularly attributed to an increase in claims and settlements accruals and to minor repairs to physical assets related to the ~~calculation method~~impact of the ~~FDIC Savings Association Insurance Fund (SAIF) insurance. The change was effective beginning with the June 30, 2016 invoice, which was received during the third quarter of 2016;~~hurricanes; and

· ~~Lower loan servicing~~Higher occupancy and ~~clearing~~equipment expenses by ~~$3.3 million mainly~~$568 thousand, primarily due to ~~a reduction~~an increase in ~~mortgage servicing expense from the migration~~rent expenses driven by less rent income and to ~~in-house servicing during 2016.~~an increase in internet services.

~~As in the quarterly variances, the decreases~~The increases in the foregoing non-interest expenses were partially offset by:

·Lower professional and service fees by ~~increases in occupancy~~$543 thousand as a result lower consulting and ~~equipment expenses, mainly in rent expense,~~advisory expenses; and ~~in compensation and employee benefits of $1.0 million and $1.7 million, respectively.~~

~~109~~

·Lower credit related expenses by $207 thousand, mainly due to a decrease in legal expenses from foreclosures of $249 thousand.

The efficiency ratio ~~was 54.71% compared~~increased to ~~58.66% for the same period in 2016.~~56.51% from 56.15%. Amounts presented as part of non-interest income that are excluded from ~~the~~ efficiency ratio computation for the ~~nine-month period~~quarters ended ~~September 30,~~March 31, 2018 and 2017 amounted to ~~income~~$275 thousand and $1.6 million, respectively.

Oriental implemented its disaster response plan as hurricanes Irma and Maria approached its service areas. To operate in disaster response mode, Oriental incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security services, property damages, and emergency communication with customers regarding the status of ~~$9.3~~Bank operations. Estimated losses at December 31, 2017 amounted to $6.6 million. No additional losses have been incurred at March 31, 2018.

Oriental maintains insurance for casualty losses as well as for disaster response costs and certain revenue lost through business interruption. Oriental received a $1.0 million ~~compared to~~partial payment from the insurance company in December 2017, a ~~loss~~$0.7 million payment during the first quarter of ~~$4.8~~2018, and the final payment of $0.5 million ~~for~~during the ~~nine-month period ended September 30, 2016.~~fourth quarter of 2018.

Provision for Loan and Lease Losses

Comparison of quarters ended ~~September, 2017~~March 31, 2019 and ~~2016~~2018

Based on an analysis of the credit quality and the composition of Oriental’s loan portfolio, management determined that the provision for the quarters was adequate to maintain the allowance for loan and lease losses at an appropriate level to provide for probable losses based upon an evaluation of known and inherent risks.

Provision for loan and lease losses ~~increased 87.7%~~decreased 20.8%, or ~~$20.6~~$3.2 million, to ~~$44.0~~$12.2 million.The decrease in the provision was mostly due to:

·A decrease in the provision of originated loan and lease losses for the amount of $2.4 million is attributable to the change in environmental factors; and

·A decrease in the provision of acquired Eurobank loan and lease losses of $790 thousand mainly due to better cash flows than expected.

The decreases in the provision for loan and lease losses were partially offset by:

·An increase of $1.2 million in the provision of acquired BBVA loan and lease losses due to impairments in the residential portfolio.

Please refer to the "Allowance for Loan and Lease Losses" in the "Credit Risk Management" section of this MD&A for a more detailed analysis of the allowance for loan and lease losses.

Comparison of quarters ended March 31, 2018 and 2017

Based on an analysis of the credit quality and the composition of Oriental’s loan portfolio, management determined that the provision for the quarter was adequate to maintain the allowance for loan and lease losses at an appropriate level to provide for probable losses based upon an evaluation of known and inherent risks.

~~During~~Provision for loan and lease losses decreased 12.4%, or $2.2 million, to $15.5 million. The decrease in the ~~third~~provision was mostly due to:

·A decrease in the provision for acquired BBVAPR loan and lease losses of $3.9 million, mainly due to an additional provision recognized during the year ago quarter ~~of 2017, Oriental was impacted by hurricanes Irma and Maria, which struck~~from the ~~island on September 7, 2017 and September 20, 2017, respectively. Based on our~~periodic assessment of ~~the facts related to~~loans remaining in these ~~hurricanes, we have increased our~~portfolios.

The decrease in the provision for loan and lease losses ~~$27.0 million. The provision corresponding~~was partially offset by:

·An increase of $8.6 million to ~~our originated~~replenish the allowance for loan charge-offs of $8.2 million related to the hurricanes. It also included an increase in the allowance related to auto loan portfolio ~~was $16.8 million, $3.8 million~~growth and one commercial loan placed in mortgage loans, $7.6 million in commercial loans, $0.8 million in consumer loans, and $4.6 million in auto loans. The provision corresponding to our acquired loan portfolio was $10.2 million, $2.7 million in mortgage loans, $7.0 million in commercial loans, $0.1 million in consumer loans, and $0.4 million in auto loans. non-accrual.

Please refer to the "Allowance for Loan and Lease Losses" in the "Credit Risk Management" section of this MD&A for a more detailed analysis of the allowance for loan and lease losses.

~~Excluding the special provision made because of the hurricanes during the third quarter of 2017, the total provision decreased $6.4 million. The decrease in the provision was mostly due to:~~

·Income TaxesA decrease in the provision for acquired BBVAPR loan and lease losses of $5.4 million, mainly due to an additional provision recognized during the year ago quarter of $4.4 million for the Puerto Rico Housing Financing Authority loan; and

·A decrease in the provision for originated and other loan and lease losses of $1.8 million, mainly due to an additional provision recognized during the year ago quarter of $2.9 million for the classification to held for sale of the Puerto Rico Electric Power Authority (“PREPA”) line of credit, partially offset by the growth of originated loan portfolio.

Total net charge-offs on originated and other loans decreased 81.9%, or $53.5 million, as a result of the PREPA line of credit sold in the third quarter of 2016, in which a $56.2 million charge-off was recognized. The net charge-off rate decreased 673 basis points to 1.54%.

~~Comparison of nine-month periods ended September 30, 2017 and 2016~~

Provision for loan and lease losses increased 70.7% or $36.5 million, to $88.2 million. Excluding the special provision of $27.0 million because of the hurricanes during the third quarter of 2017, the total provision increased $9.5 million. The increase in the provision was mostly due to an increase in the provision for originated and other loan and lease losses by $13.0 million, mainly from the increase in the provision for commercial loans. Such provision includes $4.3 million recorded to charge-off the loss on sale of a municipal loan and another provision of $5.9 million recorded for the general allowance on the municipal loan portfolio during the second quarter of 2017.

The increase in provision was partially offset by a decrease in the provision for acquired BBVAPR loan and lease losses of $4.4 million mainly due to an additional provision recognized during the year ago period of $4.4 million for the Puerto Rico Housing Financing Authority loan.

~~110~~89

~~Income Taxes~~
Comparison of quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018
Income tax expense was ~~$560 thousand,~~$11.6 million, compared to ~~$3.6~~$8.0 million, reflecting the effective income tax rate of ~~29.77%~~33.0% and the net income before income taxes of ~~$3.9~~$35.0 million for the ~~third~~first quarter of ~~2017.~~2019.

Comparison of ~~nine-month periods~~quarters ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~
Income tax expense was ~~$13.8~~$8.0 million, compared to ~~$15.1~~$9.2 million, ~~for the same period in 2016. Income tax expense reflects~~reflecting the effective income tax rate of ~~29.77%~~32.0% and the net income before income taxes of ~~$49.3~~$24.9 million for ~~the nine-month period ended September 30, 2017.~~2018, due to a higher proportion of exempt income and income subject to preferential rates.

Business Segments
Oriental segregates its businesses into the following major reportable segments: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of ~~the products~~its services were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2019 and ~~nine-month periods ended September 30, 2017 and 2016.~~2018.

~~111~~90

Quarter Ended September 30, 2017


Wealth

Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
82,162

$
13

$
8,180

$
90,355

$
-

$
90,355
Interest expense

(6,342)

-

(3,535)

(9,877)

-

(9,877)
Net interest income

75,820

13

4,645

80,478

-

80,478
Provision for loan and lease losses

(44,042)

-

-

(44,042)

-

(44,042)
Non-interest income

10,384

6,695

833

17,912

-

17,912
Non-interest expenses

(43,819)

(5,048)

(1,602)

(50,469)

-

(50,469)
Intersegment revenue

431

-

-

431

(431)

-
Intersegment expenses

-

(324)

(107)

(431)

431

-
Income before income taxes
$
(1,226)

$
1,336

$
3,769

$
3,879

$
-

$
3,879
Income tax expenses (benefit)

(475)

521

514

560

-

560
Net (loss) income
$
(751)

$
815

$
3,255

$
3,319

$
-

$
3,319
Total assets
$
5,605,922

$
23,148

$
1,620,919

$
7,249,989

$
(961,772)

$
6,288,217

Quarter Ended September 30, 2016


Wealth

Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
82,564

$
15

$
8,005

$
90,584

$
-

$
90,584
Interest expense

(6,733)

-

(6,924)

(13,657)

-

(13,657)
Net interest income

75,831

15

1,081

76,927

-

76,927
Provision for loan and lease losses

(23,469)

-

-

(23,469)

-

(23,469)
Non-interest income

8,918

6,379

4,918

20,215

-

20,215
Non-interest expenses

(50,095)

(3,757)

(1,074)

(54,926)

-

(54,926)
Intersegment revenue

375

-

86

461

(461)

-
Intersegment expenses

(86)

(272)

(103)

(461)

461

-
Income before income taxes
$
11,474

$
2,365

4,908

$
18,747

$
-

$
18,747
Income tax expenses (benefit)

4,475

922

(1,770)

3,627

-

3,627
Net income
$
6,999

$
1,443

$
6,678

$
15,120

$
-

$
15,120
Total assets
$
5,715,958

$
19,433

$
1,801,752

$
7,537,143

$
(945,029)

$
6,592,114

~~112~~

Nine-Month Period Ended September 30, 2017
Quarter Ended March 31, 2019



Wealth



Total Major



Consolidated

Wealth

Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total
Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
(In thousands)
Interest income
$
236,754

$
43

$
25,676

$
262,473

$
-

$
262,473
$
83,516

$
18

$
11,176

$
94,710

$
-

$
94,710
Interest expense

(19,976)

-

(11,838)

(31,814)

-

(31,814)

(8,636)

-

(4,285)

(12,921)

-

(12,921)
Net interest income

216,778

43

13,838

230,659

-

230,659

74,880

18

6,891

81,789

-

81,789
Provision for
loan and lease losses

(88,210)

-

(22)

(88,232)

-

(88,232)

(12,207)

-

(42)

(12,249)

-

(12,249)
Non-interest income

35,387

18,952

7,533

61,872

-

61,872

11,656

5,984

16

17,656

-

17,656
Non-interest expenses

(137,275)

(13,368)

(4,326)

(154,969)

-

(154,969)

(46,483)

(4,327)

(1,342)

(52,152)

-

(52,152)
Intersegment revenue

1,243

-

140

1,383

(1,383)

-

554

-

-

554

(554)

-
Intersegment expenses

(140)

(889)

(354)

(1,383)

1,383

-

-

(174)

(380)

(554)

554

-
Income before income taxes
$
27,783

$
4,738

$
16,809

$
49,330

$
-

$
49,330
$
28,400

$
1,501

$
5,143

$
35,044

$
-

$
35,044
Income tax expense

10,836

1,848

1,073

13,756

-

13,756

10,650

563

361

11,574

-

11,574
Net income
$
16,947

$
2,890

$
15,736

$
35,574

$
-

$
35,574
$
17,750

$
938

$
4,782

$
23,470

$
-

$
23,470
Total assets
$
5,605,922

$
23,148

$
1,620,919

$
7,249,989

$
(961,772)

$
6,288,217
$
5,862,487

$
25,425

$
1,742,557

$
7,630,469

$
(1,027,278)

$
6,603,191

Nine-Month Period Ended September 30, 2016
Quarter Ended March 31, 2018



Wealth



Total Major



Consolidated

Wealth

Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total
Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
(In thousands)
Interest income
$
243,389

$
49

$
26,360

$
269,798

$
-

$
269,798
$
74,374

$
12

$
8,784

$
83,170

$
-

$
83,170
Interest expense

(20,840)

-

(23,744)

(44,584)

-

(44,584)

(6,290)

-

(2,886)

(9,176)

-

(9,176)
Net interest income

222,549

49

2,616

225,214

-

225,214

68,084

12

5,898

73,994

-

73,994
Provision for loan and lease losses

(51,703)

-

-

(51,703)

-

(51,703)

(15,455)

-

(5)

(15,460)

-

(15,460)
Non-interest income (loss)

24,927

19,309

4,637

48,873

-

48,873
Non-interest income

12,193

6,308

13

18,514

-

18,514
Non-interest expenses

(147,881)

(11,610)

(4,117)

(163,608)

-

(163,608)

(48,081)

(3,286)

(754)

(52,121)

-

(52,121)
Intersegment revenue

1,162

-

235

1,397

(1,397)

-

361

-

-

361

(361)

-
Intersegment expenses

(235)

(849)

(313)

(1,397)

1,397

-

-

(179)

(182)

(361)

361

-
Income before income taxes
$
48,819

$
6,899

$
3,058

$
58,776

$
-

$
58,776
$
17,102

$
2,855

4,970

$
24,927

$
-

$
24,927
Income tax expense

19,039

2,691

(6,584)

15,146

-

15,146
Income tax expense (benefit)

6,670

1,113

227

8,010

-

8,010
Net income
$
29,780

$
4,208

$
9,642

$
43,630

$
-

$
43,630
$
10,432

$
1,742

$
4,743

$
16,917

$
-

$
16,917
Total assets
$
5,715,957

$
19,433

$
1,801,752

$
7,537,142

$
(945,029)

$
6,592,113
$
5,661,759

$
28,377

$
1,529,912

$
7,220,048

$
(972,927)

$
6,247,121

~~113~~91

Comparison of quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018

Banking
Oriental's banking segment net income ~~decreased $7.8~~before taxes increased $11.3 million from $17.1 million to ~~a net loss of $751 thousand,~~$28.4 million, mainly reflecting:

·         ~~An increase in the provision for loan and lease losses~~Higher interest income from originated loans of ~~$20.6~~$13.0 million ~~mainly~~ due to ~~the $27.0~~higher balances and interest rates, offset by a decrease of $3.5 million ~~special provision ($19.0 million, net of tax) related~~in interest income from acquired loans as such loans continue to ~~hurricanes Irma and Maria in the third quarter of 2017;~~be repaid;
·         A decrease in ~~non-interest expenses~~the provision of ~~$6.3~~originated loan and lease losses for the amount of $2.4 million ~~mainly as a result of lower credit related expenses by $2.0 million mainly from lower foreclosures, lower loan servicing and clearing expenses by $1.7 million, mainly due~~is attributable to ~~a reduction of $1.1 million~~the change in mortgage servicing expense from the migration to in-house servicing during 2016, and lower losses on sale of foreclosed real estate and other repossessed assets by $1.6 million due to lower write-downs on valuation of mortgage properties, mainly in the acquired loan portfolios; andenvironmental factors;

·         AnIncrease in interest expense of $2.3 million mainly from increase in ~~non-interest income~~cost of ~~$1.5 million to $10.4 million, mainly because of the elimination of FDIC shared-loss expense during the first quarter of 2017.~~deposits.

Wealth Management

Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, decreased ~~to $628 thousand from a net income of~~ $1.4 million to $1.5 million mainly from the increase in the ~~same quarter~~reasonable estimate accrual of ~~2016 due to lower activity levels~~claims and settlements in ~~September 2017 related to hurricanes Irma~~the broker-dealer subsidiary by $547 thousand and ~~Maria.~~higher compensation expense by $285 thousand.

Treasury

Treasury segment net income before taxes decreased $173 thousand from $5.0 million to $5.1 million, reflecting:
·Higher interest income from investment of $2.4 million due to increases in interest rates and volume of investments;
·Higher interest expense of $1.4 million due to increase in volume and cost of repurchase agreements by $827 thousand and $882 thousand, respectively.
92
Comparison of quarters ended March 31, 2018 and 2017
Banking
Oriental's banking segment net income before taxes decreased $3.6 million to $17.1 million, reflecting:
·A decrease in net interest income by $2.7 million, mainly from the acquired BBVAPR and Eurobank loan portfolios as such loans continue to be repaid;
·Lower provision for loan and lease losses by $2.2 million, mainly from acquired loans due to an additional provision recognized during the year ago quarter from the periodic assessment of loans remaining in these portfolios;
·Lower non-interest income by $1.0 million, reflecting the termination of the FDIC shared-loss agreement in the first quarter of 2017; and
·Higher non-interest expenses by $2.0 million mainly as a result of higher occupancy and equipment expenses, primarily due to an increase in rent expenses driven by less rent income and to an increase in internet services and other expenses.
Wealth Management

Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, increased $1.4 million to $2.9 million mainly due to higher income by $380 thousand, mainly from changes in volume and market rates, and lower expenses by $934 thousand from lower broker related expenses.
Treasury
Treasury segment net income before taxes, which consists of Oriental's asset/liability management activities, such as purchase and sale of investment securities, interest rate risk management, derivatives, and borrowings, ~~decreased~~increased to ~~$3.3~~$5.0 million, compared to ~~$6.7~~$2.3 million, reflecting:

·         Lower non-interest income by $4.1 million reflects the receipt of $5.0 million during the quarter ended September 30, 2016 from a loss in 2009 related to a private label collateralized mortgage obligation, partially offset by $571 thousand received as final settlement during the quarter ended September 30, 2017;
·~~A decrease in lower~~ interest expenses ~~from~~on securities sold under agreements to repurchase due to decreases in volume and interest rate of ~~$3.0~~$1.8 million ~~from~~and $344 thousand, respectively, mainly as a result of (i) the repayment at maturity of ~~(i)~~ a $232.0 million repurchase agreement at 4.78% in March 2017, and (ii) ~~a $160.4~~the unwinding of $100.0 million ~~short-term~~ repurchase agreements ~~which were not renewed during the third quarter of 2017; and~~
·~~Higher non-interest expenses by $528 thousand from $1.1 million to $1.6 million, mainly from general operating expenses.~~
~~Comparison of nine-month periods ended September 30, 2017 and 2016~~
~~Banking~~
~~Oriental's banking segment net income decreased $12.8 million to $29.8 million, reflecting:~~
·~~A decrease~~ in ~~net interest income by $5.8 million, mainly from the acquired BBVAPR and Eurobank loan portfolios as such loans continue to be repaid.~~
·~~The special provision for loan and lease losses of $27.0 million ($19.0 million, net of tax) placed during the period related to hurricanes Irma and Maria;~~
·An increase in the regular provision for originated and other loan and lease losses of $13.0 million, which includes $4.3 million recorded to charge-off the loss on sale of a municipal loan and another provision of $5.9 million recorded for the
~~114~~
general allowance on the municipal loan portfolio during the second quarter of 2017, partially offset by a decrease in the provision for acquired BBVAPR loan and lease losses of $4.4 million, mainly due to an additional provision recognized during the year ago period of $4.4 million for the Puerto Rico Housing Financing Authority loan;
·~~Higher non-interest income by $10.5 million, reflecting the termination of the FDIC shared-loss agreement in the first quarter of~~June 2017.
·Lower interest expenses by $10.6 million due to lower losses on the sale of foreclosed real estate and other repossessed assets by $4.6 million due to lower write-downs on valuations of mortgage properties, lower insurance expense by $3.7 million as a result of a change in the calculation method of the FDIC Savings Association Insurance Fund (SAIF) insurance, and lower loan servicing and clearing expenses by $3.3 million mainly due to a reduction in mortgage servicing expense from the migration to in-house servicing during 2016.
~~Wealth Management~~

Wealth management segment revenue decreased $1.3 million to $2.9 million, mainly from changes in volume and market rates and lower activity levels in September 2017 related to hurricanes Irma and Maria.
~~Treasury~~
~~Treasury segment income before taxes increased to $16.8 million, compared to $3.1 million, reflecting lower interest expenses by $11.9 million related to:~~
·~~The partial unwinding of a $268.0 million repurchase agreement at 4.78% in February 2016 and the repayment at maturity of the remaining $232.0 million balance in March 2017;~~
·~~The decrease in other borrowings balances that resulted from the repayment at maturity of $227.0 million of short term FHLB advances during the second quarter of 2016; and~~
·~~The repayment at maturity of $72.9 million in short-term repurchase agreements which were not renewed during the third quarter of 2017.~~
~~115~~93

ANALYSIS OF FINANCIAL CONDITION

Assets Owned

At ~~September 30, 2017,~~March 31, 2019, Oriental’s total assets amounted to ~~$6.288~~$6.603 billion representing ~~a decrease~~an increase of ~~3.3%~~0.3% when compared to ~~$6.502~~$6.583 billion at December 31, ~~2016.~~2018. This ~~reduction~~increase is mainly ~~due~~attributable to the adoption of the Accounting Standard Update (“ASU”) No. 2016-02, under the effective date method, which requires lessees to recognize a right-of-use asset and related lease liability for lease classified as operating leases, prospectively. At March 31, 2019, the right of use assets amounts $20.9 million. Cash and cash equivalents increased $59.0 million. Increases were offset by decreases in the loans and investments portfolios of $30.2 million and $27.0 million, respectively.
Cash and cash equivalents increased 13.2% to $506.0 million, mainly from higher core demand and savings deposits, offset by a decrease in ~~the investment portfolio~~brokered deposits and repayments of ~~$204.6 million and a decrease in the loan portfolio of $183.1 million, partially offset by an increase in cash and due from banks of $209.4 million.~~
Oriental's investment portfolio decreased 15.0% from $1.363 billion at December 31, 2016 to $1.158 billion at September 30, 2017, mainly attributed to the sale of $166.0 million mortgage-backed securities available-for-sale during the second quarter of 2017, and to paydowns in the investment securities held-to-maturity portfolio of $65.9 million.repurchase agreements.

Oriental’s loan portfolio is comprised of residential mortgage loans, commercial loans collateralized by mortgages on real estate, ~~located in Puerto Rico,~~ other commercial and industrial loans, consumer loans, and auto loans. At ~~September 30, 2017,~~March 31, 2019, Oriental’s loan portfolio decreased ~~4.4%~~0.7%. ~~Our~~Loan production during the first quarter of 2019, reached $276.4 million compared to $309.4 million in the year ago quarter, a 10.7% decrease, mainly from lower originations in the US loan program. The non-acquired loan portfolio ~~is transitioning as originated loans grow~~decreased $6.1 million from December 31, 2018 to $3.739 billion at ~~a slower pace than acquired loans decrease, due to repayments and maturities. The~~March 31, 2019. From December 31, 2018, the BBVAPR acquired loan portfolio decreased ~~$162.6~~$21.7 million ~~from December 31, 2016~~ to ~~$845.3 million. The~~$654.5 million and the Eurobank acquired loan portfolio decreased ~~$34.5~~$1.4 million ~~from~~to $85.7 million at March 31, 2019.
Investment securities available for sale increased 47.23% to $1.239 billion at March 31, 2019, mainly attributed to the reclassification of held-to-maturity securities into available-for-sale securities during the quarter amounting to $410.4 million (fair value at December 31, ~~2016 to $100.1 million at September 30, 2017.~~2018), as a result of the adoption of ASU 2017-12.

~~Cash and due from banks increased 41.2% to $717.2 million, due to increased deposits and lower transaction outflows toward the end of the quarter from commercial customers.~~
Financial Assets Managed

Oriental’s financial assets include those managed by Oriental’s trust division, retirement plan administration subsidiary, and assets gathered by its broker-dealer and insurance subsidiaries. Oriental’s trust division offers various types of individual retirement accounts ("~~IRA"s)~~IRAs") and manages 401(k) and Keogh retirement plans and custodian and corporate trust accounts, while the retirement plan administration subsidiary, OPC, manages private retirement plans. At ~~September 30, 2017,~~March 31, 2019, total assets managed by Oriental’s trust division and OPC amounted to ~~$2.957~~$2.926 billion, compared to ~~$2.850~~$2.771 billion at December 31, ~~2016.~~2018. Oriental Financial Services offers a wide array of investment alternatives to its client base, such as tax-advantaged fixed income securities, mutual funds, stocks, bonds and money management wrap-fee programs. At ~~September 30, 2017,~~March 31, 2019, total assets gathered by Oriental Financial Services and Oriental Insurance from its customer investment accounts amounted to ~~$2.272~~$2.303 billion, compared to ~~$2.351~~$2.116 billion at December 31, ~~2016.~~2018. Changes in trust and broker-dealer related assets primarily reflect changes in portfolio balances and differences in market values.

~~116~~
Goodwill

Goodwill recorded in connection with the BBVAPR Acquisition and the FDIC-assisted Eurobank acquisition is not amortized to expense but is tested at least annually for impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, Oriental determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. Oriental completes its annual goodwill impairment test as of October 31 of each year. Oriental tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill.

Reporting unit valuation is inherently subjective, with a number of factors based on assumptions and management judgments or estimates. Actual values may differ significantly from such estimates. Among these are future growth rates for the reporting units, selection of comparable market transactions, discount rates and earnings capitalization rates. Changes in assumptions and results due to economic conditions, industry factors, and reporting unit performance and cash flow projections could result in different assessments of the fair values of reporting units and could result in impairment charges. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, an interim impairment test is required.

94
Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount may include macroeconomic conditions (such as a further deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, or similar events. Oriental’s loan portfolio, which is the largest component of its interest-earning assets, is concentrated in Puerto Rico and is directly affected by adverse local economic and fiscal conditions. Such conditions have generally affected the market demand for non-conforming loans secured by assets in Puerto Rico and, therefore, affect the valuation of Oriental’s assets.

As of ~~September 30, 2017,~~March 31, 2019, Oriental had $86.1 million of goodwill allocated as follows: $84.1 million to the Banking unit and $2.0 million to the Wealth Management unit. During the last quarter of ~~2016,~~2018, based on its annual goodwill impairment test, Oriental determined that ~~the Banking unit failed~~both units passed step one of the two-step impairment ~~test and that the Wealth Management unit passed such step.~~test. As a result of step ~~one;~~one, the ~~Banking unit’s~~fair value of both units exceeded its adjusted net book ~~value exceeded its fair value by approximately $145.0 million, or 15%.~~value. Accordingly, ~~Oriental proceeded to perform step two of the analysis. Based on the results of step two,~~ Oriental determined that the carrying value of the goodwill allocated to the Banking unit and Wealth Management was not impaired as of the valuation date. During the nine-month period ended September 30, 2017, Oriental performed an assessment of events or circumstances that could trigger reductions in the book value of the goodwill. Based on this assessment, There were no events ~~were identified~~ that ~~triggered changes~~caused Oriental to perform interim testing in ~~the book value of goodwill at September 30, 2017.~~Q1 2019.
~~117~~95

TABLE 4 - ASSETS SUMMARY AND COMPOSITION

September 30

December 31,

Variance
March 31

December 31,

Variance

2017

2016

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Investments:

FNMA and FHLMC certificates
$
875,760

$
1,025,370

-14.6%
$
937,278

$
978,071

-4.2%
Obligations of US government-sponsored agencies

3,092

3,884

-20.4%

2,197

2,265

-3.0%
US Treasury securities

10,218

49,054

-79.2%

10,859

10,805

0.5%
CMOs issued by US government-sponsored agencies

85,873

101,831

-15.7%

61,389

64,064

-4.2%
GNMA certificates

164,767

165,235

-0.3%

226,557

210,169

7.8%
Puerto Rico government and public instrumentalities

2,206

4,073

-45.8%
FHLB stock

14,016

10,793

29.9%

12,800

12,644

1.2%
Other debt securities

1,685

1,921

-12.3%

1,189

1,222

-2.7%
Other investments

287

350

-18.0%

384

364

5.5%
Total investments

1,157,904

1,362,511

-15.0%

1,252,653

1,279,604

-2.1%
Loans

3,964,572

4,147,692

-4.4%

4,401,401

4,431,594

-0.7%
Total investments and loans

5,122,476

5,510,203

-7.0%

5,654,054

5,711,198

-1.0%
Other assets:

Cash and due from banks (including restricted cash)

717,226

507,863

41.2%

501,357

445,133

12.6%
Money market investments

6,530

5,606

16.5%

7,665

4,930

55.5%
FDIC indemnification asset

-

14,411

-100.0%
Foreclosed real estate

47,275

47,520

-0.5%

30,865

33,768

-8.6%
Accrued interest receivable

22,736

20,227

12.4%

33,152

34,254

-3.2%
Deferred tax asset, net

126,041

124,200

1.5%

112,744

113,763

-0.9%
Premises and equipment, net

67,994

70,407

-3.4%

69,017

68,892

0.2%
Servicing assets

9,818

9,858

-0.4%

10,623

10,716

-0.9%
Derivative assets

809

1,330

-39.2%

110

347

-68.3%
Goodwill

86,069

86,069

0.0%

86,069

86,069

0.0%
Right of use assets

20,860

-

100.0%
Other assets and customers' liability on acceptances

81,243

104,130

-22.0%

76,675

74,282

3.2%
Total other assets

1,165,741

991,621

17.6%

949,137

872,154

8.8%
Total assets
$
6,288,217

$
6,501,824

-3.3%
$
6,603,191

$
6,583,352

0.3%
Investment portfolio composition:

FNMA and FHLMC certificates

75.6%

75.2%

74.8%

76.5%

Obligations of US government-sponsored agencies

0.3%

0.3%

0.2%

0.2%

US Treasury securities

0.9%

3.6%

0.9%

0.8%

CMOs issued by US government-sponsored agencies

7.4%

7.5%

4.9%

5.0%

GNMA certificates

14.2%

12.1%

18.1%

16.4%

Puerto Rico government and public instrumentalities

0.2%

0.3%

FHLB stock

1.2%

0.8%

1.0%

1.0%

Other debt securities and other investments

0.2%

0.2%

0.1%

0.1%

100.0%

100.0%

100.0%

100.0%

~~118~~96

TABLE 5 — LOANS RECEIVABLE COMPOSITION
TABLE 5 — LOANS RECEIVABLE COMPOSITION
TABLE 5 — LOANS RECEIVABLE COMPOSITION

September 30

December 31,

Variance
March 31

December 31,

Variance

2017

2016

%
2019

2018

%

(In thousands)

(In thousands)

Originated and other loans and leases held for investment:

Mortgage
$
694,476

$
721,494

-3.7%
$
651,423

$
668,809

-2.6%
Commercial

1,245,711

1,277,866

-2.5%

1,569,551

1,597,588

-1.8%
Consumer

316,357

290,515

8.9%

350,543

348,980

0.4%
Auto and leasing

831,437

756,395

9.9%

1,167,482

1,129,695

3.3%

3,087,981

3,046,270

1.4%

3,738,999

3,745,072

-0.2%
Allowance for loan and lease losses on originated and other loans and leases

(87,541)

(59,300)

-47.6%

(94,035)

(95,188)

-1.2%

3,000,440

2,986,970

0.5%

3,644,964

3,649,884

-0.1%
Deferred loan costs, net

6,592

5,766

14.3%

8,254

7,740

6.6%
Total originated and other loans loans held for investment, net

3,007,032

2,992,736

0.5%
Total originated and other loans held for investment, net

3,653,218

3,657,624

-0.1%
Acquired loans:

Acquired BBVAPR loans:

Accounted for under ASC 310-20 (Loans with revolving feature and/or

acquired at a premium)

Commercial

4,612

5,562

-17.1%

2,405

2,546

-5.5%
Consumer

29,464

32,862

-10.3%

22,768

23,988

-5.1%
Auto

26,562

53,026

-49.9%

2,336

4,435

-47.3%

60,638

91,450

-33.7%

27,509

30,969

-11.2%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20

(3,363)

(4,300)

21.8%

(1,968)

(2,062)

-4.6%

57,275

87,150

-34.3%

25,541

28,907

-11.6%
Accounted for under ASC 310-30 (Loans acquired with deteriorated

credit quality, including those by analogy)

Mortgage

532,948

569,253

-6.4%

484,578

492,890

-1.7%
Commercial

244,359

292,564

-16.5%

176,908

182,319

-3.0%
Consumer

1,598

4,301

-62.8%
Auto

49,258

85,676

-42.5%

9,866

14,403

-31.5%

828,163

951,794

-13.0%

671,352

689,612

-2.6%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30

(40,110)

(31,056)

-29.2%

(42,133)

(42,010)

0.3%

788,053

920,738

-14.4%

629,219

647,602

-2.8%
Total acquired BBVAPR loans, net

845,328

1,007,888

-16.1%

654,760

676,509

-3.2%
Acquired Eurobank loans:

Loans secured by 1-4 family residential properties

68,996

73,018

-5.5%

62,649

63,392

-1.2%
Commercial

53,028

81,460

-34.9%

46,588

47,826

-2.6%
Consumer

1,220

1,372

-11.1%

856

846

1.2%

123,244

155,850

-20.9%

110,093

112,064

-1.8%
Allowance for loan and lease losses on Eurobank loans

(23,146)

(21,281)

-8.8%

(24,352)

(24,971)

-2.5%
Total acquired Eurobank loans, net

100,098

134,569

-25.6%

85,741

87,093

-1.6%
Total acquired loans, net

945,426

1,142,457

-17.2%

740,501

763,602

-3.0%
Total held for investment, net

3,952,458

4,135,193

-4.4%

4,393,719

4,421,226

-0.6%
Mortgage loans held for sale

12,114

12,499

-3.1%

7,682

10,368

-25.9%
Total loans, net
$
3,964,572

$
4,147,692

-4.4%
$
4,401,401

$
4,431,594

-0.7%
~~119~~
~~120~~97

Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans. Acquired Eurobank loans were purchased subject to loss-sharing agreements with the FDIC, which were terminated on February 6, 2017.

As shown in Table 5 above, total loans, net, amounted to ~~$3.965~~$4.401 billion at ~~September 30, 2017~~March 31, 2019 and ~~$4.148~~$4.432 billion at December 31, ~~2016.~~2018. Oriental’s originated and other loans held-for-investment portfolio composition and trends were as follows:

·         Mortgage loan portfolio amounted to ~~$694.5~~$651.4 million ~~(22.5%~~(17.4% of the gross originated loan portfolio) compared to ~~$721.5~~$668.8 million ~~(23.7%~~(17.9% of the gross originated loan portfolio) at December 31, ~~2016.~~2018. Mortgage loan production totaled ~~$32.6 million and $121.9~~$23.1 million for ~~the quarter and nine-month period ended September 30, 2017,~~March 31, 2019, which represents a decrease of ~~36.2% and 22.3%,~~13.3% from ~~$51.0~~$26.6 million ~~and $157.0 million, respectively,~~ for the same periods in ~~2016.~~2018. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to ~~$13.0~~$12.9 million and ~~$9.7~~$19.7 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

·         Commercial loan portfolio amounted to ~~$1.246~~$1.570 billion ~~(40.3%~~(42.0% of the gross originated loan portfolio) compared to ~~$1.278~~$1.598 billion ~~(42.0%~~(42.7% of the gross originated loan portfolio) at December 31, ~~2016.~~2018. Commercial loan production, including the U.S. loan program production of $31.7 million, decreased ~~26.3%~~21.3% to ~~$46.2~~$92.2 million for ~~the quarter ended September 30, 2017,~~2019, from ~~$62.6~~$117.1 million for the same period in ~~2016. Also, for the nine-month period ended September 30, 2017, the production decreased 16.9% to $173.0 million from $208.2 million for the same period in 2016.~~2018.

·         Consumer loan portfolio amounted to ~~$316.4~~$350.5 million ~~(10.3%~~(9.4% of the gross originated loan portfolio) compared to ~~$290.5~~$349.0 million ~~(9.5%~~(9.3% of the gross originated loan portfolio) at December 31, ~~2016.~~2018. Consumer loan production ~~decreased 22.7%~~increased 9.0% to ~~$33.7~~$40.9 million for ~~the quarter ended September 30, 2017~~2019 from ~~$43.6~~$37.5 million ~~for the same periods in 2016. However, for the nine-month period ended September 30, 2017, the production increased 6.9%~~when compared to ~~$125.5 million from $117.5 million for~~ the same period in ~~2016.~~2018.

·         Auto and leasing portfolio amounted to ~~$831.4 million (26.9%~~$1.167 billion (31.2% of the gross originated loan portfolio) compared to ~~$756.4~~$1.130 million ~~(24.8%~~(30.1 of the gross originated loan portfolio) at December 31, ~~2016.~~2018. Auto ~~and leasing~~ production ~~increased~~decreased by ~~12.6% and 17.6%~~6.2% to ~~$78.3 million and $243.7~~$120.2 million for ~~the quarter and nine-month period ended September 30, 2017, respectively,~~2019, compared to ~~$69.5 million and $207.2~~$128.1 million for the same ~~periods~~period in ~~2016.~~2018.
~~121~~98

TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS

September 30, 2017
March 31, 2019

Higher-Risk Residential Mortgage Loans*
Higher-Risk Residential Mortgage Loans*

High Loan-to-Value Ratio Mortgages

High Loan-to-Value Ratio Mortgages

Junior Lien Mortgages

Interest Only Loans

LTV 90% and over
Junior Lien Mortgages

Interest Only Loans

LTV 90% and over

Carrying

Carrying

Carrying

Carrying

Carrying

Carrying

Value

Allowance

Coverage

Value

Allowance

Coverage

Value

Allowance

Coverage
Value

Allowance

Coverage

Value

Allowance

Coverage

Value

Allowance

Coverage

(In thousands)
(In thousands)
Delinquency:

0 - 89 days
$
9,977

$
321

3.22%

$
9,970

$
801

8.03%

$
72,168

$
1,819

2.52%
$
8,620

$
305

3.54%

$
7,545

$
84

1.11%

$
52,176

$
897

1.72%
90 - 119 days

17

2

11.76%

-

-

0.00%

2,051

29

1.41%

222

28

12.61%

-

-

0.00%

1,104

46

4.17%
120 - 179 days

51

8

15.69%

-

-

0.00%

473

9

1.90%

65

8

12.31%

-

-

0.00%

296

28

9.46%
180 - 364 days

78

7

8.97%

209

52

24.88%

1,749

156

8.92%

68

17

25.00%

164

23

14.02%

814

88

10.81%
365+ days

438

72

16.44%

2,311

576

24.92%

8,347

790

9.46%

182

25

13.74%

1,377

202

14.67%

6,428

522

8.12%
Total
$
10,561

$
410

3.88%

$
12,490

$
1,429

11.44%

$
84,788

$
2,803

3.31%
$
9,157

$
383

4.18%

$
9,086

$
309

3.40%

$
60,818

$
1,581

2.60%
Percentage of total loans excluding
acquired loans accounted for under ASC 310-30

0.34%

0.40%

2.69%

0.24%

0.24%

1.61%

Refinanced or Modified Loans:

Amount
$
2,077

$
223

10.74%

$
540

$
52

9.63%

$
16,390

$
1,215

7.41%
$
2,226

$
293

13.16%

$
533

$
71

13.32%

$
15,507

$
1,179

7.60%
Percentage of Higher-Risk Loan
Category

19.67%

4.32%

19.33%

24.31%

5.87%

25.50%

Loan-to-Value Ratio:

Under 70%
$
6,999

$
261

3.73%

$
770

$
61

7.92%

$
-

$
-

-
$
6,068

$
245

4.04%

$
1,215

$
6

0.49%

$
-

$
-

-
70% - 79%

1,542

91

5.90%

3,290

303

9.21%

-

-

-

1,304

73

5.60%

1,914

34

1.78%

-

-

-
80% - 89%

516

24

4.65%

2,538

296

11.66%

-

-

-

994

1

0.10%

3,533

116

3.28%

-

-

-
90% and over

1,504

34

2.26%

5,892

769

13.05%

84,788

2,803

3.31%

791

64

8.09%

2,424

153

6.31%

60,818

1,581

2.60%

$
10,561

$
410

3.88%

$
12,490

$
1,429

11.44%

$
84,788

$
2,803

3.31%
$
9,157

$
383

4.18%

$
9,086

$
309

3.40%

$
60,818

$
1,581

2.60%

* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
~~122~~99

The following table includes Oriental's lending and investment exposure to the Puerto Rico government, including its agencies, instrumentalities, municipalities and public corporations:

TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES

September 30, 2017

Maturity

Loans and Securities:

Carrying Value

Less than 1 Year

1 to 3 Years

More than 3 Years

Comments

(In thousands)

Municipalities

$
144,529

$
5,265

$
95,622

$
43,642

Secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing
municipality are pledged for the payment of its general obligations.
Investment securities

2,206

2,206

-

-

The remaining position is a PRHTA security maturing July 1, 2018 issued for P3 Project Teodoro Moscoso Bridge operated by private companies that have the payment obligation.
Total

$
146,735

$
7,471

$
95,622

$
43,642

Deposits from the Puerto Rico government totaled $228.8 million at March 31, 2019. The following table includes the maturities of Oriental's lending and investment exposure to the Puerto Rico government, which is limited solely to loans to municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations.

TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES

March 31, 2019

Maturity

Loans and Securities:

Carrying Value

Less than 1 Year

1 to 3 Years

More than 3 Years

(In thousands)
Municipalities

$
135,471

$
23,704

$
68,220

$
43,547
~~Some highlights follow regarding the data included above:~~
·~~Deposits from the Puerto Rico government totaled $135.8 million at September 30, 2017.~~
~~123~~100

Credit Risk Management

Allowance for Loan and Lease Losses

Oriental maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. Oriental’s allowance for loan and lease losses ("ALLL") policy provides for a detailed quarterly analysis of probable losses.
The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors. While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond Oriental’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to the acquisition, and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition.
At ~~September 30, 2017,~~March 31, 2019, Oriental’s allowance for loan and lease losses amounted to ~~$154.2~~$162.5 million, a ~~$38.2~~$1.7 million ~~increase~~decrease from ~~$115.9~~$164.2 million at December 31, ~~2016.~~
During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effect of the hurricanes on Oriental's loan portfolio is difficult to predict at this time, management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.
The framework for the analysis was based on our current ALLL methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment.
For commercial portfolios, Oriental contacted its clients to evaluate the impact of the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of repayment. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output. For retail portfolios (residential mortgage, consumer and auto), management established assumptions based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (for all portfolios) and the location of the collateral (for residential loans).
Based on our assessment of the facts related to these hurricanes, we have increased our provision for loan losses $27.0 million. The increase in the allowance corresponding to our originated loan portfolio was $16.8 million: $3.8 million in mortgage loans, $7.6 million in commercial loans, $800 thousand in consumer loans, and $4.6 million in auto loans. The increase in the allowance corresponding to our acquired loan portfolio was $10.2 million: $2.7 million in mortgage loans, $7.0 million in commercial loans, $100 thousand in consumer loans, and $400 thousand in auto loans.
The documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental will continue to assess the impact to our customers and our businesses as a result of the hurricanes and refine our estimates as more information becomes available. 2018.

Tables 8 through 10 set forth an analysis of activity in the allowance for loan and lease losses and present selected loan loss statistics. In addition, Table 5 sets forth the composition of the loan portfolio.

Please refer to the “Provision for Loan and Lease Losses” section in this MD&A for a more detailed analysis of provisions for loan and lease losses.

~~124~~
Non-performing Assets

Oriental’s non-performing assets include non-performing loans and foreclosed real estate (see Tables 11 and 12). At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, Oriental had ~~$93.0~~$122.7 million and ~~$104.1~~$119.7 million, respectively, of non-accrual loans, including acquired BBVAPR loans accounted for under ASC 310-20 (loans with revolving feature and/or acquired at a premium).

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, loans whose terms have been extended and which are classified as troubled-debt ~~restructuring~~restructurings that are not included in non-performing assets amounted to ~~$109.8~~$113.1 million and ~~$98.1~~$112.9 million, respectively.
At March 31, 2019 and December 31, 2018, loans that are current in their monthly payments, but placed in non-accrual amounted to $30.6 million and $21.2 million, respectively. During the quarter ended March 31, 2019, a $8.6 million loan that is current in its monthly payments was placed in non-accrual due to credit deterioration.

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due, but are not placed in non-accrual status until they become 1812 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans.
Acquired loans with credit deterioration are considered to be performing due to the application of the accretion method under ASC 310-30, in which these loans will accrete interest income over ~~the~~their remaining life ~~of the loans~~ using estimated cash flow analyses. Credit related decreases in expected cash flows, compared to those previously forecasted are recognized by recording a provision for credit losses on these loans when it is probable that all cash flows expected at acquisition will not be collected.

At ~~September 30, 2017,~~March 31, 2019, Oriental’s non-performing assets ~~decreased~~increased by ~~5.1%~~0.5% to ~~$148.9~~$162.1 million ~~(2.76%~~(2.50% of total assets, excluding acquired loans with deteriorated credit quality) from ~~$156.9~~$161.3 million ~~(2.88%~~(2.76% of total assets, excluding acquired loans with deteriorated credit quality) at December 31, ~~2016.~~2018. Foreclosed real estate and other repossessed assets amounting to $30.9 million and $3.6 million, respectively, at March 31, 2019, and $33.8 million and $3.0 million, respectively, at December 31, 2018, were recorded at fair value. Oriental does not expect non-performing loans to result in significantly higher losses. At ~~September 30, 2017,~~March 31, 2019, the allowance coverage ratio for originated loan and lease losses to non-performing loans ~~coverage ratio~~ was ~~91.55% (56.30%~~74.53% (77.38% at December 31, ~~2016)~~2018).

101
Oriental follows a conservative residential mortgage lending policy, with more than 90% of its residential mortgage portfolio consisting of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk associated with subprime loans offered by certain major U.S. mortgage loan originators. Furthermore, Oriental has never been active in negative amortization loans or adjustable rate mortgage loans, including those with teaser rates.

The following items comprise non-performing assets:

·         Originated and other loans held for investment:

Residential mortgage loans — are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan, except for FHA and VA insured mortgage loans which are placed in non-accrual when they become 1812 months or more past due. At ~~September 30, 2017,~~March 31, 2019, Oriental’s originated non-performing mortgage loans totaled $59.7 million ~~(61.0%~~(46.7% of Oriental’s non-performing loans), a ~~19.9%~~6.4% decrease from ~~$74.5~~$63.7 million ~~(68.9%~~(51.1% of Oriental’s non-performing loans) at December 31, ~~2016.~~2018.

Commercial loans — are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the underlying collateral, if any. At ~~September 30, 2017,~~March 31, 2019, Oriental’s originated non-performing commercial loans amounted to ~~$21.7~~$50.4 million ~~(22.2%~~(39.5% of Oriental’s non-performing loans), ~~an 9.7%~~a 18.7% increase from ~~$19.8~~$42.5 million at December 31, ~~2016 (18.3%~~2018 (34.1% of Oriental’s non-performing loans). This increase is mainly from a $8.6 million loan that is current in its monthly payments but was placed in non-accrual during the quarter ended March 31, 2019 due to credit deterioration.

Consumer loans — are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit. At ~~September 30, 2017,~~March 31, 2019, Oriental’s originated non-performing consumer loans amounted to ~~$2.4~~$4.0 million ~~(2.5%~~(3.1% of Oriental’s non-performing loans), a ~~23.1%~~18.4% increase from ~~$2.0~~$3.4 million at December 31, ~~2016 (1.8%~~2018 (2.7% of Oriental’s non-performing loans).

Auto loans and leases — are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. At ~~September 30, 2017,~~March 31, 2019, Oriental’s originated non-performing auto loans and leases amounted to ~~$11.8~~$12.2 million ~~(12.1%~~(9.5% of Oriental’s total non-performing loans), ~~an increase~~a decrease of ~~30.5%~~9.9% from ~~$9.1~~$13.5 million at December 31, ~~2016 (8.4%~~2018 (10.8% of Oriental’s total non-performing loans).
·~~Acquired BBVAPR loans accounted for under ASC 310-20 (loans with revolving features and/or acquired at premium):~~
~~125~~
~~Commercial revolving lines of credit and credit cards~~ ~~— are placed on non-accrual status when they become 90 days or more past~~, mainly due ~~and are written-down, if necessary, based on~~to higher balance in the specific evaluation of the underlying collateral, if any. At September 30, 2017, Oriental’s acquired non-performing commercial lines of credit accounted for under ASC 310-20 amounted to $1.1 million (1.2% of Oriental’s non-performing loans), a 19.4% decrease from $1.4 million at December 31, 2016 (1.3% of Oriental’s non-performing loans).
~~Consumer revolving lines of credit and credit cards~~ — are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 180 days. At September 30, 2017, Oriental’s acquired non-performing consumer lines of credit and credit cards accounted for under ASC 310-20 totaled $506 thousand (0.5% of Oriental’s non-performing loans), a 38.9% decrease from $828 thousand at December 31, 2016 (0.8% of Oriental’s non-performing loans).
~~Auto loans acquired at premium~~ - are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. At September 30, 2017, Oriental’s acquired non-performing auto loans accounted for under ASC 310-20 totaled $481 thousand (0.5% of Oriental’s non-performing loans), a 12.9% decrease from $552 thousand at December 31, 2016 (0.5% of Oriental’s non-performing loans).portfolio.

Oriental has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-traditional Mortgage Loan Program. Both programs are intended to help responsible homeowners to remain in their homes and avoid foreclosure, while also reducing Oriental’s losses on non-performing mortgage loans.

The Loss Mitigation Program helps mortgage borrowers who are or will become financially unable to meet the current or scheduled mortgage payments. Loans that qualify under this program are those guaranteed by FHA, VA, RURAL, PRHFA, conventional loans guaranteed by Mortgage Guaranty Insurance Corporation (MGIC), conventional loans sold to FNMA and FHLMC, and conventional loans retained by Oriental. The program offers diversified alternatives such as regular or reduced payment plans, payment moratorium, mortgage loan modification, partial claims (only FHA), short sale, and payment in lieu of foreclosure.

The Non-traditional Mortgage Loan Program is for non-traditional mortgages, including balloon payment, interest only/~~interests~~interest first, variable interest rate, adjustable interest rate and other qualified loans. Non-traditional mortgage loan portfolios are segregated into the following categories: performing loans that meet secondary market requirement and are refinanced under the credit underwriting guidelines of FHA/VA/FNMA/ FHLMC, and performing loans not meeting secondary market guidelines processed bypursuant Oriental’s current credit and underwriting guidelines. Oriental achieved an affordable and sustainable monthly payment by taking specific, sequential, and necessary steps such as reducing the interest rate, extending the loan term, capitalizing arrearages, deferring the payment of principal or, if the borrower qualifies, refinancing the loan.

In order to apply for any of the loan modification programs, if the borrower is active in Chapter 13 bankruptcy, ~~they~~it must request an authorization from the bankruptcy trustee to allow for the loan modification. Borrowers with discharged Chapter 7 bankruptcies may also apply. Loans in these programs are evaluated by designated underwriters for troubled-debt restructuring classification if Oriental grants a concession for legal or economic reasons due to the debtor’s financial difficulties.
~~126~~102

TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN

September 30,

December 31,

Variance
March 31,

December 31,

Variance

2017

2016

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Originated and other loans held for investment

Allowance balance:

Mortgage
$
22,308

$
17,344

28.6%
$
16,689

$
19,783

-15.6%
Commercial

24,278

8,995

169.9%

32,154

30,326

6.0%
Consumer

15,793

13,067

20.9%

16,085

15,571

3.3%
Auto and leasing

25,162

19,463

29.3%

29,107

29,508

-1.4%
Unallocated allowance

-

431

-100.0%
Total allowance balance
$
87,541

$
59,300

47.6%
$
94,035

$
95,188

-1.2%
Allowance composition:

Mortgage

25.49%

29.24%

-12.8%

17.8%

20.8%

-14.6%
Commercial

27.73%

15.17%

82.8%

34.2%

31.9%

7.3%
Consumer

18.04%

22.04%

-18.1%

17.1%

16.4%

4.6%
Auto and leasing

28.74%

32.82%

-12.4%

31.0%

31.0%

-0.2%
Unallocated allowance

0.00%

0.73%

-100.0%

100.00%

100.00%

100.0%

100.0%

Allowance coverage ratio at end of period applicable to:

Mortgage

3.21%

2.40%

33.8%

2.56%

2.96%

-13.5%
Commercial

1.95%

0.70%

178.6%

2.05%

1.90%

7.9%
Consumer

4.99%

4.50%

10.9%

4.59%

4.46%

2.9%
Auto and leasing

3.03%

2.57%

17.9%

2.49%

2.61%

-4.6%
Total allowance to total originated loans

2.83%

1.95%

45.1%

2.51%

2.54%

-1.2%
Allowance coverage ratio to non-performing loans:

Mortgage

37.39%

23.28%

60.6%

27.97%

31.05%

-9.9%
Commercial

111.88%

45.46%

146.1%

63.83%

71.43%

-10.6%
Consumer

645.93%

657.96%

-1.8%

405.06%

464.25%

-12.7%
Auto and leasing

213.04%

215.01%

-0.9%

239.31%

218.67%

9.4%
Total

91.55%

56.30%

62.6%

74.53%

77.38%

-3.7%

~~127~~103

TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)

September 30,

December 31,

Variance
March 31,

December 31,
Variance

2017

2016

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Acquired BBVAPR loans accounted for under ASC 310-20

Allowance balance:

Commercial
$
41

$
169

-75.7%
$
32

$
22

45.5%
Consumer

2,591

3,028

-14.4%

1,869

1,905

-1.9%
Auto

731

1,103

-33.7%

67

135

-50.4%
Total allowance balance
$
3,363

$
4,300

-21.8%
$
1,968

$
2,062

-4.6%
Allowance composition:

Commercial

1.22%

3.93%

-69.0%

1.6%

1.1%

52.3%
Consumer

77.04%

70.42%

9.4%

95.0%

92.4%

2.8%
Auto

21.74%

25.65%

-15.2%

3.4%

6.6%

-48.1%

100.00%

100.00%

100.0%

100.00%

Allowance coverage ratio at end of period applicable to:

Commercial

0.89%

3.04%

-70.7%

1.33%

0.86%

54.7%
Consumer

8.79%

9.21%

-4.6%

8.21%

7.94%

3.4%
Auto

2.75%

2.08%

32.2%

2.87%

3.04%

-5.6%
Total allowance to total acquired loans

5.55%

4.70%

18.1%

7.15%

6.66%

7.4%
Allowance coverage ratio to non-performing loans:

Commercial

3.59%

11.94%

-69.9%

3.43%

2.32%

47.8%
Consumer

512.06%

365.70%

40.0%

438.73%

478.64%

-8.3%
Auto

151.98%

199.82%

-23.9%

67.00%

67.50%

-0.7%
Total

158.04%

153.85%

2.7%

134.98%

133.20%

1.3%

~~128~~104

TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED)

September 30,

December 31,

Variance
March 31,

December 31,
Variance

2017

2016

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Acquired BBVAPR loans accounted for under ASC 310-30

Allowance balance:

Mortgage
$
8,931

$
2,682

233.0%
$
17,901

$
15,225

17.6%
Commercial

23,941

23,452

2.1%

20,733

20,641

0.4%
Auto

7,238

4,922

47.1%

3,499

6,144

-43.1%
Total allowance balance
$
40,110

$
31,056

29.2%
$
42,133

$
42,010

0.3%
Allowance composition:

Mortgage

22.27%

8.64%

157.8%

42.5%

36.2%

17.2%
Commercial

59.68%

75.51%

-21.0%

49.2%

49.1%

0.2%
Auto

18.05%

15.85%

13.9%

8.3%

14.6%

-43.3%

100.00%

100.00%

100.0%

100.0%

Acquired Eurobank loans accounted for under ASC 310-30

Allowance balance:

Mortgage
$
14,219

$
11,947

19.0%
$
15,110

$
15,382

-1.8%
Commercial

8,922

9,328

-4.4%

9,242

9,585

-3.6%
Consumer

5

6

-16.7%

-

4

-100.0%
Total allowance balance
$
23,146

$
21,281

8.8%
$
24,352

$
24,971

-2.5%
Allowance composition:

Mortgage

61.43%

56.14%

9.4%

62.1%

61.6%

0.7%
Commercial

38.54%

43.83%

-12.1%

37.9%

38.4%

-1.1%
Consumer

0.02%

0.03%

-33.3%

0.0%

0.0%

-100.0%

100.0%

100.0%

100.0%

100.0%

~~129~~105

TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY

Quarter Ended September 30,

Nine-Month Period Ended September 30,
Quarter Ended March 31,

Variance

Variance

Variance

2017

2016

%

2017

2016

%
2019

2018

%

(Dollars in thousands)
(Dollars in thousands)
Originated and other loans:

Balance at beginning of period
$
69,666

$
112,812

-38.2%

$
59,300

$
112,626

-47.3%
$
95,188

$
92,718

2.7%
Provision for loan and lease losses

29,690

14,708

101.9%

64,243

34,420

86.6%

11,333

14,958

-24.2%
Charge-offs

(15,372)

(69,333)

-77.8%

(48,317)

(95,813)

-49.6%

(17,165)

(15,357)

11.8%
Recoveries

3,557

3,981

-10.7%

12,315

10,935

12.6%

4,679

4,513

3.7%
Balance at end of period
$
87,541

$
62,168

40.8%

$
87,541

$
62,168

40.8%
$
94,035

$
96,832

-2.9%
Acquired loans:

BBVAPR loans

Acquired loans accounted for
under ASC 310-20:

Balance at beginning of period
$
3,348

$
4,487

-25.4%

$
4,300

$
5,542

-22.4%
$
2,062

$
3,862

-46.6%
Provision for loan and lease losses

712

548

29.9%

618

1,392

-55.6%
Provision (recapture) for loan and lease losses

298

184

62.0%
Charge-offs

(933)

(1,366)

-31.7%

(3,204)

(4,518)

-29.1%

(525)

(1,147)

-54.2%
Recoveries

236

544

-56.6%

1,649

1,797

-8.2%

133

285

-53.3%
Balance at end of period
$
3,363

$
4,213

-20.2%

$
3,363

$
4,213

-20.2%
$
1,968

$
3,184

-38.2%
Acquired loans accounted for
under ASC 310-30:

Balance at beginning of period
$
37,494

$
22,801

64.4%

$
31,056

$
25,785

20.4%
$
42,010

$
45,755

-8.2%
Provision for loan and lease losses

11,099

7,403

49.9%

18,798

13,245

41.9%

1,269

179

608.9%
Loan pools fully charged off

-

-

0.0%

-

(282)

-100.0%
Allowance de-recognition

(8,483)

(385)

2103.4%

(9,744)

(8,929)

9.1%

(1,146)

(2,768)

-58.6%
Balance at end of period
$
40,110

$
29,819

34.5%

$
40,110

$
29,819

34.5%
$
42,133

$
43,166

-2.4%

Eurobank loans

Balance at beginning of period
$
21,787

$
22,116

-1.5%

$
21,281

$
90,178

-76.4%
$
24,971

$
25,174

-0.8%
Provision for loan and lease losses

2,541

819

210.3%

4,573

2,655

72.2%

(651)

139

-568.3%
FDIC shared-loss portion on
recapture of loan
and lease losses

-

818

-100.0%

-

3,213

-100.0%
Loan pools fully charged off

-

-

0.0%

-

(134)

-100.0%
Allowance de-recognition

(1,182)

(941)

25.6%

(2,708)

(73,100)

-96.3%

32

97

-67.0%
Balance at end of period
$
23,146

$
22,812

1.5%

$
23,146

$
22,812

1.5%
$
24,352

$
25,410

-4.2%
~~130~~106

TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY (CONTINUED)

Quarter Ended September 30,

Nine-Month Period Ended September 30,


Variance

Variance

2017

2016

%

2017

2016

%
    Allowance for loans and lease losses on
      originated and other loans to:

      Total originated loans

2.83%

2.06%

37.4%

2.83%

2.06%

37.4%
      Non-performing originated loans

91.55%

56.06%

63.3%

91.55%

56.06%

63.3%

    Allowance for loans and lease losses on
       acquired loans accounted for under
      ASC 310-20 to:

      Total acquired loans accounted
        for under ASC 310-20

5.55%

4.04%

37.4%

5.55%

4.04%

37.4%
      Non-performing acquired loans
        accounted for under ASC 310-20

158.04%

217.39%

-27.3%

158.04%

217.39%

-27.3%
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30

Quarter Ended March 31,

Variance

2019

2018

%

(Dollars in thousands)
Originated and other loans and leases:

Mortgage

    Charge-offs
$
(587)

$
(968)

-39.4%
    Recoveries

287

314

-8.6%
        Total

(300)

(654)

-54.1%
Commercial

    Charge-offs

(1,086)

(1,149)

-5.5%
    Recoveries

147

182

-19.2%
        Total

(939)

(967)

-2.9%
Consumer

    Charge-offs

(4,121)

(4,258)

-3.2%
    Recoveries

263

240

9.6%
        Total

(3,858)

(4,018)

-4.0%
Auto

    Charge-offs

(11,371)

(8,982)

26.6%
    Recoveries

3,982

3,777

5.4%
        Total

(7,389)

(5,205)

42.0%
Net credit losses

    Total charge-offs

(17,165)

(15,357)

11.8%
    Total recoveries

4,679

4,513

3.7%
        Total
$
(12,486)

$
(10,844)

15.1%
Net credit losses to average
    loans outstanding:

    Mortgage

0.18%

0.38%

-52.6%
    Commercial

0.24%

0.30%

-20.0%
    Consumer

4.29%

5.07%

-15.4%
    Auto

2.54%

2.23%

13.9%
        Total

1.32%

1.34%

-1.5%
Recoveries to charge-offs

27.26%

29.39%

-7.2%
Average originated loans:

    Mortgage
$
668,654

683,398

-2.2%
    Commercial

1,591,415

1,310,444

21.4%
    Consumer

360,093

317,295

13.5%
    Auto

1,162,153

933,456

24.5%
        Total
$
3,782,315

$
3,244,593

16.6%
~~131~~107

TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED)
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED)

Quarter Ended September 30,

Nine-Month Period Ended September 30,
Quarter Ended March 31,

Variance

Variance

Variance

2017

2016

%

2017

2016

%
2019

2018

%

(Dollar in thousands)
(Dollars in thousands)
Originated and other loans and leases:

Mortgage

Charge-offs
$
(834)

$
(1,656)

-49.6%

$
(5,375)

$
(4,692)

14.6%
Recoveries

341

21

1523.8%

458

204

124.5%
Total

(493)

(1,635)

-69.8%

(4,917)

(4,488)

9.6%
Acquired loans accounted for under ASC 310-20:

Commercial

Charge-offs

(727)

(56,700)

-98.7%

(6,424)

(58,544)

-89.0%
Recoveries

654

93

603.2%

880

407

116.2%

3

3

0.0%
Total

(73)

(56,607)

-99.9%

(5,544)

(58,137)

-90.5%

3

3

0.0%
Consumer

Charge-offs

(4,424)

(3,173)

39.4%

(11,792)

(8,310)

41.9%

(440)

(1,022)

-56.9%
Recoveries

168

120

40.0%

1,113

355

213.5%

40

54

-25.9%
Total

(4,256)

(3,053)

39.4%

(10,679)

(7,955)

34.2%

(400)

(968)

-58.7%
Auto

Charge-offs

(9,387)

(7,804)

20.3%

(24,726)

(24,267)

1.9%

(85)

(125)

-32.0%
Recoveries

2,394

3,747

-36.1%

9,864

9,969

-1.1%

90

228

-60.5%
Total

(6,993)

(4,057)

72.4%

(14,862)

(14,298)

3.9%

5

103

-95.1%
Net credit losses

Total charge-offs

(15,372)

(69,333)

-77.8%

(48,317)

(95,813)

-49.6%

(525)

(1,147)

-54.2%
Total recoveries

3,557

3,981

-10.7%

12,315

10,935

12.6%

133

285

-53.3%
Total
$
(11,815)

$
(65,352)

-81.9%

$
(36,002)

$
(84,878)

-57.6%
$
(392)

$
(862)

-54.5%
Net credit losses to average
loans outstanding:

Mortgage

0.28%

0.88%

-68.2%

0.94%

0.80%

17.6%
Commercial

0.02%

15.88%

-99.9%

0.59%

5.43%

-89.1%

-0.48%

-0.38%

26.3%
Consumer

5.65%

4.71%

20.0%

4.89%

4.30%

13.7%

12.29%

28.82%

-57.3%
Auto

3.37%

2.23%

51.1%

2.47%

2.70%

-8.5%

-0.56%

-2.14%

-74.0%
Total

1.54%

8.27%

-81.4%

1.58%

3.62%

-56.3%

8.20%

9.60%

-14.5%
Recoveries to charge-offs

23.14%

5.74%

303.1%

25.49%

11.41%

123.3%

25.33%

24.85%

2.0%
Average originated loans:

Mortgage
$
692,782

746,613

-7.2%

701,039

748,755

-6.4%
Average loans accounted for under ASC 310-20:

Commercial

1,239,390

1,426,216

-13.1%

1,247,249

1,428,499

-12.7%
$
2,494

3,194

-21.9%
Consumer

301,121

259,535

16.0%

291,140

246,641

18.0%

13,015

13,436

-3.1%
Auto

829,446

727,727

14.0%

803,821

705,956

13.9%

3,602

19,292

-81.3%
Total
$
3,062,739

$
3,160,091

-3.1%

$
3,043,249

$
3,129,851

-2.8%
$
19,111

$
35,922

-46.8%

~~132~~108

TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED)

Quarter Ended September 30,

Nine-Month Period Ended September 30,

Variance

Variance

2017

2016

%

2017

2016

%

(Dollars in thousands)
Acquired loans accounted for under ASC 310-20:

Commercial

    Charge-offs
$
-

$
(2)

-100.0%

$
(132)

$
(21)

528.6%
    Recoveries

1

16

-93.8%

6

56

-89.3%
        Total

1

14

-92.9%

(126)

35

-460.0%
Consumer

    Charge-offs

(711)

(889)

-20.0%

(2,367)

(2,714)

-12.8%
    Recoveries

33

67

-50.7%

392

236

66.1%
        Total

(678)

(822)

-17.5%

(1,975)

(2,478)

-20.3%
Auto

    Charge-offs

(222)

(475)

-53.3%

(705)

(1,783)

-60.5%
    Recoveries

202

461

-56.2%

1,251

1,505

-16.9%
        Total

(20)

(14)

42.9%

546

(278)

-296.4%
Net credit losses

    Total charge-offs

(933)

(1,366)

-31.7%

(3,204)

(4,518)

-29.1%
    Total recoveries

236

544

-56.6%

1,649

1,797

-8.2%
        Total
$
(697)

$
(822)

-15.2%

$
(1,555)

$
(2,721)

-42.9%
Net credit losses to average
    loans outstanding:

    Commercial

-1.06%

-10.65%

-90.1%

42.64%

-8.22%

-619.0%
    Consumer

4.69%

5.52%

-15.0%

6.91%

5.51%

25.4%
    Auto

0.23%

0.08%

183.7%

-1.75%

0.46%

-477.1%
        Total

3.01%

2.56%

17.6%

2.59%

2.58%

0.2%
Recoveries to charge-offs

25.29%

39.82%

-36.5%

51.47%

39.77%

29.4%
Average loans accounted for under ASC 310-20:

    Commercial
$
378

526

-28.1%

394

568

-30.6%
    Consumer

57,839

59,617

-3.0%

38,088

59,930

-36.4%
    Auto

34,334

68,178

-49.6%

41,632

79,936

-47.9%
        Total
$
92,551

$
128,321

-27.9%

$
80,114

$
140,434

-43.0%

TABLE 11 — NON-PERFORMING ASSETS


March 31,

December 31,

Variance

2019

2018

(%)

(Dollars in thousands)

Non-performing assets:

    Non-accruing loans

        Troubled-Debt Restructuring loans
$
40,815

$
41,679

-2.1%
        Other loans

81,910

78,047

4.9%
    Accruing loans

        Troubled-Debt Restructuring loans

4,372

4,302

1.6%
        Other loans

536

541

-0.9%
            Total non-performing loans
$
127,633

$
124,569

2.5%
   Foreclosed real estate

30,865

33,768

-8.6%
   Other repossessed assets

3,574

2,986

19.7%

$
162,072

$
161,323

0.5%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)

2.50%

2.76%

-9.4%
Non-performing assets to total capital

15.87%

16.13%

-1.6%


Quarter Ended March 31,

2019

2018

(In thousands)
Interest that would have been recorded in the period if the
    loans had not been classified as non-accruing loans
$
1,107

$
996

~~133~~109

TABLE 11 — NON-PERFORMING ASSETS


September 30,

December 31,

Variance

2017

2016

(%)

(Dollars in thousands)

Non-performing assets:

    Non-accruing loans

        Troubled-Debt Restructuring loans
$
25,257

$
32,408

-22.1%
        Other loans

67,750

71,941

-5.8%
    Accruing loans

        Troubled-Debt Restructuring loans

4,103

2,706

51.6%
        Other loans

642

1,067

-39.8%
            Total non-performing loans
$
97,752

$
108,122

-9.6%
   Foreclosed real estate

47,275

45,587

3.7%
   Other repossessed assets

3,829

3,224

18.8%

$
148,856

$
156,933

-5.1%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)

2.76%

2.88%

-4.2%
Non-performing assets to total capital

15.88%

17.05%

-6.9%


Quarter Ended September 30,

Nine-Month Period Ended September 30,

2017

2016

2017

2016

(In thousands)
Interest that would have been recorded in the period if the
    loans had not been classified as non-accruing loans
$
1,037

$
760

$
2,459

$
2,385

TABLE 12 — NON-PERFORMING LOANS

March 31,

December 31,

Variance

2019

2018

%

(Dollars in thousands)

Non-performing loans:

Originated and other loans held for investment

    Mortgage
$
59,665

$
63,717

-6.4%
    Commercial

50,376

42,456

18.7%
    Consumer

3,971

3,354

18.4%
    Auto and leasing

12,163

13,494

-9.9%

126,175

123,021

2.6%
    Acquired loans accounted for under ASC 310-20 (Loans with
        revolving feature and/or acquired at a premium)

    Commercial

932

950

-1.9%
    Consumer

426

398

7.0%
    Auto

100

200

-50.0%

1,458

1,548

-5.8%
        Total
$
127,633

$
124,569

2.5%
Non-performing loans composition percentages:

Originated loans

    Mortgage

46.8%

51.1%

    Commercial

39.5%

34.1%

    Consumer

3.1%

2.7%

    Auto and leasing

9.5%

10.8%

    Acquired loans accounted for under ASC 310-20 (Loans with
        revolving feature and/or acquired at a premium)

    Commercial

0.7%

0.8%

    Consumer

0.3%

0.3%

    Auto

0.1%

0.2%

        Total

100.0%

100.0%

Non-performing loans to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

3.39%

3.30%

2.7%
    Total assets, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.97%

2.13%

-7.5%
    Total capital

12.50%

12.46%

0.3%
Non-performing loans with partial charge-offs to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.09%

1.16%

-6.03%
    Non-performing loans

32.23%

35.30%

-8.7%
Other non-performing loans ratios:

    Charge-off rate on non-performing loans to non-performing loans
        on which charge-offs have been taken

60.10%

59.20%

1.5%
    Allowance for loan and lease losses to non-performing
        loans on which no charge-offs have been taken

110.99%

120.67%

-8.0%

~~134~~110

TABLE 12 — NON-PERFORMING LOANS

September 30,

December 31,

Variance

2017

2016

%

(Dollars in thousands)

Non-performing loans:

Originated and other loans held for investment

    Mortgage
$
59,667

$
74,503

-19.9%
    Commercial

21,701

19,786

9.7%
    Consumer

2,445

1,986

23.1%
    Auto and leasing

11,811

9,052

30.5%

95,624

105,327

-9.2%
    Acquired loans accounted for under ASC 310-20 (Loans with
        revolving feature and/or acquired at a premium)

    Commercial

1,141

1,415

-19.4%
    Consumer

506

828

-38.9%
    Auto

481

552

-12.9%

2,128

2,795

-23.9%
        Total
$
97,752

$
108,122

-9.6%
Non-performing loans composition percentages:

Originated loans

    Mortgage

61.0%

68.9%

    Commercial

22.2%

18.3%

    Consumer

2.5%

1.8%

    Auto and leasing

12.1%

8.4%

    Acquired loans accounted for under ASC 310-20 (Loans with
        revolving feature and/or acquired at a premium)

    Commercial

1.2%

1.3%

    Consumer

0.5%

0.8%

    Auto

0.5%

0.5%

        Total

100.0%

100.0%

Non-performing loans to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

3.10%

3.45%

-10.1%
    Total assets, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.81%

1.99%

-9.0%
    Total capital

10.43%

11.75%

-11.2%
Non-performing loans with partial charge-offs to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.26%

1.17%

7.69%
    Non-performing loans

40.45%

34.09%

18.7%
Other non-performing loans ratios:

    Charge-off rate on non-performing loans to non-performing loans
        on which charge-offs have been taken

60.64%

63.58%

-4.6%
    Allowance for loan and lease losses to non-performing
        loans on which no charge-offs have been taken

126.88%

89.25%

42.2%

TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION

March 31,

December 31,

Variance

2019

2018

%

(Dollars in thousands)

Deposits:

    Non-interest bearing deposits
$
1,092,488

$
1,105,324

-1.2%
    NOW accounts

1,125,658

1,086,447

3.6%
    Savings and money market accounts

1,252,158

1,212,260

3.3%
    Certificates of deposit

1,424,543

1,501,002

-5.1%
        Total deposits

4,894,847

4,905,033

-0.2%
    Accrued interest payable

2,254

3,082

-26.9%
        Total deposits and accrued interest payable

4,897,101

4,908,115

-0.2%
Borrowings:

    Securities sold under agreements to repurchase

431,566

455,508

-5.3%
    Advances from FHLB

81,111

77,620

4.5%
    Subordinated capital notes

36,083

36,083

0.0%
    Other term notes

286

1,214

-76.4%
        Total borrowings

549,046

570,425

-3.7%
            Total deposits and borrowings

5,446,147

5,478,540

-0.6%

Other Liabilities:

Derivative liabilities

439

333

31.8%
Acceptances outstanding

25,791

16,937

52.3%
Lease liability

22,618

-

100.0%
Other liabilities

87,004

87,665

-0.8%
            Total liabilities
$
5,581,999

$
5,583,475

0.0%
Deposits portfolio composition percentages:

    Non-interest bearing deposits

22.3%

22.5%

    NOW accounts

23.0%

22.1%

    Savings and money market accounts

25.6%

24.7%

    Certificates of deposit

29.1%

30.7%

100.0%

100.0%

Borrowings portfolio composition percentages:

    Securities sold under agreements to repurchase

78.5%

79.9%

    Advances from FHLB

14.8%

13.6%

    Other term notes

0.1%

0.2%

    Subordinated capital notes

6.6%

6.3%

100.0%

100.0%

Securities sold under agreements to repurchase (excluding accrued interest)

    Amount outstanding at period-end
$
430,957

$
454,723

    Daily average outstanding balance
$
444,843

$
357,086

    Maximum outstanding balance at any month-end
$
454,723

$
457,053

~~135~~
~~FDIC Indemnification Asset~~
Oriental recorded the FDIC indemnification asset, measured separately from the covered loans, as part of the Eurobank FDIC-assisted transaction. On February 6, 2017, the Bank and the FDIC agreed to terminate the single family and commercial shared-loss agreements related to the FDIC assisted acquisition.
TABLE 13 - ACTIVITY OF FDIC INDEMNIFICATION ASSET


Quarter Ended September 30,

Nine-Month Period Ended September 30,

2017

2016

2017

2016

(In thousands)

(In thousands)
FDIC indemnification asset:

Balance at beginning of period
$
-

$
18,426

$
14,411

$
22,599
    Shared-loss agreements reimbursements from the FDIC

-

(87)

-

(824)
    Increase in expected credit losses to be
      covered under shared-loss agreements, net

-

818

-

3,213
    FDIC indemnification asset benefit (expense)

-

(1,910)

-

(6,179)
    Net expenses incurred under shared-loss agreements

-

(577)

-

(2,139)
    Shared-loss termination settlement

-

-

(15,814)

-
Balance at end of period
$
-

$
16,670

$
(1,403)

$
16,670
~~136~~
TABLE 14 - LIABILITIES SUMMARY AND COMPOSITION

September 30,

December 31,

Variance

2017

2016

%

(Dollars in thousands)

Deposits:

    Non-interest bearing deposits
$
900,063

$
848,502

6.1%
    NOW accounts

1,025,632

1,091,237

-6.0%
    Savings and money market accounts

1,360,080

1,196,231

13.7%
    Certificates of deposit

1,538,483

1,526,805

0.8%
        Total deposits

4,824,258

4,662,775

3.5%
    Accrued interest payable

2,146

1,712

25.4%
        Total deposits and accrued interest payable

4,826,404

4,664,487

3.5%
Borrowings:

    Securities sold under agreements to repurchase

283,080

653,756

-56.7%
    Advances from FHLB

100,091

105,454

-5.1%
    Subordinated capital notes

36,083

36,083

0.0%
    Other term notes

-

61

-100.0%
        Total borrowings

419,254

795,354

-47.3%
            Total deposits and borrowings

5,245,658

5,459,841

-3.9%

Other Liabilities:

Derivative liabilities

1,677

2,437

-31.2%
Acceptances outstanding

16,486

23,765

-30.6%
Other liabilities

86,766

95,370

-9.0%
            Total liabilities
$
5,350,587

$
5,581,413

-4.1%
Deposits portfolio composition percentages:

    Non-interest bearing deposits

18.7%

18.2%

    NOW accounts

21.3%

23.4%

    Savings and money market accounts

28.1%

25.7%

    Certificates of deposit

31.9%

32.7%

100.0%

100.0%

Borrowings portfolio composition percentages:

    Securities sold under agreements to repurchase

67.5%

82.2%

    Advances from FHLB

23.9%

13.3%

    Other term notes

0.0%

0.0%

    Subordinated capital notes

8.6%

4.5%

100.0%

100.0%

Securities sold under agreements to repurchase (excluding accrued interest)

    Amount outstanding at period-end
$
282,500

$
652,229

    Daily average outstanding balance
$
445,911

$
663,845

    Maximum outstanding balance at any month-end
$
655,790

$
902,500

~~137~~111

Liabilities and Funding Sources

As shown in Table 1415 above, at ~~September 30, 2017~~March 31, 2019, Oriental’s total liabilities were ~~$5.351~~$5.582 billion, ~~4.1%~~0.03% less than the ~~$5.581~~$5.583 billion reported at December 31, ~~2016~~2018. Deposits and borrowings, Oriental’s funding sources, amounted to ~~$5.246~~$5.446 billion at ~~September 30, 2017~~March 31, 2019 versus ~~$5.460~~$5.479 billion at December 31, ~~2016~~2018, a ~~3.9%~~0.6% decrease.

Borrowings consist mainly of repurchase agreements, FHLB-NY advances and subordinated capital notes. At ~~September 30, 2017~~March 31, 2019, borrowings amounted to ~~$419.3~~$549.0 million, representing a decrease of ~~47.3%~~3.8% when compared with the ~~$795.4~~$570.4 million reported at December 31, ~~2016~~2018. The decrease in borrowings ~~is mainly attributed to a decrease in repurchase agreements of $370.7 million, reflecting:~~reflects:

·         ~~The maturity~~A decrease of a$23.9 million attributable to $23.7 million decrease in short-term repurchase ~~agreement amounting to $232.0 million with a rate of 4.78% on~~agreements that matured during the quarter ended March ~~2, 2017;~~31, 2019 and were not renewed, partially offset by;

·         An ~~unwinding~~increase of ~~$100.0~~$3.5 million in ~~repurchase agreements during~~advances from the ~~second quarter~~FHLB-NY attributable to $4.5 million of ~~2017;~~new advances from a special program from the FHLB called Disaster Relief Funding (DRF) and it was created to offer advances with special rates to those areas declared as disaster areas.

·~~The repayment at maturity of $160.4 million of short-term repurchase agreement during~~On January 1, 2019, Oriental adopted the ~~third quarter of 2017 that were not renewed.~~Accounting Standard Update (“ASU”) No. 2016-02, under the effective date method, which requires lessees to recognize a right-of-use asset and related lease liability for lease classified as operating leases, prospectively. At March 31, 2019, the lease liability amounted to $22.6 million.

At ~~September 30, 2017~~March 31, 2019, deposits represented ~~92%~~89% and borrowings represented 8%11% of interest-bearing liabilities. At ~~September 30, 2017~~March 31, 2019, deposits, the largest category of Oriental’s interest-bearing liabilities, were ~~$4.826~~$4.897 billion, ~~an increase~~a decrease of ~~3.5%~~0.2% from ~~$4.664~~$4.908 billion at December 31, ~~2016~~2018.

Stockholders’ Equity

At ~~September 30, 2017~~March 31, 2019, Oriental’s total stockholders’ equity was ~~$937.6 million,~~$1.021 billion, a ~~1.9%~~2.13% increase when compared to ~~$920.4~~$999.9 million at December 31, ~~2016~~2018. This increase in stockholders’ equity reflects increases in retained earnings of ~~$13.8~~$15.1 million, ~~and~~a decrease in accumulated other comprehensive loss, net of tax of $2.9 million, an increase in the legal surplus of ~~$3.5 million.~~$2.5 million and reduction in treasury stock, at cost, of $437 thousand. Book value per share was ~~$17.56~~$18.30 at ~~September 30, 2017~~March 31, 2019 compared to ~~$17.18~~$17.90 at December 31, ~~2016~~2018.

From December 31, ~~2016~~2018 to ~~September 30, 2017~~March 31, 2019, tangible common equity to total assets increased from 12.59% to ~~10.82% from 10.19%~~12.88%, ~~Leverage~~leverage capital ratio increased from 14.22% to ~~14.07% from 12.99%~~14.64%, ~~Common Equity Tier~~common equity tier 1 capital ratio increased from 16.78% to ~~14.89% from 14.05%~~17.09%, ~~Tier~~tier 1 ~~Risk-Based~~risk-based capital ratio increased from 19.20% to ~~19.53% from 18.35%~~19.49%, and ~~Total Risk-Based~~total risk-based capital ratio increased from 20.48% to ~~20.82% from 19.62%~~20.77%. The increase in these ratios reflect an increase of $21.3 million in total capital.

On October 22, 2018, Oriental completed the conversion of all 84,000 shares of its Series C Preferred Stock into common stock. Each share of Series C Preferred Stock was converted into 86.4225 shares of common stock. Upon conversion, the Series C Preferred Stock is no longer outstanding and all rights with respect to the Series C Preferred Stock have ceased and terminated, except the right to receive the number of whole shares of common stock issuable upon conversion of the Series C Preferred Stock and any required cash-in-lieu of fractional shares.
~~New~~ Capital Rules to Implement Basel III Capital Requirements

~~OFG Bancorp~~Oriental and the Bank are subject to regulatory capital requirements established by the Federal Reserve ~~Board.~~Board and the FDIC. The current risk-based capital standards applicable to ~~OFG Bancorp~~Oriental and the Bank (“Basel III capital rules”), which have been effective since January 1, 2015, are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of ~~September 30, 2017, OFG Bancorp's~~March 31, 2019, the capital ratios of Oriental and the ~~Bank’s capital ratios~~
Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

112
The risk-based capital ratios presented in Table ~~15,~~14, which include common equity tier 1, ~~Tier~~tier 1 capital, total capital and leverage capital as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.
~~138~~113

The following are the consolidated capital ratios of Oriental under the ~~New Capital Rules~~Basel III capital rules at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

TABLE 15 — CAPITAL, DIVIDENDS AND STOCK DATA
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA

September 30,

December 31,

Variance
March 31,

December 31,

Variance

2017

2016

%
2019

2018

%

(Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

Capital data:

Stockholders’ equity
$
937,630

$
920,411

1.9%
$
1,021,192

$
999,877

2.1%
Regulatory Capital Ratios data:

Common equity tier 1 capital ratio

14.89%

14.05%

6.0%

17.09%

16.78%

1.8%
Minimum common equity tier 1 capital ratio required

4.50%

4.50%

0.0%

4.50%

4.50%

0.0%
Actual common equity tier 1 capital
$
633,401

627,733

0.9%
$
832,924

811,707

2.6%
Minimum common equity tier 1 capital required
$
191,367

201,040

-4.8%
$
219,276

217,675

0.7%
Minimum capital conservation buffer required
$
53,158

27,922

90.4%
$
91,365

90,698

0.7%
Excess over regulatory requirement
$
388,876

398,770

-2.5%
$
522,283

503,334

3.8%
Risk-weighted assets
$
4,252,605

4,467,556

-4.8%
$
4,872,806

4,837,214

0.7%
Tier 1 risk-based capital ratio

19.53%

18.35%

6.4%

19.49%

19.20%

1.5%
Minimum tier 1 risk-based capital ratio required

6.00%

6.00%

0.0%

6.00%

6.00%

0.0%
Actual tier 1 risk-based capital
$
830,640

$
819,662

1.3%
$
949,794

$
928,577

2.3%
Minimum tier 1 risk-based capital required
$
255,156

$
268,053

-4.8%
$
292,368

$
290,233

0.7%
Excess over regulatory requirement
$
575,484

$
551,608

4.3%
$
657,427

$
638,344

3.0%
Risk-weighted assets
$
4,252,605

$
4,467,556

-4.8%
$
4,872,806

$
4,837,214

0.7%
Total risk-based capital ratio

20.82%

19.62%

6.1%

20.77%

20.48%

1.4%
Minimum total risk-based capital ratio required

8.00%

8.00%

0.0%

8.00%

8.00%

0.0%
Actual total risk-based capital
$
885,523

$
876,657

1.0%
$
1,012,112

$
990,499

2.2%
Minimum total risk-based capital required
$
340,208

$
357,404

-4.8%
$
389,824

$
386,977

0.7%
Excess over regulatory requirement
$
545,315

$
519,252

5.0%
$
622,288

$
603,522

3.1%
Risk-weighted assets
$
4,252,605

$
4,467,556

-4.8%
$
4,872,806

$
4,837,214

0.7%
Leverage capital ratio

14.07%

12.99%

8.3%

14.64%

14.22%

3.0%
Minimum leverage capital ratio required

4.00%

4.00%

0.0%

4.00%

4.00%

0.0%
Actual tier 1 capital
$
830,640

$
819,662

1.3%
$
949,794

$
928,577

2.3%
Minimum tier 1 capital required
$
236,105

$
252,344

-6.4%
$
259,456

$
261,125

-0.6%
Excess over regulatory requirement
$
594,535

$
567,318

4.8%
$
690,339

$
667,452

3.4%
Tangible common equity to total assets

10.82%

10.19%

6.2%

12.88%

12.59%

2.3%
Tangible common equity to risk-weighted assets

16.01%

14.82%

8.0%

17.45%

17.13%

1.9%
Total equity to total assets

14.91%

14.16%

5.3%

15.47%

15.19%

1.8%
Total equity to risk-weighted assets

22.05%

20.60%

7.0%

20.96%

20.67%

1.4%
Stock data:

Outstanding common shares

43,947,442

43,914,844

0.1%

51,328,431

51,293,924

0.1%
Book value per common share
$
17.56

$
17.18

2.2%
$
18.30

$
17.90

2.2%
Tangible book value per common share
$
15.49

$
15.08

2.7%
$
16.56

$
16.15

2.6%
Market price at end of period
$
9.15

$
13.10

-30.2%
$
19.79

$
16.46

20.2%
Market capitalization at end of period
$
402,119

$
575,284

-30.1%
$
1,015,790

$
844,298

20.3%
~~139~~114
The following table presents a reconciliation of Oriental’s total stockholders’ equity to tangible common equity and total assets to tangible assets at ~~September 30, 2017,~~March 31, 2019 and December 31, ~~2016:~~2018:

September 30,

December 31,
March 31,

December 31,

2017

2016
2019

2018

(In thousands, except share or per
share information)
(In thousands, except share or per
share information)
Total stockholders' equity
$
937,630

$
920,411
$
1,021,192

$
999,877
Preferred stock

(176,000)

(176,000)

(92,000)

(92,000)
Preferred stock issuance costs

10,130

10,130

10,130

10,130
Goodwill

(86,069)

(86,069)

(86,069)

(86,069)
Core deposit intangible

(3,569)

(4,260)

(2,280)

(2,480)
Customer relationship intangible

(1,486)

(1,900)

(796)

(888)
Total tangible common equity
$
680,636

$
662,312
Total tangible common equity (non-GAAP)
$
850,177

$
828,570
Total assets

6,288,217

6,501,824

6,603,191

6,583,352
Goodwill

(86,069)

(86,069)

(86,069)

(86,069)
Core deposit intangible

(3,569)

(4,260)

(2,280)

(2,480)
Customer relationship intangible

(1,486)

(1,900)

(796)

(888)
Total tangible assets
$
6,197,093

$
6,409,595
$
6,514,046

$
6,493,915
Tangible common equity to tangible assets

10.98%

10.33%

13.05%

12.76%
Common shares outstanding at end of period

43,947,442

43,914,844

51,328,431

51,293,924
Tangible book value per common share
$
15.49

$
15.08
$
16.56

$
16.15

The tangible common equity ratio and tangible book value per common share are non-GAAP measures and, unlike ~~Tier~~tier 1 capital and ~~Common Equity Tier~~common equity tier 1 capital, are not codified in the federal banking regulations. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which Oriental calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. To mitigate these limitations, Oriental has procedures in place to calculate these measures using the appropriate GAAP or regulatory components. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

~~140~~115

The following table presents Oriental’s capital adequacy information under the ~~New Capital Rules:~~Basel III capital rules:

September 30,

December 31,

Variance
March 31,

December 31,

Variance

2017

2016

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Risk-based capital:

Common equity tier 1 capital
$
633,401

$
627,733

0.9%
$
832,924

$
811,707

2.6%
Additional tier 1 capital

197,239

191,929

2.8%

116,870

116,870

0.0%
Tier 1 capital

830,640

819,662

1.3%

949,794

928,577

2.3%
Additional Tier 2 capital

54,883

56,995

-3.7%

62,318

61,922

0.6%
Total risk-based capital
$
885,523

$
876,657

1.0%
$
1,012,112

$
990,499

2.2%
Risk-weighted assets:

Balance sheet items
$
4,093,252

$
4,307,817

-5.0%
$
4,640,278

$
4,641,998

0.0%
Off-balance sheet items

159,353

159,739

-0.2%

232,528

195,216

19.1%
Total risk-weighted assets
$
4,252,605

$
4,467,556

-4.8%
$
4,872,806

$
4,837,214

0.7%
Ratios:

Common equity tier 1 capital (minimum required - 4.5%)

14.89%

14.05%

6.0%

17.09%

16.78%

1.8%
Tier 1 capital (minimum required - 6%)

19.53%

18.35%

6.4%

19.49%

19.20%

1.5%
Total capital (minimum required - 8%)

20.82%

19.62%

6.1%

20.77%

20.48%

1.4%
Leverage ratio

14.07%

12.99%

8.3%
Leverage ratio (minimum required - 4%)

14.64%

14.22%

3.0%
Equity to assets

14.91%

14.16%

5.3%

15.47%

15.19%

1.8%
Tangible common equity to assets

10.82%

10.19%

6.2%

12.88%

12.59%

2.3%
~~141~~116

The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action. The table below shows the Bank’s regulatory capital ratios at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

September 30,

December 31,

Variance
March 31,

December 31,

Variance

2017

2016

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Oriental Bank Regulatory Capital Ratios:

Common Equity Tier 1 Capital to Risk-Weighted Assets

19.11%

17.96%

6.4%

18.63%

18.40%

1.3%
Actual common equity tier 1 capital
$
812,831

$
800,544

1.5%
$
904,813

$
887,918

1.9%
Minimum capital requirement (4.5%)
$
191,421

$
200,585

-4.6%
$
218,572

$
217,120

0.7%
Minimum capital conservation buffer requirement (1.25% at June 30, 2017 - 0.625% at December 31, 2016)
$
53,173

$
27,859

90.9%
Minimum capital conservation buffer requirement (1.875% at March 31, 2019 - 1.875% at December 31, 2018)
$
91,072

$
90,467

0.7%
Minimum to be well capitalized (6.5%)
$
276,497

$
289,734

-4.6%
$
315,715

$
313,618

0.7%
Tier 1 Capital to Risk-Weighted Assets

19.11%

17.96%

6.4%

18.63%

18.40%

1.3%
Actual tier 1 risk-based capital
$
812,831

$
800,544

1.5%
$
904,813

$
887,918

1.9%
Minimum capital requirement (6%)
$
255,228

$
267,447

-4.6%
$
291,429

$
289,494

0.7%
Minimum to be well capitalized (8%)
$
340,304

$
356,596

-4.6%
$
388,573

$
385,992

0.7%
Total Capital to Risk-Weighted Assets

20.39%

19.23%

6.1%

19.91%

19.68%

1.2%
Actual total risk-based capital
$
867,535

$
857,259

1.2%
$
966,848

$
949,596

1.8%
Minimum capital requirement (8%)
$
340,304

$
356,596

-4.6%
$
388,573

$
385,992

0.7%
Minimum to be well capitalized (10%)
$
425,380

$
445,745

-4.6%
$
485,716

$
482,490

0.7%
Total Tier 1 Capital to Average Total Assets

0.14%

12.75%

-98.9%

14.02%

13.68%

2.5%
Actual tier 1 capital
$
812,831

$
800,544

1.5%
$
904,813

$
887,918

1.9%
Minimum capital requirement (4%)
$
235,364

$
251,200

-6.3%
$
258,183

$
259,547

-0.5%
Minimum to be well capitalized (5%)
$
294,204

$
314,000

-6.3%
$
322,728

$
324,434

-0.5%
~~142~~117

Oriental’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, Oriental’s market capitalization for its outstanding common stock was ~~$402.1 million~~$1.016 billion ($~~9.15~~19.79 per share) and ~~$575.3~~$844.3 million ($~~13.10~~16.46 per share), respectively.

The following table provides the high and low prices and dividends per share of Oriental’s common stock for each quarter of the last ~~two~~three calendar years:



Cash

Price

Dividend

High

Low

Per share
2017

     September 30, 2017
$
10.40

$
8.40

$
0.06
     June 30, 2017
$
12.03

$
9.19

$
0.06
     March 31, 2017
$
13.80

$
10.90

$
0.06
2016

     December 31, 2016
$
14.30

$
9.56

$
0.06
     September 30, 2016
$
11.09

$
8.07

$
0.06
     June 30, 2016
$
9.14

$
6.32

$
0.06
     March 31, 2016
$
7.32

$
4.77

$
0.06
2015

     December 31, 2015
$
10.52

$
6.39

$
0.06
     September 30, 2015
$
10.20

$
6.63

$
0.10
     June 30, 2015
$
17.04

$
10.67

$
0.10
     March 31, 2015
$
17.70

$
14.88

$
0.10



Cash

Price

Dividend

High

Low

Per share
2019

     March 31, 2019
$
21.24

$
16.37

$
0.07
2018

     December 31, 2018
$
18.56

$
14.93

$
0.07
     September 30, 2018
$
17.60

$
14.45

$
0.06
     June 30, 2018
$
14.75

$
10.60

$
0.06
     March 31, 2018
$
12.05

$
8.60

$
0.06
2017

     December 31, 2017
$
10.25

$
7.90

$
0.06
     September 30, 2017
$
10.40

$
8.40

$
0.06
     June 30, 2017
$
12.03

$
9.19

$
0.06
     March 31, 2017
$
13.80

$
10.90

$
0.06

Under Oriental’s current stock repurchase program, it is authorized to purchase in the open market up to $7.7 million of its outstanding shares of common stock. The shares of common stock repurchased are to be held by Oriental as treasury shares. There were no repurchases during the quarter ended March 31, ~~September 30, 2017~~2019.

At ~~September 30, 2017,~~March 31, 2019, the number of shares that may yet be purchased under such program is estimated at ~~844,902~~390,644 and was calculated by dividing the remaining balance of $7.7 million by ~~$9.15~~ $19.79 (closing price of Oriental's common stock at ~~September 30, 2017)~~March 31, 2019).
~~143~~118

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Background

Oriental’s risk management policies are established by its Board of Directors (the “Board”) and implemented by management through the adoption of a risk management program, which is overseen and monitored by the Chief Risk and Compliance Officer, the Board’s Risk and Compliance Committee and the executive Risk ~~Management~~ and Compliance ~~Committee.~~Team. Oriental has continued to refine and enhance its risk management program by strengthening policies, processes and procedures necessary to maintain effective risk management.

All aspects of Oriental’s business activities are susceptible to risk. Consequently, risk identification and monitoring are essential to risk management. As more fully discussed below, Oriental’s primary risk exposures include, market, interest rate, credit, liquidity, operational and concentration risks.

Market Risk

Market risk is the risk to earnings or capital arising from adverse movements in market rates or prices, such as interest rates or prices. Oriental evaluates market risk together with interest rate risk. Oriental’s financial results and capital levels are constantly exposed to market risk. The Board and management are primarily responsible for ensuring that the market risk assumed by Oriental complies with the guidelines established by policies approved by the Board. The Board has delegated the management of this risk to the Asset/Liability Management Committee (“ALCO”) which is composed of certain executive officers from the business, treasury and finance areas. One of ALCO’s primary goals is to ensure that the market risk assumed by Oriental is within the parameters established in such policies.

Interest Rate Risk

Interest rate risk is the exposure of Oriental’s earnings or capital to adverse movements in interest rates. It is a predominant market risk in terms of its potential impact on earnings. Oriental manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income. ALCO oversees interest rate risk, liquidity management and other related matters.

In executing its responsibilities, ALCO examines current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market, liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment portfolio, alternative funding sources and their costs, hedging and the possible purchase of derivatives such as swaps, and any tax or regulatory issues which may be pertinent to these areas.

On a quarterly basis, Oriental performs a net interest income simulation analysis on a consolidated basis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a five-year time horizon, assuming certain gradual upward and downward interest rate movements, achieved during a twelve-month period. Instantaneous interest rate movements are also modeled. Simulations are carried out in two ways:

(i)      using a static balance sheet as Oriental had on the simulation date, and

(ii)    using a dynamic balance sheet based on recent growth patterns and business strategies.

The balance sheet is divided into groups of assets and liabilities detailed by maturity or re-pricing and their corresponding interest yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and costs, the possible exercise of options, changes in prepayment rates, deposits decay and other factors which may be important in projecting the future growth of net interest income.

Oriental uses a software application to project future movements in Oriental’s balance sheet and income statement. The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations.

~~144~~119

These simulations are complex, and use many assumptions that are intended to reflect the general behavior of Oriental over the period in question. There can be no assurance that actual events will match these assumptions in all cases. For this reason, the results of these simulations are only approximations of the true sensitivity of net interest income to changes in market interest rates. The following table presents the results of the simulations at ~~September 30, 2017~~March 31, 2019 for the most likely scenario, assuming a one-year time horizon:


Net Interest Income Risk (one year projection)
Net Interest Income Risk (one-year projection)

Static Balance Sheet

Growing Simulation
Static Balance Sheet

Growing Simulation

Amount

Percent

Amount

Percent
Amount

Percent

Amount

Percent

Change

Change

Change

Change
Change

Change

Change

Change
Change in interest rate
(Dollars in thousands)
(Dollars in thousands)
+ 200 Basis points
$
12,085

4.38%

$
8,772

3.10%
$
11,451

3.63%

$
12,716

3.76%
+ 100 Basis points
$
6,077

2.20%

$
4,420

1.56%
$
5,790

1.84%

$
6,421

1.90%
- 50 Basis points
$
(2,957)

-1.07%

$
(2,030)

-0.72%
- 100 Basis points
$
(5,726)

-1.82%

$
(6,339)

-1.88%
- 200 Basis points
$
(11,449)

-3.63%

$
(12,675)

-3.75%
~~The impact of -100 and -200 basis point reductions in interest rates is not presented in view of current level of the federal funds rate and other short-term interest rates.~~

Future net interest income could be affected by Oriental’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and any structured repurchase agreements and advances from the FHLB-NY in which it may enter into from time to time. As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of Oriental’s assets and liabilities, Oriental has executed certain transactions which include extending the maturity and the re-pricing frequency of the liabilities to longer terms reducing the amounts of its structured repurchase agreements and entering into hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings that only consist of advances from the FHLB-NY as of ~~September 30, 2017.~~March 31, 2019.

Oriental maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Oriental’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities will appreciate or depreciate in market value. Also, for some fixed-rate assets or liabilities, the effect of this variability in earnings is expected to be substantially offset by Oriental’s gains and losses on the derivative instruments that are linked to the forecasted cash flows of these hedged assets and liabilities. Oriental considers its strategic use of derivatives to be a prudent method of managing interest-rate sensitivity as it reduces the exposure of earnings and the market value of its equity to undue risk posed by changes in interest rates. The effect of this unrealized appreciation or depreciation is expected to be substantially offset by Oriental’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. Another result of interest rate ~~fluctuations~~fluctuation is that the contractual interest income and interest expense of hedged variable-rate assets and liabilities, respectively, will increase or decrease.

Derivative instruments that are used as part of Oriental’s interest risk management strategy include interest rate swaps, forward-settlement swaps, futures contracts, and option contracts that have indices related to the pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable-rate interest payments between two parties based on a common notional principal amount and maturity date. Interest rate futures generally involve exchanged-traded contracts to buy or sell U.S. Treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to (i) receive cash or (ii) purchase, sell, or enter into a financial instrument at a specified price within a specified period. Some purchased option contracts give Oriental the right to enter into interest rate swaps and cap and floor agreements with the writer of the option. In addition, Oriental enters into certain transactions that contain embedded derivatives. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated and carried at fair value. Please refer to Note 97 to the accompanying consolidated financial statements for further information concerning Oriental’s derivative activities.

~~145~~
Following is a summary of certain strategies, including derivative activities, currently used by Oriental to manage interest rate risk:

120
Interest rate swaps — Oriental entered into hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in the one-month LIBOR rate. Once the forecasted wholesale ~~borrowings~~borrowing transactions occurred, the interest rate swap effectively fixes Oriental’s interest payments on an amount of forecasted interest expense attributable to the one-month LIBOR rate corresponding to the swap notional stated rate. A derivative liability of ~~$868~~$329 thousand (notional amount of ~~$35.5~~$33.2 million) was recognized at ~~September 30, 2017~~March 31, 2019 related to the valuation of these swaps.

In addition, Oriental has certain derivative contracts, including interest rate swaps not designated as hedging instruments, which are utilized to convert certain ~~variable rate~~variable-rate loans to fixed-rate loans, and the mirror-images of these interest rate swaps in which Oriental enters into to minimize its interest rate risk exposure that results from offering the derivatives to clients. These interest rate swaps are marked to market through earnings. At ~~September 30, 2017,~~March 31, 2019, interest rate swaps offered to clients not designated as hedging instruments represented a derivative asset of ~~$757~~$33 thousand (notional amounts of $12.5 million), and the mirror-image interest rate swaps in which Oriental entered into represented a derivative liability of ~~$757~~$33 thousand (notional amounts of $12.5 million).

Wholesale borrowings — Oriental uses interest rate swaps to hedge the variability of interest cash flows of certain advances from the FHLB-NY that are tied to a variable rate index. The interest rate swaps effectively fix Oriental’s interest payments on these borrowings. As of ~~September 30, 2017,~~March 31, 2019, Oriental had ~~$35.5~~$33.2 million in interest rate swaps at an average rate of ~~2.4%~~2.42% designated as cash flow hedges for ~~$35.5~~$33.2 million in advances from the FHLB-NY that reprice or are being rolled over on a monthly basis.

Credit Risk

Credit risk is the possibility of loss arising from a borrower or counterparty in a credit-related contract failing to perform in accordance with its terms. The principal source of credit risk for Oriental is its lending activities. In Puerto Rico, Oriental’s principal market, economic conditions are very challenging, as they have been for the last ~~ten~~twelve years, due to a shrinking population, a protracted economic recession, a housing sector that remains under pressure, the Puerto Rico government’s fiscal and liquidity crisis, and the payment defaults on various Puerto Rico government bonds, with severe austerity measures expected for the Puerto Rico government to be able to restructure its debts under the supervision of ~~a federally created~~the federally-created Fiscal Oversight ~~Board.~~and Management Board for Puerto Rico. In addition, as was demonstrated with hurricanes Irma and Maria during the month of September 2017, Puerto Rico is ~~an island in the Caribbean~~ susceptible to natural disasters, such as hurricanes and ~~earthquakes. Such disasters~~earthquakes, which can have a disproportionate impact on Puerto Rico because of the logistical difficulties of bringing relief to an ~~island.~~island far from the United States mainland. Moreover, the Puerto Rico government's fiscal challenges and Puerto Rico's unique relationship with the United States ~~additionally~~also complicate any relief efforts after a natural disaster. These events increase credit risk as debtors may no longer be capable of operating their ~~business~~businesses and the collateral securing Oriental's loans may suffer significant ~~damage.~~damages.

Oriental manages its credit risk through a comprehensive credit policy which establishes sound underwriting standards by monitoring and evaluating loan portfolio quality, and by the constant assessment of reserves and loan concentrations. Oriental also employs proactive collection and loss mitigation practices.

Oriental may also encounter risk of default in relation to its securities portfolio. The securities held by Oriental are ~~principally~~all agency mortgage-backed securities. Thus, ~~a substantial portion of~~ these instruments are guaranteed by mortgages, a U.S. government-sponsored entity, or the full faith and credit of the U.S. government.

Oriental’s executive Credit Risk ~~Committee,~~Team, composed of its Chief ~~Executive Officer, Chief~~ Operating Officer, Chief ~~Credit Officer, Chief~~ Risk and Compliance Officer, and other senior executives, has primary responsibility for setting strategies to achieve Oriental’s credit risk goals and objectives. Those goals and objectives are set forth in Oriental’s Credit Policy as approved by the Board.
Liquidity Risk

Liquidity risk is the risk of Oriental not being able to generate sufficient cash from either assets or liabilities to meet obligations as they become due without incurring substantial losses. The Board has established a policy to manage this risk. Oriental’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as these mature, and funding of new and existing investments as required.

121
Oriental’s business requires continuous access to various funding sources. While Oriental is able to fund its operations through deposits as well as through advances from the FHLB-NY and other alternative sources, Oriental’s business is dependent upon other
~~146~~
external wholesale funding sources. Oriental has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements and brokered deposits. As of ~~September 30, 2017,~~March 31, 2019, Oriental had ~~$282.5~~$431.0 million in repurchase agreements, excluding accrued interest, and ~~$535.6~~$451.2 million in brokered deposits.

Brokered deposits are typically offered through an intermediary to small retail investors. Oriental’s ability to continue to attract brokered deposits is subject to variability based upon a number of factors, including volume and volatility in the global securities markets, Oriental’s credit rating, and the relative interest rates that it is prepared to pay for these liabilities. Brokered deposits are generally considered a less stable source of funding than core deposits obtained through retail bank branches. Investors in brokered deposits are generally more sensitive to interest rates and will generally move funds from one depository institution to another based on small differences in interest rates offered on deposits.

Although Oriental expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms. In a period of financial disruption or if negative developments occur with respect to Oriental, the availability and cost of Oriental’s funding sources could be adversely affected. In that event, Oriental’s cost of funds may increase, thereby reducing its net interest income, or Oriental may need to dispose of a portion of its investment portfolio, which depending upon market conditions, could result in realizing a loss or experiencing other adverse accounting consequences upon any such dispositions. Oriental’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global securities markets or other reductions in liquidity driven by Oriental or market-related events. In the event that such sources of funds are reduced or eliminated, and Oriental is not able to replace these on a cost-effective basis, Oriental may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.

As of ~~September 30, 2017,~~March 31, 2019, Oriental had approximately ~~$720.7~~$506.0 million in unrestricted cash and cash equivalents, ~~$810.3~~$638.3 million in investment securities that are not pledged as collateral, ~~$849.5~~and $790.3 million in borrowing capacity at the FHLB-NY.

     Operational Risk

Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events. All functions, products and services of Oriental are susceptible to operational risk.

Oriental faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products and services. Coupled with external influences such as the risk of natural disasters, market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. In order to mitigate and control operational risk, Oriental has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these policies and procedures is to provide reasonable assurance that Oriental’s business operations are functioning within established limits.

Oriental classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, Oriental has specialized groups, such as Information Security, Enterprise Risk Management, Corporate Compliance, Information Technology, Legal and Operations. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups. All these matters are reviewed and discussed in the ~~Executive~~executive Risk and Compliance ~~Committee.~~Team. Oriental also has a Business Continuity Plan to address situations where its capacity to perform critical functions is affected. Under such circumstances, a Crisis Management Team is activated to restore such critical functions within established timeframes.

Oriental is subject to extensive United States federal and Puerto Rico regulations, and this regulatory scrutiny has been significantly increasing over the last several years. Oriental has established and continues to enhance procedures based on legal and regulatory requirements that are reasonably designed to ensure compliance with all applicable statutory and regulatory requirements. Oriental has a corporate compliance function headed by a Chief Risk and Compliance Officer who reports to the Chief Executive Officer and supervises the BSA Officer and Regulatory Compliance Officer. The Chief Risk and Compliance Officer is responsible for the oversight of regulatory compliance and implementation of a company-wide compliance program, including the Bank Secrecy Act/Anti-Money Laundering compliance program.
~~147~~122

Concentration Risk

Substantially all of Oriental’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico. As a consequence, Oriental’s profitability and financial condition may be adversely affected by an extended economic slowdown, adverse political, fiscal or economic developments in Puerto Rico or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio.

ITEM 4.   CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of Oriental’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of Oriental’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon such evaluation, the CEO and the CFO have concluded that, as of the end of such period, Oriental’s disclosure controls and procedures provided reasonable assurance of effectiveness in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Oriental in the reports that it files or submits under the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within Oriental to disclose material information otherwise required to be set forth in Oriental’s periodic reports.

Internal Control over Financial Reporting

~~During the third quarter of 2017,~~There have not been any changes in Oriental’s internal control measures were modified to accommodate the operational changes that were required in the aftermath of hurricanes Irma and Maria. Alternate and mitigating controls were implemented to provide continued assurance of proper internal control over activities affecting financial reporting. These modifications of internal controls over financial reporting ~~have not~~(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2019, that has materially affected, ~~and are not~~or is reasonably likely to materially affect, ~~the Company’s internal control over financial reporting.~~
During the third quarter of 2017, we completed the migration of our accounting and financial reporting systems to a new platform. This implementation impacts various internal processes and controls for business activities within accounting, as well as financial reporting. Oriental believes that this new system and the related changes to internal controls will ultimately strengthen its internal controls over financial reporting. However, there are inherent risks in implementing any new accounting and financial reporting system, and Oriental will continue to evaluate and test control changes to provide certification on the effectiveness, in all material respects, of its internal controls over financial reporting for the year ending December 31, 2017.
Except for the implementation described above, there were no changes in our internal control over financial reporting that occurred during the third quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, ourOriental’s internal control over financial reporting.

~~148~~123

PART - II OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Oriental and its subsidiaries are defendants in a number of legal proceedings incidental to their business. Oriental is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on Oriental’s financial condition or results of operations.

ITEM 1A.   RISK FACTORS

~~Except as set forth below, there~~There have been no material changes to the risk factors previously disclosed in Oriental’s annual report on Form 10-K for the year ended December 31, ~~2016.~~2018. In addition to other information set forth in this report, you should carefully consider the risk factors included in Oriental’s annual report on Form 10-K, as updated by this report or other filings Oriental makes with the SEC under the Exchange Act. Additional risks and uncertainties not presently known to Oriental at this time or that Oriental currently deems immaterial may also adversely affect Oriental’s business, financial condition or results of operations.
~~Hurricanes Irma and Maria caused unprecedented catastrophic damages throughout Puerto Rico, our principal market area.~~
Puerto Rico is our principal market area, which is susceptible to hurricanes and tropical storms. Hurricane Maria, a category 4 storm, made landfall in Puerto Rico on September 20, 2017, less than two weeks after hurricane Irma, a category 5 storm, passed north of Puerto Rico leaving over a million local residents without electric power. Over a month after the hurricanes, most of Puerto Rico remains without electricity, many businesses are unable to operate, and government authorities are still struggling to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays. Hurricane Maria caused catastrophic property damages throughout Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and public facilities. In addition, it caused flooding in some areas, displaced many local residents, and severely disrupted business operations and economic activities. Although the hurricanes did not permanently affect our facilities, they affected our loan originations and impacted our deposit and customer base. Further, many properties and structures in Puerto Rico suffered extensive flood or wind damages, which may adversely affect the value of collateral securing our loans and, potentially, the ability of borrowers to repay their obligations to us. Approximately 99.7% of our $4.1 billion loan portfolio as of September 30, 2017, consists of Puerto Rico-based borrowers, and 56.1% of such portfolio is secured by Puerto Rico real estate assets. Therefore, it is likely that loan delinquencies and restructurings will increase, particularly in the near term, as borrowers undertake recovery and clean-up efforts, including the pursuit of insurance claims. Our borrowers may also experience disruptions in their business or employment status. Such increases in delinquencies and restructurings would negatively affect our cash flows and, if not timely cured, would increase our non-performing assets and reduce our net interest income. We may also experience increases in total loan losses as loan delinquencies and restructurings increase if insurance proceeds and collateral values are insufficient to cover balances of loans in default.
We evaluated the impact of hurricanes Irma and Maria on our loan portfolios relative to the adequacy of the allowance for loan losses at September 30, 2017, and recorded an additional provision for loan losses of $27 million (pre-tax). However, the amount of loan losses relating to these hurricanes remains uncertain and the additional loan loss provision may not be sufficient to cover our actual loan losses. Alternatively, loan losses may not materialize due to adequate insurance coverage or the financial resources of borrowers, which may result in a reduction to the loan loss provision in a future period.
Collection and foreclosure court proceedings on our loans in default were also affected or delayed as a result of the impact that hurricane Maria had on the infrastructure of the Puerto Rico judiciary branch. The Office of the Administrator of the Courts (known by its Spanish acronym as “OAT”) announced that all deadlines between September 19 and November 30, 2017, would be reset for December 1, 2017. OAT also stated that except for specific instances in which a court reschedules a hearing or conference, all settings from November 1, 2017 onward will remain as scheduled. The hearings and conferences set to be held in courthouses that were significantly damaged by the hurricane, such as in the municipalities of Aguadilla, Bayamon and Utuado, have had to be relocated to nearby courthouses.
The severity and duration of the effects of these hurricanes will depend on a number of factors that are beyond our control, including the amount and timing of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, the pace and magnitude of Puerto Rico’s economic recovery, and the extent to which property damages and business
~~149~~
interruption losses caused by these natural disasters is covered by insurance. Also, changes to the Commonwealth’s fiscal plan, as mandated by the Financial Oversight and Management Board under PROMESA, increases in local unemployment, population decline due to migration, and further declines in Puerto Rico real estate values as a result of these hurricanes may be generally expected. Therefore, a significant uncertainty remains regarding the impact of these hurricanes on our business, financial condition, and results of operations.
~~Puerto Rico is susceptible to hurricanes and major storms, which could further deteriorate Puerto Rico’s economy and infrastructure.~~
Our branch network and most of our business is concentrated in Puerto Rico, which is susceptible to hurricanes and major storms that affect the local economy and the demand for our loans and financial services, as well as the ability of our customers to repay their loans. Any such natural disasters may further adversely affect Puerto Rico’s critical infrastructure, which is generally weak. This makes us vulnerable to downturns in Puerto Rico’s economy as a result of natural disasters, such as hurricanes Irma and Maria. Any subsequent hurricanes, major storms or similar natural disasters could further deteriorate Puerto Rico’s economy and infrastructure and negatively affect or disrupt our operations and customer base.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS

None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.     OTHER INFORMATION

None.
~~150~~124

ITEM 6.      EXHIBITS

Exhibit No. Description of Document:

10.1   2007 Omnibus Performance Incentive Plan Performance Shares Award and Agreement.
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101   The following materials from OFG Bancorp’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Statements of Financial Condition, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.
~~151~~125

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OFG Bancorp
(Registrant)

By:
/s/ José Rafael Fernández

Date: ~~November 8, 2017~~May 3, 2019

José Rafael Fernández

President and Chief Executive Officer

By:
/s/ Maritza Arizmendi

Date: ~~November 8, 2017~~May 3, 2019

Maritza Arizmendi

Executive Vice President, ~~and~~ Chief Financial Officer and
Chief Accounting Officer

By:
/s/ ~~Vanessa de Armas~~Krisen Aguirre Torres

Date: ~~November 8, 2017~~May 3, 2019
~~Vanessa de Armas~~Krisen Aguirre Torres
~~Controller~~Vice President Financial Reporting and Accounting Control

~~152~~126

	Nine-Month Period Ended September 30, 2017
			Book Value
Description	Sale Price		at Sale		Gross Gains		Gross Losses
	(In thousands)
Sale of securities available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	107,510	$	102,311	$	5,199	$	-
GNMA certificates		65,284		63,704		1,580		-
Investment securities
US Treasury securities		84,202		84,085		117		-
Total	$	256,996	$	250,100	$	6,896	$	-

	September 30		December 31
	2017		2016
	(In thousands)
Contractual required payments receivable:	$	182,562	$	232,698
Less: Non-accretable discount		6,935		12,340
Cash expected to be collected		175,627		220,358
Less: Accretable yield		52,383		64,508
Carrying amount, gross		123,244		155,850
Less: Allowance for loan and lease losses		23,146		21,281
Carrying amount, net	$	100,098	$	134,569

			Weighted-
	Borrowing		Average		Maturity
Year of Maturity	Balance		Coupon	Settlement Date	Date
	(In thousands)
2018		172,500	1.42%	12/10/2012	4/29/2018

2019		50,000	1.72%	3/2/2017	9/3/2019

2020		60,000	1.85%	3/2/2017	3/2/2020

	$	282,500	1.56%

	September 30, 2017
					Market Value of Underlying Collateral
			Weighted		FNMA and
	Repurchase		Average		FHLMC
	Liability		Rate		Certificates		Total
	(Dollars in thousands)
Over 90 days		282,500		1.56%		301,684		301,684
Total	$	282,500		1.56%	$	301,684	$	301,684

	Amount reclassified out of accumulated other
	comprehensive (loss) income				Affected Line Item in
	Quarter Ended September 30,				Consolidated Statement
		2017		2016	of Operations
	(In thousands)
Cash flow hedges:
Interest-rate contracts	$	108	$	664	Net interest expense
Tax effect from increase in capital gains tax rate		-		51	Income tax expense
Available-for-sale securities:
Residual tax effect from OIB's change in applicable tax rate		1		9	Income tax expense
Tax effect from increase in capital gains tax rate		(71)		(72)	Income tax expense
	$	38	$	652


	Amount reclassified out of accumulated other
	comprehensive (loss) income				Affected Line Item in
	Nine-Month Period Ended September 30,				Consolidated Statement
		2017		2016	of Operations
	(In thousands)
Cash flow hedges:
Interest-rate contracts	$	385	$	3,468	Net interest expense
Tax effect from increase in capital gains tax rate		-		300	Income tax expense
Available-for-sale securities:
Residual tax effect from OIB's change in applicable tax rate		104		24	Income tax expense
Tax effect from increase in capital gains tax rate		(216)		(220)	Income tax expense
	$	273	$	3,572

TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

	Interest				Average rate		Average balance
	September		September		September	September	September		September
	2017		2016		2017	2016	2017		2016
	(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets	$	262,472	$	269,799	5.97%	5.71%	$	5,875,783	$	6,290,862
Tax equivalent adjustment		3,661		3,499	0.08%	0.07%		-		-
Interest-earning assets - tax equivalent		266,133		273,298	6.05%	5.78%		5,875,783		6,290,862
Interest-bearing liabilities		31,813		44,585	0.81%	1.03%		5,253,584		5,786,977
Tax equivalent net interest income / spread		234,320		228,713	5.24%	4.75%		622,199		503,885
Tax equivalent interest rate margin					5.33%	4.84%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		21,996		24,420	2.29%	2.41%		1,287,594		1,351,078
Trading securities		18		28	7.40%	11.51%		325		324
Interest bearing cash and money market investments		3,104		1,919	0.99%	0.51%		417,892		497,795
Total investments		25,118		26,367	1.97%	1.90%		1,705,811		1,849,197
Non-acquired loans
Mortgage		28,298		29,615	5.40%	5.27%		701,039		748,755
Commercial		54,023		47,214	5.79%	4.40%		1,247,249		1,428,499
Consumer		24,146		19,778	11.09%	10.68%		291,140		246,641
Auto and leasing		57,940		50,985	9.64%	9.62%		803,821		705,956
Total non-acquired loans		164,407		147,592	7.22%	6.28%		3,043,249		3,129,851
Acquired loans:
Acquired BBVAPR
Mortgage		22,921		24,798	5.05%	5.59%		606,636		591,401
Commercial		16,617		20,985	9.14%	8.94%		243,183		312,571
Consumer		8,381		9,283	18.47%	18.17%		60,669		68,076
Auto		8,043		16,976	11.04%	11.37%		97,383		198,845
Total acquired BBVAPR loans		55,962		72,042	7.42%	8.20%		1,007,871		1,170,893
Acquired Eurobank		16,986		23,798	19.11%	22.50%		118,854		140,921
Total loans		237,355		243,432	7.61%	7.30%		4,169,973		4,441,665
Total interest earning assets		262,473		269,799	5.97%	5.71%		5,875,784		6,290,862

TABLE 4 - ASSETS SUMMARY AND COMPOSITION

	September 30		December 31,		Variance	March 31		December 31,		Variance
	2017		2016		%	2019		2018		%
	(Dollars in thousands)					(Dollars in thousands)
Investments:
FNMA and FHLMC certificates	$	875,760	$	1,025,370	-14.6%	$	937,278	$	978,071	-4.2%
Obligations of US government-sponsored agencies		3,092		3,884	-20.4%		2,197		2,265	-3.0%
US Treasury securities		10,218		49,054	-79.2%		10,859		10,805	0.5%
CMOs issued by US government-sponsored agencies		85,873		101,831	-15.7%		61,389		64,064	-4.2%
GNMA certificates		164,767		165,235	-0.3%		226,557		210,169	7.8%
Puerto Rico government and public instrumentalities		2,206		4,073	-45.8%
FHLB stock		14,016		10,793	29.9%		12,800		12,644	1.2%
Other debt securities		1,685		1,921	-12.3%		1,189		1,222	-2.7%
Other investments		287		350	-18.0%		384		364	5.5%
Total investments		1,157,904		1,362,511	-15.0%		1,252,653		1,279,604	-2.1%
Loans		3,964,572		4,147,692	-4.4%		4,401,401		4,431,594	-0.7%
Total investments and loans		5,122,476		5,510,203	-7.0%		5,654,054		5,711,198	-1.0%
Other assets:
Cash and due from banks (including restricted cash)		717,226		507,863	41.2%		501,357		445,133	12.6%
Money market investments		6,530		5,606	16.5%		7,665		4,930	55.5%
FDIC indemnification asset		-		14,411	-100.0%
Foreclosed real estate		47,275		47,520	-0.5%		30,865		33,768	-8.6%
Accrued interest receivable		22,736		20,227	12.4%		33,152		34,254	-3.2%
Deferred tax asset, net		126,041		124,200	1.5%		112,744		113,763	-0.9%
Premises and equipment, net		67,994		70,407	-3.4%		69,017		68,892	0.2%
Servicing assets		9,818		9,858	-0.4%		10,623		10,716	-0.9%
Derivative assets		809		1,330	-39.2%		110		347	-68.3%
Goodwill		86,069		86,069	0.0%		86,069		86,069	0.0%
Right of use assets							20,860		-	100.0%
Other assets and customers' liability on acceptances		81,243		104,130	-22.0%		76,675		74,282	3.2%
Total other assets		1,165,741		991,621	17.6%		949,137		872,154	8.8%
Total assets	$	6,288,217	$	6,501,824	-3.3%	$	6,603,191	$	6,583,352	0.3%
Investment portfolio composition:
FNMA and FHLMC certificates		75.6%		75.2%			74.8%		76.5%
Obligations of US government-sponsored agencies		0.3%		0.3%			0.2%		0.2%
US Treasury securities		0.9%		3.6%			0.9%		0.8%
CMOs issued by US government-sponsored agencies		7.4%		7.5%			4.9%		5.0%
GNMA certificates		14.2%		12.1%			18.1%		16.4%
Puerto Rico government and public instrumentalities		0.2%		0.3%
FHLB stock		1.2%		0.8%			1.0%		1.0%
Other debt securities and other investments		0.2%		0.2%			0.1%		0.1%
		100.0%		100.0%			100.0%		100.0%

TABLE 5 — LOANS RECEIVABLE COMPOSITION	TABLE 5 — LOANS RECEIVABLE COMPOSITION					TABLE 5 — LOANS RECEIVABLE COMPOSITION
	September 30		December 31,		Variance	March 31		December 31,		Variance
	2017		2016		%	2019		2018		%
	(In thousands)					(In thousands)
Originated and other loans and leases held for investment:
Mortgage	$	694,476	$	721,494	-3.7%	$	651,423	$	668,809	-2.6%
Commercial		1,245,711		1,277,866	-2.5%		1,569,551		1,597,588	-1.8%
Consumer		316,357		290,515	8.9%		350,543		348,980	0.4%
Auto and leasing		831,437		756,395	9.9%		1,167,482		1,129,695	3.3%
		3,087,981		3,046,270	1.4%		3,738,999		3,745,072	-0.2%
Allowance for loan and lease losses on originated and other loans and leases		(87,541)		(59,300)	-47.6%		(94,035)		(95,188)	-1.2%
		3,000,440		2,986,970	0.5%		3,644,964		3,649,884	-0.1%
Deferred loan costs, net		6,592		5,766	14.3%		8,254		7,740	6.6%
Total originated and other loans loans held for investment, net		3,007,032		2,992,736	0.5%
Total originated and other loans held for investment, net							3,653,218		3,657,624	-0.1%
Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		4,612		5,562	-17.1%		2,405		2,546	-5.5%
Consumer		29,464		32,862	-10.3%		22,768		23,988	-5.1%
Auto		26,562		53,026	-49.9%		2,336		4,435	-47.3%
		60,638		91,450	-33.7%		27,509		30,969	-11.2%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20		(3,363)		(4,300)	21.8%		(1,968)		(2,062)	-4.6%
		57,275		87,150	-34.3%		25,541		28,907	-11.6%
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		532,948		569,253	-6.4%		484,578		492,890	-1.7%
Commercial		244,359		292,564	-16.5%		176,908		182,319	-3.0%
Consumer		1,598		4,301	-62.8%
Auto		49,258		85,676	-42.5%		9,866		14,403	-31.5%
		828,163		951,794	-13.0%		671,352		689,612	-2.6%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30		(40,110)		(31,056)	-29.2%		(42,133)		(42,010)	0.3%
		788,053		920,738	-14.4%		629,219		647,602	-2.8%
Total acquired BBVAPR loans, net		845,328		1,007,888	-16.1%		654,760		676,509	-3.2%
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		68,996		73,018	-5.5%		62,649		63,392	-1.2%
Commercial		53,028		81,460	-34.9%		46,588		47,826	-2.6%
Consumer		1,220		1,372	-11.1%		856		846	1.2%
		123,244		155,850	-20.9%		110,093		112,064	-1.8%
Allowance for loan and lease losses on Eurobank loans		(23,146)		(21,281)	-8.8%		(24,352)		(24,971)	-2.5%
Total acquired Eurobank loans, net		100,098		134,569	-25.6%		85,741		87,093	-1.6%
Total acquired loans, net		945,426		1,142,457	-17.2%		740,501		763,602	-3.0%
Total held for investment, net		3,952,458		4,135,193	-4.4%		4,393,719		4,421,226	-0.6%
Mortgage loans held for sale		12,114		12,499	-3.1%		7,682		10,368	-25.9%
Total loans, net	$	3,964,572	$	4,147,692	-4.4%	$	4,401,401	$	4,431,594	-0.7%

TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS	TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS															TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS

	September 30, 2017															March 31, 2019
	Higher-Risk Residential Mortgage Loans*															Higher-Risk Residential Mortgage Loans*
											High Loan-to-Value Ratio Mortgages															High Loan-to-Value Ratio Mortgages
	Junior Lien Mortgages					Interest Only Loans					LTV 90% and over					Junior Lien Mortgages					Interest Only Loans					LTV 90% and over
	Carrying					Carrying					Carrying					Carrying					Carrying					Carrying
	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage
	(In thousands)															(In thousands)
Delinquency:
0 - 89 days	$	9,977	$	321	3.22%	$	9,970	$	801	8.03%	$	72,168	$	1,819	2.52%	$	8,620	$	305	3.54%	$	7,545	$	84	1.11%	$	52,176	$	897	1.72%
90 - 119 days		17		2	11.76%		-		-	0.00%		2,051		29	1.41%		222		28	12.61%		-		-	0.00%		1,104		46	4.17%
120 - 179 days		51		8	15.69%		-		-	0.00%		473		9	1.90%		65		8	12.31%		-		-	0.00%		296		28	9.46%
180 - 364 days		78		7	8.97%		209		52	24.88%		1,749		156	8.92%		68		17	25.00%		164		23	14.02%		814		88	10.81%
365+ days		438		72	16.44%		2,311		576	24.92%		8,347		790	9.46%		182		25	13.74%		1,377		202	14.67%		6,428		522	8.12%
Total	$	10,561	$	410	3.88%	$	12,490	$	1,429	11.44%	$	84,788	$	2,803	3.31%	$	9,157	$	383	4.18%	$	9,086	$	309	3.40%	$	60,818	$	1,581	2.60%
Percentage of total loans excluding acquired loans accounted for under ASC 310-30		0.34%					0.40%					2.69%					0.24%					0.24%					1.61%
Refinanced or Modified Loans:
Amount	$	2,077	$	223	10.74%	$	540	$	52	9.63%	$	16,390	$	1,215	7.41%	$	2,226	$	293	13.16%	$	533	$	71	13.32%	$	15,507	$	1,179	7.60%
Percentage of Higher-Risk Loan Category		19.67%					4.32%					19.33%					24.31%					5.87%					25.50%
Loan-to-Value Ratio:
Under 70%	$	6,999	$	261	3.73%	$	770	$	61	7.92%	$	-	$	-	-	$	6,068	$	245	4.04%	$	1,215	$	6	0.49%	$	-	$	-	-
70% - 79%		1,542		91	5.90%		3,290		303	9.21%		-		-	-		1,304		73	5.60%		1,914		34	1.78%		-		-	-
80% - 89%		516		24	4.65%		2,538		296	11.66%		-		-	-		994		1	0.10%		3,533		116	3.28%		-		-	-
90% and over		1,504		34	2.26%		5,892		769	13.05%		84,788		2,803	3.31%		791		64	8.09%		2,424		153	6.31%		60,818		1,581	2.60%
	$	10,561	$	410	3.88%	$	12,490	$	1,429	11.44%	$	84,788	$	2,803	3.31%	$	9,157	$	383	4.18%	$	9,086	$	309	3.40%	$	60,818	$	1,581	2.60%

* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.	* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.															* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.

The following table includes Oriental's lending and investment exposure to the Puerto Rico government, including its agencies, instrumentalities, municipalities and public corporations:

TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES

September 30, 2017
						Maturity
Loans and Securities:		Carrying Value		Less than 1 Year		1 to 3 Years		More than 3 Years	Comments
	(In thousands)
Municipalities	$	144,529	$	5,265	$	95,622	$	43,642		Secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations.
Investment securities		2,206		2,206		-		-		The remaining position is a PRHTA security maturing July 1, 2018 issued for P3 Project Teodoro Moscoso Bridge operated by private companies that have the payment obligation.
Total	$	146,735	$	7,471	$	95,622	$	43,642

TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN	TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN					TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN

	September 30,		December 31,		Variance	March 31,		December 31,		Variance
		2017	2016		%		2019	2018		%
	(Dollars in thousands)					(Dollars in thousands)
Originated and other loans held for investment
Allowance balance:
Mortgage	$	22,308	$	17,344	28.6%	$	16,689	$	19,783	-15.6%
Commercial		24,278		8,995	169.9%		32,154		30,326	6.0%
Consumer		15,793		13,067	20.9%		16,085		15,571	3.3%
Auto and leasing		25,162		19,463	29.3%		29,107		29,508	-1.4%
Unallocated allowance		-		431	-100.0%
Total allowance balance	$	87,541	$	59,300	47.6%	$	94,035	$	95,188	-1.2%
Allowance composition:
Mortgage		25.49%		29.24%	-12.8%		17.8%		20.8%	-14.6%
Commercial		27.73%		15.17%	82.8%		34.2%		31.9%	7.3%
Consumer		18.04%		22.04%	-18.1%		17.1%		16.4%	4.6%
Auto and leasing		28.74%		32.82%	-12.4%		31.0%		31.0%	-0.2%
Unallocated allowance		0.00%		0.73%	-100.0%
		100.00%		100.00%			100.0%		100.0%
Allowance coverage ratio at end of period applicable to:
Mortgage		3.21%		2.40%	33.8%		2.56%		2.96%	-13.5%
Commercial		1.95%		0.70%	178.6%		2.05%		1.90%	7.9%
Consumer		4.99%		4.50%	10.9%		4.59%		4.46%	2.9%
Auto and leasing		3.03%		2.57%	17.9%		2.49%		2.61%	-4.6%
Total allowance to total originated loans		2.83%		1.95%	45.1%		2.51%		2.54%	-1.2%
Allowance coverage ratio to non-performing loans:
Mortgage		37.39%		23.28%	60.6%		27.97%		31.05%	-9.9%
Commercial		111.88%		45.46%	146.1%		63.83%		71.43%	-10.6%
Consumer		645.93%		657.96%	-1.8%		405.06%		464.25%	-12.7%
Auto and leasing		213.04%		215.01%	-0.9%		239.31%		218.67%	9.4%
Total		91.55%		56.30%	62.6%		74.53%		77.38%	-3.7%

TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY	TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY										TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY

	Quarter Ended September 30,					Nine-Month Period Ended September 30,					Quarter Ended March 31,
					Variance					Variance					Variance
	2017		2016		%	2017		2016		%	2019		2018		%
	(Dollars in thousands)										(Dollars in thousands)
Originated and other loans:
Balance at beginning of period	$	69,666	$	112,812	-38.2%	$	59,300	$	112,626	-47.3%	$	95,188	$	92,718	2.7%
Provision for loan and lease losses		29,690		14,708	101.9%		64,243		34,420	86.6%		11,333		14,958	-24.2%
Charge-offs		(15,372)		(69,333)	-77.8%		(48,317)		(95,813)	-49.6%		(17,165)		(15,357)	11.8%
Recoveries		3,557		3,981	-10.7%		12,315		10,935	12.6%		4,679		4,513	3.7%
Balance at end of period	$	87,541	$	62,168	40.8%	$	87,541	$	62,168	40.8%	$	94,035	$	96,832	-2.9%
Acquired loans:
*BBVAPR loans*
Acquired loans accounted for under ASC 310-20:
Balance at beginning of period	$	3,348	$	4,487	-25.4%	$	4,300	$	5,542	-22.4%	$	2,062	$	3,862	-46.6%
Provision for loan and lease losses		712		548	29.9%		618		1,392	-55.6%
Provision (recapture) for loan and lease losses												298		184	62.0%
Charge-offs		(933)		(1,366)	-31.7%		(3,204)		(4,518)	-29.1%		(525)		(1,147)	-54.2%
Recoveries		236		544	-56.6%		1,649		1,797	-8.2%		133		285	-53.3%
Balance at end of period	$	3,363	$	4,213	-20.2%	$	3,363	$	4,213	-20.2%	$	1,968	$	3,184	-38.2%
Acquired loans accounted for under ASC 310-30:
Balance at beginning of period	$	37,494	$	22,801	64.4%	$	31,056	$	25,785	20.4%	$	42,010	$	45,755	-8.2%
Provision for loan and lease losses		11,099		7,403	49.9%		18,798		13,245	41.9%		1,269		179	608.9%
Loan pools fully charged off		-		-	0.0%		-		(282)	-100.0%
Allowance de-recognition		(8,483)		(385)	2103.4%		(9,744)		(8,929)	9.1%		(1,146)		(2,768)	-58.6%
Balance at end of period	$	40,110	$	29,819	34.5%	$	40,110	$	29,819	34.5%	$	42,133	$	43,166	-2.4%

*Eurobank loans*
Balance at beginning of period	$	21,787	$	22,116	-1.5%	$	21,281	$	90,178	-76.4%	$	24,971	$	25,174	-0.8%
Provision for loan and lease losses		2,541		819	210.3%		4,573		2,655	72.2%		(651)		139	-568.3%
FDIC shared-loss portion on recapture of loan and lease losses		-		818	-100.0%		-		3,213	-100.0%
Loan pools fully charged off		-		-	0.0%		-		(134)	-100.0%
Allowance de-recognition		(1,182)		(941)	25.6%		(2,708)		(73,100)	-96.3%		32		97	-67.0%
Balance at end of period	$	23,146	$	22,812	1.5%	$	23,146	$	22,812	1.5%	$	24,352	$	25,410	-4.2%

TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30

	Quarter Ended March 31,
					Variance
	2019		2018		%
	(Dollars in thousands)
Originated and other loans and leases:
Mortgage
Charge-offs	$	(587)	$	(968)	-39.4%
Recoveries		287		314	-8.6%
Total		(300)		(654)	-54.1%
Commercial
Charge-offs		(1,086)		(1,149)	-5.5%
Recoveries		147		182	-19.2%
Total		(939)		(967)	-2.9%
Consumer
Charge-offs		(4,121)		(4,258)	-3.2%
Recoveries		263		240	9.6%
Total		(3,858)		(4,018)	-4.0%
Auto
Charge-offs		(11,371)		(8,982)	26.6%
Recoveries		3,982		3,777	5.4%
Total		(7,389)		(5,205)	42.0%
Net credit losses
Total charge-offs		(17,165)		(15,357)	11.8%
Total recoveries		4,679		4,513	3.7%
Total	$	(12,486)	$	(10,844)	15.1%
Net credit losses to average loans outstanding:
Mortgage		0.18%		0.38%	-52.6%
Commercial		0.24%		0.30%	-20.0%
Consumer		4.29%		5.07%	-15.4%
Auto		2.54%		2.23%	13.9%
Total		1.32%		1.34%	-1.5%
Recoveries to charge-offs		27.26%		29.39%	-7.2%
Average originated loans:
Mortgage	$	668,654		683,398	-2.2%
Commercial		1,591,415		1,310,444	21.4%
Consumer		360,093		317,295	13.5%
Auto		1,162,153		933,456	24.5%
Total	$	3,782,315	$	3,244,593	16.6%

TABLE 11 — NON-PERFORMING ASSETS

	March 31,		December 31,		Variance
	2019		2018		(%)
	(Dollars in thousands)
Non-performing assets:
Non-accruing loans
Troubled-Debt Restructuring loans	$	40,815	$	41,679	-2.1%
Other loans		81,910		78,047	4.9%
Accruing loans
Troubled-Debt Restructuring loans		4,372		4,302	1.6%
Other loans		536		541	-0.9%
Total non-performing loans	$	127,633	$	124,569	2.5%
Foreclosed real estate		30,865		33,768	-8.6%
Other repossessed assets		3,574		2,986	19.7%
	$	162,072	$	161,323	0.5%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)		2.50%		2.76%	-9.4%
Non-performing assets to total capital		15.87%		16.13%	-1.6%

TABLE 12 — NON-PERFORMING LOANS

	March 31,		December 31,		Variance
	2019		2018		%
	(Dollars in thousands)
Non-performing loans:
Originated and other loans held for investment
Mortgage	$	59,665	$	63,717	-6.4%
Commercial		50,376		42,456	18.7%
Consumer		3,971		3,354	18.4%
Auto and leasing		12,163		13,494	-9.9%
		126,175		123,021	2.6%
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)
Commercial		932		950	-1.9%
Consumer		426		398	7.0%
Auto		100		200	-50.0%
		1,458		1,548	-5.8%
Total	$	127,633	$	124,569	2.5%
Non-performing loans composition percentages:
Originated loans
Mortgage		46.8%		51.1%
Commercial		39.5%		34.1%
Consumer		3.1%		2.7%
Auto and leasing		9.5%		10.8%
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)
Commercial		0.7%		0.8%
Consumer		0.3%		0.3%
Auto		0.1%		0.2%
Total		100.0%		100.0%
Non-performing loans to:
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy)		3.39%		3.30%	2.7%
Total assets, excluding loans accounted for under ASC 310-30 (including those by analogy)		1.97%		2.13%	-7.5%
Total capital		12.50%		12.46%	0.3%
Non-performing loans with partial charge-offs to:
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy)		1.09%		1.16%	-6.03%
Non-performing loans		32.23%		35.30%	-8.7%
Other non-performing loans ratios:
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken		60.10%		59.20%	1.5%
Allowance for loan and lease losses to non-performing loans on which no charge-offs have been taken		110.99%		120.67%	-8.0%

TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION
	March 31,		December 31,		Variance
	2019		2018		%
	(Dollars in thousands)
Deposits:
Non-interest bearing deposits	$	1,092,488	$	1,105,324	-1.2%
NOW accounts		1,125,658		1,086,447	3.6%
Savings and money market accounts		1,252,158		1,212,260	3.3%
Certificates of deposit		1,424,543		1,501,002	-5.1%
Total deposits		4,894,847		4,905,033	-0.2%
Accrued interest payable		2,254		3,082	-26.9%
Total deposits and accrued interest payable		4,897,101		4,908,115	-0.2%
Borrowings:
Securities sold under agreements to repurchase		431,566		455,508	-5.3%
Advances from FHLB		81,111		77,620	4.5%
Subordinated capital notes		36,083		36,083	0.0%
Other term notes		286		1,214	-76.4%
Total borrowings		549,046		570,425	-3.7%
Total deposits and borrowings		5,446,147		5,478,540	-0.6%

Other Liabilities:
Derivative liabilities		439		333	31.8%
Acceptances outstanding		25,791		16,937	52.3%
Lease liability		22,618		-	100.0%
Other liabilities		87,004		87,665	-0.8%
Total liabilities	$	5,581,999	$	5,583,475	0.0%
Deposits portfolio composition percentages:
Non-interest bearing deposits		22.3%		22.5%
NOW accounts		23.0%		22.1%
Savings and money market accounts		25.6%		24.7%
Certificates of deposit		29.1%		30.7%
		100.0%		100.0%
Borrowings portfolio composition percentages:
Securities sold under agreements to repurchase		78.5%		79.9%
Advances from FHLB		14.8%		13.6%
Other term notes		0.1%		0.2%
Subordinated capital notes		6.6%		6.3%
		100.0%		100.0%
Securities sold under agreements to repurchase (excluding accrued interest)
Amount outstanding at period-end	$	430,957	$	454,723
Daily average outstanding balance	$	444,843	$	357,086
Maximum outstanding balance at any month-end	$	454,723	$	457,053

TABLE 13 - ACTIVITY OF FDIC INDEMNIFICATION ASSET

	Quarter Ended September 30,				Nine-Month Period Ended September 30,
	2017		2016		2017		2016
	(In thousands)				(In thousands)
FDIC indemnification asset:
Balance at beginning of period	$	-	$	18,426	$	14,411	$	22,599
Shared-loss agreements reimbursements from the FDIC		-		(87)		-		(824)
Increase in expected credit losses to be covered under shared-loss agreements, net		-		818		-		3,213
FDIC indemnification asset benefit (expense)		-		(1,910)		-		(6,179)
Net expenses incurred under shared-loss agreements		-		(577)		-		(2,139)
Shared-loss termination settlement		-		-		(15,814)		-
Balance at end of period	$	-	$	16,670	$	(1,403)	$	16,670

TABLE 14 - LIABILITIES SUMMARY AND COMPOSITION
	September 30,		December 31,		Variance
	2017		2016		%
	(Dollars in thousands)
Deposits:
Non-interest bearing deposits	$	900,063	$	848,502	6.1%
NOW accounts		1,025,632		1,091,237	-6.0%
Savings and money market accounts		1,360,080		1,196,231	13.7%
Certificates of deposit		1,538,483		1,526,805	0.8%
Total deposits		4,824,258		4,662,775	3.5%
Accrued interest payable		2,146		1,712	25.4%
Total deposits and accrued interest payable		4,826,404		4,664,487	3.5%
Borrowings:
Securities sold under agreements to repurchase		283,080		653,756	-56.7%
Advances from FHLB		100,091		105,454	-5.1%
Subordinated capital notes		36,083		36,083	0.0%
Other term notes		-		61	-100.0%
Total borrowings		419,254		795,354	-47.3%
Total deposits and borrowings		5,245,658		5,459,841	-3.9%

Other Liabilities:
Derivative liabilities		1,677		2,437	-31.2%
Acceptances outstanding		16,486		23,765	-30.6%
Other liabilities		86,766		95,370	-9.0%
Total liabilities	$	5,350,587	$	5,581,413	-4.1%
Deposits portfolio composition percentages:
Non-interest bearing deposits		18.7%		18.2%
NOW accounts		21.3%		23.4%
Savings and money market accounts		28.1%		25.7%
Certificates of deposit		31.9%		32.7%
		100.0%		100.0%
Borrowings portfolio composition percentages:
Securities sold under agreements to repurchase		67.5%		82.2%
Advances from FHLB		23.9%		13.3%
Other term notes		0.0%		0.0%
Subordinated capital notes		8.6%		4.5%
		100.0%		100.0%
Securities sold under agreements to repurchase (excluding accrued interest)
Amount outstanding at period-end	$	282,500	$	652,229
Daily average outstanding balance	$	445,911	$	663,845
Maximum outstanding balance at any month-end	$	655,790	$	902,500

TABLE 15 — CAPITAL, DIVIDENDS AND STOCK DATA
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA						TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA
	September 30,		December 31,		Variance	March 31,		December 31,		Variance
	2017		2016		%	2019		2018		%
	(Dollars in thousands, except per share data)					(Dollars in thousands, except per share data)
Capital data:
Stockholders’ equity	$	937,630	$	920,411	1.9%	$	1,021,192	$	999,877	2.1%
Regulatory Capital Ratios data:
Common equity tier 1 capital ratio		14.89%		14.05%	6.0%		17.09%		16.78%	1.8%
Minimum common equity tier 1 capital ratio required		4.50%		4.50%	0.0%		4.50%		4.50%	0.0%
Actual common equity tier 1 capital	$	633,401		627,733	0.9%	$	832,924		811,707	2.6%
Minimum common equity tier 1 capital required	$	191,367		201,040	-4.8%	$	219,276		217,675	0.7%
Minimum capital conservation buffer required	$	53,158		27,922	90.4%	$	91,365		90,698	0.7%
Excess over regulatory requirement	$	388,876		398,770	-2.5%	$	522,283		503,334	3.8%
Risk-weighted assets	$	4,252,605		4,467,556	-4.8%	$	4,872,806		4,837,214	0.7%
Tier 1 risk-based capital ratio		19.53%		18.35%	6.4%		19.49%		19.20%	1.5%
Minimum tier 1 risk-based capital ratio required		6.00%		6.00%	0.0%		6.00%		6.00%	0.0%
Actual tier 1 risk-based capital	$	830,640	$	819,662	1.3%	$	949,794	$	928,577	2.3%
Minimum tier 1 risk-based capital required	$	255,156	$	268,053	-4.8%	$	292,368	$	290,233	0.7%
Excess over regulatory requirement	$	575,484	$	551,608	4.3%	$	657,427	$	638,344	3.0%
Risk-weighted assets	$	4,252,605	$	4,467,556	-4.8%	$	4,872,806	$	4,837,214	0.7%
Total risk-based capital ratio		20.82%		19.62%	6.1%		20.77%		20.48%	1.4%
Minimum total risk-based capital ratio required		8.00%		8.00%	0.0%		8.00%		8.00%	0.0%
Actual total risk-based capital	$	885,523	$	876,657	1.0%	$	1,012,112	$	990,499	2.2%
Minimum total risk-based capital required	$	340,208	$	357,404	-4.8%	$	389,824	$	386,977	0.7%
Excess over regulatory requirement	$	545,315	$	519,252	5.0%	$	622,288	$	603,522	3.1%
Risk-weighted assets	$	4,252,605	$	4,467,556	-4.8%	$	4,872,806	$	4,837,214	0.7%
Leverage capital ratio		14.07%		12.99%	8.3%		14.64%		14.22%	3.0%
Minimum leverage capital ratio required		4.00%		4.00%	0.0%		4.00%		4.00%	0.0%
Actual tier 1 capital	$	830,640	$	819,662	1.3%	$	949,794	$	928,577	2.3%
Minimum tier 1 capital required	$	236,105	$	252,344	-6.4%	$	259,456	$	261,125	-0.6%
Excess over regulatory requirement	$	594,535	$	567,318	4.8%	$	690,339	$	667,452	3.4%
Tangible common equity to total assets		10.82%		10.19%	6.2%		12.88%		12.59%	2.3%
Tangible common equity to risk-weighted assets		16.01%		14.82%	8.0%		17.45%		17.13%	1.9%
Total equity to total assets		14.91%		14.16%	5.3%		15.47%		15.19%	1.8%
Total equity to risk-weighted assets		22.05%		20.60%	7.0%		20.96%		20.67%	1.4%
Stock data:
Outstanding common shares		43,947,442		43,914,844	0.1%		51,328,431		51,293,924	0.1%
Book value per common share	$	17.56	$	17.18	2.2%	$	18.30	$	17.90	2.2%
Tangible book value per common share	$	15.49	$	15.08	2.7%	$	16.56	$	16.15	2.6%
Market price at end of period	$	9.15	$	13.10	-30.2%	$	19.79	$	16.46	20.2%
Market capitalization at end of period	$	402,119	$	575,284	-30.1%	$	1,015,790	$	844,298	20.3%

					Cash
	Price				Dividend
	High		Low		Per share
2017
September 30, 2017	$	10.40	$	8.40	$	0.06
June 30, 2017	$	12.03	$	9.19	$	0.06
March 31, 2017	$	13.80	$	10.90	$	0.06
2016
December 31, 2016	$	14.30	$	9.56	$	0.06
September 30, 2016	$	11.09	$	8.07	$	0.06
June 30, 2016	$	9.14	$	6.32	$	0.06
March 31, 2016	$	7.32	$	4.77	$	0.06
2015
December 31, 2015	$	10.52	$	6.39	$	0.06
September 30, 2015	$	10.20	$	6.63	$	0.10
June 30, 2015	$	17.04	$	10.67	$	0.10
March 31, 2015	$	17.70	$	14.88	$	0.10

	Net Interest Income Risk (one year projection)						Net Interest Income Risk (one-year projection)
	Static Balance Sheet			Growing Simulation			Static Balance Sheet			Growing Simulation
	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
	Change		Change	Change		Change	Change		Change	Change		Change
Change in interest rate	(Dollars in thousands)						(Dollars in thousands)
+ 200 Basis points	$	12,085	4.38%	$	8,772	3.10%	$	11,451	3.63%	$	12,716	3.76%
+ 100 Basis points	$	6,077	2.20%	$	4,420	1.56%	$	5,790	1.84%	$	6,421	1.90%
- 50 Basis points	$	(2,957)	-1.07%	$	(2,030)	-0.72%
- 100 Basis points							$	(5,726)	-1.82%	$	(6,339)	-1.88%
- 200 Basis points							$	(11,449)	-3.63%	$	(12,675)	-3.75%


By:	/s/ José Rafael Fernández	Date: ~~November 8, 2017~~May 3, 2019
	José Rafael Fernández
	President and Chief Executive Officer

By:	/s/ Maritza Arizmendi	Date: ~~November 8, 2017~~May 3, 2019
	Maritza Arizmendi
	Executive Vice President, ~~and~~ Chief Financial Officer and Chief Accounting Officer

By:	/s/ ~~Vanessa de Armas~~Krisen Aguirre Torres	Date: ~~November 8, 2017~~May 3, 2019
	~~Vanessa de Armas~~Krisen Aguirre Torres
	~~Controller~~Vice President Financial Reporting and Accounting Control