SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
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
Incorporated in the Commonwealth of Puerto Rico, IRS Employer Identification No. 66-0538893
Principal Executive Offices:
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 x☑ No ☐
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 ☐
| Non-Accelerated Filer ☐ | ||
|
If an Emerging Growth Company,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 No ☑x
Number of shares outstanding of the registrant’s common stock, as of the latest practicable date:
43,983,19551,347,056 common shares ($1.00 par value per share) outstanding as of July 31, 20182019
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | Page | ||
Item 1. |
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| Unaudited Consolidated Statements of Changes in Stockholders’ Equity | 6 | |
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| Notes to Unaudited Consolidated Financial Statements |
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Note 1 – Organization, Consolidation and Basis of Presentation |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II – OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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;
· thea credit default by the 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, earthquakes and 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 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. changes;
·the receipt and timing of regulatory approvals required to consummate the acquisition of Scotiabank Puerto Rico (“SBPR”) and certain branch assets and liabilities in Puerto Rico and the U.S. Virgin Islands operations of The Bank of Nova Scotia (“BNS”) and the acquisition referred to as the “Scotiabank Transaction”; and
·difficulties in integrating the operations expected to be acquired in the Scotiabank Transaction (“SBPR”).
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.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 20182019 AND DECEMBER 31, 20172018
|
| June 30, |
| December 31, |
| June 30, |
| December 31, | ||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
| (In thousands) |
| (In thousands) | ||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents: |
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| $ | 368,344 |
| $ | 478,182 |
| $ | 668,896 |
| $ | 442,103 |
Money market investments |
|
| 6,991 |
|
| 7,021 |
|
| 7,485 |
|
| 4,930 |
Total cash and cash equivalents |
|
| 375,335 |
|
| 485,203 |
|
| 676,381 |
|
| 447,033 |
Restricted cash |
|
| 3,030 |
|
| 3,030 |
|
| 1,049 |
|
| 3,030 |
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities, at fair value, with amortized cost of $647 (December 31, 2017 - $647) |
| 418 |
|
| 191 | |||||||
Investment securities available-for-sale, at fair value, with amortized cost of $890,308 (December 31, 2017 - $648,800) |
| 872,341 |
|
| 645,797 | |||||||
Investment securities held-to-maturity, at amortized cost, with fair value of $447,947 (December 31, 2017 - $497,681) |
| 465,427 |
|
| 506,064 | |||||||
Trading securities, at fair value, with amortized cost of $511 (December 31, 2018 - $647) |
| 412 |
|
| 360 | |||||||
Investment securities available-for-sale, at fair value, with amortized cost of $860,911 (December 31, 2018 - $854,511) |
| 857,433 |
|
| 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 |
| 14,919 |
|
| 13,995 |
| 12,821 |
|
| 12,644 | ||
Other investments |
|
| 3 |
|
| 3 |
|
| 3 |
|
| 3 |
Total investments |
|
| 1,353,108 |
|
| 1,166,050 |
|
| 870,669 |
|
| 1,279,604 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale, at lower of cost or fair value |
| 10,215 |
|
| 12,272 |
| 14,676 |
|
| 10,368 | ||
Loans held for investment, net of allowance for loan and lease losses of $165,434 (December 31, 2017 - $167,509) |
|
| 4,305,651 |
|
| 4,044,057 | ||||||
Loans held for investment, net of allowance for loan losses of $162,642 (December 31, 2018 - $164,231) |
|
| 4,459,821 |
|
| 4,421,226 | ||||||
Total loans |
|
| 4,315,866 |
|
| 4,056,329 |
|
| 4,474,497 |
|
| 4,431,594 |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate |
| 40,551 |
|
| 44,174 |
| 29,509 |
|
| 33,768 | ||
Accrued interest receivable |
| 34,476 |
|
| 49,969 |
| 33,909 |
|
| 34,254 | ||
Deferred tax asset, net |
| 125,141 |
|
| 127,421 |
| 111,147 |
|
| 113,763 | ||
Premises and equipment, net |
| 66,174 |
|
| 67,860 |
| 71,001 |
|
| 68,892 | ||
Customers' liability on acceptances |
| 30,578 |
|
| 27,663 |
| 23,610 |
|
| 16,937 | ||
Servicing assets |
| 10,829 |
|
| 9,821 |
| 10,134 |
|
| 10,716 | ||
Derivative assets |
| 1,100 |
|
| 771 |
| 26 |
|
| 347 | ||
Goodwill |
| 86,069 |
|
| 86,069 |
| 86,069 |
|
| 86,069 | ||
Operating lease right-of-use assets |
| 20,419 |
|
| - | |||||||
Other assets |
|
| 59,305 |
|
| 64,693 |
|
| 55,707 |
|
| 57,345 |
Total assets |
| $ | 6,501,562 |
| $ | 6,189,053 |
| $ | 6,464,127 |
| $ | 6,583,352 |
|
|
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|
|
|
|
|
|
|
|
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See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
1
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 20182019 AND DECEMBER 31, 20172018 (CONTINUED)
|
| June 30, |
| December 31, |
| June 30, |
| December 31, | ||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
| (In thousands) |
| (In thousands) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
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|
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Deposits: |
|
|
|
|
|
|
|
|
|
| ||
Demand deposits |
| $ | 2,176,935 |
| $ | 2,039,126 |
| $ | 2,219,911 |
| $ | 2,191,802 |
Savings accounts |
| 1,253,451 |
|
| 1,251,398 |
| 1,222,109 |
|
| 1,212,259 | ||
Time deposits |
|
| 1,449,815 |
|
| 1,508,958 |
|
| 1,503,117 |
|
| 1,504,054 |
Total deposits |
|
| 4,880,201 |
|
| 4,799,482 |
|
| 4,945,137 |
|
| 4,908,115 |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 387,770 |
|
| 192,869 |
| 240,324 |
|
| 455,508 | ||
Advances from FHLB |
| 128,114 |
|
| 99,643 |
| 80,085 |
|
| 77,620 | ||
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 36,083 |
|
| 36,083 | ||
Other borrowings |
|
| 299 |
|
| 153 |
|
| 338 |
|
| 1,214 |
Total borrowings |
|
| 552,266 |
|
| 328,748 |
|
| 356,830 |
|
| 570,425 |
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
| 679 |
|
| 1,281 |
| 985 |
|
| 333 | ||
Acceptances executed and outstanding |
| 30,578 |
|
| 27,644 |
| 23,610 |
|
| 16,937 | ||
Operating lease liabilities |
| 22,179 |
|
| - | |||||||
Accrued expenses and other liabilities |
|
| 80,019 |
|
| 86,791 |
|
| 70,512 |
|
| 87,665 |
Total liabilities |
|
| 5,543,743 |
|
| 5,243,946 |
|
| 5,419,253 |
|
| 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, 2017 - 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, 2017 - 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: 43,983,195 shares outstanding (December 31, 2017 - 52,625,869; |
|
|
|
|
| |||||||
43,947,442) |
| 52,626 |
|
| 52,626 | |||||||
(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: 51,330,031 shares outstanding (December 31, 2018 - $59,885,234; |
|
|
|
|
| |||||||
51,293,924) |
| 59,885 |
|
| 59,885 | |||||||
Additional paid-in capital |
| 541,734 |
|
| 541,600 |
| 620,368 |
|
| 619,381 | ||
Legal surplus |
| 85,249 |
|
| 81,454 |
| 95,019 |
|
| 90,167 | ||
Retained earnings |
| 221,441 |
|
| 200,878 |
| 284,459 |
|
| 253,040 | ||
Treasury stock, at cost, 8,642,674 shares (December 31, 2017 - 8,678,427 shares) |
| (103,969) |
|
| (104,502) | |||||||
Accumulated other comprehensive (loss), net of tax of $2,284 (December 31, 2017 $564) |
|
| (15,262) |
|
| (2,949) | ||||||
Treasury stock, at cost, 8,555,203 shares (December 31, 2018 - 8,591,310 shares) |
| (103,171) |
|
| (103,633) | |||||||
Accumulated other comprehensive loss, net of tax of $750 (December 31, 2018 - $1,677) |
|
| (3,686) |
|
| (10,963) | ||||||
Total stockholders’ equity |
|
| 957,819 |
|
| 945,107 |
|
| 1,044,874 |
|
| 999,877 |
Total liabilities and stockholders’ equity |
| $ | 6,501,562 |
| $ | 6,189,053 |
| $ | 6,464,127 |
| $ | 6,583,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
2
UNAUDITEDUNADUTIED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018
| Quarter Ended June 30, | Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | |||||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | |||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Loans | $ | 78,429 |
| $ | 77,238 |
| $ | 153,041 |
| $ | 154,888 |
| $ | 85,080 |
| $ | 78,429 |
| $ | 169,199 |
| $ | 153,041 | |
Mortgage-backed securities |
| 8,034 |
| 7,276 |
| 15,085 |
| 14,482 |
|
| 5,987 |
| 8,034 |
| 13,912 |
| 15,085 | |||||||
Investment securities and other |
| 1,543 |
|
| 1,426 |
|
| 3,050 |
|
| 2,748 |
|
| 3,188 |
|
| 1,543 |
|
| 5,854 |
|
| 3,050 | |
Total interest income |
| 88,006 |
|
| 85,940 |
|
| 171,176 |
|
| 172,118 |
|
| 94,255 |
|
| 88,006 |
|
| 188,965 |
|
| 171,176 | |
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits |
| 7,651 |
| 7,652 |
| 14,949 |
| 15,005 |
|
| 9,991 |
| 7,651 |
| 19,040 |
| 14,949 | |||||||
Securities sold under agreements to repurchase |
| 1,840 |
| 1,734 |
| 2,918 |
| 4,979 |
|
| 2,106 |
| 1,840 |
| 4,892 |
| 2,918 | |||||||
Advances from FHLB and other borrowings |
| 448 |
| 607 |
| 822 |
| 1,202 |
|
| 559 |
| 448 |
| 1,121 |
| 822 | |||||||
Subordinated capital notes |
| 479 |
|
| 384 |
|
| 905 |
|
| 751 |
|
| 514 |
|
| 479 |
|
| 1,038 |
|
| 905 | |
Total interest expense |
| 10,418 |
|
| 10,377 |
|
| 19,594 |
|
| 21,937 |
|
| 13,170 |
|
| 10,418 |
|
| 26,091 |
|
| 19,594 | |
Net interest income |
| 77,588 |
|
| 75,563 |
|
| 151,582 |
|
| 150,181 |
|
| 81,085 |
|
| 77,588 |
|
| 162,874 |
|
| 151,582 | |
Provision for loan and lease losses, net |
| 14,747 |
|
| 26,536 |
|
| 30,207 |
|
| 44,190 |
| ||||||||||||
Provision for loan losses, net |
| 17,705 |
|
| 14,747 |
|
| 29,954 |
|
| 30,207 | |||||||||||||
Net interest income after provision for loan and lease losses |
| 62,841 |
|
| 49,027 |
|
| 121,375 |
|
| 105,991 |
|
| 63,380 |
|
| 62,841 |
|
| 132,920 |
|
| 121,375 | |
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Banking service revenue |
| 11,144 |
| 10,458 |
| 21,607 |
| 21,084 |
|
| 10,776 |
| 11,144 |
| 21,241 |
| 21,607 | |||||||
Wealth management revenue |
| 6,262 |
| 6,516 |
| 12,281 |
| 12,731 |
|
| 6,669 |
| 6,262 |
| 12,551 |
| 12,281 | |||||||
Mortgage banking activities |
| 988 |
|
| 959 |
|
| 2,745 |
|
| 1,546 |
|
| 629 |
|
| 988 |
|
| 1,835 |
|
| 2,745 | |
Total banking and financial service revenues |
| 18,394 |
|
| 17,933 |
|
| 36,633 |
|
| 35,361 |
|
| 18,074 |
|
| 18,394 |
|
| 35,627 |
|
| 36,633 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FDIC shared-loss benefit, net |
| - |
| - |
| - |
| 1,403 |
| |||||||||||||||
Net gain on: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Sale of securities |
| - |
| 6,891 |
| - |
| 6,891 |
|
| 4,776 |
| - |
| 4,776 |
| - | |||||||
Derivatives |
| - |
| 22 |
| - |
| 103 |
| |||||||||||||||
Early extinguishment of debt |
| - |
| (80) |
| - |
| (80) |
|
| (7) |
| - |
| (7) |
| - | |||||||
Other non-interest income |
| 309 |
|
| 120 |
|
| 584 |
|
| 282 |
|
| 105 |
|
| 309 |
|
| 208 |
|
| 584 | |
Total non-interest income, net |
| 18,703 |
|
| 24,886 |
|
| 37,217 |
|
| 43,960 |
|
| 22,948 |
|
| 18,703 |
|
| 40,604 |
|
| 37,217 | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
| See notes to unaudited consolidated financial statements | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
3
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018 (CONTINUED)
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | |||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 |
| 2019 |
| 2018 | |||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | |||||||||||||||||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Compensation and employee benefits |
| 18,099 |
| 19,317 |
| 38,707 |
| 39,664 |
| 19,875 |
| 18,099 |
| 40,216 |
| 38,707 | |||||||
Occupancy, equipment and infrastructure costs |
| 7,511 |
| 9,166 |
| 15,257 |
| 16,934 | |||||||||||||||
Electronic banking charges |
| 5,128 |
| 5,415 |
| 10,193 |
| 10,382 | |||||||||||||||
Professional and service fees |
| 3,146 |
| 3,225 |
| 5,840 |
| 6,462 |
| 3,427 |
| 3,146 |
| 6,635 |
| 5,840 | |||||||
Occupancy and equipment |
| 9,166 |
| 8,538 |
| 16,934 |
| 15,735 | |||||||||||||||
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses |
| 2,584 |
| 2,289 |
| 5,950 |
| 5,934 | |||||||||||||||
Information technology expenses |
| 2,200 |
| 2,000 |
| 4,707 |
| 4,009 | |||||||||||||||
Taxes, other than payroll and income taxes |
| 2,142 |
| 2,384 |
| 4,295 |
| 4,645 | |||||||||||||||
Advertising, business promotion, and strategic initiatives |
| 1,315 |
| 1,024 |
| 2,526 |
| 2,371 | |||||||||||||||
Insurance |
| 1,482 |
| 1,183 |
| 2,960 |
| 2,783 |
| 1,277 |
| 1,482 |
| 2,423 |
| 2,960 | |||||||
Electronic banking charges |
| 5,415 |
| 5,450 |
| 10,382 |
| 10,352 | |||||||||||||||
Information technology expenses |
| 2,000 |
| 2,069 |
| 4,009 |
| 4,068 | |||||||||||||||
Advertising, business promotion, and strategic initiatives |
| 1,024 |
| 1,405 |
| 2,371 |
| 2,800 | |||||||||||||||
Loss on sale of foreclosed real estate and other repossessed assets |
| 392 |
| 1,787 |
| 1,618 |
| 3,113 | |||||||||||||||
Loan servicing and clearing expenses |
| 1,227 |
| 1,270 |
| 2,388 |
| 2,459 |
| 1,160 |
| 1,227 |
| 2,368 |
| 2,388 | |||||||
Taxes, other than payroll and income taxes |
| 2,384 |
| 2,393 |
| 4,645 |
| 4,764 | |||||||||||||||
Merger and restructuring charges |
| 1,000 |
| - |
| 1,000 |
| - | |||||||||||||||
Communication |
| 815 |
| 913 |
| 1,700 |
| 1,828 |
| 859 |
| 815 |
| 1,599 |
| 1,700 | |||||||
Printing, postage, stationary and supplies |
| 605 |
| 665 |
| 1,249 |
| 1,303 |
| 636 |
| 605 |
| 1,214 |
| 1,249 | |||||||
Director and investor relations |
| 337 |
| 274 |
| 577 |
| 554 |
| 330 |
| 337 |
| 560 |
| 577 | |||||||
Credit related expenses |
| 1,897 |
| 2,217 |
| 4,316 |
| 4,843 | |||||||||||||||
Other |
| 4,311 |
|
| 2,110 |
|
| 6,725 |
|
| 3,772 |
| 2,008 |
|
| 4,311 |
|
| 4,661 |
|
| 6,725 | |
Total non-interest expense |
| 52,300 |
|
| 52,816 |
|
| 104,421 |
|
| 104,500 |
| 51,452 |
|
| 52,300 |
|
| 103,604 |
|
| 104,421 | |
Income before income taxes |
| 29,244 |
|
| 21,097 |
|
| 54,171 |
|
| 45,451 |
| 34,876 |
|
| 29,244 |
|
| 69,920 |
|
| 54,171 | |
Income tax expense |
| 9,595 |
|
| 3,993 |
|
| 17,605 |
|
| 13,197 |
| 10,897 |
|
| 9,595 |
|
| 22,471 |
|
| 17,605 | |
Net income |
| 19,649 |
|
| 17,104 |
|
| 36,566 |
|
| 32,254 |
| 23,979 |
|
| 19,649 |
|
| 47,449 |
|
| 36,566 | |
Less: dividends on preferred stock |
| (3,465) |
|
| (3,466) |
|
| (6,930) |
|
| (6,931) |
| (1,628) |
|
| (3,465) |
|
| (3,256) |
|
| (6,930) | |
Income available to common shareholders | $ | 16,184 |
| $ | 13,638 |
| $ | 29,636 |
| $ | 25,323 | $ | 22,351 |
| $ | 16,184 |
| $ | 44,193 |
| $ | 29,636 | |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic | $ | 0.36 |
| $ | 0.30 |
| $ | 0.67 |
| $ | 0.58 | $ | 0.44 |
| $ | 0.36 |
| $ | 0.86 |
| $ | 0.67 | |
Diluted | $ | 0.35 |
| $ | 0.30 |
| $ | 0.65 |
| $ | 0.57 | $ | 0.43 |
| $ | 0.35 |
| $ | 0.86 |
| $ | 0.65 | |
Average common shares outstanding and equivalents |
| 51,226 |
|
| 51,100 |
|
| 51,157 |
|
| 51,093 |
| 51,680 |
|
| 51,226 |
|
| 51,652 |
|
| 51,157 | |
Cash dividends per share of common stock | $ | 0.06 |
| $ | 0.06 |
| $ | 0.12 |
| $ | 0.12 | $ | 0.07 |
| $ | 0.06 |
| $ | 0.14 |
| $ | 0.12 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
4
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
| (In thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 19,649 |
| $ | 17,104 |
| $ | 36,566 |
| $ | 32,254 |
Other comprehensive loss before tax: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on securities available-for-sale |
| (3,638) |
|
| 3,454 |
|
| (14,964) |
|
| 5,319 |
Realized gain on investment securities included in net income |
| - |
|
| (6,891) |
|
| - |
|
| (6,891) |
Unrealized gain (loss) on cash flow hedges |
| 275 |
|
| (102) |
|
| 931 |
|
| 81 |
Other comprehensive (loss) before taxes |
| (3,363) |
|
| (3,539) |
|
| (14,033) |
|
| (1,491) |
Income tax effect |
| 286 |
|
| (116) |
|
| 1,720 |
|
| (412) |
Other comprehensive (loss) after taxes |
| (3,077) |
|
| (3,655) |
|
| (12,313) |
|
| (1,903) |
Comprehensive income | $ | 16,572 |
| $ | 13,449 |
| $ | 24,253 |
| $ | 30,351 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
| Six-Month Period Ended June 30, | ||||||||
| 2019 |
| 2018 |
|
| 2019 |
| 2018 | ||||
| (In thousands) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 23,979 |
| $ | 19,649 |
|
| $ | 47,449 |
| $ | 36,566 |
Other comprehensive income before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available-for-sale |
| 10,578 |
|
| (3,638) |
|
|
| 13,952 |
|
| (14,964) |
Realized gain on sale of securities available-for-sale |
| (4,776) |
|
| - |
|
|
| (4,776) |
|
| - |
Unrealized (loss) gain on cash flow hedges |
| (629) |
|
| 275 |
|
|
| (972) |
|
| 931 |
Other comprehensive gain (loss) before taxes |
| 5,173 |
|
| (3,363) |
|
|
| 8,204 |
|
| (14,033) |
Income tax effect |
| (812) |
|
| 286 |
|
|
| (927) |
|
| 1,720 |
Other comprehensive income (loss) after taxes |
| 4,361 |
|
| (3,077) |
|
|
| 7,277 |
|
| (12,313) |
Comprehensive income | $ | 28,340 |
| $ | 16,572 |
|
| $ | 54,726 |
| $ | 24,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements |
5
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | |||||||||||||
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||
| (In thousands) | (In thousands) | |||||||||||||||
Preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 176,000 |
| $ | 176,000 |
| $ | 92,000 |
| $ | 176,000 |
| $ | 92,000 |
| $ | 176,000 |
Balance at end of period |
| 176,000 |
|
| 176,000 |
|
| 92,000 |
|
| 176,000 |
|
| 92,000 |
|
| 176,000 |
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 52,626 |
|
| 52,626 |
|
| 59,885 |
|
| 52,626 |
|
| 59,885 |
|
| 52,626 |
Balance at end of period |
| 52,626 |
|
| 52,626 |
|
| 59,885 |
|
| 52,626 |
|
| 59,885 |
|
| 52,626 |
Additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 541,600 |
| 540,948 |
|
| 619,828 |
| 541,404 |
|
| 619,381 |
| 541,600 | |||
Stock-based compensation expense |
| 635 |
| 515 |
|
| 540 |
| 343 |
|
| 987 |
| 635 | |||
Stock-based compensation excess tax benefit recognized in income |
| (140) |
| (100) |
|
| - |
| (13) |
|
| - |
| (140) | |||
Lapsed restricted stock units |
| (361) |
|
| (358) |
|
| - |
|
| - |
|
| - |
|
| (361) |
Balance at end of period |
| 541,734 |
|
| 541,005 |
|
| 620,368 |
|
| 541,734 |
|
| 620,368 |
|
| 541,734 |
Legal surplus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 81,454 |
| 76,293 |
|
| 92,621 |
| 83,138 |
|
| 90,167 |
| 81,454 | |||
Transfer from retained earnings |
| 3,795 |
|
| 3,167 |
|
| 2,398 |
|
| 2,111 |
|
| 4,852 |
|
| 3,795 |
Balance at end of period |
| 85,249 |
|
| 79,460 |
|
| 95,019 |
|
| 85,249 |
|
| 95,019 |
|
| 85,249 |
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 200,878 |
| 177,808 |
|
| 268,101 |
| 210,008 |
|
| 253,040 |
| 200,878 | |||
Lease standard initial adoption |
| - |
| - |
|
| (736) |
| - | ||||||||
Net income |
| 36,566 |
| 32,254 |
|
| 23,979 |
| 19,649 |
|
| 47,449 |
| 36,566 | |||
Cash dividends declared on common stock |
| (5,278) |
| (5,277) |
|
| (3,595) |
| (2,640) |
|
| (7,186) |
| (5,278) | |||
Cash dividends declared on preferred stock |
| (6,930) |
| (6,931) |
|
| (1,628) |
| (3,465) |
|
| (3,256) |
| (6,930) | |||
Transfer to legal surplus |
| (3,795) |
|
| (3,167) |
|
| (2,398) |
|
| (2,111) |
|
| (4,852) |
|
| (3,795) |
Balance at end of period |
| 221,441 |
|
| 194,687 |
|
| 284,459 |
|
| 221,441 |
|
| 284,459 |
|
| 221,441 |
Treasury stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| (104,502) |
| (104,860) |
|
| (103,196) |
| (104,142) |
|
| (103,633) |
| (104,502) | |||
Lapsed restricted stock units |
| 533 |
| 358 |
| ||||||||||||
Lapsed restricted stock units and options |
| 25 |
| 173 |
|
| 462 |
| 533 | ||||||||
Balance at end of period |
| (103,969) |
|
| (104,502) |
|
| (103,171) |
|
| (103,969) |
|
| (103,171) |
|
| (103,969) |
Accumulated other comprehensive (loss), net of tax: |
|
|
|
|
|
| |||||||||||
Accumulated other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of period |
| (2,949) |
| 1,596 |
|
| (8,047) |
| (12,185) |
|
| (10,963) |
| (2,949) | |||
Other comprehensive (loss), net of tax |
| (12,313) |
|
| (1,903) |
| |||||||||||
Other comprehensive (loss), net of tax: |
| 4,361 |
|
| (3,077) |
|
| 7,277 |
|
| (12,313) | ||||||
Balance at end of period |
| (15,262) |
|
| (307) |
|
| (3,686) |
|
| (15,262) |
|
| (3,686) |
|
| (15,262) |
Total stockholders’ equity | $ | 957,819 |
| $ | 938,969 |
| $ | 1,044,874 |
| $ | 957,819 |
| $ | 1,044,874 |
| $ | 957,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
| See notes to unaudited consolidated financial statements |
6
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, | Six-Month Period Ended June 30, | |||||||||
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | |||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 36,566 |
| $ | 32,254 |
| $ | 47,449 |
| $ | 36,566 |
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 |
| 2,296 |
| 1,457 |
|
| 1,951 |
| 2,296 | ||
Amortization of investment securities premiums, net of accretion of discounts |
| 3,045 |
| 4,362 |
|
| 2,602 |
| 3,045 | ||
Amortization of core deposit and customer relationship intangibles |
| 659 |
| 737 |
|
| 585 |
| 659 | ||
FDIC shared-loss benefit |
| - |
| (1,403) |
| ||||||
Net change in operating leases |
| 12 |
| - | |||||||
Depreciation and amortization of premises and equipment |
| 4,454 |
| 4,231 |
|
| 4,209 |
| 4,454 | ||
Deferred income tax expense, net |
| 4,001 |
| 7,570 |
|
| 1,689 |
| 4,001 | ||
Provision for loan and lease losses |
| 30,207 |
| 44,190 |
| ||||||
Provision for loan losses, net |
| 29,954 |
| 30,207 | |||||||
Stock-based compensation |
| 635 |
| 515 |
|
| 987 |
| 635 | ||
Stock-based compensation excess tax benefit recognized in income |
| (140) |
| (100) |
|
| - |
| (140) | ||
(Gain) loss on: |
|
|
|
|
|
|
|
|
| ||
Sale of mortgage loans held-for-sale |
| (185) |
| (517) |
| ||||||
Sale of securities |
| (4,776) |
| - | |||||||
Sale of loans |
| (256) |
| (185) | |||||||
Derivatives |
| - |
| (103) |
|
| 1 |
| - | ||
Sale of securities |
| - |
| (6,891) |
| ||||||
Early extinguishment of debt |
| - |
| 80 |
| ||||||
Foreclosed real estate |
| 1,436 |
| 3,453 |
| ||||||
Early extinguishment of repurchase agreements |
| 7 |
| - | |||||||
Foreclosed real estate and other repossessed assets |
| 1,821 |
| 1,436 | |||||||
Sale of other repossessed assets |
| (9) |
| (153) |
|
| (55) |
| (9) | ||
Sale of other assets |
| (44) |
| - |
|
| (29) |
| (44) | ||
Originations of loans held-for-sale |
| (47,929) |
| (74,806) |
|
| (38,290) |
| (47,929) | ||
Proceeds from sale of mortgage loans held-for-sale |
| 11,306 |
| 24,020 |
| ||||||
Proceeds from sale of loans held-for-sale |
| 9,735 |
| 11,306 | |||||||
Net (increase) decrease in: |
|
|
|
|
|
|
|
|
| ||
Trading securities |
| (227) |
| 53 |
|
| (52) |
| (227) | ||
Accrued interest receivable |
| 15,493 |
| 429 |
|
| 345 |
| 15,493 | ||
Servicing assets |
| (1,008) |
| (8) |
|
| 582 |
| (1,008) | ||
Other assets |
| 6,683 |
| 12,493 |
|
| 958 |
| 6,683 | ||
Net (decrease) in: |
|
|
|
|
|
|
|
|
| ||
Accrued interest on deposits and borrowings |
| (359) |
| (370) |
|
| (1,034) |
| (359) | ||
Accrued expenses and other liabilities |
| (18,419) |
|
| (45,858) |
|
| (24,027) |
|
| (18,419) |
Net cash provided by operating activities |
| 48,461 |
|
| 5,635 |
|
| 34,368 |
|
| 48,461 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
| See notes to unaudited consolidated financial statements |
7
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 20182019 AND 20172018 (CONTINUED)
| Six-Month Period Ended June 30, | Six-Month Period Ended June 30, | |||||||||
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | |||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchases of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| (259,665) |
| (114,595) |
|
| (784) |
| (259,665) | ||
FHLB stock |
| (99,365) |
| (26,730) |
|
| (1,167) |
| (99,365) | ||
Maturities and redemptions of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| 54,727 |
| 57,714 |
|
| 92,634 |
| 54,727 | ||
Investment securities held-to-maturity |
| 38,640 |
| 41,920 |
|
| - |
| 38,640 | ||
FHLB stock |
| 98,441 |
| 20,907 |
|
| 990 |
| 98,441 | ||
Proceeds from sales of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| - |
| 212,203 |
|
| 354,501 |
| - | ||
Foreclosed real estate and other repossessed assets, including write-offs |
| 25,059 |
| 21,754 |
|
| 24,452 |
| 25,059 | ||
Premises and equipment |
| 873 |
| - |
|
| 42 |
| 873 | ||
Origination and purchase of loans, excluding loans held-for-sale |
| (693,586) |
| (384,211) |
|
| (564,647) |
| (693,586) | ||
Principal repayment of loans |
| 382,191 |
| 367,834 |
|
| 463,287 |
| 382,191 | ||
Repayments to FDIC on shared-loss agreements |
| - |
| (10,125) |
| ||||||
Additions to premises and equipment |
| (3,597) |
|
| (3,660) |
|
| (6,331) |
|
| (3,597) |
Net cash (used in) provided by investing activities |
| (456,282) |
|
| 183,011 |
| |||||
Net cash provided by (used in) investing activities | $ | 362,977 |
| $ | (456,282) |
Cash flows from financing activities: |
|
|
|
|
|
Net increase (decrease) in: |
|
|
|
|
|
Deposits |
| 52,745 |
|
| 86,293 |
Securities sold under agreements to repurchase |
| (214,730) |
|
| 194,879 |
FHLB advances, federal funds purchased, and other borrowings |
| 1,585 |
|
| 28,816 |
Restricted units lapsed |
| 462 |
|
| 172 |
Dividends paid on preferred stock |
| (2,855) |
|
| (6,930) |
Dividends paid on common stock |
| (7,185) |
|
| (5,277) |
Net cash (used in) provided by financing activities | $ | (169,978) |
| $ | 297,953 |
Net change in cash, cash equivalents and restricted cash |
| 227,367 |
|
| (109,868) |
Cash, cash equivalents and restricted cash at beginning of period |
| 450,063 |
|
| 488,233 |
Cash, cash equivalents and restricted cash at end of period | $ | 677,430 |
| $ | 378,365 |
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 | $ | 668,896 |
| $ | 368,344 |
Money market investments |
| 7,485 |
|
| 6,991 |
Restricted cash |
| 1,049 |
|
| 3,030 |
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 677,430 |
| $ | 378,365 |
|
|
|
|
|
|
Interest paid | $ | 26,324 |
| $ | 19,095 |
Income taxes paid | $ | 29,371 |
| $ | 8,890 |
Operating lease liabilities paid | $ | 3,329 |
| $ | - |
Mortgage loans securitized into mortgage-backed securities | $ | 25,837 |
| $ | 37,618 |
Transfer from held-to-maturity securities to available-for-sale securities | $ | 424,740 |
| $ | - |
Transfer from loans to foreclosed real estate and other repossessed assets | $ | 22,183 |
| $ | 25,465 |
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio | $ | 1,383 |
| $ | - |
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio | $ | 49 |
| $ | 1,247 |
Financed sales of foreclosed real estate | $ | 703 |
| $ | 667 |
Loans booked under the GNMA buy-back option | $ | 11,675 |
| $ | 14,521 |
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 |
Cash flows from financing activities: |
|
|
|
|
|
|
Net increase (decrease) in: |
|
|
|
|
|
|
Deposits |
| 86,293 |
|
| (41,900) |
|
Securities sold under agreements to repurchase |
| 194,879 |
|
| (199,466) |
|
FHLB advances, federal funds purchased, and other borrowings |
| 28,816 |
|
| 32,194 |
|
Restricted units lapsed |
| 172 |
|
| - |
|
Dividends paid on preferred stock |
| (6,930) |
|
| (6,931) |
|
Dividends paid on common stock |
| (5,277) |
|
| (5,674) |
|
Net cash provided (used in) financing activities | $ | 297,953 |
| $ | (221,777) |
|
Net change in cash, cash equivalents and restricted cash |
| (109,868) |
|
| (33,131) |
|
Cash, cash equivalents and restricted cash at beginning of period |
| 488,233 |
|
| 513,469 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 378,365 |
| $ | 480,338 |
|
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities: |
|
|
|
|
|
|
Interest paid | $ | 19,095 |
| $ | 21,386 |
|
Income taxes paid | $ | 8,890 |
| $ | 15 |
|
Mortgage loans securitized into mortgage-backed securities | $ | 37,618 |
| $ | 49,648 |
|
Transfer from loans to foreclosed real estate and other repossessed assets | $ | 25,465 |
| $ | 28,293 |
|
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio | $ | - |
| $ | 33,647 |
|
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio | $ | 1,247 |
| $ | 112 |
|
Financed sales of foreclosed real estate | $ | 667 |
| $ | 534 |
|
Loans booked under the GNMA buy-back option | $ | 14,521 |
| $ | 9,229 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements |
|
8
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 (CONTINUED)
9
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 –ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION
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”), 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.” These acquired businesses have been integrated with Oriental’s existing business.
New Accounting Updates Adopted in 2019
Leases. In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), the FASB issued ASU No. 2016-02, under the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a 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 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 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 objective of enabling users of financial statements to assess the 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 are entered into after the beginning of the earliest comparative period in the financial statements. As Oriental elected the transition option provided in ASU No. 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 more information.
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.
9
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. 2017-12 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
Premium Amortization on Purchased Callable Debt Securities ReceivablesIntangibles—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 March 2017,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 No. 2017-08,2018-15 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 amortizationentity (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 tohosting arrangement, which includes reasonably certain renewals. This ASU is the earliest call date. The amortization periodfinal 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 atImplementation 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 iseffects of this standard on our consolidated statement of financial position, results of operations or cash flows are not expected to have abe material impact on Oriental's consolidated financial position or results of operations. At June 30, 2018, Oriental does not have callable debt securities..
Plan Accounting: Defined Benefit Pension PlansFair 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 ofDisclosure 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 intendedmodifies disclosure requirements related to reduce diversity and improve the usefulness of information provided by employee benefit plans that hold interestsfair value measurement. The amendments in master trusts. Thisthis ASU will be applied prospectivelyare effective for annualfiscal years, and interim periods inwithin those fiscal years, beginning after
10
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 resultswhile 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 adoptionThe effects of ASU 2017-04 will havethis standard on our consolidated statement of financial statements and related disclosures during this year.position, results of operations or cash flows are not expected to be material.
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'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 recently haveare currently in the implementation of our selected the software and are in the process of assessing the methodology to be used in order to develop an acceptable model to estimate the expected credit losses. After the model has been developed, revieweddevelopment and validated in accordance with our governance policies,validation. Oriental will keep disclosing relevant information of concerning implementation process and impact of ASU No. 2016-13, as well as the updating of policies, procedures and internal controls. Although Oriental expectscontrols, in preparation for performing a full parallel run during the allowance for credit losses to increase upon adoption with a corresponding adjustment to retained earnings,third quarter of 2019. Oriental’s preliminary evaluation indicates the ultimate amountprovisions of the increase will depend on the portfolio composition, credit quality, economic conditions and reasonable and supportable forecasts at that time.
10
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Leases. In February 2016, the FASB issued ASU No. 2016-02, the FASB issued ASU No. 2016-02, which requires lessees2016-13 are expected to recognize a right-of-use asset and related lease liability for leases classified as operating leases at the commencement date that have lease terms 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. Oriental plans to adopt this guidance effective January 1, 2019 using the required modified retrospective approach, which includes presenting the cumulative effect of initial application along with supplementary disclosures. As a lessor and lessee, we do not anticipate the classification of our leases to change, but we expect to recognize right-of-use assets and lease liabilities for substantially all of our operating lease commitments for which we are the lessee as a lease liability and corresponding right-of-use asset on our consolidated financial statements. Oriental has made substantial progress in reviewing contractual arrangements for embedded leases in an effort to identifyimpact Oriental’s full lease population and is presently evaluating all of its leases, as well as contracts that may contain embedded leases, for compliance with the new lease accounting rules. Oriental’s leases primarily consist of leased office space, and information technology equipment. At June 30, 2018, Oriental had $33.7 million of minimum lease commitments from these operating leases (refer to Note 20). Although Oriental is still evaluating the impact that the adoption of this accounting pronouncement will have on its consolidated financial statements, preliminarily itin particular the level of the reserve for credit losses. Oriental is continuing to evaluate the extent of the potential impact and expects that portfolio composition and economic conditions at the amounts to be recognized as right-of-use assets and lease liabilitiestime of adoption will be less than 1% of its total assets and is not expected to have a material impact on its regulatory capital.factor.
New Accounting Updates Adopted During the Six-month Period Ended June 30, 2018
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. The standard requires application using a retrospective transition method. The adoption of ASU No. 2016-18 on January 1, 2018, changed the presentation and classification of restricted cash and restricted cash equivalents in our consolidated statements of cash flows.
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), 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 recognized at the date 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. Oriental has adopted this ASU on January 1, 2018 using the modified retrospective method. Oriental’s implementation efforts included the identification of revenue streams that are within the scope of the new guidance and the review of related contracts with customers to determine their effect on certain non-interest income items presented in our consolidated statements of operations and the additional presentation disclosures required (refer to note 21). We concluded that substantially all of Oriental’s revenues are generated from activities that are outside the scope of this ASU, and the adoption did not have a material impact on our consolidated financial statements. Therefore, there was no cumulative effect adjustment recorded.
On June 26, 2019, Oriental entered into (i) a definitive Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of Nova Scotia (“BNS”), (ii) a definitive Sale and Purchase Agreement (USVI) (the “USVI Purchase Agreement”) with BNS and (iii) a definitive Sale and Purchase Agreement (PR) (the “PR Purchase Agreement” and, together with the Stock Purchase Agreement and the USVI Purchase Agreement, the “Purchase Agreements”) with BNS. This transaction is referred to as the “Scotiabank Transaction.”
Pursuant to the Stock Purchase Agreement, Oriental will acquire all of the issued and outstanding shares of common and preferred stock of Scotiabank de Puerto Rico, a bank chartered under the laws of Puerto Rico (“SBPR”). In addition, the Stock Purchase Agreement contemplates that, immediately following the closing, SBPR will merge with and into Oriental Bank, with Oriental Bank continuing as the surviving bank. Pursuant to the USVI Purchase Agreement, Oriental will acquire the banking operations of BNS in the U.S. Virgin Islands (“USVI”) through an acquisition of certain assets (including loans, ATMs and physical branch locations) and an assumption of certain liabilities (including deposits). Also, pursuant to the PR Purchase Agreement, Oriental agreed to acquire certain loans and other assets, and to assume certain deposits and other liabilities from the Puerto Rico branch of BNS. The unaudited consolidated financial statements do not contemplate the effect of the Scotiabank Transaction, which has not been consummated at June 30, 2019.
Closing of the Scotiabank Transaction is targeted for before year end 2019 and is subject to certain customary conditions, including the receipt of required regulatory approvals as described in the Purchase Agreements.
Under the Purchase Agreements, Oriental may be required to reimburse BNS for its reasonable and documented out-of-pocket transaction expenses not to exceed $2 million if the closing of the Scotiabank Transaction does not occur before one year after execution of the Purchase Agreements, subject to certain conditions. There can be no assurance as to when or whether the Scotiabank Transaction will be consummated and what amounts Oriental may be obligated to pay under the Scotiabank Transaction.
Hurricanes Irma and Maria
During 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. For several months after the hurricanes, a large part of Puerto Rico was and some areas still remain without electricity, many businesses were unable to operate, and government authorities struggled 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.
11
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2017 third and fourth quarter results included an additional loan loss provision of $27.0 million and $5.4 million, respectively.
Oriental implemented its disaster response plan as these storms 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 matters, property damages, and emergency communication with customers regarding the status of Bank operations. The estimated total non-credit operating costs as of December 31, 2017 amounted to $6.6 million. No additional losses have been incurred at June 30, 2018.
Oriental maintains insurance for casualty losses as well as for disaster response costs and certain revenue lost through business interruption. Management believes that recovery of $2.2 million incurred costs as of December 31, 2017 is probable. Oriental received a $1.0 million partial payment from the insurance company during the quarter ended December 2017 and a $0.7 million payment during the six-month period ended June 30, 2018. Accordingly, a receivable of $0.5 million and $1.2 million was included in other assets at June 30, 2018 and December 31, 2017, respectively, for the expected recovery.
The following table includes the composition of Oriental’s restricted cash:cash:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Cash pledged as collateral to other financial institutions to secure: |
|
|
|
|
|
|
|
|
|
|
Derivatives | $ | 1,980 |
| $ | 1,980 | $ | - |
| $ | 1,980 |
Obligations under agreement of loans sold with recourse |
| 1,050 |
|
| 1,050 |
| 1,049 |
|
| 1,050 |
| $ | 3,030 |
| $ | 3,030 | $ | 1,049 |
| $ | 3,030 |
At both June 30, 20182019 and December 31, 2017, 2018, the Bank’s international banking entities, Oriental International Bank Inc. (“OIB”)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 $300305 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""OCFI").
As part of its derivative activities, Oriental has enteredenters into collateral agreements with certain financial counterparties. At both June 30, 2018 and2019 collateral agreements have expired. At December 31, 2017,2018, 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 June 30, 20182019 and December 31, 2017,2018, Oriental delivered as collateral cash amounting to approximately $1.0 million and $1.1 million.million, respectively.
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 June 30, 20182019 was $219.7$208.3 million (December 31, 20172018 - $189.2$211.6 million). At June 30, 20182019 and December 31, 2017,2018, the Bank complied with thethis requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.
12
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 4 – 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 both, June 30, 20182019 and December 31, 2017,2018, money market instruments included as part of cash and cash equivalents amounted to $7.0 million.$7.5 million and $4.9 million, respectively.
12
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Investment Securities
The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by Oriental at June 30, 20182019 and December 31, 20172018 were as follows:
| June 30, 2018 | June 30, 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 | $ | 600,978 |
| $ | 266 |
| $ | 11,571 |
| $ | 589,673 |
| 2.58% | $ | 694,431 |
| $ | 1,277 |
| $ | 5,352 |
| $ | 690,356 |
| 2.19% |
GNMA certificates |
| 198,301 |
| 459 |
| 3,902 |
| 194,858 |
| 3.03% |
| 93,126 |
| 1,228 |
| 7 |
| 94,347 |
| 2.84% | ||||||
CMOs issued by US government-sponsored agencies |
| 74,147 |
|
| - |
|
| 2,992 |
|
| 71,155 |
| 1.90% |
| 59,238 |
|
| - |
|
| 608 |
|
| 58,630 |
| 1.90% |
Total mortgage-backed securities |
| 873,426 |
|
| 725 |
|
| 18,465 |
|
| 855,686 |
| 2.62% |
| 846,795 |
|
| 2,505 |
|
| 5,967 |
|
| 843,333 |
| 2.24% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities |
| 10,610 |
| - |
| 161 |
| 10,449 |
| 1.30% |
| 10,938 |
| 1 |
| 32 |
| 10,907 |
| 1.36% | ||||||
Obligations of US government-sponsored agencies |
| 2,622 |
| - |
| 81 |
| 2,541 |
| 1.38% |
| 2,147 |
| - |
| 16 |
| 2,131 |
| 1.38% | ||||||
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
| - |
| - |
| 2,455 |
| 5.55% | ||||||||||||||||
Other debt securities |
| 1,195 |
|
| 15 |
|
| - |
|
| 1,210 |
| 2.95% |
| 1,031 |
|
| 31 |
|
| - |
|
| 1,062 |
| 2.97% |
Total investment securities |
| 16,882 |
|
| 15 |
|
| 242 |
|
| 16,655 |
| 2.05% |
| 14,116 |
|
| 32 |
|
| 48 |
|
| 14,100 |
| 1.48% |
Total securities available for sale | $ | 890,308 |
| $ | 740 |
| $ | 18,707 |
| $ | 872,341 |
| 2.61% | $ | 860,911 |
| $ | 2,537 |
| $ | 6,015 |
| $ | 857,433 |
| 2.23% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Held-to-maturity |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
FNMA and FHLMC certificates | $ | 465,427 |
| $ | - |
| $ | 17,480 |
| $ | 447,947 |
| 2.07% |
13
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | 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 | $ | 383,194 |
| $ | 1,402 |
| $ | 2,881 |
| $ | 381,715 |
| 2.39% | $ | 561,878 |
| $ | 404 |
| $ | 8,951 |
| $ | 553,331 |
| 2.59% |
GNMA certificates |
| 166,436 |
| 1,486 |
| 584 |
| 167,338 |
| 2.94% |
| 211,947 |
| 1,050 |
| 2,827 |
| 210,170 |
| 3.10% | ||||||
CMOs issued by US government-sponsored agencies |
| 82,026 |
|
| - |
|
| 1,955 |
|
| 80,071 |
| 1.90% |
| 66,230 |
|
| - |
|
| 2,166 |
|
| 64,064 |
| 1.90% |
Total mortgage-backed securities |
| 631,656 |
|
| 2,888 |
|
| 5,420 |
|
| 629,124 |
| 2.47% |
| 840,055 |
|
| 1,454 |
|
| 13,944 |
|
| 827,565 |
| 2.66% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities |
| 10,276 |
| - |
| 113 |
| 10,163 |
| 1.25% |
| 10,924 |
| - |
| 119 |
| 10,805 |
| 1.36% | ||||||
Obligations of US government-sponsored agencies |
| 2,927 |
| - |
| 48 |
| 2,879 |
| 1.38% |
| 2,325 |
| - |
| 60 |
| 2,265 |
| 1.38% | ||||||
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
| - |
| 362 |
| 2,093 |
| 5.55% | ||||||||||||||||
Other debt securities |
| 1,486 |
|
| 52 |
|
| - |
|
| 1,538 |
| 2.97% |
| 1,207 |
|
| 15 |
|
| - |
|
| 1,222 |
| 2.99% |
Total investment securities |
| 17,144 |
|
| 52 |
|
| 523 |
|
| 16,673 |
| 2.04% |
| 14,456 |
|
| 15 |
|
| 179 |
|
| 14,292 |
| 1.50% |
Total securities available-for-sale | $ | 648,800 |
| $ | 2,940 |
| $ | 5,943 |
| $ | 645,797 |
| 2.46% | $ | 854,511 |
| $ | 1,469 |
| $ | 14,123 |
| $ | 841,857 |
| 2.64% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FNMA and FHLMC certificates | $ | 506,064 |
| $ | - |
| $ | 8,383 |
| $ | 497,681 |
| 2.07% | $ | 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 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 June 30, 2018,2019, 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.
| June 30, 2019 | ||||
| Available-for-sale | ||||
| Amortized Cost |
| Fair Value | ||
| (In thousands) | ||||
Mortgage-backed securities |
|
|
|
|
|
Due from 1 to 5 years |
|
|
|
|
|
FNMA and FHLMC certificates | $ | 2,509 |
| $ | 2,536 |
Total due from 1 to 5 years |
| 2,509 |
|
| 2,536 |
Due after 5 to 10 years |
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 52,094 |
| $ | 51,538 |
FNMA and FHLMC certificates |
| 192,744 |
|
| 192,666 |
Total due after 5 to 10 years |
| 244,838 |
|
| 244,204 |
Due after 10 years |
|
|
|
|
|
FNMA and FHLMC certificates | $ | 499,178 |
| $ | 495,154 |
GNMA certificates |
| 93,126 |
|
| 94,347 |
CMOs issued by US government-sponsored agencies |
| 7,144 |
|
| 7,092 |
Total due after 10 years |
| 599,448 |
|
| 596,593 |
Total mortgage-backed securities |
| 846,795 |
|
| 843,333 |
Investment securities |
|
|
|
|
|
Due less than one year |
|
|
|
|
|
US Treasury securities | $ | 10,938 |
| $ | 10,907 |
Total due in less than one year |
| 10,938 |
|
| 10,907 |
Due from 1 to 5 years |
|
|
|
|
|
Obligations of US government-sponsored agencies | $ | 2,147 |
| $ | 2,131 |
Other debt securities |
| 100 |
|
| 100 |
Total due from 1 to 5 years |
| 2,247 |
|
| 2,231 |
Due from 5 to 10 years |
|
|
|
|
|
Other debt securities |
| 931 |
|
| 962 |
Total due after 5 to 10 years |
| 931 |
|
| 962 |
Total investment securities |
| 14,116 |
|
| 14,100 |
Total | $ | 860,911 |
| $ | 857,433 |
14
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 2018 | ||||||||||
| Available-for-sale |
| Held-to-maturity | ||||||||
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
| (In thousands) | ||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Due from 1 to 5 years |
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 4,907 |
| $ | 4,833 |
| $ | - |
| $ | - |
Total due from 1 to 5 years |
| 4,907 |
|
| 4,833 |
|
| - |
|
| - |
Due after 5 to 10 years |
|
|
|
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 65,480 |
| $ | 62,680 |
| $ | - |
| $ | - |
FNMA and FHLMC certificates |
| 227,886 |
|
| 223,185 |
|
| - |
|
| - |
Total due after 5 to 10 years |
| 293,366 |
|
| 285,865 |
|
| - |
|
| - |
Due after 10 years |
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 368,185 |
| $ | 361,655 |
| $ | 465,427 |
| $ | 447,947 |
GNMA certificates |
| 198,301 |
|
| 194,858 |
|
| - |
|
| - |
CMOs issued by US government-sponsored agencies |
| 8,667 |
|
| 8,475 |
|
| - |
|
| - |
Total due after 10 years |
| 575,153 |
|
| 564,988 |
|
| 465,427 |
|
| 447,947 |
Total mortgage-backed securities |
| 873,426 |
|
| 855,686 |
|
| 465,427 |
|
| 447,947 |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
Due less than one year |
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | 646 |
| $ | 646 |
| $ | - |
| $ | - |
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
|
| 2,455 |
|
| - |
|
| - |
Total due in less than one year |
| 3,101 |
|
| 3,101 |
|
| - |
|
| - |
Due from 1 to 5 years |
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | 9,964 |
| $ | 9,803 |
| $ | - |
| $ | - |
Obligations of US government and sponsored agencies |
| 2,622 |
|
| 2,541 |
|
| - |
|
| - |
Total due from 1 to 5 years |
| 12,586 |
|
| 12,344 |
|
| - |
|
| - |
Due from 5 to 10 years |
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
| 1,195 |
|
| 1,210 |
|
| - |
|
| - |
Total due after 5 to 10 years |
| 1,195 |
|
| 1,210 |
|
| - |
|
| - |
Total investment securities |
| 16,882 |
|
| 16,655 |
|
| - |
|
| - |
Total | $ | 890,308 |
| $ | 872,341 |
| $ | 465,427 |
| $ | 447,947 |
|
|
|
|
|
|
|
|
|
|
|
|
During the six-month period ended June 30, 2018,2019, Oriental retained securitized GNMA pools totaling $$25.737.6 million amortized cost, at a yield of 3.453.69% from its own originations while, during the six-month period ended June 30, 2017, 2018 that amount totaled $49.8 $37.6million amortized cost, at a yield of 3.153.45%.
During the six-month periodquarter ended June 30, 2017, 2019 Oriental sold $166.0$349.7 million ofavailable-for-sale mortgage-backed securities and $39.3 million of US Treasury securities, and recordedrecognized a net gain onin the sale of securities of $6.9$4.8 million. During the quarters ended June 30, 2019 and 2018 and the six-month period ended June 30, 2018, Oriental did not sell any mortgage-backed securities or investment securities.
| Six-Month Period Ended June 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 |
| 39,409 |
|
| 39,297 |
|
| 112 |
|
| - |
Total mortgage-backed securities | $ | 212,203 |
| $ | 205,312 |
| $ | 6,891 |
| $ | - |
15
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 30, 2019 | ||||||||||
|
|
| 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 | $ | 213,376 |
| $ | 211,549 |
| $ | 1,827 |
| $ | - |
GNMA certificates | $ | 141,125 |
| $ | 138,177 |
| $ | 2,949 |
| $ | - |
Total | $ | 354,501 |
| $ | 349,726 |
| $ | 4,776 |
| $ | - |
1615
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables show Oriental’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity at June 30, 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 June 30, 2018 and December 31, 2017:position:
| June 30, 2018 | June 30, 2019 | ||||||||||||||
| 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 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CMOs issued by US Government-sponsored agencies | $ | 66,298 |
| $ | 2,822 |
| $ | 63,476 | $ | 59,238 |
| $ | 608 |
| $ | 58,630 |
FNMA and FHLMC certificates |
| 101,571 |
| 4,296 |
| 97,275 |
| 480,959 |
| 5,352 |
| 475,607 | ||||
Obligations of US Government and sponsored agencies |
| 2,622 |
| 81 |
| 2,541 |
| 2,147 |
| 16 |
| 2,131 | ||||
GNMA certificates |
| 20,388 |
| 1,055 |
| 19,333 |
| 4,181 |
| 6 |
| 4,175 | ||||
US Treasury Securities |
| 9,964 |
|
| 161 |
|
| 9,803 |
| 9,990 |
|
| 32 |
|
| 9,958 |
| $ | 200,843 |
| $ | 8,415 |
| $ | 192,428 | $ | 556,515 |
| $ | 6,014 |
| $ | 550,501 |
Securities held to maturity |
|
|
|
|
|
|
|
| ||||||||
FNMA and FHLMC certificates | $ | 324,963 |
| $ | 13,594 |
| $ | 311,369 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Less than 12 months | Less than 12 months | ||||||||||||||
| 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 | $ | 7,849 |
| $ | 170 |
| $ | 7,679 | ||||||||
FNMA and FHLMC certificates |
| 413,181 |
| 7,275 |
| 405,906 | ||||||||||
GNMA certificates |
| 142,431 |
| 2,847 |
| 139,584 |
| 20 |
|
| 1 |
|
| 19 | ||
US Treasury Securities |
| 324 |
|
| - |
|
| 324 | ||||||||
| $ | 563,785 |
| $ | 10,292 |
| $ | 553,493 | $ | 20 |
| $ | 1 |
| $ | 19 |
Securities held-to-maturity |
|
|
|
|
|
|
|
| ||||||||
FNMA and FHLMC Certificates | $ | 140,464 |
| $ | 3,886 |
| $ | 136,578 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Total | 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 | $ | 74,147 |
| $ | 2,992 |
| $ | 71,155 | $ | 59,238 |
| $ | 608 |
| $ | 58,630 |
FNMA and FHLMC certificates |
| 514,752 |
| 11,571 |
| 503,181 |
| 480,959 |
| 5,352 |
| 475,607 | ||||
Obligations of US government and sponsored agencies |
| 2,622 |
| 81 |
| 2,541 |
| 2,147 |
| 16 |
| 2,131 | ||||
GNMA certificates |
| 162,819 |
| 3,902 |
| 158,917 |
| 4,201 |
| 7 |
| 4,194 | ||||
US Treausury Securities |
| 10,288 |
|
| 161 |
|
| 10,127 | ||||||||
US Treasury Securities |
| 9,990 |
|
| 32 |
|
| 9,958 | ||||||||
| $ | 764,628 |
| $ | 18,707 |
| $ | 745,921 | $ | 556,535 |
| $ | 6,015 |
| $ | 550,520 |
Securities held-to-maturity |
|
|
|
|
|
|
|
| ||||||||
FNMA and FHLMC certificates | $ | 465,427 |
| $ | 17,480 |
| $ | 447,947 |
1716
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | 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 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CMOs issued by US Government-sponsored agencies | $ | 72,562 |
| $ | 1,857 |
| $ | 70,705 | $ | 66,230 |
| $ | 2,166 |
| $ | 64,064 |
FNMA and FHLMC certificates |
| 111,635 |
| 2,122 |
| 109,513 |
| 357,955 |
| 8,603 |
| 349,352 | ||||
Obligations of US Government and sponsored agencies |
| 2,927 |
| 48 |
| 2,879 |
| 2,325 |
| 60 |
| 2,265 | ||||
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
| 362 |
| 2,093 | ||||||||||
GNMA certificates |
| 20,803 |
| 499 |
| 20,304 |
| 131,044 |
| 2,739 |
| 128,305 | ||||
US Treasury Securities |
| 9,952 |
|
| 113 |
|
| 9,839 |
| 9,977 |
|
| 119 |
|
| 9,858 |
| $ | 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 | |||||||||||
| $ | 220,334 |
| $ | 5,001 |
| $ | 215,333 | Cost |
| Loss |
| Value | |||
|
|
|
|
|
|
|
|
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||
FNMA and FHLMC certificates | $ | 352,399 |
|
| 7,264 |
|
| 345,135 |
| 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 |
| 9,464 |
| 98 |
| 9,366 |
| 66,230 |
| 2,166 |
| 64,064 | ||||
FNMA and FHLMC certificates |
| 125,107 |
| 759 |
| 124,348 |
| 467,727 |
| 8,951 |
| 458,776 | ||||
Obligations of US government and sponsored agencies |
| 2,325 |
| 60 |
| 2,265 | ||||||||||
GNMA certificates |
| 14,001 |
| 85 |
| 13,916 |
| 148,170 |
| 2,827 |
| 145,343 | ||||
US Treasury Securities |
| 324 |
|
| - |
|
| 324 |
| 10,300 |
|
| 119 |
|
| 10,181 |
| $ | 148,896 |
| $ | 942 |
| $ | 147,954 | $ | 694,752 |
| $ | 14,123 |
| $ | 680,629 |
Securities held to maturity |
|
|
|
|
|
|
|
| ||||||||
Securities held-to-maturity |
|
|
|
|
|
|
|
| ||||||||
FNMA and FHLMC certificates | $ | 153,665 |
| $ | 1,119 |
| $ | 152,546 | $ | 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 |
| 82,026 |
| 1,955 |
| 80,071 | ||||||||||
FNMA and FHLMC certificates |
| 236,742 |
| 2,881 |
| 233,861 | ||||||||||
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
| 362 |
| 2,093 | ||||||||||
Obligations of US government and sponsored agencies |
| 2,927 |
| 48 |
| 2,879 | ||||||||||
GNMA certificates |
| 34,804 |
| 584 |
| 34,220 | ||||||||||
US Treausury Securities |
| 10,276 |
|
| 113 |
|
| 10,163 | ||||||||
| $ | 369,230 |
| $ | 5,943 |
| $ | 363,287 | ||||||||
Securities held to maturity |
|
|
|
|
|
|
|
| ||||||||
FNMA and FHLMC certificates | $ | 506,064 |
| $ | 8,383 |
| $ | 497,681 |
1817
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 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.
All of the investments ($1.2 556.5billion, million, amortized cost) with an unrealized loss position at June 30, 20182019 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 a Puerto Rico government bond ($2.5 million, amortized cost) at June 30, 2018, 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 PRHTA bond had an aggregate fair value of $2.5 million at June 30, 2018 and matured on July 1, 2018. The full payment was received on July 2, 2018.
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.
18
The composition of Oriental’s loan portfolio at June 30, 20182019 and December 31, 20172018 was as followsfollows::
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
Mortgage | $ | 635,616 |
| $ | 668,809 |
Commercial |
| 1,616,973 |
|
| 1,597,588 |
Consumer |
| 356,110 |
|
| 348,980 |
Auto and leasing |
| 1,218,070 |
|
| 1,129,695 |
|
| 3,826,769 |
|
| 3,745,072 |
Allowance for loan and lease losses on originated and other loans and leases |
| (89,952) |
|
| (95,188) |
|
| 3,736,817 |
|
| 3,649,884 |
Deferred loan costs, net |
| 9,251 |
|
| 7,740 |
Total originated and other loans held for investment, net |
| 3,746,068 |
|
| 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 |
| 2,249 |
|
| 2,546 |
Consumer |
| 21,966 |
|
| 23,988 |
Auto |
| 996 |
|
| 4,435 |
|
| 25,211 |
|
| 30,969 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (1,685) |
|
| (2,062) |
|
| 23,526 |
|
| 28,907 |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
Mortgage |
| 476,081 |
|
| 492,890 |
Commercial |
| 169,481 |
|
| 182,319 |
Auto |
| 6,462 |
|
| 14,403 |
|
| 652,024 |
|
| 689,612 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (45,427) |
|
| (42,010) |
|
| 606,597 |
|
| 647,602 |
Total acquired BBVAPR loans, net |
| 630,123 |
|
| 676,509 |
Acquired Eurobank loans: |
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 61,920 |
|
| 63,392 |
Commercial |
| 46,421 |
|
| 47,826 |
Consumer |
| 867 |
|
| 846 |
Total acquired Eurobank loans |
| 109,208 |
|
| 112,064 |
Allowance for loan and lease losses on Eurobank loans |
| (25,578) |
|
| (24,971) |
Total acquired Eurobank loans, net |
| 83,630 |
|
| 87,093 |
Total acquired loans, net |
| 713,753 |
|
| 763,602 |
Total held for investment, net |
| 4,459,821 |
|
| 4,421,226 |
Mortgage loans held-for-sale |
| 14,676 |
|
| 10,368 |
Total loans, net | $ | 4,474,497 |
| $ | 4,431,594 |
19
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, |
| December 31, | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
Mortgage | $ | 678,259 |
| $ | 683,607 |
Commercial |
| 1,507,368 |
|
| 1,307,261 |
Consumer |
| 339,341 |
|
| 330,039 |
Auto and leasing |
| 1,014,664 |
|
| 883,985 |
|
| 3,539,632 |
|
| 3,204,892 |
Allowance for loan and lease losses on originated and other loans and leases |
| (94,218) |
|
| (92,718) |
|
| 3,445,414 |
|
| 3,112,174 |
Deferred loan costs, net |
| 7,028 |
|
| 6,695 |
Total originated and other loans held for investment, net |
| 3,452,442 |
|
| 3,118,869 |
Acquired loans: |
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
Commercial |
| 2,909 |
|
| 4,380 |
Consumer |
| 25,736 |
|
| 28,915 |
Auto |
| 11,283 |
|
| 21,969 |
|
| 39,928 |
|
| 55,264 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (2,726) |
|
| (3,862) |
|
| 37,202 |
|
| 51,402 |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
Mortgage |
| 516,934 |
|
| 532,053 |
Commercial |
| 223,853 |
|
| 243,092 |
Consumer |
| 495 |
|
| 1,431 |
Auto |
| 26,937 |
|
| 43,696 |
|
| 768,219 |
|
| 820,272 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (44,176) |
|
| (45,755) |
|
| 724,043 |
|
| 774,517 |
Total acquired BBVAPR loans, net |
| 761,245 |
|
| 825,919 |
Acquired Eurobank loans: |
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 65,637 |
|
| 69,538 |
Commercial |
| 49,706 |
|
| 53,793 |
Consumer |
| 935 |
|
| 1,112 |
Total acquired Eurobank loans |
| 116,278 |
|
| 124,443 |
Allowance for loan and lease losses on Eurobank loans |
| (24,314) |
|
| (25,174) |
Total acquired Eurobank loans, net |
| 91,964 |
|
| 99,269 |
Total acquired loans, net |
| 853,209 |
|
| 925,188 |
Total held for investment, net |
| 4,305,651 |
|
| 4,044,057 |
Mortgage loans held-for-sale |
| 10,215 |
|
| 12,272 |
Total loans, net | $ | 4,315,866 |
| $ | 4,056,329 |
|
|
|
|
|
|
20
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As a result of the devastation caused by hurricanes Irma and Maria, Oriental offered an automatic three-month moratorium for the payment due on certain loans. The level of delinquencies for mortgage and auto loans as of December 31, 2017 was impacted by the loan moratorium. Aging of current and early delinquent loans in moratorium were frozen at September 30, 2017, throughout the moratorium period. In addition, although the repayment schedule was modified as part of the moratorium, certain borrowers continued to make payments shortly after the moratorium, having an impact on the respective delinquency status at December 31, 2017. At June 30, 2018, most of the loan moratoriums have expired, and total delinquency levels are returning to pre-hurricane levels.
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 tables below present the aging of the recorded investment in gross originated and other loans held for investment atat June 30, 20182019 and December 31, 2017,2018, 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.
20
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 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 | $ | 291 |
| $ | 614 |
| $ | 2,850 |
| $ | 3,755 |
| $ | 34,667 |
| $ | 38,422 |
| $ | 228 |
Years 2003 and 2004 |
| 82 |
|
| 2,576 |
|
| 4,756 |
|
| 7,414 |
|
| 63,642 |
|
| 71,056 |
|
| - |
Year 2005 |
| 83 |
|
| 1,599 |
|
| 2,991 |
|
| 4,673 |
|
| 32,597 |
|
| 37,270 |
|
| - |
Year 2006 |
| - |
|
| 1,496 |
|
| 4,283 |
|
| 5,779 |
|
| 47,234 |
|
| 53,013 |
|
| - |
Years 2007, 2008 and 2009 |
| 224 |
|
| 398 |
|
| 4,305 |
|
| 4,927 |
|
| 50,811 |
|
| 55,738 |
|
| 196 |
Years 2010, 2011, 2012, 2013 |
| 224 |
|
| 784 |
|
| 6,618 |
|
| 7,626 |
|
| 97,428 |
|
| 105,054 |
|
| 320 |
Years 2014, 2015, 2016, 2017 and 2018 |
| - |
|
| 491 |
|
| 1,893 |
|
| 2,384 |
|
| 141,205 |
|
| 143,589 |
|
| - |
|
| 904 |
|
| 7,958 |
|
| 27,696 |
|
| 36,558 |
|
| 467,584 |
|
| 504,142 |
|
| 744 |
Non-traditional |
| - |
|
| 115 |
|
| 3,439 |
|
| 3,554 |
|
| 9,339 |
|
| 12,893 |
|
| - |
Loss mitigation program |
| 9,371 |
|
| 5,955 |
|
| 14,926 |
|
| 30,252 |
|
| 76,422 |
|
| 106,674 |
|
| 1,381 |
|
| 10,275 |
|
| 14,028 |
|
| 46,061 |
|
| 70,364 |
|
| 553,345 |
|
| 623,709 |
|
| 2,125 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 232 |
|
| 232 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 11,675 |
|
| 11,675 |
|
| - |
|
| 11,675 |
|
| - |
|
| 10,275 |
|
| 14,028 |
|
| 57,736 |
|
| 82,039 |
|
| 553,577 |
|
| 635,616 |
|
| 2,125 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| 8,883 |
|
| 8,883 |
|
| 254,560 |
|
| 263,443 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 73,213 |
|
| 73,213 |
|
| - |
Middle market |
| - |
|
| 500 |
|
| 5,334 |
|
| 5,834 |
|
| 203,853 |
|
| 209,687 |
|
| - |
Retail |
| 913 |
|
| 220 |
|
| 6,543 |
|
| 7,676 |
|
| 230,623 |
|
| 238,299 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,100 |
|
| 3,100 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 18,317 |
|
| 18,317 |
|
| - |
|
| 913 |
|
| 720 |
|
| 20,760 |
|
| 22,393 |
|
| 783,666 |
|
| 806,059 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 148,747 |
|
| 148,747 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 158,462 |
|
| 158,462 |
|
| - |
Middle market |
| 42 |
|
| 250 |
|
| 4,826 |
|
| 5,118 |
|
| 81,754 |
|
| 86,872 |
|
| - |
Retail |
| 562 |
|
| 197 |
|
| 428 |
|
| 1,187 |
|
| 368,766 |
|
| 369,953 |
|
| - |
Floor plan |
| 39 |
|
| 15 |
|
| 6 |
|
| 60 |
|
| 46,820 |
|
| 46,880 |
|
| - |
|
| 643 |
|
| 462 |
|
| 5,260 |
|
| 6,365 |
|
| 804,549 |
|
| 810,914 |
|
| - |
|
| 1,556 |
|
| 1,182 |
|
| 26,020 |
|
| 28,758 |
|
| 1,588,215 |
|
| 1,616,973 |
|
| - |
21
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 | $ | 165 |
| $ | 1,397 |
| $ | 3,539 |
| $ | 5,101 |
| $ | 38,932 |
| $ | 44,033 |
| $ | 242 |
Years 2003 and 2004 |
| 83 |
|
| 1,624 |
|
| 5,907 |
|
| 7,614 |
|
| 71,750 |
|
| 79,364 |
|
| - |
Year 2005 |
| - |
|
| 831 |
|
| 4,125 |
|
| 4,956 |
|
| 37,488 |
|
| 42,444 |
|
| 68 |
Year 2006 |
| 350 |
|
| 1,603 |
|
| 4,783 |
|
| 6,736 |
|
| 52,292 |
|
| 59,028 |
|
| - |
Years 2007, 2008 and 2009 |
| 112 |
|
| 1,360 |
|
| 7,443 |
|
| 8,915 |
|
| 56,154 |
|
| 65,069 |
|
| 57 |
Years 2010, 2011, 2012, 2013 |
| 350 |
|
| 719 |
|
| 8,638 |
|
| 9,707 |
|
| 111,791 |
|
| 121,498 |
|
| 366 |
Years 2014, 2015, 2016, 2017 and 2018 |
| - |
|
| 132 |
|
| 1,593 |
|
| 1,725 |
|
| 128,731 |
|
| 130,456 |
|
| - |
|
| 1,060 |
|
| 7,666 |
|
| 36,028 |
|
| 44,754 |
|
| 497,138 |
|
| 541,892 |
|
| 733 |
Non-traditional |
| - |
|
| - |
|
| 3,131 |
|
| 3,131 |
|
| 12,363 |
|
| 15,494 |
|
| - |
Loss mitigation program |
| 12,147 |
|
| 5,135 |
|
| 18,539 |
|
| 35,821 |
|
| 70,274 |
|
| 106,095 |
|
| 2,726 |
|
| 13,207 |
|
| 12,801 |
|
| 57,698 |
|
| 83,706 |
|
| 579,775 |
|
| 663,481 |
|
| 3,459 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 257 |
|
| 257 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 14,521 |
|
| 14,521 |
|
| - |
|
| 14,521 |
|
| - |
|
| 13,207 |
|
| 12,801 |
|
| 72,219 |
|
| 98,227 |
|
| 580,032 |
|
| 678,259 |
|
| 3,459 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 274,435 |
|
| 274,435 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 81,019 |
|
| 81,019 |
|
| - |
Middle market |
| - |
|
| - |
|
| 5,602 |
|
| 5,602 |
|
| 188,671 |
|
| 194,273 |
|
| - |
Retail |
| 1,240 |
|
| 473 |
|
| 9,327 |
|
| 11,040 |
|
| 205,450 |
|
| 216,490 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 4,017 |
|
| 4,017 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 15,157 |
|
| 15,157 |
|
| - |
|
| 1,240 |
|
| 473 |
|
| 14,929 |
|
| 16,642 |
|
| 768,749 |
|
| 785,391 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 190,414 |
|
| 190,414 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 113,810 |
|
| 113,810 |
|
| - |
Middle market |
| 7,233 |
|
| 174 |
|
| 881 |
|
| 8,288 |
|
| 86,691 |
|
| 94,979 |
|
| - |
Retail |
| 341 |
|
| 212 |
|
| 709 |
|
| 1,262 |
|
| 283,334 |
|
| 284,596 |
|
| - |
Floor plan |
| 26 |
|
| - |
|
| 51 |
|
| 77 |
|
| 38,101 |
|
| 38,178 |
|
| - |
|
| 7,600 |
|
| 386 |
|
| 1,641 |
|
| 9,627 |
|
| 712,350 |
|
| 721,977 |
|
| - |
|
| 8,840 |
|
| 859 |
|
| 16,570 |
|
| 26,269 |
|
| 1,481,099 |
|
| 1,507,368 |
|
| - |
| June 30, 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) |
|
|
| ||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards | $ | 709 |
| $ | 286 |
| $ | 572 |
| $ | 1,567 |
| $ | 26,321 |
| $ | 27,888 |
| $ | - |
Overdrafts |
| 30 |
|
| - |
|
| - |
|
| 30 |
|
| 154 |
|
| 184 |
|
| - |
Personal lines of credit |
| 91 |
|
| 25 |
|
| 28 |
|
| 144 |
|
| 1,859 |
|
| 2,003 |
|
| - |
Personal loans |
| 4,996 |
|
| 2,237 |
|
| 1,225 |
|
| 8,458 |
|
| 301,522 |
|
| 309,980 |
|
| - |
Cash collateral personal loans |
| 233 |
|
| 10 |
|
| 374 |
|
| 617 |
|
| 15,438 |
|
| 16,055 |
|
| - |
|
| 6,059 |
|
| 2,558 |
|
| 2,199 |
|
| 10,816 |
|
| 345,294 |
|
| 356,110 |
|
| - |
Auto and leasing |
| 69,495 |
|
| 29,130 |
|
| 12,021 |
|
| 110,646 |
|
| 1,107,424 |
|
| 1,218,070 |
|
| - |
Total | $ | 87,385 |
| $ | 46,898 |
| $ | 97,976 |
| $ | 232,259 |
| $ | 3,594,510 |
| $ | 3,826,769 |
| $ | 2,125 |
22
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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) |
|
|
| ||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards | $ | 701 |
| $ | 274 |
| $ | 875 |
| $ | 1,850 |
| $ | 26,009 |
| $ | 27,859 |
| $ | - |
Overdrafts |
| 12 |
|
| 1 |
|
| - |
|
| 13 |
|
| 145 |
|
| 158 |
|
| - |
Personal lines of credit |
| 72 |
|
| 30 |
|
| 40 |
|
| 142 |
|
| 1,789 |
|
| 1,931 |
|
| - |
Personal loans |
| 4,045 |
|
| 1,704 |
|
| 1,100 |
|
| 6,849 |
|
| 287,099 |
|
| 293,948 |
|
| - |
Cash collateral personal loans |
| 137 |
|
| 87 |
|
| 17 |
|
| 241 |
|
| 15,204 |
|
| 15,445 |
|
| - |
|
| 4,967 |
|
| 2,096 |
|
| 2,032 |
|
| 9,095 |
|
| 330,246 |
|
| 339,341 |
|
| - |
Auto and leasing |
| 45,953 |
|
| 19,870 |
|
| 11,101 |
|
| 76,924 |
|
| 937,740 |
|
| 1,014,664 |
|
| - |
Total | $ | 72,967 |
| $ | 35,626 |
| $ | 101,922 |
| $ | 210,515 |
| $ | 3,329,117 |
| $ | 3,539,632 |
| $ | 3,459 |
| December 31, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 | $ | 77 |
| $ | 1,516 |
| $ | 2,707 |
| $ | 4,300 |
| $ | 36,344 |
| $ | 40,644 |
| $ | 168 |
Years 2003 and 2004 |
| 91 |
|
| 2,412 |
|
| 5,632 |
|
| 8,135 |
|
| 67,707 |
|
| 75,842 |
|
| - |
Year 2005 |
| - |
|
| 552 |
|
| 3,531 |
|
| 4,083 |
|
| 35,004 |
|
| 39,087 |
|
| - |
Year 2006 |
| 255 |
|
| 1,693 |
|
| 5,074 |
|
| 7,022 |
|
| 49,213 |
|
| 56,235 |
|
| - |
Years 2007, 2008 and 2009 |
| 255 |
|
| 1,059 |
|
| 6,677 |
|
| 7,991 |
|
| 52,781 |
|
| 60,772 |
|
| 56 |
Years 2010, 2011, 2012, 2013 |
| 253 |
|
| 328 |
|
| 8,697 |
|
| 9,278 |
|
| 104,429 |
|
| 113,707 |
|
| 270 |
Years 2014, 2015, 2016 and 2017 |
| - |
|
| 483 |
|
| 1,462 |
|
| 1,945 |
|
| 139,500 |
|
| 141,445 |
|
| - |
|
| 931 |
|
| 8,043 |
|
| 33,780 |
|
| 42,754 |
|
| 484,978 |
|
| 527,732 |
|
| 494 |
Non-traditional |
| - |
|
| 116 |
|
| 3,085 |
|
| 3,201 |
|
| 11,072 |
|
| 14,273 |
|
| - |
Loss mitigation program |
| 10,793 |
|
| 6,258 |
|
| 19,389 |
|
| 36,440 |
|
| 70,393 |
|
| 106,833 |
|
| 2,223 |
|
| 11,724 |
|
| 14,417 |
|
| 56,254 |
|
| 82,395 |
|
| 566,443 |
|
| 648,838 |
|
| 2,717 |
Home equity secured personal loans |
| 9 |
|
| - |
|
| - |
|
| 9 |
|
| 241 |
|
| 250 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 19,721 |
|
| 19,721 |
|
| - |
|
| 19,721 |
|
| - |
|
| 11,733 |
|
| 14,417 |
|
| 75,975 |
|
| 102,125 |
|
| 566,684 |
|
| 668,809 |
|
| 2,717 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 289,052 |
|
| 289,052 |
|
| - |
Institutional |
| - |
|
| - |
|
| 1,200 |
|
| 1,200 |
|
| 68,413 |
|
| 69,613 |
|
| - |
Middle market |
| - |
|
| 1,430 |
|
| 5,202 |
|
| 6,632 |
|
| 200,831 |
|
| 207,463 |
|
| - |
Retail |
| 1,641 |
|
| 463 |
|
| 8,570 |
|
| 10,674 |
|
| 213,440 |
|
| 224,114 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 4,184 |
|
| 4,184 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 19,009 |
|
| 19,009 |
|
| - |
|
| 1,641 |
|
| 1,893 |
|
| 14,972 |
|
| 18,506 |
|
| 794,929 |
|
| 813,435 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 179,885 |
|
| 179,885 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 156,410 |
|
| 156,410 |
|
| - |
Middle market |
| 917 |
|
| - |
|
| 6,020 |
|
| 6,937 |
|
| 81,030 |
|
| 87,967 |
|
| - |
Retail |
| 571 |
|
| 546 |
|
| 817 |
|
| 1,934 |
|
| 308,278 |
|
| 310,212 |
|
| - |
Floor plan |
| - |
|
| - |
|
| 46 |
|
| 46 |
|
| 49,633 |
|
| 49,679 |
|
| - |
|
| 1,488 |
|
| 546 |
|
| 6,883 |
|
| 8,917 |
|
| 775,236 |
|
| 784,153 |
|
| - |
|
| 3,129 |
|
| 2,439 |
|
| 21,855 |
|
| 27,423 |
|
| 1,570,165 |
|
| 1,597,588 |
|
| - |
23
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 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 | $ | 86 |
| $ | 938 |
| $ | 3,537 |
| $ | 4,561 |
| $ | 41,579 |
| $ | 46,140 |
| $ | 467 |
Years 2003 and 2004 |
| 92 |
|
| 1,077 |
|
| 6,304 |
|
| 7,473 |
|
| 75,758 |
|
| 83,231 |
|
| - |
Year 2005 |
| 101 |
|
| 383 |
|
| 3,348 |
|
| 3,832 |
|
| 40,669 |
|
| 44,501 |
|
| 68 |
Year 2006 |
| 242 |
|
| 604 |
|
| 5,971 |
|
| 6,817 |
|
| 55,966 |
|
| 62,783 |
|
| 66 |
Years 2007, 2008 and 2009 |
| 358 |
|
| 1,258 |
|
| 8,561 |
|
| 10,177 |
|
| 58,505 |
|
| 68,682 |
|
| 577 |
Years 2010, 2011, 2012, 2013 |
| 233 |
|
| 978 |
|
| 7,393 |
|
| 8,604 |
|
| 116,674 |
|
| 125,278 |
|
| 1,202 |
Years 2014, 2015, 2016 and 2017 |
| - |
|
| 75 |
|
| 1,649 |
|
| 1,724 |
|
| 121,194 |
|
| 122,918 |
|
| - |
|
| 1,112 |
|
| 5,313 |
|
| 36,763 |
|
| 43,188 |
|
| 510,345 |
|
| 553,533 |
|
| 2,380 |
Non-traditional |
| - |
|
| 326 |
|
| 3,543 |
|
| 3,869 |
|
| 14,401 |
|
| 18,270 |
|
| - |
Loss mitigation program |
| 7,233 |
|
| 3,331 |
|
| 18,923 |
|
| 29,487 |
|
| 73,793 |
|
| 103,280 |
|
| 4,981 |
|
| 8,345 |
|
| 8,970 |
|
| 59,229 |
|
| 76,544 |
|
| 598,539 |
|
| 675,083 |
|
| 7,361 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 256 |
|
| 256 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 8,268 |
|
| 8,268 |
|
| - |
|
| 8,268 |
|
| - |
|
| 8,345 |
|
| 8,970 |
|
| 67,497 |
|
| 84,812 |
|
| 598,795 |
|
| 683,607 |
|
| 7,361 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 235,426 |
|
| 235,426 |
|
| - |
Institutional |
| - |
|
| - |
|
| 118 |
|
| 118 |
|
| 44,648 |
|
| 44,766 |
|
| - |
Middle market |
| 765 |
|
| - |
|
| 3,527 |
|
| 4,292 |
|
| 225,649 |
|
| 229,941 |
|
| - |
Retail |
| 352 |
|
| 936 |
|
| 9,695 |
|
| 10,983 |
|
| 235,084 |
|
| 246,067 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,998 |
|
| 3,998 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 17,556 |
|
| 17,556 |
|
| - |
|
| 1,117 |
|
| 936 |
|
| 13,340 |
|
| 15,393 |
|
| 762,361 |
|
| 777,754 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 170,015 |
|
| 170,015 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 125,591 |
|
| 125,591 |
|
| - |
Middle market |
| - |
|
| - |
|
| 881 |
|
| 881 |
|
| 84,482 |
|
| 85,363 |
|
| - |
Retail |
| 455 |
|
| 103 |
|
| 1,616 |
|
| 2,174 |
|
| 111,078 |
|
| 113,252 |
|
| - |
Floor plan |
| 9 |
|
| - |
|
| 51 |
|
| 60 |
|
| 35,226 |
|
| 35,286 |
|
| - |
|
| 464 |
|
| 103 |
|
| 2,548 |
|
| 3,115 |
|
| 526,392 |
|
| 529,507 |
|
| - |
|
| 1,581 |
|
| 1,039 |
|
| 15,888 |
|
| 18,508 |
|
| 1,288,753 |
|
| 1,307,261 |
|
| - |
24
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | 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 | $ | 246 |
| $ | 130 |
| $ | 1,227 |
| $ | 1,603 |
| $ | 26,827 |
| $ | 28,430 |
| $ | - | $ | 725 |
| $ | 363 |
| $ | 411 |
| $ | 1,499 |
| $ | 26,535 |
| $ | 28,034 |
| $ | - |
Overdrafts |
| 20 |
|
| 6 |
|
| 31 |
|
| 57 |
|
| 157 |
|
| 214 |
|
| - |
| 10 |
|
| - |
|
| - |
|
| 10 |
|
| 204 |
|
| 214 |
|
| - |
Personal lines of credit |
| 259 |
|
| 54 |
|
| 87 |
|
| 400 |
|
| 1,820 |
|
| 2,220 |
|
| - |
| 57 |
|
| 11 |
|
| 22 |
|
| 90 |
|
| 1,827 |
|
| 1,917 |
|
| - |
Personal loans |
| 3,778 |
|
| 1,494 |
|
| 223 |
|
| 5,495 |
|
| 278,982 |
|
| 284,477 |
|
| - |
| 3,966 |
|
| 1,740 |
|
| 1,262 |
|
| 6,968 |
|
| 296,151 |
|
| 303,119 |
|
| - |
Cash collateral personal loans |
| 103 |
|
| 59 |
|
| 312 |
|
| 474 |
|
| 14,224 |
|
| 14,698 |
|
| - |
| 74 |
|
| 339 |
|
| 3 |
|
| 416 |
|
| 15,280 |
|
| 15,696 |
|
| - |
|
| 4,406 |
|
| 1,743 |
|
| 1,880 |
|
| 8,029 |
|
| 322,010 |
|
| 330,039 |
|
| - |
| 4,832 |
|
| 2,453 |
|
| 1,698 |
|
| 8,983 |
|
| 339,997 |
|
| 348,980 |
|
| - |
Auto and leasing |
| 21,760 |
|
| 10,399 |
|
| 4,232 |
|
| 36,391 |
|
| 847,594 |
|
| 883,985 |
|
| - |
| 58,094 |
|
| 27,945 |
|
| 13,494 |
|
| 99,533 |
|
| 1,030,162 |
|
| 1,129,695 |
|
| - |
Total | $ | 36,092 |
| $ | 22,151 |
| $ | 89,497 |
| $ | 147,740 |
| $ | 3,057,152 |
| $ | 3,204,892 |
| $ | 7,361 | $ | 77,788 |
| $ | 47,254 |
| $ | 113,022 |
| $ | 238,064 |
| $ | 3,507,008 |
| $ | 3,745,072 |
| $ | 2,717 |
At both June 30, 20182019, and December 31, 2017,2018, Oriental had a carrying balance of $94.9 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.
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 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.
2524
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 June 30, 20182019 and December 31, 2017,2018, by class of loans:
| June 30, 2018 | June 30, 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 | $ | - |
| $ | - |
| $ | 54 |
| $ | 54 |
| $ | - |
| $ | 54 |
| $ | - | $ | - |
| $ | - |
| $ | 28 |
| $ | 28 |
| $ | - |
| $ | 28 |
| $ | - |
Floor plan |
| - |
|
| - |
|
| 917 |
|
| 917 |
|
| 332 |
|
| 1,249 |
|
| - |
| - |
|
| - |
|
| 798 |
|
| 798 |
|
| 60 |
|
| 858 |
|
| - |
|
| - |
|
| - |
|
| 971 |
|
| 971 |
|
| 332 |
|
| 1,303 |
|
| - |
| - |
|
| - |
|
| 826 |
|
| 826 |
|
| 60 |
|
| 886 |
|
| - |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 22 |
|
| 13 |
|
| 42 |
|
| 77 |
|
| 1,527 |
|
| 1,604 |
|
| - |
| 61 |
|
| 24 |
|
| - |
|
| 85 |
|
| 1,278 |
|
| 1,363 |
|
| - |
Floor plan |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - | ||||||||||||||||||||
|
| 22 |
|
| 13 |
|
| 44 |
|
| 79 |
|
| 1,527 |
|
| 1,606 |
|
| - |
| 61 |
|
| 24 |
|
| - |
|
| 85 |
|
| 1,278 |
|
| 1,363 |
|
| - |
|
| 22 |
|
| 13 |
|
| 1,015 |
|
| 1,050 |
|
| 1,859 |
|
| 2,909 |
|
| - |
| 61 |
|
| 24 |
|
| 826 |
|
| 911 |
|
| 1,338 |
|
| 2,249 |
|
| - |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 516 |
|
| 196 |
|
| 584 |
|
| 1,296 |
|
| 22,185 |
|
| 23,481 |
|
| - |
| 434 |
|
| 90 |
|
| 276 |
|
| 800 |
|
| 19,073 |
|
| 19,873 |
|
| - |
Personal loans |
| 73 |
|
| 8 |
|
| 14 |
|
| 95 |
|
| 2,160 |
|
| 2,255 |
|
| - |
| 39 |
|
| 43 |
|
| 11 |
|
| 93 |
|
| 2,000 |
|
| 2,093 |
|
| - |
|
| 589 |
|
| 204 |
|
| 598 |
|
| 1,391 |
|
| 24,345 |
|
| 25,736 |
|
| - |
| 473 |
|
| 133 |
|
| 287 |
|
| 893 |
|
| 21,073 |
|
| 21,966 |
|
| - |
Auto |
| 726 |
|
| 475 |
|
| 139 |
|
| 1,340 |
|
| 9,943 |
|
| 11,283 |
|
| - |
| 132 |
|
| 90 |
|
| 58 |
|
| 280 |
|
| 716 |
|
| 996 |
|
| - |
Total | $ | 1,337 |
| $ | 692 |
| $ | 1,752 |
| $ | 3,781 |
| $ | 36,147 |
| $ | 39,928 |
| $ | - | $ | 666 |
| $ | 247 |
| $ | 1,171 |
| $ | 2,084 |
| $ | 23,127 |
| $ | 25,211 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2625
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | 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 | $ | - |
| $ | - |
| $ | 119 |
| $ | 119 |
| $ | - |
| $ | 119 |
| $ | - | $ | - |
| $ | - |
| $ | 54 |
| $ | 54 |
| $ | - |
| $ | 54 |
| $ | - |
Floor plan |
| - |
|
| - |
|
| 928 |
|
| 928 |
|
| 393 |
|
| 1,321 |
|
| - |
| - |
|
| - |
|
| 888 |
|
| 888 |
|
| 94 |
|
| 982 |
|
| - |
|
| - |
|
| - |
|
| 1,047 |
|
| 1,047 |
|
| 393 |
|
| 1,440 |
|
| - |
| - |
|
| - |
|
| 942 |
|
| 942 |
|
| 94 |
|
| 1,036 |
|
| - |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 36 |
|
| - |
|
| 221 |
|
| 257 |
|
| 2,681 |
|
| 2,938 |
|
| - |
| 30 |
|
| 11 |
|
| 8 |
|
| 49 |
|
| 1,461 |
|
| 1,510 |
|
| - |
Floor plan |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - | ||||||||||||||||||||
|
| 36 |
|
| - |
|
| 223 |
|
| 259 |
|
| 2,681 |
|
| 2,940 |
|
| - |
| 30 |
|
| 11 |
|
| 8 |
|
| 49 |
|
| 1,461 |
|
| 1,510 |
|
| - |
|
| 36 |
|
| - |
|
| 1,270 |
|
| 1,306 |
|
| 3,074 |
|
| 4,380 |
|
| - |
| 30 |
|
| 11 |
|
| 950 |
|
| 991 |
|
| 1,555 |
|
| 2,546 |
|
| - |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 208 |
|
| 127 |
|
| 1,310 |
|
| 1,645 |
|
| 24,822 |
|
| 26,467 |
|
| - |
| 499 |
|
| 147 |
|
| 380 |
|
| 1,026 |
|
| 20,796 |
|
| 21,822 |
|
| - |
Personal loans |
| 139 |
|
| 61 |
|
| 45 |
|
| 245 |
|
| 2,203 |
|
| 2,448 |
|
| - |
| 64 |
|
| 32 |
|
| 18 |
|
| 114 |
|
| 2,052 |
|
| 2,166 |
|
| - |
|
| 347 |
|
| 188 |
|
| 1,355 |
|
| 1,890 |
|
| 27,025 |
|
| 28,915 |
|
| - |
| 563 |
|
| 179 |
|
| 398 |
|
| 1,140 |
|
| 22,848 |
|
| 23,988 |
|
| - |
Auto |
| 602 |
|
| 248 |
|
| 179 |
|
| 1,029 |
|
| 20,940 |
|
| 21,969 |
|
| - |
| 405 |
|
| 241 |
|
| 200 |
|
| 846 |
|
| 3,589 |
|
| 4,435 |
|
| - |
Total | $ | 985 |
| $ | 436 |
| $ | 2,804 |
| $ | 4,225 |
| $ | 51,039 |
| $ | 55,264 |
| $ | - | $ | 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 June 30, 20182019 and December 31, 20172018 is as follows:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
|
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
|
| (In thousands) |
| (In thousands) | ||||||
Contractual required payments receivable: | $ | 1,406,468 |
| $ | 1,481,616 | $ | 1,250,597 |
| $ | 1,304,545 |
Less: Non-accretable discount |
| 350,257 |
|
| 352,431 |
| 346,055 |
|
| 345,423 |
Cash expected to be collected |
| 1,056,211 |
|
| 1,129,185 |
| 904,542 |
|
| 959,122 |
Less: Accretable yield |
| 287,992 |
|
| 308,913 |
| 252,518 |
|
| 269,510 |
Carrying amount, gross |
| 768,219 |
|
| 820,272 |
| 652,024 |
|
| 689,612 |
Less: allowance for loan and lease losses |
| 44,176 |
|
| 45,755 |
| 45,427 |
|
| 42,010 |
Carrying amount, net | $ | 724,043 |
| $ | 774,517 | $ | 606,597 |
| $ | 647,602 |
|
|
|
|
|
|
|
|
|
|
|
26
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At June 30, 2019 and December 31, 2018, Oriental had $44.6 million and $44.5 million, respectively, in loans granted to Puerto Rico municipalities as part of its acquired BBVAPR loans accounted for under ASC 310-30. These loans are primarily secured municipal general 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 and six-month periods ended June 30, 2019 and 2018:
| Quarter Ended June 30, 2019 | |||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | |||||
| (In thousands) | |||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 226,907 |
| $ | 37,379 |
| $ | 180 |
| $ | 427 |
| $ | 264,893 |
Accretion |
| (6,115) |
|
| (2,488) |
|
| (139) |
|
| (190) |
|
| (8,932) |
Change in expected cash flows |
| - |
|
| 1,375 |
|
| 8 |
|
| 190 |
|
| 1,573 |
Transfer to non-accretable discount |
| (3,243) |
|
| (1,628) |
|
| (6) |
|
| (139) |
|
| (5,016) |
Balance at end of period | $ | 217,549 |
| $ | 34,638 |
| $ | 43 |
| $ | 288 |
| $ | 252,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 290,100 |
| $ | 9,911 |
| $ | 24,056 |
| $ | 18,835 |
| $ | 342,902 |
Change in actual and expected losses |
| (1,085) |
|
| (635) |
|
| 21 |
|
| (164) |
|
| (1,863) |
Transfer from accretable yield |
| 3,243 |
|
| 1,628 |
|
| 6 |
|
| 139 |
|
| 5,016 |
Balance at end of period | $ | 292,258 |
| $ | 10,904 |
| $ | 24,083 |
| $ | 18,810 |
| $ | 346,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2019 | |||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | |||||
| (In thousands) | |||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 232,199 |
| $ | 36,508 |
| $ | 243 |
| $ | 560 |
| $ | 269,510 |
Accretion |
| (12,465) |
|
| (5,144) |
|
| (355) |
|
| (488) |
|
| (18,452) |
Change in expected cash flows |
| - |
|
| 4,640 |
|
| 11 |
|
| 488 |
|
| 5,139 |
Transfer (to) from non-accretable discount |
| (2,185) |
|
| (1,366) |
|
| 144 |
|
| (272) |
|
| (3,679) |
Balance at end of period | $ | 217,549 |
| $ | 34,638 |
| $ | 43 |
| $ | 288 |
| $ | 252,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 291,887 |
| $ | 10,346 |
| $ | 24,245 |
| $ | 18,945 |
| $ | 345,423 |
Change in actual and expected losses |
| (1,814) |
|
| (808) |
|
| (18) |
|
| (407) |
|
| (3,047) |
Transfer from (to) accretable yield |
| 2,185 |
|
| 1,366 |
|
| (144) |
|
| 272 |
|
| 3,679 |
Balance at end of period | $ | 292,258 |
| $ | 10,904 |
| $ | 24,083 |
| $ | 18,810 |
| $ | 346,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At June 30, 2018 and December 31, 2017, Oriental had $50.8 million and $50.3 million, respectively, in loans granted to Puerto Rico municipalities as part of its acquired BBVAPR loans accounted for under ASC 310-30. These loans are primarily secured municipal general 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 and six-month periods ended June 30, 2018 and 2017:
| Quarter Ended June 30, 2018 | Quarter Ended June 30, 2018 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of period | $ | 248,379 |
| $ | 45,711 |
| $ | 1,726 |
| $ | 649 |
| $ | 296,465 | $ | 248,379 |
| $ | 45,711 |
| $ | 1,726 |
| $ | 649 |
| $ | 296,465 |
Accretion |
| (6,915) |
|
| (3,597) |
|
| (656) |
|
| (194) |
|
| (11,362) |
| (6,915) |
| (3,597) |
| (656) |
| (194) |
| (11,362) | ||||
Change in expected cash flows |
| - |
|
| 2,775 |
|
| 400 |
|
| 73 |
|
| 3,248 | ||||||||||||||
Transfer from (to) non-accretable discount |
| 2,439 |
|
| (2,368) |
|
| (399) |
|
| (31) |
|
| (359) | ||||||||||||||
Change in actual and expected losses |
| - |
| 2,775 |
| 400 |
| 73 |
| 3,248 | ||||||||||||||||||
Transfer (to) from non-accretable discount |
| 2,439 |
|
| (2,368) |
|
| (399) |
|
| (31) |
|
| (359) | ||||||||||||||
Balance at end of period | $ | 243,903 |
| $ | 42,521 |
| $ | 1,071 |
| $ | 497 |
| $ | 287,992 | $ | 243,903 |
| $ | 42,521 |
| $ | 1,071 |
| $ | 497 |
| $ | 287,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of period | $ | 301,107 |
| $ | 10,731 |
| $ | 23,443 |
| $ | 19,309 |
| $ | 354,590 | $ | 301,107 |
| $ | 10,731 |
| $ | 23,443 |
| $ | 19,309 |
| $ | 354,590 |
Change in actual and expected losses |
| (2,531) |
|
| (1,956) |
|
| (197) |
|
| (8) |
|
| (4,692) |
| (2,531) |
| (1,956) |
| (197) |
| (8) |
| (4,692) | ||||
Transfer from accretable yield |
| (2,439) |
|
| 2,368 |
|
| 399 |
|
| 31 |
|
| 359 |
| (2,439) |
|
| 2,368 |
|
| 399 |
|
| 31 |
|
| 359 |
Balance at end of period | $ | 296,137 |
| $ | 11,143 |
| $ | 23,645 |
| $ | 19,332 |
| $ | 350,257 | $ | 296,137 |
| $ | 11,143 |
| $ | 23,645 |
| $ | 19,332 |
| $ | 350,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | Six-Month Period Ended June 30, 2018 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at beginning of period | $ | 258,498 |
| $ | 46,764 |
| $ | 2,766 |
| $ | 885 |
| $ | 308,913 | $ | 258,498 |
| $ | 46,764 |
| $ | 2,766 |
| $ | 885 |
| $ | 308,913 |
Accretion |
| (13,988) |
|
| (7,282) |
|
| (1,525) |
|
| (450) |
| (23,245) |
| (13,988) |
| (7,282) |
| (1,525) |
| (450) |
| (23,245) | |||||
Change in expected cash flows |
| - |
|
| 5,931 |
|
| 826 |
|
| 131 |
| 6,888 | |||||||||||||||
Transfer (to) non-accretable discount |
| (607) |
|
| (2,892) |
|
| (996) |
|
| (69) |
|
| (4,564) | ||||||||||||||
Change in actual and expected losses |
| - |
| 5,931 |
| 826 |
| 131 |
| 6,888 | ||||||||||||||||||
Transfer (to) from non-accretable discount |
| (607) |
|
| (2,892) |
|
| (996) |
|
| (69) |
|
| (4,564) | ||||||||||||||
Balance at end of period | $ | 243,903 |
| $ | 42,521 |
| $ | 1,071 |
| $ | 497 |
| $ | 287,992 | $ | 243,903 |
| $ | 42,521 |
| $ | 1,071 |
| $ | 497 |
| $ | 287,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at beginning of period | $ | 299,501 |
| $ | 10,596 |
| $ | 23,050 |
| $ | 19,284 |
| $ | 352,431 | $ | 299,501 |
| $ | 10,596 |
| $ | 23,050 |
| $ | 19,284 |
| $ | 352,431 |
Change in actual and expected losses |
| (3,971) |
|
| (2,345) |
|
| (401) |
|
| (21) |
| (6,738) |
| (3,971) |
| (2,345) |
| (401) |
| (21) |
| (6,738) | |||||
Transfer from accretable yield |
| 607 |
|
| 2,892 |
|
| 996 |
|
| 69 |
|
| 4,564 | ||||||||||||||
Transfer from (to) accretable yield |
| 607 |
|
| 2,892 |
|
| 996 |
|
| 69 |
|
| 4,564 | ||||||||||||||
Balance at end of period | $ | 296,137 |
| $ | 11,143 |
| $ | 23,645 |
| $ | 19,332 |
| $ | 350,257 | $ | 296,137 |
| $ | 11,143 |
| $ | 23,645 |
| $ | 19,332 |
| $ | 350,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquired Eurobank Loans
The carrying amount of acquired Eurobank loans at June 30, 2019 and December 31, 2018 is as follows:
| Quarter Ended June 30, 2017 | |||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | |||||
| (In thousands) | |||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 276,817 |
| $ | 46,902 |
| $ | 6,583 |
| $ | 3,058 |
| $ | 333,360 |
Accretion |
| (7,694) |
|
| (4,513) |
|
| (1,776) |
|
| (556) |
|
| (14,539) |
Change in actual and expected losses |
| 1 |
|
| 15,993 |
|
| 98 |
|
| 50 |
|
| 16,142 |
Transfer (to) from non-accretable discount |
| 1,024 |
|
| (2,344) |
|
| (52) |
|
| (1,066) |
|
| (2,438) |
Balance at end of period | $ | 270,148 |
| $ | 56,038 |
| $ | 4,853 |
| $ | 1,486 |
| $ | 332,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 309,993 |
| $ | 14,803 |
| $ | 22,564 |
| $ | 18,159 |
| $ | 365,519 |
Change in actual and expected losses |
| (2,465) |
|
| (280) |
|
| 1,344 |
|
| 206 |
|
| (1,195) |
Transfer from (to) accretable yield |
| (1,024) |
|
| 2,344 |
|
| 52 |
|
| 1,066 |
|
| 2,438 |
Balance at end of period | $ | 306,504 |
| $ | 16,867 |
| $ | 23,960 |
| $ | 19,431 |
| $ | 366,762 |
| June 30 |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Contractual required payments receivable | $ | 149,401 |
| $ | 156,722 |
Less: Non-accretable discount |
| 1,799 |
|
| 2,959 |
Cash expected to be collected |
| 147,602 |
|
| 153,763 |
Less: Accretable yield |
| 38,394 |
|
| 41,699 |
Carrying amount, gross |
| 109,208 |
|
| 112,064 |
Less: Allowance for loan and lease losses |
| 25,578 |
|
| 24,971 |
Carrying amount, net | $ | 83,630 |
| $ | 87,093 |
| Six-Month Period Ended June 30, 2017 | |||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | |||||
| (In thousands) | |||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 292,115 |
| $ | 50,366 |
| $ | 8,538 |
| $ | 3,682 |
| $ | 354,701 |
Accretion |
| (15,584) |
|
| (9,494) |
|
| (3,923) |
|
| (1,158) |
|
| (30,159) |
Change in actual and expected losses |
| 2 |
|
| 16,191 |
|
| 150 |
|
| 86 |
|
| 16,429 |
Transfer (to) from non-accretable discount |
| (6,385) |
|
| (1,025) |
|
| 88 |
|
| (1,124) |
|
| (8,446) |
Balance at end of period | $ | 270,148 |
| $ | 56,038 |
| $ | 4,853 |
| $ | 1,486 |
| $ | 332,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 305,615 |
| $ | 16,965 |
| $ | 22,407 |
| $ | 18,120 |
| $ | 363,107 |
Change in actual and expected losses |
| (5,496) |
|
| (1,123) |
|
| 1,641 |
|
| 187 |
|
| (4,791) |
Transfer from (to) accretable yield |
| 6,385 |
|
| 1,025 |
|
| (88) |
|
| 1,124 |
|
| 8,446 |
Balance at end of period | $ | 306,504 |
| $ | 16,867 |
| $ | 23,960 |
| $ | 19,431 |
| $ | 366,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and six-months periods ended June 30, 2019 and 2018:
| Quarter Ended June 30, 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 | $ | 36,368 |
|
| 2,260 |
|
| 654 |
|
| - |
|
| - |
|
| 39,282 |
Accretion |
| (1,280) |
|
| (1,199) |
|
| - |
|
| (3) |
|
| (17) |
|
| (2,499) |
Change in expected cash flows |
| 30 |
|
| 910 |
|
| - |
|
| (10) |
|
| 31 |
|
| 961 |
Transfer from (to) non-accretable discount |
| 817 |
|
| (115) |
|
| (51) |
|
| 13 |
|
| (14) |
|
| 650 |
Balance at end of period | $ | 35,935 |
| $ | 1,856 |
| $ | 603 |
| $ | - |
| $ | - |
| $ | 38,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 875 |
|
| - |
|
| 1,551 |
|
| - |
|
| 116 |
|
| 2,542 |
Change in actual and expected losses |
| 21 |
|
| (115) |
|
| - |
|
| 13 |
|
| (12) |
|
| (93) |
Transfer (to) from accretable yield |
| (817) |
|
| 115 |
|
| 51 |
|
| (13) |
|
| 14 |
|
| (650) |
Balance at end of period | $ | 79 |
| $ | - |
| $ | 1,602 |
| $ | - |
| $ | 118 |
| $ | 1,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquired Eurobank Loans
The carrying amount of acquired Eurobank loans at June 30, 2018 and December 31, 2017 is as follows:
| June 30 |
| December 31 | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Contractual required payments receivable: | $ | 165,175 |
| $ | 179,960 |
Less: Non-accretable discount |
| 3,819 |
|
| 5,845 |
Cash expected to be collected |
| 161,356 |
|
| 174,115 |
Less: Accretable yield |
| 45,078 |
|
| 49,672 |
Carrying amount, gross |
| 116,278 |
|
| 124,443 |
Less: Allowance for loan and lease losses |
| 24,314 |
|
| 25,174 |
Carrying amount, net | $ | 91,964 |
| $ | 99,269 |
The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and six-month periods ended June 30, 2018 and 2017:
| Quarter Ended June 30, 2018 | Six-Month Period Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| 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 | $ | 39,622 |
| 5,616 |
| 1,356 |
| - |
| - |
| 46,594 | $ | 37,734 |
| $ | 3,310 |
| $ | 655 |
| $ | - |
| $ | - |
| $ | 41,699 | |||||
Accretion |
| (1,538) |
| (1,706) |
| - |
| (4) |
| (118) |
| (3,366) |
| (2,631) |
| (2,364) |
| - |
| (15) |
| (63) |
| (5,073) | ||||||||||
Change in expected cash flows |
| (836) |
| 1,832 |
| - |
| (111) |
| 236 |
| 1,121 |
| (393) |
| 866 |
| - |
| (41) |
| 118 |
| 550 | ||||||||||
Transfer (to) from non-accretable discount |
| 2,021 |
|
| (1,157) |
|
| (132) |
|
| 115 |
|
| (118) |
|
| 729 | |||||||||||||||||
Transfer from (to) non-accretable discount |
| 1,225 |
|
| 44 |
|
| (52) |
|
| 56 |
|
| (55) |
|
| 1,218 | |||||||||||||||||
Balance at end of period | $ | 39,269 |
| $ | 4,585 |
| $ | 1,224 |
| $ | - |
| $ | - |
| $ | 45,078 | $ | 35,935 |
| $ | 1,856 |
| $ | 603 |
| $ | - |
| $ | - |
| $ | 38,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period | $ | 4,479 |
| - |
| 849 |
| - |
| 219 |
| 5,547 | $ | 1,276 |
| $ | - |
| $ | 1,550 |
| $ | - |
| $ | 133 |
| $ | 2,959 | |||||
Change in actual and expected losses |
| 180 |
| (1,157) |
| - |
| 115 |
| (137) |
| (999) |
| 28 |
| 44 |
| - |
| 56 |
| (70) |
| 58 | ||||||||||
Transfer from (to) accretable yield |
| (2,021) |
|
| 1,157 |
|
| 132 |
|
| (115) |
|
| 118 |
|
| (729) |
| (1,225) |
|
| (44) |
|
| 52 |
|
| (56) |
|
| 55 |
|
| (1,218) |
Balance at end of period | $ | 2,638 |
| $ | - |
| $ | 981 |
| $ | - |
| $ | 200 |
| $ | 3,819 | $ | 79 |
| $ | - |
| $ | 1,602 |
| $ | - |
| $ | 118 |
| $ | 1,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 30, 2018 | Quarter Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| 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 year | $ | 41,474 |
| $ | 6,751 |
| $ | 1,447 |
| $ | - |
| $ | - |
| $ | 49,672 | |||||||||||||||||
Balance at beginning of period | $ | 39,622 |
| $ | 5,616 |
| $ | 1,356 |
| - |
| $ | - |
| $ | 46,594 | ||||||||||||||||||
Accretion |
| (3,143) |
| (3,312) |
| - |
| (38) |
| (214) |
| (6,707) |
| (1,538) |
| (1,706) |
| - |
| (4) |
| (118) |
| (3,366) | ||||||||||
Change in expected cash flows |
| (980) |
| 2,730 |
| - |
| (174) |
| 414 |
| 1,990 | ||||||||||||||||||||||
Change in actual and expected losses |
| (836) |
| 1,832 |
| - |
| (111) |
| 236 |
| 1,121 | ||||||||||||||||||||||
Transfer from (to) non-accretable discount |
| 1,918 |
|
| (1,584) |
|
| (223) |
|
| 212 |
|
| (200) |
|
| 123 |
| 2,021 |
|
| (1,157) |
|
| (132) |
|
| 115 |
|
| (118) |
|
| 729 |
Balance at end of period | $ | 39,269 |
| $ | 4,585 |
| $ | 1,224 |
| $ | - |
| $ | - |
| $ | 45,078 | $ | 39,269 |
| $ | 4,585 |
| $ | 1,224 |
| $ | - |
| $ | - |
| $ | 45,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of year | $ | 4,576 |
| $ | 276 |
| $ | 758 |
| $ | - |
| $ | 235 |
| $ | 5,845 | |||||||||||||||||
Balance at beginning of period | $ | 4,479 |
| $ | - |
| $ | 849 |
| $ | - |
| $ | 219 |
| $ | 5,547 | |||||||||||||||||
Change in actual and expected losses |
| (20) |
| (1,860) |
| - |
| 212 |
| (235) |
| (1,903) |
| 180 |
| (1,157) |
| - |
| 115 |
| (137) |
| (999) | ||||||||||
Transfer from (to) accretable yield |
| (1,918) |
|
| 1,584 |
|
| 223 |
|
| (212) |
|
| 200 |
|
| (123) | |||||||||||||||||
Transfer (to) from accretable yield |
| (2,021) |
|
| 1,157 |
|
| 132 |
|
| (115) |
|
| 118 |
|
| (729) | |||||||||||||||||
Balance at end of period | $ | 2,638 |
| $ | - |
| $ | 981 |
| $ | - |
| $ | 200 |
| $ | 3,819 | $ | 2,638 |
| $ | - |
| $ | 981 |
| $ | - |
| $ | 200 |
| $ | 3,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 2017 | Six-Month Period Ended June 30, 2018 | ||||||||||||||||||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| 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 | $ | 44,697 |
| $ | 12,743 |
| $ | 1,871 |
| - |
| $ | - |
| $ | 59,311 | $ | 41,474 |
| $ | 6,751 |
| $ | 1,447 |
| $ | - |
| $ | - |
| $ | 49,672 | |
Accretion |
| (1,923) |
| (4,061) |
| (5) |
| (11) |
| (37) |
| (6,037) |
| (3,143) |
| (3,312) |
| - |
| (38) |
| (214) |
| (6,707) | ||||||||||
Change in actual and expected losses |
| 19 |
| 543 |
| 6 |
| (22) |
| 74 |
| 620 | ||||||||||||||||||||||
Change in expected cash flows |
| (980) |
| 2,730 |
| - |
| (174) |
| 414 |
| 1,990 | ||||||||||||||||||||||
Transfer from (to) non-accretable discount |
| 219 |
|
| (68) |
|
| 34 |
|
| 33 |
|
| (37) |
|
| 181 |
| 1,918 |
|
| (1,584) |
|
| (223) |
|
| 212 |
|
| (200) |
|
| 123 |
Balance at end of period | $ | 43,012 |
| $ | 9,157 |
| $ | 1,906 |
| $ | - |
| $ | - |
| $ | 54,075 | $ | 39,269 |
| $ | 4,585 |
| $ | 1,224 |
| $ | - |
| $ | - |
| $ | 45,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period | $ | 7,426 |
| $ | 2,471 |
| $ | 333 |
| $ | - |
| $ | 6 |
| $ | 10,236 | $ | 4,576 |
| $ | 276 |
| $ | 758 |
| $ | - |
| $ | 235 |
| $ | 5,845 |
Change in actual and expected losses |
| (520) |
| (529) |
| - |
| 33 |
| (29) |
| (1,045) | ||||||||||||||||||||||
Change in actual and expected cash flows |
| (20) |
| (1,860) |
| - |
| 212 |
| (235) |
| (1,903) | ||||||||||||||||||||||
Transfer (to) from accretable yield |
| (219) |
|
| 68 |
|
| (34) |
|
| (33) |
|
| 37 |
|
| (181) |
| (1,918) |
|
| 1,584 |
|
| 223 |
|
| (212) |
|
| 200 |
|
| (123) |
Balance at end of period | $ | 6,687 |
| $ | 2,010 |
| $ | 299 |
| $ | - |
| $ | 14 |
| $ | 9,010 | $ | 2,638 |
| $ | - |
| $ | 981 |
| $ | - |
| $ | 200 |
| $ | 3,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 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 |
| (3,827) |
|
| (8,571) |
|
| (43) |
|
| (11) |
|
| (195) |
|
| (12,647) |
Change in expected cash flows |
| 100 |
|
| 1,321 |
|
| 43 |
|
| (165) |
|
| 384 |
|
| 1,683 |
Transfer from (to) non-accretable discount |
| 900 |
|
| (68) |
|
| (288) |
|
| 176 |
|
| (189) |
|
| 531 |
Balance at end of period | $ | 43,012 |
| $ | 9,157 |
| $ | 1,906 |
| $ | - |
| $ | - |
| $ | 54,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 8,441 |
| $ | 3,880 |
| $ | 11 |
| $ | - |
| $ | 8 |
| $ | 12,340 |
Change in actual and expected cash flows |
| (854) |
|
| (1,938) |
|
| - |
|
| 176 |
|
| (183) |
|
| (2,799) |
Transfer (to) from accretable yield |
| (900) |
|
| 68 |
|
| 288 |
|
| (176) |
|
| 189 |
|
| (531) |
Balance at end of period | $ | 6,687 |
| $ | 2,010 |
| $ | 299 |
| $ | - |
| $ | 14 |
| $ | 9,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
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 June 30, 20182019 and December 31, 2017:2018:
| June 30, |
| December 31, | June 30, |
| December 31 | ||||
| 2018 |
| 2017 | 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 | $ | 3,616 |
| $ | 3,070 | $ | 2,621 |
| $ | 2,538 |
Years 2003 and 2004 |
| 6,082 |
| 6,380 |
| 4,912 |
|
| 5,818 | |
Year 2005 |
| 4,108 |
| 3,280 |
| 2,991 |
|
| 3,600 | |
Year 2006 |
| 5,004 |
| 5,905 |
| 4,398 |
|
| 5,140 | |
Years 2007, 2008 and 2009 |
| 7,454 |
| 7,984 |
| 4,109 |
|
| 6,697 | |
Years 2010, 2011, 2012, 2013 |
| 8,272 |
| 6,259 |
| 6,298 |
|
| 8,427 | |
Years 2014, 2015, 2016 and 2017 |
| 1,593 |
|
| 1,649 | |||||
Years 2014, 2015, 2016, 2017 and 2018 |
| 1,893 |
|
| 1,462 | |||||
|
| 36,129 |
|
| 34,527 |
| 27,222 |
|
| 33,682 |
Non-traditional |
| 3,131 |
| 3,543 |
| 3,439 |
|
| 3,085 | |
Loss mitigation program |
| 19,675 |
|
| 16,783 |
| 17,822 |
|
| 22,107 |
|
| 58,935 |
|
| 54,853 |
| 48,483 |
|
| 58,874 |
Commercial |
|
|
|
|
|
|
|
|
| |
Commercial secured by real estate |
|
|
|
|
|
|
|
|
| |
Corporate |
| 8,883 |
|
| - | |||||
Institutional |
| 10,352 |
| 118 |
| 9,556 |
|
| 9,911 | |
Middle market |
| 8,533 |
| 11,394 |
| 6,169 |
|
| 7,266 | |
Retail |
| 15,906 |
|
| 14,438 |
| 13,950 |
|
| 16,123 |
|
| 34,791 |
|
| 25,950 |
| 38,558 |
|
| 33,300 |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
Middle market |
| 9,781 |
| 6,323 |
| 4,924 |
|
| 6,481 | |
Retail |
| 2,828 |
| 2,929 |
| 1,129 |
|
| 2,629 | |
Floor plan |
| 51 |
|
| 51 |
| 6 |
|
| 46 |
|
| 12,660 |
|
| 9,303 |
| 6,059 |
|
| 9,156 |
|
| 47,451 |
|
| 35,253 |
| 44,617 |
|
| 42,456 |
Consumer |
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 875 |
|
| 1,227 |
| 572 |
|
| 411 |
Overdrafts |
| - |
|
| 31 | |||||
Personal lines of credit |
| 50 |
|
| 102 |
| 36 |
|
| 31 |
Personal loans |
| 1,884 |
|
| 900 |
| 1,226 |
|
| 2,909 |
Cash collateral personal loans |
| 17 |
|
| 312 |
| 374 |
|
| 3 |
|
| 2,826 |
|
| 2,572 |
| 2,208 |
|
| 3,354 |
Auto and leasing |
| 11,141 |
|
| 4,232 |
| 12,024 |
|
| 13,494 |
Total non-accrual originated loans | $ | 120,353 |
| $ | 96,910 | $ | 107,332 |
| $ | 118,178 |
3433
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Acquired BBVAPR loans accounted for under ASC 310-20 |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate |
|
|
|
|
|
|
|
|
|
|
Retail | $ | 54 |
| $ | 119 | $ | 28 |
| $ | 54 |
Floor plan |
| 917 |
|
| 928 |
| 798 |
|
| 888 |
|
| 971 |
|
| 1,047 |
| 826 |
|
| 942 |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
Retail |
| 42 |
|
| 221 |
| - |
|
| 8 |
Floor plan |
| 2 |
|
| 2 | |||||
|
| 44 |
|
| 223 |
| - |
|
| 8 |
|
| 1,015 |
|
| 1,270 |
| 826 |
|
| 950 |
Consumer |
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 584 |
|
| 1,310 |
| 276 |
|
| 380 |
Personal loans |
| 14 |
|
| 45 |
| 11 |
|
| 18 |
|
| 598 |
|
| 1,355 |
| 287 |
|
| 398 |
Auto |
| 139 |
|
| 179 |
| 58 |
|
| 200 |
Total non-accrual acquired BBVAPR loans accounted for under ASC 310-20 |
| 1,752 |
|
| 2,804 |
| 1,171 |
|
| 1,548 |
Total non-accrual loans | $ | 122,105 |
| $ | 99,714 | $ | 108,503 |
| $ | 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 12 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 June 30, 20182019 and December 31, 2017,2018, loans whose terms have been extended and which are classified as troubled-debt restructurings that are not included in non-accrual loans amounted to $100.5 $119.7million and $109.2 $112.9million, respectively, as they are performing under their new terms.
At June 30, 20182019 and December 31, 2017,2018, loans that are current in their monthly payments, but placed in non-accrual due to credit deterioration amounted to $21.8 $20.5million and $20.1 $21.2million, respectively.
3534
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 $69.8$83.8 million and $72.3 $82.0million at June 30, 20182019 and December 31, 2017,2018, 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 $10.0 $9.2million and $10.6 $8.4million at June 30, 20182019 and December 31, 2017,2018, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was $84.5 $83.1million and $85.4$84.2 million at June 30, 20182019 and December 31, 2017,2018, 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 $9.9 $10.6million and $9.1 $10.2million at June 30, 20182019 and December 31, 2017,2018, 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 June 30, 20182019 and 2017December 31, 2018 are as follows:
| June 30, 2018 |
| June 30, 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 | $ | 47,346 |
| $ | 43,363 |
| $ | 9,906 |
| 23% |
|
| $ | 54,895 |
| $ | 50,524 |
| $ | 9,168 |
| 18% |
|
|
Residential impaired and troubled-debt restructuring |
| 95,121 |
| 84,520 |
| 9,862 |
| 12% |
|
|
| 94,501 |
| 83,093 |
| 10,615 |
| 13% |
|
| ||||
Impaired loans with no specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| 30,916 |
|
| 25,689 |
|
| N/A |
| 0% |
|
| 40,465 |
|
| 32,578 |
|
| N/A |
| 0% |
| ||
Total investment in impaired loans | $ | 173,383 |
| $ | 153,572 |
| $ | 19,768 |
| 13% |
|
| $ | 189,861 |
| $ | 166,195 |
| $ | 19,783 |
| 12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| 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 | $ | 57,922 |
| $ | 52,585 |
| $ | 10,573 |
| 20% |
| $ | 54,636 |
| $ | 49,092 |
| $ | 8,434 |
| 17% |
| ||
Residential impaired and troubled-debt restructuring |
| 94,971 |
| 85,403 |
|
| 9,121 |
| 11% |
|
| 95,659 |
| 84,174 |
| 10,186 |
| 12% |
| |||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
| 22,022 |
|
| 18,953 |
|
| N/A |
| 0% |
|
| 38,241 |
|
| 32,137 |
|
| N/A |
| 0% |
| ||
Total investment in impaired loans | $ | 174,915 |
| $ | 156,941 |
| $ | 19,694 |
| 13% |
|
| $ | 188,536 |
| $ | 165,403 |
| $ | 18,620 |
| 11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
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 June 30, 2019 and December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | |||||||||
| Unpaid |
| Recorded |
| Related |
|
| |||
| Principal |
| Investment |
| Allowance |
| Coverage | |||
| (In thousands) | |||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 926 |
| $ | 678 |
| $ | 27 |
| 4% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 926 |
| $ | 678 |
| $ | 27 |
| 4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||
| Unpaid |
| Recorded |
| Specific |
|
| |||
| Principal |
| Investment |
| Allowance |
| Coverage | |||
| (In thousands) | |||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 926 |
| $ | 747 |
| $ | 14 |
| 2% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 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 June 30, 2019 and December 31, 2018 are as follows:
| June 30, 2019 | |||||||||
|
|
|
|
|
|
|
|
|
| Coverage |
| Unpaid |
| Recorded |
|
|
| to Recorded | |||
| Principal |
| Investment |
| Allowance |
| Investment | |||
| (In thousands) | |||||||||
Impaired loan pools with specific allowance: |
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 479,998 |
| $ | 476,080 |
| $ | 25,208 |
| 5% |
Commercial |
| 151,265 |
|
| 146,810 |
|
| 17,083 |
| 12% |
Auto |
| 7,393 |
|
| 6,462 |
|
| 3,136 |
| 49% |
Total investment in impaired loan pools | $ | 638,656 |
| $ | 629,352 |
| $ | 45,427 |
| 7% |
|
|
|
|
|
|
|
|
|
|
|
36
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 June 30, 2018 and December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2018 | |||||||||
| Unpaid |
| Recorded |
| Related |
|
| |||
| Principal |
| Investment |
| Allowance |
| Coverage | |||
| (In thousands) | |||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 926 |
| $ | 747 |
| $ | 68 |
| 9% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 926 |
| $ | 747 |
| $ | 68 |
| 9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | |||||||||
| Unpaid |
| Recorded |
| Specific |
|
| |||
| Principal |
| Investment |
| Allowance |
| Coverage | |||
| (In thousands) | |||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 926 |
| $ | 747 |
| $ | 20 |
| 3% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
Commercial | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 926 |
| $ | 747 |
| $ | 20 |
| 3% |
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2018 and December 31, 2017 are as follows:
| June 30, 2018 | |||||||||
|
|
|
|
|
|
|
|
|
| Coverage |
| Unpaid |
| Recorded |
|
|
| to Recorded | |||
| Principal |
| Investment |
| Allowance |
| Investment | |||
| (In thousands) | |||||||||
Impaired loan pools with specific allowance: |
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 525,230 |
| $ | 516,934 |
| $ | 14,567 |
| 3% |
Commercial |
| 230,905 |
|
| 222,202 |
|
| 23,019 |
| 10% |
Consumer |
| 1,400 |
|
| 495 |
|
| 18 |
| 4% |
Auto |
| 28,086 |
|
| 26,937 |
|
| 6,572 |
| 24% |
Total investment in impaired loan pools | $ | 785,621 |
| $ | 766,568 |
| $ | 44,176 |
| 6% |
|
|
|
|
|
|
|
|
|
|
|
37
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31 , 2017 | 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 | $ | 547,064 |
| $ | 532,052 |
| $ | 14,085 |
| 3% | $ | 498,537 |
| $ | 492,890 |
| $ | 15,225 |
| 3% |
Commercial |
| 250,451 |
| 241,124 |
| 23,691 |
| 10% |
| 188,413 |
| 180,790 |
| 20,641 |
| 11% | ||||
Consumer |
| 2,468 |
| 1,431 |
| 18 |
| 1% | ||||||||||||
Auto |
| 43,440 |
|
| 43,696 |
|
| 7,961 |
| 18% |
| 14,551 |
|
| 14,403 |
|
| 6,144 |
| 43% |
Total investment in impaired loan pools | $ | 843,423 |
| $ | 818,303 |
| $ | 45,755 |
| 6% | $ | 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.
Oriental’s recorded investment in acquired Eurobank loan pools that have recorded impairments and their related allowance for loan and lease losses as of June 30, 20182019 and December 31, 2017 2018 are as followsfollows::
| June 30, 2018 | June 30, 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 | $ | 74,185 |
| $ | 65,584 |
| $ | 15,170 |
| 23% | $ | 65,870 |
| $ | 59,956 |
| $ | 17,213 |
| 29% |
Commercial |
| 51,865 |
| 49,758 |
| 9,140 |
| 18% |
| 36,415 |
|
| 38,419 |
|
| 8,365 |
| 22% | ||
Consumer |
| 14 |
|
| 4 |
|
| 4 |
| 100% | ||||||||||
Total investment in impaired loan pools | $ | 126,064 |
| $ | 115,346 |
| $ | 24,314 |
| 21% | $ | 102,285 |
| $ | 98,375 |
| $ | 25,578 |
| 26% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | 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 | $ | 81,132 |
| $ | 69,538 |
| $ | 15,187 |
| 22% | $ | 70,153 |
| $ | 63,406 |
| $ | 15,382 |
| 24% |
Commercial |
| 58,099 |
| 53,793 |
| 9,982 |
| 19% |
| 47,342 |
| 47,820 |
| 9,585 |
| 20% | ||||
Consumer |
| 15 |
|
| 4 |
|
| 5 |
| 125% |
| 15 |
|
| 4 |
|
| 4 |
| 100% |
Total investment in impaired loan pools | $ | 139,246 |
| $ | 123,335 |
| $ | 25,174 |
| 20% | $ | 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.
3837
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 and six-month periods ended June 30, 20182019 and 2017: 2018:
| Quarter Ended June 30, | Quarter Ended June 30, | ||||||||||||||||||||
| 2018 |
| 2017 | 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 | $ | 129 |
| $ | 46,976 |
| $ | 193 |
| $ | 14,908 | $ | 367 |
| $ | 53,392 |
| $ | 129 |
| $ | 46,976 |
Residential troubled-debt restructuring |
| 705 |
| 84,473 |
| 723 |
| 87,615 |
| 701 |
| 83,197 |
| 705 |
| 84,473 | ||||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| 131 |
|
| 22,129 |
|
| 383 |
|
| 44,528 |
| 347 |
|
| 32,002 |
|
| 131 |
|
| 22,129 |
|
| 965 |
|
| 153,578 |
|
| 1,299 |
|
| 147,051 |
| 1,415 |
|
| 168,591 |
|
| 965 |
|
| 153,578 |
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| - |
|
| 747 |
|
| - |
|
| - |
| - |
|
| 701 |
|
| - |
|
| 747 |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| - |
|
| - |
|
| - |
|
| 763 |
| - |
|
| - |
|
| - |
|
| - |
Total interest income from impaired loans | $ | 965 |
| $ | 154,325 |
| $ | 1,299 |
| $ | 147,814 | $ | 1,415 |
| $ | 169,292 |
| $ | 965 |
| $ | 154,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, | Six-Month Period Ended June 30, | ||||||||||||||||||||
| 2018 |
|
| 2017 | 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 | $ | 250 |
| $ | 49,154 |
| $ | 385 |
| $ | 13,859 | $ | 733 |
| $ | 52,141 |
| $ | 250 |
| $ | 49,154 |
Residential troubled-debt restructuring |
| 1,384 |
| 84,613 |
|
| 1,427 |
| 88,579 |
| 1,373 |
| 83,427 |
|
| 1,384 |
| 84,613 | ||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| 262 |
|
| 19,946 |
|
| 766 |
|
| 44,211 |
| 687 |
|
| 32,124 |
|
| 262 |
|
| 19,946 |
Total interest income from impaired loans | $ | 1,896 |
| $ | 153,713 |
| $ | 2,578 |
| $ | 146,649 | $ | 2,793 |
| $ | 167,692 |
| $ | 1,896 |
| $ | 153,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial | $ | - |
| $ | 747 |
| $ | - |
| $ | - | $ | - |
| $ | 724 |
| $ | - |
| $ | 747 |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| - |
|
| - |
|
| - |
|
| 840 | |||||||||||
Total interest income from impaired loans | $ | 1,896 |
| $ | 154,460 |
| $ | 2,578 |
| $ | 147,489 | $ | 2,793 |
| $ | 168,416 |
| $ | 1,896 |
| $ | 154,460 |
The following tables present the troubled-debt restructurings in all loan portfolios during the quarters and six-month periods ended June 30, 2019 and 2018.
3938
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 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 | 50 |
| $ | 7,000 |
| 6.14% |
| 388 |
| $ | 6,345 |
| 5.45% |
| 341 |
Commercial | 1 |
|
| 1,157 |
| 7.00% |
| 55 |
|
| 1,157 |
| 5.75% |
| 86 |
Consumer | 70 |
|
| 1,052 |
| 15.57% |
| 69 |
|
| 1,082 |
| 11.56% |
| 74 |
Auto | 13 |
|
| 193 |
| 7.58% |
| 70 |
|
| 200 |
| 9.18% |
| 46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 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 | 88 |
| $ | 11,494 |
| 5.90% |
| 388 |
| $ | 10,586 |
| 5.11% |
| 346 |
Commercial | 2 |
|
| 1,164 |
| 7.03% |
| 55 |
|
| 1,164 |
| 5.78% |
| 86 |
Consumer | 141 |
|
| 2,015 |
| 15.39% |
| 67 |
|
| 2,049 |
| 11.70% |
| 74 |
Auto | 13 |
|
| 193 |
| 7.58% |
| 70 |
|
| 200 |
| 9.18% |
| 46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications39
| Quarter Ended June 30, 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 | 45 |
| $ | 5,718 |
| 5.63% |
| 371 |
| $ | 5,679 |
| 4.85% |
| 325 |
Commercial | 5 |
|
| 5,775 |
| 5.55% |
| 39 |
|
| 5,775 |
| 6.34% |
| 45 |
Consumer | 21 |
|
| 357 |
| 16.49% |
| 56 |
|
| 357 |
| 10.26% |
| 72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 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 | 83 |
| $ | 11,466 |
| 5.66% |
| 384 |
| $ | 11,019 |
| 4.96% |
| 344 |
Commercial | 8 |
|
| 7,334 |
| 5.38% |
| 46 |
|
| 7,330 |
| 6.00% |
| 50 |
Consumer | 49 |
|
| 711 |
| 16.12% |
| 51 |
|
| 712 |
| 10.93% |
| 70 |
The following tables present thetable presents troubled-debt restructurings in all loan portfoliosfor which there was a payment default during the quarters and six-monthtwelve-month periods ended June 30, 20182019 and 2017.2018:
| Quarter Ended June 30, 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 | 45 |
| $ | 5,718 |
| 5.63% |
| 371 |
| $ | 5,679 |
| 4.85% |
| 325 | ||||||||||
Commercial | 5 |
| 5,775 |
| 5.55% |
| 39 |
| 5,775 |
| 6.34% |
| 45 | ||||||||||||
Consumer | 21 |
| 357 |
| 16.49% |
| 56 |
| 357 |
| 10.26% |
| 72 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Twelve month Period Ended June 30, | |||||||||||
| Six-Month Period Ended June 30, 2018 | 2019 |
| 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) | Number of Contracts |
| Recorded Investment |
| Number of Contracts |
| Recorded Investment | |||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Mortgage | 83 |
| $ | 11,466 |
| 5.66% |
| 384 |
| $ | 11,019 |
| 4.96% |
| 344 | 22 |
| $ | 2,830 |
| 12 |
| $ | 1,718 | |
Commercial | 8 |
| 7,334 |
| 5.38% |
| 46 |
| 7,330 |
| 6.00% |
| 50 | 3 |
| $ | 1,935 |
| 1 |
| $ | 235 | |||
Consumer | 49 |
| 711 |
| 16.12% |
| 51 |
| 712 |
| 10.93% |
| 70 | 66 |
| $ | 928 |
| 15 |
| $ | 141 | |||
Auto | 1 |
| $ | 27 |
| - |
| $ | - |
40
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 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 | 27 |
| $ | 3,349 |
| 6.00% |
| 382 |
| $ | 3,313 |
| 4.21% |
| 367 |
Commercial | 9 |
|
| 2,155 |
| 5.96% |
| 55 |
|
| 2,155 |
| 5.12% |
| 68 |
Consumer | 37 |
|
| 477 |
| 12.83% |
| 65 |
|
| 477 |
| 10.87% |
| 68 |
Auto | 4 |
|
| 66 |
| 6.39% |
| 61 |
|
| 66 |
| 12.91% |
| 37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 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 | 59 |
| $ | 7,353 |
| 6.29% |
| 387 |
| $ | 7,328 |
| 4.26% |
| 378 |
Commercial | 18 |
|
| 3,373 |
| 6.44% |
| 55 |
|
| 3,374 |
| 5.41% |
| 67 |
Consumer | 62 |
|
| 869 |
| 11.98% |
| 65 |
|
| 907 |
| 10.62% |
| 70 |
Auto | 7 |
|
| 111 |
| 7.41% |
| 67 |
|
| 113 |
| 12.48% |
| 38 |
The following table presents troubled-debt restructurings for which there was a payment default during the twelve month periods ended June 30, 2018 and 2017:
| Twelve Month Period Ended June 30, | |||||||||
| 2018 |
|
| 2017 | ||||||
| Number of Contracts |
| Recorded Investment |
|
| Number of Contracts |
| Recorded Investment | ||
| (Dollars in thousands) | |||||||||
Mortgage | 12 |
| $ | 1,718 |
|
| 22 |
| $ | 2,293 |
Commercial | 1 |
| $ | 235 |
|
| 5 |
| $ | 563 |
Consumer | 15 |
| $ | 141 |
|
| 17 |
| $ | 156 |
41
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.
4241
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of June 30, 20182019 and December 31, 2017,2018, 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:
| June 30, 2018 | June 30, 2019 | ||||||||||||||||||||||||||||||||
| Risk Ratings | Risk Ratings | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Balance |
|
|
| Special |
|
|
|
|
|
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||||||||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Commercial - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Corporate | $ | 274,435 |
| $ | 240,118 |
| $ | 32,480 |
| $ | 1,837 |
| $ | - |
| $ | - | $ | 263,443 |
| $ | 221,728 |
| $ | 17,342 |
| $ | 24,373 |
| $ | - |
| $ | - |
Institutional |
| 81,019 |
| 70,468 |
| - |
| 10,551 |
| - |
| - |
| 73,213 |
|
| 63,109 |
|
| 361 |
|
| 9,743 |
|
| - |
|
| - | |||||
Middle market |
| 194,273 |
| 150,675 |
| 32,987 |
| 10,611 |
| - |
| - |
| 209,687 |
|
| 155,069 |
|
| 33,391 |
|
| 21,227 |
|
| - |
|
| - | |||||
Retail |
| 216,490 |
| 189,366 |
| 4,079 |
| 23,045 |
| - |
| - |
| 238,299 |
|
| 216,971 |
|
| 3,373 |
|
| 17,955 |
|
| - |
|
| - | |||||
Floor plan |
| 4,017 |
| 2,714 |
| - |
| 1,303 |
| - |
| - |
| 3,100 |
|
| 1,834 |
|
| - |
|
| 1,266 |
|
| - |
|
| - | |||||
Real estate |
| 15,157 |
| 15,157 |
| - |
| - |
| - |
| - |
| 18,317 |
|
| 18,317 |
|
| - |
|
| - |
|
| - |
|
| - | |||||
|
| 785,391 |
| 668,498 |
| 69,546 |
| 47,347 |
| - |
| - |
| 806,059 |
|
| 677,028 |
|
| 54,467 |
|
| 74,564 |
|
| - |
|
| - | |||||
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Corporate |
| 190,414 |
| 179,117 |
| 11,297 |
| - |
| - |
| - |
| 148,747 |
|
| 145,929 |
|
| 2,818 |
|
| - |
|
| - |
|
| - | |||||
Institutional |
| 113,810 |
| 113,810 |
| - |
| - |
| - |
| - |
| 158,462 |
|
| 158,462 |
|
| - |
|
| - |
|
| - |
|
| - | |||||
Middle market |
| 94,979 |
| 67,804 |
| 3,470 |
| 23,705 |
| - |
| - |
| 86,872 |
|
| 76,418 |
|
| 4,124 |
|
| 6,330 |
|
| - |
|
| - | |||||
Retail |
| 284,596 |
| 280,653 |
| 229 |
| 3,714 |
| - |
| - |
| 369,953 |
|
| 361,703 |
|
| 283 |
|
| 7,967 |
|
| - |
|
| - | |||||
Floor plan |
| 38,178 |
| 35,105 |
| 3,022 |
| 51 |
| - |
| - |
| 46,880 |
|
| 43,816 |
|
| 3,058 |
|
| 6 |
|
| - |
|
| - | |||||
|
| 721,977 |
| 676,489 |
| 18,018 |
| 27,470 |
| - |
| - |
| 810,914 |
|
| 786,328 |
|
| 10,283 |
|
| 14,303 |
|
| - |
|
| - | |||||
Total |
| 1,507,368 |
| 1,344,987 |
| 87,564 |
| 74,817 |
| - |
| - |
| 1,616,973 |
|
| 1,463,356 |
|
| 64,750 |
|
| 88,867 |
|
| - |
|
| - | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Retail |
| 54 |
| - |
| - |
| 54 |
| - |
| - |
| 28 |
|
| - |
|
| - |
|
| 28 |
|
| - |
|
| - | |||||
Floor plan |
| 1,249 |
|
| 332 |
|
| - |
|
| 917 |
|
| - |
|
| - |
| 858 |
|
| 60 |
|
| - |
|
| 798 |
|
| - |
|
| - |
|
| 1,303 |
|
| 332 |
|
| - |
|
| 971 |
|
| - |
|
| - |
| 886 |
|
| 60 |
|
| - |
|
| 826 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Retail |
| 1,604 |
| 1,603 |
| - |
| 1 |
| - |
| - |
| 1,363 |
|
| 1,363 |
|
| - |
|
| - |
|
| - |
|
| - | |||||
Floor plan |
| 2 |
| - |
| - |
| 2 |
| - |
| - | ||||||||||||||||||||||
|
| 1,606 |
| 1,603 |
| - |
| 3 |
| - |
| - |
| 1,363 |
|
| 1,363 |
|
| - |
|
| - |
|
| - |
|
| - | |||||
Total |
| 2,909 |
| 1,935 |
| - |
| 974 |
| - |
| - |
| 2,249 |
|
| 1,423 |
|
| - |
|
| 826 |
|
| - |
|
| - |
42
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 2019 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional |
| 504,142 |
|
| 476,446 |
|
| - |
|
| 27,696 |
|
| - |
|
| - |
Non-traditional |
| 12,893 |
|
| 9,454 |
|
| - |
|
| 3,439 |
|
| - |
|
| - |
Loss mitigation program |
| 106,674 |
|
| 91,748 |
|
| - |
|
| 14,926 |
|
| - |
|
| - |
Home equity secured personal loans |
| 232 |
|
| 232 |
|
| - |
|
| - |
|
| - |
|
| - |
GNMA's buy-back option program |
| 11,675 |
|
| - |
|
| - |
|
| 11,675 |
|
| - |
|
| - |
|
| 635,616 |
|
| 577,880 |
|
| - |
|
| 57,736 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 27,888 |
|
| 27,316 |
|
| - |
|
| 572 |
|
| - |
|
| - |
Overdrafts |
| 184 |
|
| 154 |
|
| - |
|
| 30 |
|
| - |
|
| - |
Unsecured personal lines of credit |
| 2,003 |
|
| 1,975 |
|
| - |
|
| 28 |
|
| - |
|
| - |
Unsecured personal loans |
| 309,980 |
|
| 308,756 |
|
| - |
|
| 1,224 |
|
| - |
|
| - |
Cash collateral personal loans |
| 16,055 |
|
| 15,681 |
|
| - |
|
| 374 |
|
| - |
|
| - |
|
| 356,110 |
|
| 353,882 |
|
| - |
|
| 2,228 |
|
| - |
|
| - |
Auto and Leasing |
| 1,218,070 |
|
| 1,206,049 |
|
| - |
|
| 12,021 |
|
| - |
|
| - |
Total |
| 2,209,796 |
|
| 2,137,811 |
|
| - |
|
| 71,985 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - acquired loans (accounted for under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 19,873 |
|
| 19,596 |
|
| - |
|
| 277 |
|
| - |
|
| - |
Personal loans |
| 2,093 |
|
| 2,082 |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| 21,966 |
|
| 21,678 |
|
| - |
|
| 288 |
|
| - |
|
| - |
Auto |
| 996 |
|
| 938 |
|
| - |
|
| 58 |
|
| - |
|
| - |
|
| 22,962 |
|
| 22,616 |
|
| - |
|
| 346 |
|
| - |
|
| - |
| $ | 3,851,980 |
| $ | 3,625,206 |
| $ | 64,750 |
| $ | 162,024 |
| $ | - |
| $ | - |
43
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 2018 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional |
| 541,892 |
|
| 505,864 |
|
| - |
|
| 36,028 |
|
| - |
|
| - |
Non-traditional |
| 15,494 |
|
| 12,363 |
|
| - |
|
| 3,131 |
|
| - |
|
| - |
Loss mitigation program |
| 106,095 |
|
| 87,556 |
|
| - |
|
| 18,539 |
|
| - |
|
| - |
Home equity secured personal loans |
| 257 |
|
| 257 |
|
| - |
|
| - |
|
| - |
|
| - |
GNMA's buy-back option program |
| 14,521 |
|
| - |
|
| - |
|
| 14,521 |
|
| - |
|
| - |
|
| 678,259 |
|
| 606,040 |
|
| - |
|
| 72,219 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 27,859 |
|
| 26,984 |
|
| - |
|
| 875 |
|
| - |
|
| - |
Overdrafts |
| 158 |
|
| 145 |
|
| - |
|
| 13 |
|
| - |
|
| - |
Unsecured personal lines of credit |
| 1,931 |
|
| 1,891 |
|
| - |
|
| 40 |
|
| - |
|
| - |
Unsecured personal loans |
| 293,948 |
|
| 292,848 |
|
| - |
|
| 1,100 |
|
| - |
|
| - |
Cash collateral personal loans |
| 15,445 |
|
| 15,428 |
|
| - |
|
| 17 |
|
| - |
|
| - |
|
| 339,341 |
|
| 337,296 |
|
| - |
|
| 2,045 |
|
| - |
|
| - |
Auto and Leasing |
| 1,014,664 |
|
| 1,003,563 |
|
| - |
|
| 11,101 |
|
| - |
|
| - |
Total |
| 2,032,264 |
|
| 1,946,899 |
|
| - |
|
| 85,365 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - acquired loans (accounted for under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 23,481 |
|
| 22,897 |
|
| - |
|
| 584 |
|
| - |
|
| - |
Personal loans |
| 2,255 |
|
| 2,241 |
|
| - |
|
| 14 |
|
| - |
|
| - |
|
| 25,736 |
|
| 25,138 |
|
| - |
|
| 598 |
|
| - |
|
| - |
Auto |
| 11,283 |
|
| 11,144 |
|
| - |
|
| 139 |
|
| - |
|
| - |
|
| 37,019 |
|
| 36,282 |
|
| - |
|
| 737 |
|
| - |
|
| - |
| $ | 3,579,560 |
| $ | 3,330,103 |
| $ | 87,564 |
| $ | 161,893 |
| $ | - |
| $ | - |
| 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 |
|
| - |
|
| - |
44
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 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 | $ | 235,426 |
| $ | 200,395 |
| $ | 33,094 |
| $ | 1,937 |
| $ | - |
| $ | - |
Institutional |
| 44,766 |
|
| 33,856 |
|
| - |
|
| 10,910 |
|
| - |
|
| - |
Middle market |
| 229,941 |
|
| 196,058 |
|
| 4,749 |
|
| 29,134 |
|
| - |
|
| - |
Retail |
| 246,067 |
|
| 215,121 |
|
| 8,058 |
|
| 22,888 |
|
| - |
|
| - |
Floor plan |
| 3,998 |
|
| 2,678 |
|
| 1,320 |
|
| - |
|
| - |
|
| - |
Real estate |
| 17,556 |
|
| 17,556 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 777,754 |
|
| 665,664 |
|
| 47,221 |
|
| 64,869 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 170,015 |
|
| 157,683 |
|
| 12,332 |
|
| - |
|
| - |
|
| - |
Institutional |
| 125,591 |
|
| 125,591 |
|
| - |
|
| - |
|
| - |
|
| - |
Middle market |
| 85,363 |
|
| 71,222 |
|
| 6,386 |
|
| 7,755 |
|
| - |
|
| - |
Retail |
| 113,252 |
|
| 109,477 |
|
| 562 |
|
| 3,213 |
|
| - |
|
| - |
Floor plan |
| 35,286 |
|
| 32,165 |
|
| 3,070 |
|
| 51 |
|
| - |
|
| - |
|
| 529,507 |
|
| 496,138 |
|
| 22,350 |
|
| 11,019 |
|
| - |
|
| - |
Total |
| 1,307,261 |
|
| 1,161,802 |
|
| 69,571 |
|
| 75,888 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 119 |
|
| - |
|
| - |
|
| 119 |
|
| - |
|
| - |
Floor plan |
| 1,321 |
|
| 393 |
|
| - |
|
| 928 |
|
| - |
|
| - |
|
| 1,440 |
|
| 393 |
|
| - |
|
| 1,047 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 2,938 |
|
| 2,933 |
|
| - |
|
| 5 |
|
| - |
|
| - |
Floor plan |
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| 2,940 |
|
| 2,933 |
|
| - |
|
| 7 |
|
| - |
|
| - |
Total |
| 4,380 |
|
| 3,326 |
|
| - |
|
| 1,054 |
|
| - |
|
| - |
| 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 |
| $ | - |
| $ | - |
45
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional |
| 553,533 |
|
| 516,770 |
|
| - |
|
| 36,763 |
|
| - |
|
| - |
Non-traditional |
| 18,270 |
|
| 14,727 |
|
| - |
|
| 3,543 |
|
| - |
|
| - |
Loss mitigation program |
| 103,280 |
|
| 84,357 |
|
| - |
|
| 18,923 |
|
| - |
|
| - |
Home equity secured personal loans |
| 256 |
|
| 256 |
|
| - |
|
| - |
|
| - |
|
| - |
GNMA's buy-back option program |
| 8,268 |
|
| - |
|
| - |
|
| 8,268 |
|
| - |
|
| - |
|
| 683,607 |
|
| 616,110 |
|
| - |
|
| 67,497 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 28,430 |
|
| 27,203 |
|
| - |
|
| 1,227 |
|
| - |
|
| - |
Overdrafts |
| 214 |
|
| 158 |
|
| - |
|
| 56 |
|
| - |
|
| - |
Unsecured personal lines of credit |
| 2,220 |
|
| 2,133 |
|
| - |
|
| 87 |
|
| - |
|
| - |
Unsecured personal loans |
| 284,477 |
|
| 284,255 |
|
| - |
|
| 222 |
|
| - |
|
| - |
Cash collateral personal loans |
| 14,698 |
|
| 14,386 |
|
| - |
|
| 312 |
|
| - |
|
| - |
|
| 330,039 |
|
| 328,135 |
|
| - |
|
| 1,904 |
|
| - |
|
| - |
Auto and Leasing |
| 883,985 |
|
| 879,753 |
|
| - |
|
| 4,232 |
|
| - |
|
| - |
Total |
| 1,897,631 |
|
| 1,823,998 |
|
| - |
|
| 73,633 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 26,467 |
|
| 25,156 |
|
| - |
|
| 1,311 |
|
| - |
|
| - |
Personal loans |
| 2,448 |
|
| 2,402 |
|
| - |
|
| 46 |
|
| - |
|
| - |
|
| 28,915 |
|
| 27,558 |
|
| - |
|
| 1,357 |
|
| - |
|
| - |
Auto |
| 21,969 |
|
| 21,790 |
|
| - |
|
| 179 |
|
| - |
|
| - |
Total |
| 50,884 |
|
| 49,348 |
|
| - |
|
| 1,536 |
|
| - |
|
| - |
| $ | 3,260,156 |
| $ | 3,038,474 |
| $ | 69,571 |
| $ | 152,111 |
| $ | - |
| $ | - |
46
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 6 – ALLOWANCE FORFOR LOAN AND LEASE LOSSES
The composition of Oriental’s allowance for loan and lease losses at June 30, 20182019 and December 31, 20172018 was as follows:follows:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Allowance for loans and lease losses: |
|
|
|
|
|
|
|
|
|
|
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 19,323 |
| $ | 20,439 | $ | 15,361 |
| $ | 19,783 |
Commercial |
| 31,480 |
| 30,258 |
| 29,234 |
| 30,326 | ||
Consumer |
| 16,192 |
| 16,454 |
| 15,831 |
| 15,571 | ||
Auto and leasing |
| 27,223 |
| 25,567 |
| 29,526 |
|
| 29,508 | |
Total allowance for originated and other loans and lease losses |
| 94,218 |
|
| 92,718 |
| 89,952 |
|
| 95,188 |
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
|
|
|
Commercial |
| 86 |
| 42 |
| 31 |
| 22 | ||
Consumer |
| 2,357 |
| 3,225 |
| 1,617 |
| 1,905 | ||
Auto |
| 283 |
|
| 595 |
| 37 |
|
| 135 |
|
| 2,726 |
|
| 3,862 |
| 1,685 |
|
| 2,062 |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 14,567 |
|
| 14,085 |
| 25,208 |
|
| 15,225 |
Commercial |
| 23,019 |
| 23,691 |
| 17,083 |
| 20,641 | ||
Consumer |
| 18 |
| 18 | ||||||
Auto |
| 6,572 |
|
| 7,961 |
| 3,136 |
|
| 6,144 |
|
| 44,176 |
|
| 45,755 |
| 45,427 |
|
| 42,010 |
Total allowance for acquired BBVAPR loans and lease losses |
| 46,902 |
|
| 49,617 |
| 47,112 |
|
| 44,072 |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 15,170 |
| 15,187 |
| 17,213 |
| 15,382 | ||
Commercial |
| 9,140 |
| 9,982 |
| 8,365 |
| 9,585 | ||
Consumer |
| 4 |
|
| 5 |
| - |
|
| 4 |
Total allowance for acquired Eurobank loan and lease losses |
| 24,314 |
|
| 25,174 |
| 25,578 |
|
| 24,971 |
Total allowance for loan and lease losses | $ | 165,434 |
| $ | 167,509 | $ | 162,642 |
| $ | 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.
47
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As discussed in Note 2, during 2017, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Management performed an evaluation of the loan portfolios to assess the impact on repayment sources and underlying collateral that could result in additional losses.
For the commercial portfolio, 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.
As part of the process, 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 still 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.
During the fourth quarter, Oriental performed an update of the initial estimate, taking into consideration the most recent available information gathered through additional visits and interviews with clients and the economic environment in Puerto Rico.
For the retail portfolios, mortgage, consumer and auto, the assumptions established in the initial estimate were 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 mortgage loans. During the fourth quarter of 2017, Oriental performed additional procedures to evaluate the reasonability of the initial estimate based on the payment experience percentage of borrowers for which the deferral period expired. The analysis took into consideration historical payment behavior and loss experience of borrowers (PDs and LGDs) of each portfolio segment to develop a range of estimated potential losses. Management understands that this approach is reasonable given the lack of historical information related to the behavior of local borrowers in such an unprecedented event. The amount used in the analysis represents the average of potential outcomes of expected losses.
During the first quarter of 2018, Oriental updated the previous performed analysis to estimate probable losses related to the hurricanes. Analyses were based on the payment experience percentage of borrowers for which the deferral period expired in retail portfolios. For commercial portfolio, no changes in the level of impact assessed were identified based on communications with credit officers. During the second quarter of 2018, Oriental continued its monitoring process of the performance of those affected borrowers. As information became available, it was incorporated into the allowance framework.
At June 30, 2018 and December 31, 2017, Oriental's allowance for loan and lease losses incorporated all risks associated to our loan portfolio, including the impact of hurricanes Irma and Maria.
48
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As part of Oriental’s continuous enhancement to the allowance for loan and lease losses methodology, during the second quarter of 2018 the following assumptions were reviewed:
·An assessment of the look-back period and historical loss factor was performed for auto and leasing, consumer and commercial loan portfolios. The analysis was based on the trends observed and their relation with the economic cycle as of the period ended June 30, 2018. As a result, for the commercial portfolio, the look-back period was revised to 40 months from 36 months. Also, for auto and consumer portfolios, a look back period of 24 months was maintained. For the residential mortgages portfolio, the factor was reviewed to 24 months from 12 months.
·An assessment of environmental factors was performed for commercial, auto, and consumer portfolios. As a result, the environmental factors continue to reflect our assessment of the impact to our portfolio, taking into consideration the current evolution, credit quality, expected impact due to recent economic developments, and changes in values of collateral, among others.
·The loss realization period was revised to 2.38 years from 2.13 years in 2017 for the commercial real estate portfolio, and other portfolios remained at one year.
These changes in the allowance for loan and lease losses’ look-back period and the result of the assessment in economic factors for the commercial, auto, and consumer portfolios are considered a change in accounting estimate as per ASC 250-10 provisions, where adjustments should be made prospectively.
Allowance for Originated and Other Loan and Lease Losses Held for Investment
The following tables 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 June 30, 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 | $ | 18,983 |
| $ | 33,174 |
| $ | 18,023 |
| $ | 26,652 |
| $ | 96,832 |
Charge-offs |
| (1,328) |
|
| (1,998) |
|
| (4,588) |
|
| (13,748) |
|
| (21,662) |
Recoveries |
| 466 |
|
| 227 |
|
| 240 |
|
| 5,280 |
|
| 6,213 |
Provision for loan and lease losses |
| 1,202 |
|
| 77 |
|
| 2,517 |
|
| 9,039 |
|
| 12,835 |
Balance at end of period | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
| Six-Month Period Ended June 30, 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 |
| (2,298) |
|
| (3,147) |
|
| (8,847) |
|
| (22,731) |
|
| (37,023) |
Recoveries |
| 786 |
|
| 409 |
|
| 479 |
|
| 9,056 |
|
| 10,730 |
Provision for loan and lease losses |
| 396 |
|
| 3,960 |
|
| 8,106 |
|
| 15,331 |
|
| 27,793 |
Balance at end of period | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
4946
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, 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 | $ | 9,862 |
| $ | 9,906 |
| $ | - |
| $ | - |
| $ | 19,768 |
Collectively evaluated for impairment |
| 9,461 |
|
| 21,574 |
|
| 16,192 |
|
| 27,223 |
|
| 74,450 |
Total ending allowance balance | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 84,520 |
| $ | 69,052 |
| $ | - |
| $ | - |
| $ | 153,572 |
Collectively evaluated for impairment |
| 593,739 |
|
| 1,438,316 |
|
| 339,341 |
|
| 1,014,664 |
|
| 3,386,060 |
Total ending loan balance | $ | 678,259 |
| $ | 1,507,368 |
| $ | 339,341 |
| $ | 1,014,664 |
| $ | 3,539,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, 2019 | |||||||||||||
| 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 | $ | 16,689 |
| $ | 32,154 |
| $ | 16,085 |
| $ | 29,107 |
| $ | 94,035 |
Charge-offs |
| (604) |
|
| (2,146) |
|
| (4,839) |
|
| (10,672) |
|
| (18,261) |
Recoveries |
| 316 |
|
| 177 |
|
| 327 |
|
| 4,877 |
|
| 5,697 |
Provision for loan and lease losses |
| (1,040) |
|
| (951) |
|
| 4,258 |
|
| 6,214 |
|
| 8,481 |
Balance at end of period | $ | 15,361 |
| $ | 29,234 |
| $ | 15,831 |
| $ | 29,526 |
| $ | 89,952 |
| Quarter Ended June 30, 2017 | Six-Month Period Ended June 30, 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 | $ | 18,578 |
| $ | 9,888 |
| $ | 13,394 |
| $ | 18,621 |
| $ | 2 |
| $ | 60,483 | $ | 19,783 |
| $ | 30,326 |
| $ | 15,571 |
| $ | 29,508 |
| $ | 95,188 |
Charge-offs |
| (2,162) |
| (4,841) |
| (4,012) |
| (7,775) |
| - |
| (18,790) |
| (1,191) |
| (3,232) |
| (8,958) |
| (22,044) |
| (35,425) | |||||||||
Recoveries |
| 63 |
| 136 |
| 780 |
| 4,176 |
| - |
| 5,155 |
| 603 |
| 323 |
| 590 |
| 8,858 |
| 10,374 | |||||||||
Provision (recapture) for originated and other loan and lease losses |
| 2,185 |
|
| 12,096 |
|
| 4,819 |
|
| 3,720 |
|
| (2) |
|
| 22,818 | ||||||||||||||
Provision for loan and lease losses |
| (3,834) |
|
| 1,817 |
|
| 8,628 |
|
| 13,204 |
|
| 19,815 | |||||||||||||||||
Balance at end of period | $ | 18,664 |
| $ | 17,279 |
| $ | 14,981 |
| $ | 18,742 |
| $ | - |
| $ | 69,666 | $ | 15,361 |
| $ | 29,234 |
| $ | 15,831 |
| $ | 29,526 |
| $ | 89,952 |
| Six-Month Period Ended June 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 |
| (4,541) |
|
| (5,697) |
|
| (7,368) |
|
| (15,339) |
|
| - |
|
| (32,945) |
Recoveries |
| 119 |
|
| 226 |
|
| 945 |
|
| 7,470 |
|
| - |
|
| 8,760 |
Provision (recapture) for originated and other loan and lease losses |
| 5,742 |
|
| 13,755 |
|
| 8,337 |
|
| 7,148 |
|
| (431) |
|
| 34,551 |
Balance at end of period | $ | 18,664 |
| $ | 17,279 |
| $ | 14,981 |
| $ | 18,742 |
| $ | - |
| $ | 69,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 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 | $ | 10,615 |
| $ | 9,168 |
| $ | - |
| $ | - |
| $ | 19,783 |
Collectively evaluated for impairment |
| 4,746 |
|
| 20,066 |
|
| 15,831 |
|
| 29,526 |
|
| 70,169 |
Total ending allowance balance | $ | 15,361 |
| $ | 29,234 |
| $ | 15,831 |
| $ | 29,526 |
| $ | 89,952 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 83,093 |
| $ | 83,102 |
| $ | - |
| $ | - |
| $ | 166,195 |
Collectively evaluated for impairment |
| 552,523 |
|
| 1,533,871 |
|
| 356,110 |
|
| 1,218,070 |
|
| 3,660,574 |
Total ending loan balance | $ | 635,616 |
| $ | 1,616,973 |
| $ | 356,110 |
| $ | 1,218,070 |
| $ | 3,826,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5047
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 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 | $ | 9,121 |
| $ | 10,573 |
| $ | - |
| $ | - |
| $ | - |
| $ | 19,694 |
Collectively evaluated for impairment |
| 11,318 |
|
| 19,685 |
|
| 16,454 |
|
| 25,567 |
|
| - |
|
| 73,024 |
Total ending allowance balance | $ | 20,439 |
| $ | 30,258 |
| $ | 16,454 |
| $ | 25,567 |
| $ | - |
| $ | 92,718 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 85,403 |
| $ | 71,538 |
| $ | - |
| $ | - |
| $ | - |
| $ | 156,941 |
Collectively evaluated for impairment |
| 598,204 |
|
| 1,235,723 |
|
| 330,039 |
|
| 883,985 |
|
| - |
|
| 3,047,951 |
Total ending loan balance | $ | 683,607 |
| $ | 1,307,261 |
| $ | 330,039 |
| $ | 883,985 |
| $ | - |
| $ | 3,204,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, 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 | $ | 18,983 |
| $ | 33,174 |
| $ | 18,023 |
| $ | 26,652 |
| $ | 96,832 |
Charge-offs |
| (1,328) |
|
| (1,998) |
|
| (4,588) |
|
| (13,748) |
|
| (21,662) |
Recoveries |
| 466 |
|
| 227 |
|
| 240 |
|
| 5,280 |
|
| 6,213 |
(Recapture) provision for originated and other loan and lease losses |
| 1,202 |
|
| 77 |
|
| 2,517 |
|
| 9,039 |
|
| 12,835 |
Balance at end of period | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
| Six-Month Period Ended June 30, 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 |
| (2,298) |
|
| (3,147) |
|
| (8,847) |
|
| (22,731) |
|
| (37,023) |
Recoveries |
| 786 |
|
| 409 |
|
| 479 |
|
| 9,056 |
|
| 10,730 |
Provision for originated and other loan and lease losses |
| 396 |
|
| 3,960 |
|
| 8,106 |
|
| 15,331 |
|
| 27,793 |
Balance at end of period | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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:
| Quarter Ended June 30, 2018 | |||||||||||
| 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 | $ | 37 |
| $ | 2,659 |
| $ | 488 |
|
| $ | 3,184 |
Charge-offs |
| (5) |
|
| (420) |
|
| (88) |
|
|
| (513) |
Recoveries |
| 12 |
|
| 94 |
|
| 244 |
|
|
| 350 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| 42 |
|
| 24 |
|
| (361) |
|
|
| (295) |
Balance at end of period | $ | 86 |
| $ | 2,357 |
| $ | 283 |
|
| $ | 2,726 |
48
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 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 | $ | 32 |
| $ | 1,869 |
| $ | 67 |
|
| $ | 1,968 |
Charge-offs |
| (80) |
|
| (433) |
|
| (56) |
|
|
| (569) |
Recoveries |
| 2 |
|
| 78 |
|
| 71 |
|
|
| 151 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| 77 |
|
| 103 |
|
| (45) |
|
|
| 135 |
Balance at end of period | $ | 31 |
| $ | 1,617 |
| $ | 37 |
|
| $ | 1,685 |
| Six-Month Period Ended June 30, 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 |
| (80) |
|
| (873) |
|
| (141) |
|
| (1,094) |
Recoveries |
| 5 |
|
| 118 |
|
| 161 |
|
| 284 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| 84 |
|
| 467 |
|
| (118) |
|
| 433 |
Balance at end of period | $ | 31 |
| $ | 1,617 |
| $ | 37 |
| $ | 1,685 |
5149
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 30, 2018 | ||||||||||
| 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 | $ | 42 |
| $ | 3,225 |
| $ | 595 |
| $ | 3,862 |
Charge-offs |
| (5) |
|
| (1,442) |
|
| (213) |
|
| (1,660) |
Recoveries |
| 15 |
|
| 148 |
|
| 472 |
|
| 635 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| 34 |
|
| 426 |
|
| (571) |
|
| (111) |
Balance at end of period | $ | 86 |
| $ | 2,357 |
| $ | 283 |
| $ | 2,726 |
| June 30, 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 | $ | 27 |
| $ | - |
| $ | - |
| $ | 27 |
Collectively evaluated for impairment |
| 4 |
|
| 1,617 |
|
| 37 |
|
| 1,658 |
Total ending allowance balance | $ | 31 |
| $ | 1,617 |
| $ | 37 |
| $ | 1,685 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 678 |
| $ | - |
| $ | - |
| $ | 678 |
Collectively evaluated for impairment |
| 1,571 |
|
| 21,966 |
|
| 996 |
|
| 24,533 |
Total ending loan balance | $ | 2,249 |
| $ | 21,966 |
| $ | 996 |
| $ | 25,211 |
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2018 | ||||||||||
| 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 | $ | 68 |
| $ | - |
| $ | - |
| $ | 68 |
Collectively evaluated for impairment |
| 18 |
|
| 2,357 |
|
| 283 |
|
| 2,658 |
Total ending allowance balance | $ | 86 |
| $ | 2,357 |
| $ | 283 |
| $ | 2,726 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 747 |
| $ | - |
| $ | - |
| $ | 747 |
Collectively evaluated for impairment |
| 2,162 |
|
| 25,736 |
|
| 11,283 |
|
| 39,181 |
Total ending loan balance | $ | 2,909 |
| $ | 25,736 |
| $ | 11,283 |
| $ | 39,928 |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, 2018 | ||||||||||
| 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 | $ | 37 |
| $ | 2,659 |
| $ | 488 |
| $ | 3,184 |
Charge-offs |
| (5) |
|
| (420) |
|
| (88) |
|
| (513) |
Recoveries |
| 12 |
|
| 94 |
|
| 244 |
|
| 350 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| 42 |
|
| 24 |
|
| (361) |
|
| (295) |
Balance at end of period | $ | 86 |
| $ | 2,357 |
| $ | 283 |
| $ | 2,726 |
| Six-Month Period Ended June 30, 2018 | |||||||||||
| 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 | $ | 42 |
| $ | 3,225 |
| $ | 595 |
|
| $ | 3,862 |
Charge-offs |
| (5) |
|
| (1,442) |
|
| (213) |
|
|
| (1,660) |
Recoveries |
| 15 |
|
| 148 |
|
| 472 |
|
|
| 635 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| 34 |
|
| 426 |
|
| (571) |
|
|
| (111) |
Balance at end of period | $ | 86 |
| $ | 2,357 |
| $ | 283 |
|
| $ | 2,726 |
5250
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 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 | $ | 183 |
| $ | 2,591 |
| $ | 841 |
| $ | 3,615 |
Charge-offs |
| (126) |
|
| (771) |
|
| (205) |
|
| (1,102) |
Recoveries |
| 2 |
|
| 295 |
|
| 597 |
|
| 894 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| (18) |
|
| 508 |
|
| (549) |
|
| (59) |
Balance at end of period | $ | 41 |
| $ | 2,623 |
| $ | 684 |
| $ | 3,348 |
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 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 year | $ | 169 |
| $ | 3,028 |
| $ | 1,103 |
| $ | 4,300 |
Charge-offs |
| (132) |
|
| (1,656) |
|
| (483) |
|
| (2,271) |
Recoveries |
| 3 |
|
| 359 |
|
| 1,049 |
|
| 1,411 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| 1 |
|
| 892 |
|
| (985) |
|
| (92) |
Balance at end of period | $ | 41 |
| $ | 2,623 |
| $ | 684 |
| $ | 3,348 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | 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 | $ | 20 |
| $ | - |
| $ | - |
| $ | 20 | $ | 14 |
| $ | - |
| $ | - |
| $ | 14 |
Collectively evaluated for impairment |
| 22 |
|
| 3,225 |
|
| 595 |
|
| 3,842 |
| 8 |
|
| 1,905 |
|
| 135 |
|
| 2,048 |
Total ending allowance balance | $ | 42 |
| $ | 3,225 |
| $ | 595 |
| $ | 3,862 | $ | 22 |
| $ | 1,905 |
| $ | 135 |
| $ | 2,062 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 747 |
| $ | - |
| $ | - |
| $ | 747 | $ | 747 |
| $ | - |
| $ | - |
| $ | 747 |
Collectively evaluated for impairment |
| 3,633 |
|
| 28,915 |
|
| 21,969 |
|
| 54,517 |
| 1,799 |
|
| 23,988 |
|
| 4,435 |
|
| 30,222 |
Total ending loan balance | $ | 4,380 |
| $ | 28,915 |
| $ | 21,969 |
| $ | 55,264 | $ | 2,546 |
| $ | 23,988 |
| $ | 4,435 |
| $ | 30,969 |
53
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
During the second quarter of 2019, Oriental adjusted to fair value several mortgage loans accounted under ASC 310-30, which are expected to be sold during 2019, with a net increment in provision for acquired BBVAPR and Eurobank loans by $8.5 million.
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 indicatedindicated::
| Quarter Ended June 30, 2018 | |||||||||||
| 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 | $ | 14,331 |
| $ | 22,047 |
| $ | 18 | $ | 6,770 |
| 43,166 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 236 |
|
| 1,306 |
|
| - |
| - |
| 1,542 |
Allowance de-recognition |
| - |
|
| (334) |
|
| - |
| (198) |
| (532) |
Balance at end of period | $ | 14,567 |
| $ | 23,019 |
| $ | 18 | $ | 6,572 |
| 44,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | |||||||||||
| 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 | $ | 14,085 |
| $ | 23,691 |
| $ | 18 | $ | 7,961 |
| 45,755 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 550 |
|
| 2,058 |
|
| - |
| (887) |
| 1,721 |
Allowance de-recogntion |
| (68) |
|
| (2,730) |
|
| - |
| (502) |
| (3,300) |
Balance at end of period | $ | 14,567 |
| $ | 23,019 |
| $ | 18 | $ | 6,572 |
| 44,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
51
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 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 | $ | 17,901 |
| $ | 20,733 |
| $ | - | $ | 3,499 |
| 42,133 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 7,390 |
|
| (79) |
|
| - |
| - |
| 7,311 |
Allowance de-recognition |
| (83) |
|
| (3,571) |
|
| - |
| (363) |
| (4,017) |
Balance at end of period | $ | 25,208 |
| $ | 17,083 |
| $ | - | $ | 3,136 |
| 45,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 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 |
| 10,123 |
|
| 771 |
|
| - |
| (2,314) |
| 8,580 |
Allowance de-recogntion |
| (140) |
|
| (4,329) |
|
| - |
| (694) |
| (5,163) |
Balance at end of period | $ | 25,208 |
| $ | 17,083 |
| $ | - | $ | 3,136 |
| 45,427 |
52
| Quarter Ended June 30, 2018 | |||||||||||||
| 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 | $ | 14,331 |
| $ | 22,047 |
| $ | 18 |
| $ | 6,770 |
| $ | 43,166 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 236 |
|
| 1,306 |
|
| - |
|
| - |
|
| 1,542 |
Allowance de-recognition |
| - |
|
| (334) |
|
| - |
|
| (198) |
|
| (532) |
Balance at end of period | $ | 14,567 |
| $ | 23,019 |
| $ | 18 |
| $ | 6,572 |
| $ | 44,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | |||||||||||||
| 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 | $ | 14,085 |
| $ | 23,691 |
| $ | 18 |
| $ | 7,961 |
| $ | 45,755 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 550 |
|
| 2,058 |
|
| - |
|
| (887) |
|
| 1,721 |
Allowance de-recognition |
| (68) |
|
| (2,730) |
|
| - |
|
| (502) |
|
| (3,300) |
Balance at end of period | $ | 14,567 |
| $ | 23,019 |
| $ | 18 |
| $ | 6,572 |
| $ | 44,176 |
Allowance for Acquired Eurobank Loan Losses
The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters ended June 30, 2019 and 2018 were as follows:
53
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 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 | $ | 15,110 |
| $ | 9,242 |
| $ | - |
| $ | 24,352 |
Provision (recapture) for loan and lease losses, net |
| 2,502 |
|
| (724) |
|
| - |
|
| 1,778 |
Allowance de-recognition |
| (399) |
| $ | (153) |
| $ | - |
|
| (552) |
Balance at end of period | $ | 17,213 |
| $ | 8,365 |
| $ | - |
| $ | 25,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 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 |
Provision (recapture) for loan and lease losses, net |
| 2,300 |
|
| (1,174) |
|
| - |
|
| 1,126 |
Allowance de-recognition |
| (469) |
|
| (46) |
|
| (4) |
|
| (519) |
Balance at end of period | $ | 17,213 |
| $ | 8,365 |
| $ | - |
| $ | 25,578 |
54
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, 2017 | Quarter Ended June 30, 2018 | ||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Allowance for loan and lease losses for acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at beginning of period | $ | 3,573 |
| $ | 23,528 |
| $ | 7,829 |
| $ | 34,930 | $ | 15,414 |
| $ | 9,992 |
| $ | 4 |
| $ | 25,410 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 630 |
| 2,735 |
| - |
| 3,365 | ||||||||||||||
Provision (recapture) for acquired Eurobank loan and lease losses, net |
| 605 |
|
| 60 |
|
| - |
| 665 | ||||||||||||
Allowance de-recognition |
| (62) |
|
| (649) |
|
| (90) |
|
| (801) |
| (849) |
|
| (912) |
|
| - |
|
| (1,761) |
Balance at end of period | $ | 4,141 |
| $ | 25,614 |
| $ | 7,739 |
| $ | 37,494 | $ | 15,170 |
| $ | 9,140 |
| $ | 4 |
| $ | 24,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | |||||||||||||
| Six-Month Period Ended June 30, 2017 | Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | (In thousands) | ||||||||||||||
| (In thousands) | |||||||||||||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Allowance for loan and lease losses for Eurobank loans: |
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at beginning of period | $ | 2,682 |
| $ | 23,452 |
| $ | 4,922 |
| $ | 31,056 | $ | 15,187 |
| $ | 9,983 |
| $ | 4 |
| $ | 25,174 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 1,552 |
| 2,958 |
| 3,186 |
| 7,696 | ||||||||||||||
Allowance de-recogntion |
| (93) |
|
| (796) |
|
| (369) |
|
| (1,258) | |||||||||||
Provision (recapture) for acquired Eurobank loan and lease losses, net |
| 784 |
|
| 21 |
| - |
| 805 | |||||||||||||
Allowance de-recognition |
| (801) |
|
| (864) |
|
| - |
|
| (1,665) | |||||||||||
Balance at end of period | $ | 4,141 |
| $ | 25,614 |
| $ | 7,739 |
| $ | 37,494 | $ | 15,170 |
| $ | 9,140 |
| $ | 4 |
| $ | 24,314 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Acquired Eurobank Loan Losses
The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters and six-month periods ended June 30, 2018 and 2017 were as follows:
55
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 7 — FORECLOSED REAL ESTATE
The following tables present the activity related to foreclosed real estate for the quarters and six-month periods ended June 30, 2019 and 2018:
| Quarter Ended June 30, 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 | $ | 15,414 |
| $ | 9,992 |
| $ | 5 |
| $ | 25,411 |
Provision for loan and lease losses, net |
| 605 |
|
| 60 |
|
| - |
|
| 665 |
Allowance de-recognition |
| (849) |
|
| (912) |
|
| (1) |
|
| (1,762) |
Balance at end of period | $ | 15,170 |
| $ | 9,140 |
| $ | 4 |
| $ | 24,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 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 |
| $ | 9,982 |
| $ | 5 |
| $ | 25,174 |
Provision for loan and lease losses, net |
| 784 |
|
| 21 |
|
| - |
|
| 805 |
Allowance de-recognition |
| (801) |
|
| (863) |
|
| (1) |
|
| (1,665) |
Balance at end of period | $ | 15,170 |
| $ | 9,140 |
| $ | 4 |
| $ | 24,314 |
| Quarter Ended June 30, 2019 | ||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||
|
| (In thousands) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 10,012 |
| $ | 12,766 |
| $ | 8,087 |
| $ | 30,865 |
Decline in value |
| (296) |
|
| (602) |
|
| (523) |
|
| (1,421) |
Additions |
| 2,412 |
|
| 1,676 |
|
| 252 |
|
| 4,340 |
Sales |
| (1,175) |
|
| (2,600) |
|
| (500) |
|
| (4,275) |
Balance at end of period | $ | 10,953 |
| $ | 11,240 |
| $ | 7,316 |
| $ | 29,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Six-Month Period Ended June 30, 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 |
| (589) |
|
| (1,789) |
|
| (943) |
|
| (3,321) |
Additions |
| 4,818 |
|
| 2,730 |
|
| 746 |
|
| 8,294 |
Sales |
| (2,847) |
|
| (4,318) |
|
| (2,067) |
|
| (9,232) |
Balance at end of period | $ | 10,953 |
| $ | 11,240 |
| $ | 7,316 |
| $ | 29,509 |
|
|
|
|
|
|
|
|
|
|
|
|
56
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 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 | $ | 14,168 |
| $ | 7,833 |
| $ | 5 |
| $ | 22,006 |
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 474 |
|
| (62) |
|
| - |
|
| 412 |
Allowance de-recognition |
| (991) |
|
| 360 |
|
| - |
|
| (631) |
Balance at end of period | $ | 13,651 |
| $ | 8,131 |
| $ | 5 |
| $ | 21,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2017 | ||||||||||
| 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 | $ | 11,947 |
| $ | 9,328 |
| $ | 6 |
| $ | 21,281 |
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 2,872 |
|
| (840) |
|
| - |
|
| 2,032 |
Allowance de-recognition |
| (1,168) |
|
| (357) |
|
| (1) |
|
| (1,526) |
Balance at end of period | $ | 13,651 |
| $ | 8,131 |
| $ | 5 |
| $ | 21,787 |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, 2018 | ||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||
|
| (In thousands) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ | 13,365 |
| $ | 16,495 |
| $ | 10,454 |
| $ | 40,314 |
Decline in value |
| (170) |
|
| (478) |
|
| (290) |
|
| (938) |
Additions |
| 1,782 |
|
| 3,275 |
|
| 1,828 |
|
| 6,885 |
Sales |
| (2,791) |
|
| (1,800) |
|
| (1,119) |
|
| (5,710) |
Balance at end of year | $ | 12,186 |
| $ | 17,492 |
| $ | 10,873 |
| $ | 40,551 |
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | ||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||
|
| (In thousands) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ | 14,283 |
| $ | 18,347 |
| $ | 11,544 |
| $ | 44,174 |
Decline in value |
| (658) |
|
| (1,514) |
|
| (752) |
|
| (2,924) |
Additions |
| 3,269 |
|
| 4,925 |
|
| 1,941 |
|
| 10,135 |
Sales |
| (4,708) |
|
| (4,266) |
|
| (1,860) |
|
| (10,834) |
Balance at end of year | $ | 12,186 |
| $ | 17,492 |
| $ | 10,873 |
| $ | 40,551 |
57
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 7- FDIC SHARED-LOSS AGREEMENTS
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.
58
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 six-months periods ended June 30, 2018 and 2017:
| Quarter Ended June 30, 2018 | ||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||
|
| (In thousands) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 13,365 |
| $ | 16,495 |
| $ | 10,454 |
| $ | 40,314 |
Decline in value |
| (170) |
|
| (478) |
|
| (290) |
|
| (938) |
Additions |
| 1,782 |
|
| 3,275 |
|
| 1,828 |
|
| 6,885 |
Sales |
| (2,791) |
|
| (1,800) |
|
| (1,119) |
|
| (5,710) |
Other adjustments |
| - |
|
| - |
|
| - |
|
| - |
Balance at end of period | $ | 12,186 |
| $ | 17,492 |
| $ | 10,873 |
| $ | 40,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Quarter Ended June 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 | $ | 13,468 |
| $ | 21,534 |
| $ | 12,549 |
| $ | 47,551 |
Decline in value |
| (844) |
|
| (936) |
|
| (522) |
|
| (2,302) |
Additions |
| 4,445 |
|
| 3,553 |
|
| 1,493 |
|
| 9,491 |
Sales |
| (1,228) |
|
| (2,367) |
|
| (810) |
|
| (4,405) |
Other adjustments |
| - |
|
| (113) |
|
| - |
|
| (113) |
Balance at end of period | $ | 15,841 |
| $ | 21,671 |
| $ | 12,710 |
| $ | 50,222 |
|
|
|
|
|
|
|
|
|
|
|
|
59
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 30, 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 |
| (658) |
|
| (1,514) |
|
| (752) |
|
| (2,924) |
Additions |
| 3,269 |
|
| 4,925 |
|
| 1,941 |
|
| 10,135 |
Sales |
| (4,708) |
|
| (4,266) |
|
| (1,860) |
|
| (10,834) |
Balance at end of period | $ | 12,186 |
| $ | 17,492 |
| $ | 10,873 |
| $ | 40,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Six-Month Period Ended June 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 | $ | 12,390 |
| $ | 21,379 |
| $ | 13,751 |
| $ | 47,520 |
Decline in value |
| (1,081) |
|
| (1,628) |
|
| (1,270) |
|
| (3,979) |
Additions |
| 7,856 |
|
| 7,087 |
|
| 1,932 |
|
| 16,875 |
Sales |
| (3,239) |
|
| (5,054) |
|
| (1,703) |
|
| (9,996) |
Other adjustments |
| (85) |
|
| (113) |
|
| - |
|
| (198) |
Balance at end of period | $ | 15,841 |
| $ | 21,671 |
| $ | 12,710 |
| $ | 50,222 |
After hurricanes Irma and Maria in September 2017, management evaluated the potential impact these events brought to Oriental’s foreclosed real estate, considering the related underlying insurance coverage. Oriental has performed property inspections and taking into consideration all available information, the fair value of these properties was not materially impacted.
60
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents Oriental’s derivative assets and liabilities at June 30, 20182019 and December 31, 2017:2018:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps designated as cash flow hedges | $ | 421 |
| $ | - | $ | - |
| $ | 14 |
Interest rate swaps not designated as hedges |
| 335 |
|
| 618 |
| - |
|
| 126 |
Interest rate caps |
| 344 |
|
| 153 |
| 26 |
|
| 207 |
| $ | 1,100 |
| $ | 771 | $ | 26 |
| $ | 347 |
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps designated as cash flow hedges |
| - |
|
| 510 | $ | 959 |
| $ | - |
Interest rate swaps not designated as hedges |
| 335 |
| 618 |
| - |
|
| 126 | |
Interest rate caps |
| 344 |
| 153 |
| 26 |
|
| 207 | |
| $ | 679 |
| $ | 1,281 | $ | 985 |
| $ | 333 |
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
57
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, andsuch; 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 June 30, 2018:2019:
|
| Notional |
| Fixed |
| Variable |
| Trade |
| Settlement |
| Maturity |
| Notional |
| Fixed |
| Variable |
| Trade |
| Settlement |
| Maturity | ||
Type |
| Amount |
| Rate |
| Rate Index |
| Date |
| Date |
| Date |
| Amount |
| Rate |
| Rate Index |
| Date |
| Date |
| Date | ||
|
| (In thousands) |
|
|
|
|
|
|
|
|
|
|
| (In thousands) |
|
|
|
|
|
|
|
|
|
| ||
Interest Rate Swaps |
| $ | 34,352 |
| 2.4210% |
| 1-Month LIBOR |
| 07/03/13 |
| 07/03/13 |
| 08/01/23 |
| $ | 32,773 |
| 2.4210% |
| 1-Month LIBOR |
| 07/03/13 |
| 07/03/13 |
| 08/01/23 |
|
| $ | 34,352 |
|
|
|
|
|
|
|
|
|
|
| $ | 32,773 |
|
|
|
|
|
|
|
|
|
|
An accumulated unrealized gainloss of $$959421 thousand and a lossgain of $510$14 thousand were recognized in accumulated other comprehensive income related to the valuation of these swaps at June 30, 20182019 and December 31, 2017,2018, respectively, and the related asset or liability is being reflected in the consolidated statements of financial condition.
At June 30, 2018 and2019 Oriental did not have interest rate swaps not designated as hedging instruments offered to clients. At December 31, 2017,2018, interest rate swaps not designated as hedging instruments that were offered to clients represented an asset of $335$126 thousand and $618 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 June 30, 2018 and December 31, 2017,2018, interest rate swaps not designated as hedging instruments that are the mirror-images of the derivatives offered to clients represented a liability of $335$126 thousand and $618 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition.
61
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 June 30, 2018:
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 20182019 and December 31, 20172018, the outstanding total notional amount of interest rate caps was $151.8 42.1 million and $152.6 $150.9 million, respectively. At June 30, 20182019 and December 31, 2017,2018, the interest rate caps sold to clients represented a liability of $344$26 thousand and $153$207 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition. At June 30, 20182019 and December 31, 2017,2018, the interest rate caps purchased as mirror-images represented an asset of $344$26 thousand and $153$207 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial condition.
NOTE 109 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Accrued interest receivable at June 30, 20182019 and December 31, 20172018 consists of the following:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Loans, excluding acquired loans | $ | 30,944 |
| $ | 46,936 | $ | 31,386 |
| $ | 30,409 |
Investments |
| 3,532 |
|
| 3,033 |
| 2,523 |
|
| 3,845 |
| $ | 34,476 |
| $ | 49,969 | $ | 33,909 |
| $ | 34,254 |
|
|
|
|
|
|
|
|
|
|
|
Other assets at June 30, 2019 and December 31, 2018 consist of the following:
6258
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accrued interest receivable at December 31, 2017, included $39.7 million, resulting from the loan payment moratorium. Accrued interest receivable resulting from the loan payment moratorium has been decreasing, as most moratoriums have expired. Some of these accrued interests are payable at the end of the loan term.
Other assets at June 30, 2018 and December 31, 2017 consist of the following:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Prepaid expenses | $ | 10,742 |
| $ | 9,200 | $ | 11,613 |
| $ | 9,788 |
Other repossessed assets |
| 5,483 |
| 3,548 |
| 2,507 |
|
| 2,986 | |
Core deposit and customer relationship intangibles |
| 4,027 |
| 4,687 |
| 2,784 |
|
| 3,369 | |
Tax credits |
| 2,277 |
| 4,277 |
| 277 |
|
| 2,277 | |
Investment in Statutory Trust |
| 1,083 |
| 1,083 |
| 1,083 |
|
| 1,083 | |
Accounts receivable and other assets |
| 35,693 |
|
| 41,898 |
| 37,443 |
|
| 37,842 |
| $ | 59,305 |
| $ | 64,693 | $ | 55,707 |
| $ | 57,345 |
Prepaid expenses amounting to $10.7$11.6 million and $9.2$9.8 million at June 30, 20182019 and December 31, 2017,2018, respectively, include prepaid municipal, property and income taxes aggregating to $$8.88.5 million and $5.7$5.5 million, respectively.
Other repossessed assets totaled $2.5 million and $3.0 million at June 30, 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 June 30, 20182019 and December 31, 20172018 this core deposit intangible amounted to $2.9$2.1 million and $3.3$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 June 30, 20182019 and December 31, 20172018, this customer relationship intangible amounted to $1.1$704 millionthousand and $1.4$888 million,thousand, respectively.
Other repossessed assets totaled $5.5 million and $3.5 million at June 30, 2018 and December 31, 2017, respectively, that consist mainly of repossessed automobiles, which are recorded at their net realizable value.
At June 30, 20182019 and December 31, 2017,2018, tax credits for Oriental totaled $2.3 million$277 thousand and $4.3$2.3 million, respectively. These tax credits do not have an expiration date.
NOTE 1110—DEPOSITS AND RELATED INTEREST
Total deposits, including related accrued interest payable, as of June 30, 20182019 and December 31, 20172018 consist of the following:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Non-interest bearing demand deposits | $ | 1,110,738 |
| $ | 969,525 | $ | 1,075,744 |
| $ | 1,105,324 |
Interest-bearing savings and demand deposits |
| 2,285,357 |
| 2,274,116 |
| 2,344,576 |
| 2,274,423 | ||
Individual retirement accounts |
| 208,807 |
| 231,376 | ||||||
Retail certificates of deposit |
| 601,687 |
| 595,983 |
| 914,358 |
| 805,712 | ||
Institutional certificates of deposit |
| 212,187 |
|
| 209,951 |
| 222,052 |
|
| 197,559 |
Total core deposits |
| 4,418,776 |
|
| 4,280,951 |
| 4,556,730 |
|
| 4,383,018 |
Brokered deposits |
| 461,425 |
|
| 518,531 |
| 388,407 |
|
| 525,097 |
Total deposits | $ | 4,880,201 |
| $ | 4,799,482 | $ | 4,945,137 |
| $ | 4,908,115 |
|
|
|
|
|
|
|
|
|
|
|
6359
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Brokered deposits include $427.1 $366.7 million in certificates of deposits and $34.3 $21.7million in money market accounts at June 30, 2018,2019, and $471.6 $500.8 million in certificates of deposits and $46.9 $24.3million in money market accounts at December 31, 2017.2018. As part of the sale $349.7 million available-for-sale mortgage-backed securities during the quarter ended June 30, 2019, the Company reduced $62.8 million brokered deposits.
The weighted average interest rate of Oriental’s deposits was 0.630.80% and 0.650.67%, respectively, at June 30, 20182019 and December 31, 2017, respectively.2018. Interest expense for the quarters and six-month periods ended June 30, 20182019 and 20172018 was as follows:
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Demand and savings deposits | $ | 2,956 |
| $ | 2,939 |
| $ | 5,768 |
| $ | 5,848 | $ | 3,948 |
| $ | 2,956 |
| $ | 7,359 |
| $ | 5,768 |
Certificates of deposit |
| 4,695 |
|
| 4,713 |
|
| 9,181 |
|
| 9,157 |
| 6,043 |
|
| 4,695 |
|
| 11,681 |
|
| 9,181 |
| $ | 7,651 |
| $ | 7,652 |
| $ | 14,949 |
| $ | 15,005 | $ | 9,991 |
| $ | 7,651 |
| $ | 19,040 |
| $ | 14,949 |
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 20182019 and December 31, 2017,2018, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $$403.4 363.4 million and $359.6$346.0 million, respectively. Such amounts include public funds time deposits from various Puerto Rico government municipalities, agencies and corporations of $$29.3 33.2 million and $$19.63.5 million at a weighted average rate of 0.93134.3% and 0.28116.4% at June 30, 20182019 and December 31, 2017,2018, respectively.
At June 30, 20182019 and December 31, 2017,2018, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $156.9$276.9 million and $153.1$207.4 million, respectively. These public funds were collateralized with commercial loans and securities amounting to $201.2$310.9 million and $173.0$281.2 million at June 30, 20182019 and December 31, 2017,2018, respectively.
Excluding accrued interest of approximately $$2.5 1.7 million, the scheduled maturities of certificates of deposit at June 30, 20182019 and 2017December 31, 2018 are as follows:follows:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
|
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
| (In thousands) | (In thousands) | ||||||||
Within one year: |
|
|
|
|
|
|
|
|
| |
Three (3) months or less | $ | 286,623 |
| $ | 316,382 | $ | 288,380 |
| $ | 305,088 |
Over 3 months through 1 year |
| 505,206 |
|
| 508,285 |
| 436,659 |
|
| 545,363 |
|
| 791,829 |
|
| 824,667 |
| 725,039 |
|
| 850,451 |
Over 1 through 2 years |
| 468,489 |
| 470,670 |
| 617,425 |
|
| 484,197 | |
Over 2 through 3 years |
| 111,344 |
| 137,016 |
| 81,874 |
|
| 89,340 | |
Over 3 through 4 years |
| 30,850 |
| 36,125 |
| 41,005 |
|
| 34,018 | |
Over 4 through 5 years |
| 45,630 |
|
| 38,623 |
| 35,243 |
|
| 42,998 |
| $ | 1,448,142 |
| $ | 1,507,101 | $ | 1,500,586 |
| $ | 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 $367$995 thousand and $2.2$1.1 million as of June 30, 20182019 and December 31, 2017,2018, respectively.
6460
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 12 11—BORROWINGS AND RELATED INTEREST
Securities Sold under Agreements to Repurchase
At June 30, 2018, 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 June 30, 2018 and December 31, 2017, securities sold underThe following table shows Oriental’s repurchase agreements, to repurchase (classified by counterparty), excluding accrued interest in the amount of $391 $324thousand and $369 $785thousand respectively, wereat June 30, 2019 and December 31, 2018, respectively:
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Short-term fixed-rate repurchase agreements, interest ranging of 1.72% (December 31, 2018 2.45% to 2.95%) | $ | 50,000 |
| $ | 214,723 |
Long-term fixed-rate repurchase agreements, interest ranging from 1.85% to 2.86% (December 31, 2018; 1.72% to 2.86%) |
| 190,000 |
|
| 240,000 |
Total assets sold under agreements to repurchase | $ | 240,000 |
| $ | 454,723 |
|
|
|
|
|
|
Repurchase agreements mature as follows:
| June 30, |
| December 31, | ||||||||
| 2018 |
| 2017 | ||||||||
|
|
|
| Fair Value of |
|
|
|
| Fair Value of | ||
| Borrowing |
| Underlying |
| Borrowing |
| Underlying | ||||
| Balance |
| Collateral |
| Balance |
| Collateral | ||||
| (In thousands) | ||||||||||
KGS Alpha |
| 12,460 |
|
| 13,855 |
|
| - |
|
| - |
Amherst Pierpont |
| 46,427 |
|
| 48,966 |
|
| - |
|
| - |
JP Morgan Chase Bank NA |
| 80,000 |
|
| 86,252 |
|
| 82,500 |
|
| 88,974 |
Nomura |
| 60,000 |
|
| 63,464 |
|
| - |
|
| - |
JVB Financial |
| 28,522 |
|
| 30,561 |
|
| - |
|
| - |
Federal Home Loan Bank |
| 110,000 |
|
| 116,330 |
|
| 110,000 |
|
| 116,509 |
Citigroup |
| 49,970 |
|
| 53,249 |
|
| - |
|
| - |
Total | $ | 387,379 |
| $ | 412,677 |
| $ | 192,500 |
| $ | 205,483 |
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Less than 90 days | $ | 50,000 |
| $ | 214,723 |
Over 90-days |
| 190,000 |
|
| 240,000 |
Total | $ | 240,000 |
| $ | 454,723 |
As a result of the sale $349.7 million available-for-sale mortgage-backed securities during the quarter ended June 30, 2019, the Company terminated before maturity $191.2 million securities sold under agreements to repurchase, at a cost of $7 thousand, included in the statement of operations of the financial statements. This sale provided opportunity to further reduce wholesale funding outstanding balances.
The following table shows a summary of Oriental’ssecurities were sold under agreements to repurchase agreements and their terms, excluding accrued interest in the amount of $391 thousand, at June 30, 2018:
|
|
|
|
| Weighted- |
|
|
|
|
|
| Borrowing |
| Average |
|
|
| Maturity | |
Year of Maturity |
| Balance |
| Coupon |
| Settlement Date |
| Date | |
|
| (In thousands) |
|
|
|
|
|
| |
2018 |
|
| 60,000 |
| 2.26% |
| 6/8/2018 |
| 7/3/2018 |
|
|
| 46,427 |
| 2.32% |
| 6/26/2018 |
| 7/3/2018 |
|
|
| 28,522 |
| 2.16% |
| 6/15/2018 |
| 7/12/2018 |
|
|
| 49,970 |
| 2.22% |
| 6/22/2018 |
| 7/20/2018 |
|
|
| 12,460 |
| 2.18% |
| 6/25/2018 |
| 7/25/2018 |
|
|
|
|
|
|
|
|
|
|
2019 |
|
| 50,000 |
| 1.72% |
| 3/2/2017 |
| 9/3/2019 |
|
|
|
|
|
|
|
|
|
|
2020 |
|
| 60,000 |
| 1.85% |
| 3/2/2017 |
| 3/2/2020 |
|
|
| 50,000 |
| 2.61% |
| 3/15/2018 |
| 3/15/2020 |
|
|
| 30,000 |
| 2.70% |
| 3/23/2018 |
| 3/23/2020 |
|
| $ | 387,379 |
| 2.20% |
|
|
|
|
All of the repurchase agreements referred to above with maturity dates up to the date of this report were renewed as short-term repurchase agreements.
6561
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
66
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 2018 and December 31, 2017. There was no cash collateral at June 30, 2018 and December 31, 2017.
|
|
|
|
|
|
| Market Value of Underlying Collateral |
|
|
|
|
|
|
| Market Value of Underlying Collateral | ||
|
|
|
| Weighted |
| FNMA and |
|
|
|
| Weighted |
| FNMA and | ||||
| Repurchase |
| Average | FHLMC |
| Repurchase |
| Average | FHLMC | ||||||||
| Liability |
| Rate |
| Certificates |
| Liability |
| Rate |
| Certificates | ||||||
| June 30, 2018 |
| December 31, 2017 | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Less than 90 days | $ | 197,379 |
|
| 2.24% |
| $ | 210,095 |
| $ | - |
|
| - |
| $ | - |
Over 90 days |
| 190,000 |
|
| 2.15% |
|
| 202,582 |
|
| 192,500 |
|
| 1.63% |
|
| 205,483 |
Total | $ | 387,379 |
|
| 2.20% |
| $ | 412,677 |
| $ | 192,500 |
|
| 1.63% |
| $ | 205,483 |
| June 30, 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 | $ | 258,784 |
| $ | 240,000 |
| $ | 257,439 |
|
| 3.00% |
Total | $ | 258,784 |
| $ | 240,000 |
| $ | 257,439 |
|
| 3.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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% |
Advances from the Federal Home Loan Bank of New York
Advances are received from the 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 June 30, 20182019 and December 31, 20172018, these advances were secured by mortgage and commercial loans amounting to $910.7 $864.7million and $1.3 $847.3billion, million, respectively. Also, at June 30, 20182019 and December 31, 20172018, Oriental had an additional borrowing capacity with the FHLB-NY of $775.6 $784.8million and $920.0$762.0 million, respectively. At June 30, 20182019 and December 31, 20172018, the weighted average remaining maturity of FHLB’s advances was 8.4 months 26.0 months and 3.226.6 months,, respectively. The original terms of these advances range between one monthday and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of June 30, 2018.2019.
The following table shows a summary of thesethe advances and their terms, excluding accrued interest in the amount of $123$180 thousand and $176 thousand, at June 30, 2019 and December 31, 2018, respectively::
|
|
|
|
| Weighted- |
|
|
|
|
|
|
| Borrowing |
| Average |
|
|
| Maturity |
Year of Maturity |
|
| Balance |
| Coupon |
| Settlement Date |
| Date |
|
|
| (In thousands) |
|
|
|
|
|
|
2018 |
|
| 34,352 |
| 2.14% |
| 6/1/2018 |
| 7/2/2018 |
|
|
| 70,000 |
| 2.08% |
| 6/29/2018 |
| 7/2/2018 |
|
|
|
|
|
|
|
|
|
|
2020 |
|
| 9,039 |
| 2.59% |
| 7/19/2013 |
| 7/20/2020 |
|
|
|
|
|
|
|
|
|
|
2023 |
|
| 12,500 |
| 2.94% |
| 5/9/2018 |
| 5/9/2023 |
|
|
| 2,100 |
| 2.92% |
| 6/8/2018 |
| 6/8/2023 |
|
| $ | 127,991 |
| 2.23% |
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
|
| 2019 |
|
| 2018 |
|
|
| (In thousands) | |||
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.59% (December 31, 2018 - 2.61%) |
| $ | 32,773 |
| $ | 33,572 |
Long-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.90% (December 31, 2018 - 2.89%) |
|
| 47,132 |
|
| 43,872 |
|
| $ | 79,905 |
| $ | 77,444 |
All of the advances referred to above with maturity dates up to the date of this report were renewedAdvances from FHLB mature as one-month short-term advances.follows:
Subordinated Capital Notes
Subordinated capital notes amounted to $36.1 million at June 30, 2018 and December 31, 2017, for both periods.
6762
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
| June 30, |
|
|
| 2019 |
|
|
| (In thousands) |
Under 90 days |
| $ | 32,773 |
Over one to three years |
|
| 8,693 |
Over three to five years |
|
| 34,019 |
Over five years |
|
| 4,420 |
|
| $ | 79,905 |
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 June 30, 2019 and December 31, 2018.
NOTE 1312 – 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 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 June 30, 20182019 and December 31, 20172018:
June 30, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
| Gross Amounts |
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Assets Presented |
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Assets |
| Condition |
| Condition |
| Instruments |
| Received |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 1,100 |
| $ | - |
| $ | 1,100 |
| $ | 2,013 |
| $ | - |
| $ | (913) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
| Gross Amounts |
| Net amount of |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Assets Presented |
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Assets |
| Condition |
| Condition |
| Instruments |
| Received |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 771 |
| $ | - |
| $ | 771 |
| $ | 2,010 |
| $ | - |
| $ | (1,239) |
6863
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
June 30, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| |||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 679 |
| $ | - |
| $ | 679 |
| $ | - |
| $ | 1,980 |
| $ | (1,301) |
Securities sold under agreements to repurchase |
|
| 387,379 |
|
| - |
|
| 387,379 |
|
| 412,677 |
|
| - |
|
| (25,298) |
Total |
| $ | 388,058 |
| $ | - |
| $ | 388,058 |
| $ | 412,677 |
| $ | 1,980 |
| $ | (26,599) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| |||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 1,281 |
| $ | - |
| $ | 1,281 |
| $ | - |
| $ | 1,980 |
| $ | (699) |
Securities sold under agreements to repurchase |
|
| 192,500 |
|
| - |
|
| 192,500 |
|
| 205,483 |
|
| - |
|
| (12,983) |
Total |
| $ | 193,781 |
| $ | - |
| $ | 193,781 |
| $ | 205,483 |
| $ | 1,980 |
| $ | (13,682) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
| Gross Amounts |
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Assets Presented |
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Assets |
| Condition |
| Condition |
| Instruments |
| Received |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 26 |
| $ | - |
| $ | 26 |
| $ | - |
| $ | - |
| $ | 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
| Gross Amounts |
| Net amount of |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Assets Presented |
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Assets |
| Condition |
| Condition |
| Instruments |
| Received |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 347 |
| $ | - |
| $ | 347 |
| $ | 2,037 |
| $ | - |
| $ | (1,690) |
64
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
June 30, 2019 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| |||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 985 |
| $ | - |
| $ | 985 |
| $ | - |
| $ | - |
| $ | 985 |
Securities sold under agreements to repurchase |
|
| 240,000 |
|
| - |
|
| 240,000 |
|
| 257,439 |
|
| - |
|
| (17,439) |
Total |
| $ | 240,985 |
| $ | - |
| $ | 240,985 |
| $ | 257,439 |
| $ | - |
| $ | (16,454) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| |||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| |||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||
|
| (In thousands) | ||||||||||||||||
Derivatives |
| $ | 333 |
| $ | - |
| $ | 333 |
| $ | - |
|
| 1,980 |
| $ | (1,647) |
Securities sold under agreements to repurchase |
|
| 454,723 |
|
| - |
|
| 454,723 |
|
| 487,181 |
|
| - |
|
| (32,458) |
Total |
| $ | 455,056 |
| $ | - |
| $ | 455,056 |
| $ | 487,181 |
| $ | 1,980 |
| $ | (34,105) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6965
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 20182019 and December 31, 2017,2018, Oriental’s net deferred tax asset amounted to $125.1$111.1 million and $127.4$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 areis 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 June 30, 20182019 and December 31, 2017.2018. 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.
Oriental maintained an effective tax rate lower than statutory rate for the six-month periods ended June 30, 2019 and 2018 of 32.1% and 32.4%, respectively, mainly by investing in tax-exempt obligations, doing business through its international banking entity, and by expanding its operations in the U.S, which are taxed at a lower rate.
Oriental classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At June 30, 2019 and December 31, 2018, the amount of unrecognized tax benefits remainedamounted at $$9081.3 thousand and $875million when compared to December 31, 2017. thousand, respectively. Oriental had accrued $48$33 thousand at June 30, 20182019 (December 31, 20172018 - $97$81 thousand) for the payment of interest and penalties relating to unrecognized tax benefitsbenefits..
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 six-month periods ended June 30, 2018 and 2017 of 32.4% and 29.0%, respectively.
Oriental has operations in U.S. through its wholly owned subsidiary OPC, a retirement plan administration based in Florida. Also, in October 2017, Oriental expanded its operations in U.S. through the Bank's wholly owned subsidiary OFG USA LLC. Both subsidiaries are subject to state and federal taxes. OPC is subject to Florida state taxes and OFG USA is subject to North Carolina state taxes. OPC is a corporation and OFG USA elected to be classified as a corporation.
Income tax expense for the quarters ended June 30, 2019 and 2018, and 2017 was $9.6$10.9 million and $4.0$9.6 million, respectively. Income tax expense for the six-month periods ended June 30, 2019 and 2018 was $22.5 million and 2017 was $17.6 million, and $13.2 million, respectively.respectively.
7066
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 15 14 — REGULATORY CAPITAL REQUIREMENTS
Regulatory Capital Requirements
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 thatbased 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 newBasel 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 currentBasel III capital rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the 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 currentBasel 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 June 30, 20182019 and December 31, 2017,2018, OFG Bancorp and the Bank met all capital adequacy requirements to which they are subject. As of June 30, 20182019 and December 31, 20172018, 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.
7167
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OFG Bancorp’s and the Bank’s actual capital amounts and ratios as of June 30, 20182019 and December 31, 20172018 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 June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 1,035,109 |
| 21.14% |
| $ | 391,635 |
| 8.00% |
| $ | 489,544 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 972,537 |
| 19.87% |
| $ | 293,726 |
| 6.00% |
| $ | 391,635 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 855,667 |
| 17.48% |
| $ | 220,295 |
| 4.50% |
| $ | 318,204 |
| 6.50% |
Tier 1 capital to average total assets | $ | 972,537 |
| 15.20% |
| $ | 255,876 |
| 4.00% |
| $ | 319,845 |
| 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 June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 984,483 |
| 20.19% |
| $ | 390,040 |
| 8.00% |
| $ | 487,550 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 922,242 |
| 18.92% |
| $ | 292,530 |
| 6.00% |
| $ | 390,040 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 922,242 |
| 18.92% |
| $ | 219,398 |
| 4.50% |
| $ | 316,908 |
| 6.50% |
Tier 1 capital to average total assets | $ | 922,242 |
| 14.54% |
| $ | 253,721 |
| 4.00% |
| $ | 317,152 |
| 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 June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 931,717 |
| 19.67% |
| $ | 379,002 |
| 8.00% |
| $ | 473,753 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 870,792 |
| 18.38% |
| $ | 284,252 |
| 6.00% |
| $ | 379,002 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 669,922 |
| 14.14% |
| $ | 213,189 |
| 4.50% |
| $ | 307,939 |
| 6.50% |
Tier 1 capital to average total assets | $ | 870,792 |
| 13.92% |
| $ | 250,165 |
| 4.00% |
| $ | 312,706 |
| 5.00% |
As of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 899,258 |
| 20.34% |
| $ | 353,653 |
| 8.00% |
| $ | 442,067 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 842,133 |
| 19.05% |
| $ | 265,240 |
| 6.00% |
| $ | 353,653 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 644,804 |
| 14.59% |
| $ | 198,930 |
| 4.50% |
| $ | 287,343 |
| 6.50% |
Tier 1 capital to average total assets | $ | 842,133 |
| 13.92% |
| $ | 242,057 |
| 4.00% |
| $ | 302,571 |
| 5.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum Capital |
| Minimum to be Well | ||||||
| Actual |
| Requirement |
| Capitalized | |||||||||
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | |||
| (Dollars in thousands) | |||||||||||||
Bank Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 907,578 |
| 19.18% |
| $ | 378,612 |
| 8.00% |
| $ | 473,265 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 846,903 |
| 17.89% |
| $ | 283,959 |
| 6.00% |
| $ | 378,612 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 846,903 |
| 17.89% |
| $ | 212,969 |
| 4.50% |
| $ | 307,622 |
| 6.50% |
Tier 1 capital to average total assets | $ | 846,903 |
| 13.59% |
| $ | 249,314 |
| 4.00% |
| $ | 311,643 |
| 5.00% |
As of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets | $ | 879,648 |
| 19.92% |
| $ | 353,265 |
| 8.00% |
| $ | 441,581 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 822,776 |
| 18.63% |
| $ | 264,949 |
| 6.00% |
| $ | 353,265 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 822,776 |
| 18.63% |
| $ | 198,712 |
| 4.50% |
| $ | 287,028 |
| 6.50% |
Tier 1 capital to average total assets | $ | 822,776 |
| 13.63% |
| $ | 241,417 |
| 4.00% |
| $ | 301,771 |
| 5.00% |
NOTE 16 – STOCKHOLDERS’ EQUITY
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 June 30, 2018 and December 31, 2017, accumulated issuance costs charged against additional paid-in capital amounted to $13.6 million and $10.1 million for preferred and common stock, respectively.
7268
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 15 – 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 June 30, 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 June 30, 2019 and December 31, 2018, accumulated issuance costs charged against additional paid-in capital amounted to $13.6 million and $10.1 million for common and preferred stock, respectively.
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 June 30, 20182019 and December 31, 2017,2018, the Bank’s legal surplus amounted to $85.2 $95.0million and $81.5$90.2 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.
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 six-month periods ended June 30, 20182019 and 2017,2018, Oriental did not purchaserepurchase any shares under the program.
At June 30, 20182019 the number of shares that may yet be purchased under the $70 million program is estimated at 325,236550,239 and was calculated by dividing the remaining balance of $7.7million by $14.05 $23.77(closing (closing price of Oriental's common stock at June 30, 2018)2019).
The activity in connection with common shares held in treasury by Oriental for the six-month periods ended June 30, 20182019 and 20172018 is set forth below:
| Six-Month Period Ended June 30, | Six-Month Period Ended June 30, | ||||||||||||||||
| 2018 |
| 2017 | 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 | 8,678,427 |
| $ | 104,502 |
| 8,711,025 |
| $ | 104,860 | 8,591,310 |
| $ | 103,633 |
| 8,678,427 |
| $ | 104,502 |
Common shares used upon lapse of restricted stock units | (35,753) |
|
| (533) |
| (32,598) |
|
| (358) | |||||||||
Common shares used upon lapse of restricted stock units and options | (36,107) |
|
| (462) |
| (35,753) |
|
| (533) | |||||||||
End of period | 8,642,674 |
| $ | 103,969 |
| 8,678,427 |
| $ | 104,502 | 8,555,203 |
| $ | 103,171 |
| 8,642,674 |
| $ | 103,969 |
69
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 1716 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income, net of income taxes, as of June 30, 2019 and December 31, 2018 consisted of:
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Unrealized loss on securities available-for-sale which are not other-than-temporarily impaired | $ | (3,478) |
| $ | (12,654) |
Income tax effect of unrealized loss on securities available-for-sale |
| 391 |
|
| 1,682 |
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired |
| (3,087) |
|
| (10,972) |
Unrealized (loss) gain on cash flow hedges |
| (958) |
|
| 14 |
Income tax effect of unrealized (loss) gain on cash flow hedges |
| 359 |
|
| (5) |
Net unrealized (loss) gain on cash flow hedges |
| (599) |
|
| 9 |
Accumulated other comprehensive (loss), net of income taxes | $ | (3,686) |
| $ | (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 and six-month periods ended June 30, 2019 and 2018:
70
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, | ||||||||||||||||
| 2019 |
| 2018 | ||||||||||||||
| 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 |
| (loss) income | ||||||
| (In thousands) | ||||||||||||||||
Beginning balance | $ | (7,841) |
| $ | (206) |
| $ | (8,047) |
| $ | (12,274) |
| $ | 89 |
| $ | (12,185) |
Other comprehensive income (loss) before reclassifications |
| (10) |
|
| (952) |
|
| (962) |
|
| (3,178) |
|
| (281) |
|
| (3,459) |
Amounts reclassified out of accumulated other comprehensive (loss) income |
| 4,764 |
|
| 559 |
|
| 5,323 |
|
| (66) |
|
| 448 |
|
| 382 |
Other comprehensive income (loss) |
| 4,754 |
|
| (393) |
|
| 4,361 |
|
| (3,244) |
|
| 167 |
|
| (3,077) |
Ending balance | $ | (3,087) |
| $ | (599) |
| $ | (3,686) |
| $ | (15,518) |
| $ | 256 |
| $ | (15,262) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | ||||||||||||||||
| 2019 |
| 2018 | ||||||||||||||
| 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 |
| (loss) income | ||||||
| (In thousands) | ||||||||||||||||
Beginning balance | $ | (10,972) |
| $ | 9 |
| $ | (10,963) |
| $ | (2,638) |
| $ | (311) |
| $ | (2,949) |
Transfer of securities held to maturity to available-for-sale |
| (12,041) |
|
| - |
|
| (12,041) |
|
| - |
|
| - |
|
| - |
Other comprehensive (loss) income before reclassifications |
| 15,178 |
|
| (1,384) |
|
| 13,794 |
|
| (12,754) |
|
| (255) |
|
| (13,009) |
Amounts reclassified out of accumulated other comprehensive (loss) income |
| 4,748 |
|
| 776 |
|
| 5,524 |
|
| (126) |
|
| 822 |
|
| 696 |
Other comprehensive income (loss) |
| 7,885 |
|
| (608) |
|
| 7,277 |
|
| (12,880) |
|
| 567 |
|
| (12,313) |
Ending balance | $ | (3,087) |
| $ | (599) |
| $ | (3,686) |
| $ | (15,518) |
| $ | 256 |
| $ | (15,262) |
The following table presents reclassifications out of accumulated other comprehensive income for the quarters and six-month periods ended June 30, 2019 and 2018:
71
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Quarter Ended June 30, | |||||
|
| 2019 |
|
| 2018 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 559 |
| $ | 448 |
|
Available-for-sale securities: |
|
|
|
|
| Net interest expense |
Gain on sale of investments |
| 4,776 |
|
| - | Net gain on sale of securities |
Tax effect from changes in tax rates |
| (13) |
|
| (66) | Income tax expense |
| $ | 5,322 |
| $ | 382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Six-Month Period Ended June 30, | |||||
|
| 2019 |
|
| 2018 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 776 |
| $ | 822 |
|
Available-for-sale securities: |
|
|
|
|
| Net interest expense |
Gain on sale of investments |
| 4,776 |
|
| - | Income tax expense |
Residual tax effect from OIB's change in applicable tax rate |
| - |
|
| 5 | Income tax expense |
Tax effect from changes in tax rates |
| (29) |
|
| (131) | Income tax expense |
| $ | 5,523 |
| $ | 696 |
|
72
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 17 – EARNINGS PER COMMON SHARE
The calculation of earnings per common share for the quarters and six-month periods ended June 30, 2019 and 2018 is as follows:
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| (In thousands, except per share data) | ||||||||||
Net income | $ | 23,979 |
| $ | 19,649 |
| $ | 47,449 |
| $ | 36,566 |
Less: Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
Non-convertible preferred stock (Series A, B, and D) |
| (1,628) |
|
| (1,628) |
|
| (3,256) |
|
| (3,255) |
Convertible preferred stock (Series C) |
| - |
|
| (1,837) |
|
| - |
|
| (3,675) |
Income available to common shareholders | $ | 22,351 |
| $ | 16,184 |
| $ | 44,193 |
| $ | 29,636 |
Effect of assumed conversion of the convertible preferred stock |
| - |
|
| 1,837 |
|
| - |
|
| 3,675 |
Income available to common shareholders assuming conversion | $ | 22,351 |
| $ | 18,021 |
| $ | 44,193 |
| $ | 33,311 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 51,330 |
|
| 43,975 |
|
| 51,317 |
|
| 43,965 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Average potential common shares-options |
| 350 |
|
| 113 |
|
| 335 |
|
| 54 |
Average potential common shares-assuming conversion of convertible preferred stock |
| - |
|
| 7,138 |
|
| - |
|
| 7,138 |
Total weighted average common shares outstanding and equivalents |
| 51,680 |
|
| 51,226 |
|
| 51,652 |
|
| 51,157 |
Earnings per common share - basic | $ | 0.44 |
| $ | 0.36 |
| $ | 0.86 |
| $ | 0.67 |
Earnings per common share - diluted | $ | 0.43 |
| $ | 0.35 |
| $ | 0.86 |
| $ | 0.65 |
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 Series C Preferred Stock that remained outstanding, 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 quarter and six-month period ended June 30, 2018 and December 31, 2017on the convertible preferred stock were added back as income available to common shareholders. consisted of:
| June 30, |
| December 31, | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Unrealized loss on securities available-for-sale which are not other-than-temporarily impaired | $ | (17,967) |
| $ | (3,003) |
Income tax effect of unrealized loss on securities available-for-sale |
| 2,449 |
|
| 365 |
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired |
| (15,518) |
|
| (2,638) |
Unrealized gain (loss) on cash flow hedges |
| 421 |
|
| (510) |
Income tax effect of unrealized (gain) loss on cash flow hedges |
| (165) |
|
| 199 |
Net unrealized gain (loss) on cash flow hedges |
| 256 |
|
| (311) |
Accumulated other comprehensive (loss), net of income taxes | $ | (15,262) |
| $ | (2,949) |
For the quarter ended June 30, 2019, Oriental did not have weighted-average stock options with an anti-dilutive effect on earnings per share. For the quarter ended June 30, 2018, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 433,493. For the six-month periods ended June 30, 2019 and 2018, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 47,420 and 442,221, respectively.
73
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 six-month periods ended June 30, 2018 and 2017:
| Quarter Ended June 30, | ||||||||||||||||
| 2018 |
| 2017 | ||||||||||||||
| 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 |
| (loss) income | ||||||
| (In thousands) | ||||||||||||||||
Beginning balance | $ | (12,274) |
| $ | 89 |
| $ | (12,185) |
| $ | 3,850 |
| $ | (502) |
| $ | 3,348 |
Other comprehensive loss before reclassifications |
| (3,178) |
|
| (281) |
|
| (3,459) |
|
| (3,618) |
|
| (189) |
|
| (3,807) |
Amounts reclassified out of accumulated other comprehensive income (loss) |
| (66) |
|
| 448 |
|
| 382 |
|
| 24 |
|
| 128 |
|
| 152 |
Other comprehensive income (loss) |
| (3,244) |
|
| 167 |
|
| (3,077) |
|
| (3,594) |
|
| (61) |
|
| (3,655) |
Ending balance | $ | (15,518) |
| $ | 256 |
| $ | (15,262) |
| $ | 256 |
| $ | (563) |
| $ | (307) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, | ||||||||||||||||
| 2018 |
| 2017 | ||||||||||||||
| 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 |
| (loss) income | ||||||
| (In thousands) | ||||||||||||||||
Beginning balance | $ | (2,638) |
| $ | (311) |
| $ | (2,949) |
| $ | 2,209 |
| $ | (613) |
| $ | 1,596 |
Other comprehensive loss before reclassifications |
| (12,754) |
|
| (255) |
|
| (13,009) |
|
| (1,911) |
|
| (227) |
|
| (2,138) |
Amounts reclassified out of accumulated other comprehensive income (loss) |
| (126) |
|
| 822 |
|
| 696 |
|
| (42) |
|
| 277 |
|
| 235 |
Other comprehensive income (loss) |
| (12,880) |
|
| 567 |
|
| (12,313) |
|
| (1,953) |
|
| 50 |
|
| (1,903) |
Ending balance | $ | (15,518) |
| $ | 256 |
| $ | (15,262) |
| $ | 256 |
| $ | (563) |
| $ | (307) |
74
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents reclassifications out of accumulated other comprehensive income for the quarters and six-month periods ended June 30, 2018 and 2017:
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Quarter Ended June 30, | |||||
|
| 2018 |
|
| 2017 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 448 |
| $ | 128 | Net interest expense |
Available-for-sale securities: |
|
|
|
|
|
|
Gain on sale of investments |
| - |
|
| 6,891 | Income tax expense |
Residual tax effect from OIB's change in applicable tax rate |
| - |
|
| 95 | Income tax expense |
Tax effect from changes in tax rates |
| (66) |
|
| (71) | Income tax expense |
| $ | 382 |
| $ | 7,043 |
|
|
|
|
|
|
|
|
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Six-Month Period Ended June 30, | |||||
|
| 2018 |
|
| 2017 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 822 |
| $ | 277 | Net interest expense |
Available-for-sale securities: |
|
|
|
|
|
|
Gain on sale of investments |
| - |
|
| 6,891 | Income tax expense |
Residual tax effect from OIB's change in applicable tax rate |
| 5 |
|
| 103 | Income tax expense |
Tax effect from changes in tax rates |
| (131) |
|
| (145) | Income tax expense |
| $ | 696 |
| $ | 7,126 |
|
|
|
|
|
|
|
|
NOTE 18 – EARNINGS PER COMMON SHARE
The calculation of earnings per common share for the quarters and six-month periods ended June 30, 2018 and 2017 is as follows:
75
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
| (In thousands, except per share data) | ||||||||||
Net income | $ | 19,649 |
| $ | 17,104 |
| $ | 36,566 |
| $ | 32,254 |
Less: Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
Non-convertible preferred stock (Series A, B, and D) |
| (1,628) |
|
| (1,629) |
|
| (3,255) |
|
| (3,256) |
Convertible preferred stock (Series C) |
| (1,837) |
|
| (1,837) |
|
| (3,675) |
|
| (3,675) |
Income available to common shareholders | $ | 16,184 |
| $ | 13,638 |
| $ | 29,636 |
| $ | 25,323 |
Effect of assumed conversion of the convertible preferred stock |
| 1,837 |
|
| 1,837 |
|
| 3,675 |
|
| 3,675 |
Income available to common shareholders assuming conversion | $ | 18,021 |
| $ | 15,475 |
| $ | 33,311 |
| $ | 28,998 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
| 43,975 |
|
| 43,947 |
|
| 43,965 |
|
| 43,931 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Average potential common shares-options |
| 113 |
|
| 15 |
|
| 54 |
|
| 24 |
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 |
| 51,226 |
|
| 51,100 |
|
| 51,157 |
|
| 51,093 |
Earnings per common share - basic | $ | 0.36 |
| $ | 0.30 |
| $ | 0.67 |
| $ | 0.58 |
Earnings per common share - diluted | $ | 0.35 |
| $ | 0.30 |
| $ | 0.65 |
| $ | 0.57 |
76
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In computing diluted earnings per common share, the 84,000 shares of convertible preferred stock, which remain outstanding at June 30, 2018, 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 six-month periods ended June 30, 2018 and 2017 on the convertible preferred stock were added back as income available to common shareholders.
For the quarters ended June 30, 2018 and 2017, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 433,493 and 967,041, respectively. For the six-month period ended June 30, 2018 and 2017, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 442,221 and 890,472, respectively.
At June 30, 20182019 and December 31, 2017 ,2018, the unamortized balance of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $21.3$12.5 million and $21.1$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 June 30, 20182019 and December 31, 2017,2018, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was $5.9$5.3 million and $6.4$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 consolidated statements of financial condition during the quarters and six-month periods ended June 30, 20182019 and 2017. 2018.
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Balance at beginning of period | $ | 264 |
| $ | 570 |
| $ | 358 |
| $ | 710 | $ | 214 |
| $ | 264 |
| $ | 346 |
| $ | 358 |
Net (charge-offs/terminations) recoveries |
| (75) |
|
| (111) |
|
| (169) |
|
| (251) |
| 11 |
|
| (75) |
|
| (121) |
|
| (169) |
Balance at end of period | $ | 189 |
| $ | 459 |
| $ | 189 |
| $ | 459 | $ | 225 |
| $ | 189 |
| $ | 225 |
| $ | 189 |
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.
If a borrower defaults, pursuant to the credit recourse provided, Oriental is required to repurchase the loan or reimburse the third partythird-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 quarterquarters and six-month periods ended June 30, 2019 and 2018, Oriental did not repurchase any mortgage loans subject to credit recourse provisions. During the quarter ended June 30, 2017, Oriental repurchased approximately $66 thousand of unpaid principal balance in mortgage loans subject to the credit recourse provisions. During the six-month periods ended June 30, 2018, Oriental did not repurchase any mortgage loans subject to credit recourse provisions. During the six-month periods ended June 30, 2017, Oriental repurchased approximately $107 thousand 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 June 30, 2018,2019, Oriental’s liability for estimated credit losses related to loans sold with credit recourse amounted to $189$225 thousand (December 31, 2017– $3582018– $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
77
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 quarterquarters ended June 30, 2018 2019, Oriental repurchased $2.4$8.1 million (June 30, 20172018 – $1.4$2.4 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above. During the six-month periods ended June 30, 2019, Oriental repurchased $10.0 million (June 30, 2018 – $4.7 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above. During the six-month periods ended June 30, 2018, Oriental repurchased $4.7 million (June 30, 2017 – $2.3 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above.
During the quarters ended June 30, 20182019 and 2017,2018, Oriental recognized $375$48 thousand and $254$375 thousand, respectively,in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $31$25 thousand and $283 thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of the customary representations and warranties. During the six-month periods ended June 30, 2018 and 2017, Oriental recognized $375 thousand and $354 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $30 thousand and $590$31 thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of the customary representations and warranties. During the six-month periods ended June 30, 2019 and 2018, Oriental recognized $68 thousand and $375 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $42 thousand and $30 thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties.
74
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 20182019, Oriental serviced $880.4$892.1 million (December 31, 20172018 - $864.9$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 June 30, 20182019, the outstanding balance of funds advanced by Oriental under such mortgage loan servicing agreements was approximately $651$607 thousand (December 31, 20172018 - $440$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.
NOTE 2019—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 June 30, 20182019 and December 31, 20172018 were as follows:
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Commitments to extend credit | $ | 589,551 |
| $ | 541,423 |
Commercial letters of credit |
| 483 |
|
| 340 |
78
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| June 30, |
| December 31, | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Commitments to extend credit | $ | 539,661 |
| $ | 485,019 |
Commercial letters of credit |
| 1,735 |
|
| 494 |
79
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
At June 30, 20182019 and December 31, 2017,2018, 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 $567$557 thousand and $627 thousand, at both June 30, 20182019 and December 31, 20172018, 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.
75
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 20182019 and December 31, 2017,2018, is as follows:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands) | (In thousands) | ||||||||
Standby letters of credit and financial guarantees | $ | 21,343 |
| $ | 21,107 | $ | 12,513 |
| $ | 23,889 |
Loans sold with recourse |
| 5,917 |
|
| 6,420 |
| 5,265 |
|
| 5,414 |
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 nonperformancenon-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.
Oriental has entered into various operating lease agreements for branch facilities and administrative offices. Rent expense for the quarters ended June 30, 2018 and 2017, amounted to $3.2 million and $2.5 million, respectively. For the six-month periods ended June 30, 2018 and 2017, rent expense amounted to $5.4 million and $4.5 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 June 30, 2018, exclusive of taxes, insurance, and maintenance expenses payable by Oriental, are summarized as follows:
| Minimum Rent | |
Year Ending December 31, | (In thousands) | |
2018 | $ | 4,995 |
2019 |
| 5,542 |
2020 |
| 4,000 |
2021 |
| 3,127 |
2022 |
| 2,485 |
Thereafter |
| 6,880 |
| $ | 27,029 |
|
|
|
80
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.
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.
8176
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
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.
| Quarter Ended June 30, 2019 |
| Six-Month Period Ended June 30, 2019 |
| ||
|
| Statement of Operations Classification | ||||
| (In thousands) |
| ||||
Lease costs | $ | 1,812 |
| $ | 3,341 | Occupancy and equipment |
Variable lease costs |
| 665 |
|
| 1,349 | Occupancy and equipment |
Short-term lease cost |
| (133) |
|
| 23 | Occupancy and equipment |
Lease income |
| (141) |
|
| (296) | Occupancy and equipment |
Total lease cost | $ | 2,203 |
| $ | 4,417 |
|
Rent expenses for the quarter and six-month period ended June 30, 2018, prior to adoption of ASU 2016-02 (Topic 842), were $3.2 million and $5.4 million, respectively, included in the "occupancy and equipment" caption in the unaudited consolidated statements of operations.
Operating Lease Assets and Liabilities
|
|
| June 30 2019 |
|
|
|
|
|
| Statement of Financial Condition Classification | |
|
|
| (In thousands) |
|
|
Right-of-use assets |
| $ | 20,419 |
| Operating lease right-of-use assets |
Lease Liabilities |
| $ | 22,179 |
| Operating leases liabilities |
June 30, 2019 | ||
(In thousands) | ||
Weighted-average remaining lease term | 4 years | |
Weighted-average discount rate | 8.6% |
Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2019 were as follows:
77
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Minimum Rent | |
Year Ending December 31, | (In thousands) | |
2019 | $ | 3,322 |
2020 |
| 5,984 |
2021 |
| 5,003 |
2022 |
| 3,869 |
2023 |
| 2,991 |
Thereafter |
| 8,954 |
Total lease payments | $ | 30,123 |
Less imputed interest |
| 7,944 |
Present value of lease liabilities | $ | 22,179 |
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 |
NOTE 21 - 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 Data Corporation ("IDC"),valuations obtained from an independent pricing provider, ICE Data 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 June 30, 20182019 and December 31, 2017,2018, Oriental did not have investment securities classified as Level 3.
Securities purchased under agreements to resell
The fair value of securities purchased under agreements to resell 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 instruments.
Derivative instruments
78
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
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.
82
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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
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.
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:
| June 30, 2018 | ||||||||||
| Fair Value Measurements | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale | $ | - |
| $ | 872,341 |
| $ | - |
| $ | 872,341 |
Trading securities |
| - |
|
| 418 |
|
| - |
|
| 418 |
Money market investments |
| 6,991 |
|
| - |
|
| - |
|
| 6,991 |
Derivative assets |
| - |
|
| 1,100 |
|
| - |
|
| 1,100 |
Servicing assets |
| - |
|
| - |
|
| 10,829 |
|
| 10,829 |
Derivative liabilities |
| - |
|
| (679) |
|
| - |
|
| (679) |
| $ | 6,991 |
| $ | 873,180 |
| $ | 10,829 |
| $ | 891,000 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 69,799 |
| $ | 69,799 |
Foreclosed real estate |
| - |
|
| - |
|
| 40,551 |
|
| 40,551 |
Other repossessed assets |
| - |
|
| - |
|
| 5,483 |
|
| 5,483 |
| $ | - |
| $ | - |
| $ | 115,833 |
| $ | 115,833 |
|
|
|
|
|
|
|
|
|
|
|
|
8379
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | June 30, 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 | $ | - |
| $ | 645,797 |
| $ | - |
| $ | 645,797 | $ | - |
| $ | 857,433 |
| $ | - |
| $ | 857,433 |
Trading securities |
| - |
|
| 191 |
|
| - |
|
| 191 |
| - |
|
| 412 |
|
| - |
|
| 412 |
Money market investments |
| 7,021 |
|
| - |
|
| - |
|
| 7,021 |
| 7,485 |
|
| - |
|
| - |
|
| 7,485 |
Derivative assets |
| - |
|
| 771 |
|
| - |
|
| 771 |
| - |
|
| 26 |
|
| - |
|
| 26 |
Servicing assets |
| - |
|
| - |
|
| 9,821 |
|
| 9,821 |
| - |
|
| - |
|
| 10,134 |
|
| 10,134 |
Derivative liabilities |
| - |
|
| (1,281) |
|
| - |
|
| (1,281) |
| - |
|
| (985) |
|
| - |
|
| (985) |
| $ | 7,021 |
| $ | 645,478 |
| $ | 9,821 |
| $ | 662,320 | $ | 7,485 |
| $ | 856,886 |
| $ | 10,134 |
| $ | 874,505 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 72,285 |
| $ | 72,285 | $ | - |
| $ | - |
| $ | 83,780 |
| $ | 83,780 |
Foreclosed real estate |
| - |
|
| - |
|
| 44,174 |
|
| 44,174 |
| - |
|
| - |
|
| 29,509 |
|
| 29,509 |
Other repossessed assets |
| - |
|
| - |
|
| 3,548 |
|
| 3,548 |
| - |
|
| - |
|
| 2,507 |
|
| 2,507 |
| $ | - |
| $ | - |
| $ | 120,007 |
| $ | 120,007 | $ | - |
| $ | - |
| $ | 115,796 |
| $ | 115,796 |
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
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 and six-month periods ended June 30, 20182019 and 2017:2018:
| Servicing assets | ||||
| Quarter Ended June 30, | ||||
Level 3 Instruments Only | 2018 |
| 2017 | ||
| (In thousands) | ||||
Balance at beginning of period | $ | 10,533 |
| $ | 9,688 |
New instruments acquired |
| 389 |
|
| 540 |
Principal repayments |
| (210) |
|
| (164) |
Changes in fair value of servicing assets |
| 117 |
|
| (198) |
Balance at end of period | $ | 10,829 |
| $ | 9,866 |
|
|
|
|
|
|
|
|
|
|
|
|
| Servicing assets | ||||
| Six-Month Period Ended June 30, | ||||
Level 3 Instruments Only | 2018 |
| 2017 | ||
| (In thousands) | ||||
Balance at beginning of period | $ | 9,821 |
| $ | 9,858 |
New instruments acquired |
| 741 |
|
| 1,074 |
Principal repayments |
| (409) |
|
| (326) |
Changes in fair value of servicing assets |
| 676 |
|
| (740) |
Balance at end of period | $ | 10,829 |
| $ | 9,866 |
|
|
|
|
|
|
|
|
|
|
|
|
80
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Level 3 Instruments Only | Servicing Assets | ||||
| (In thousands) | ||||
| Quarter Ended June 30, | ||||
| 2019 |
| 2018 | ||
Balance at beginning of period | $ | 10,623 |
| $ | 10,533 |
New instruments acquired |
| 206 |
|
| 389 |
Principal repayments |
| (250) |
|
| (210) |
Changes in fair value of servicing assets |
| (445) |
|
| 117 |
Balance at end of period | $ | 10,134 |
| $ | 10,829 |
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Instruments Only | Servicing Assets | ||||
| (In thousands) | ||||
| Six-Month Period Ended June 30, | ||||
| 2019 |
| 2018 | ||
| (In thousands) | ||||
Balance at beginning of period | $ | 10,716 |
| $ | 9,821 |
New instruments acquired |
| 508 |
|
| 741 |
Principal repayments |
| (451) |
|
| (409) |
Changes in fair value of servicing assets |
| (639) |
|
| 676 |
Balance at end of period | $ | 10,134 |
| $ | 10,829 |
During the quarters and six-month periods ended June 30, 20182019, and 2017,2018, 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.
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 June 30, 2019:
8481
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 June 30, 2018:
|
| June 30, 2018 |
| June 30, 2019 | ||||||||||||||
|
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | ||
|
| (In thousands) |
|
|
|
|
|
|
| (In thousands) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Servicing assets |
| $ | 10,829 |
| Cash flow valuation |
| Constant prepayment rate |
| 4.66% -8.64% |
| $ | 10,134 |
| Cash flow valuation |
| Constant prepayment rate |
| 4.38% -8.96% |
|
|
|
|
|
| Discount rate |
| 10.00% - 12.00% |
|
|
|
|
|
| Discount rate |
| 10.00% - 12.00% | |
Collateral dependent impaired loans |
| $ | 35,131 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 17.20% - 34.20% |
| $ | 41,149 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 16.20% - 36.20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other non-collateral dependent impaired loans |
| $ | 34,668 |
| Cash flow valuation |
| Discount rate |
| 4.25% - 10.50% |
| $ | 42,631 |
| Cash flow valuation |
| Discount rate |
| 4.25% - 12.25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreclosed real estate |
| $ | 40,551 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 17.20% - 34.20% |
| $ | 29,509 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 16.20% - 36.20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other repossessed assets |
| $ | 5,483 |
| Fair value of property or collateral |
| Estimated net realizable value less disposition costs |
| 36.00% - 64.00% |
| $ | 2,507 |
| 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
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 relationshipsrelationships of retail deposits, and premises and equipment.equipment.
8582
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The estimated fair value and carrying value of Oriental’s financial instruments at June 30, 20182019 and December 31, 20172018 is as follows:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||||||||||||||
| 2018 |
| 2017 | 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 | $ | 375,335 |
| $ | 375,335 |
| $ | 485,203 |
| $ | 485,203 | $ | 676,381 |
| $ | 676,381 |
| $ | 447,033 |
| $ | 447,033 |
Restricted cash | $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 | $ | 1,049 |
| $ | 1,049 |
| $ | 3,030 |
| $ | 3,030 |
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Trading securities | $ | 418 |
| $ | 418 |
| $ | 191 |
| $ | 191 | $ | 412 |
| $ | 412 |
| $ | 360 |
| $ | 360 |
Investment securities available-for-sale | $ | 872,341 |
| $ | 872,341 |
| $ | 645,797 |
| $ | 645,797 | $ | 857,433 |
| $ | 857,433 |
| $ | 841,857 |
| $ | 841,857 |
Investment securities held-to-maturity | $ | 447,947 |
| $ | 465,427 |
| $ | 497,681 |
| $ | 506,064 | $ | - |
| $ | - |
| $ | 410,353 |
| $ | 424,740 |
Federal Home Loan Bank (FHLB) stock | $ | 14,919 |
| $ | 14,919 |
| $ | 13,995 |
| $ | 13,995 | $ | 12,821 |
| $ | 12,821 |
| $ | 12,644 |
| $ | 12,644 |
Other investments | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 3 | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 3 |
Derivative assets | $ | 1,100 |
| $ | 1,100 |
| $ | 771 |
| $ | 771 | $ | 26 |
| $ | 26 |
| $ | 347 |
| $ | 347 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Derivative liabilities | $ | 679 |
| $ | 679 |
| $ | 1,281 |
| $ | 1,281 | $ | 985 |
| $ | 985 |
| $ | 333 |
| $ | 333 |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total loans (including loans held-for-sale) | $ | 3,897,042 |
| $ | 4,315,866 |
| $ | 3,842,907 |
| $ | 4,056,329 | $ | 4,186,613 |
| $ | 4,474,497 |
| $ | 4,106,628 |
| $ | 4,431,594 |
Accrued interest receivable | $ | 34,476 |
| $ | 34,476 |
| $ | 49,969 |
| $ | 49,969 | $ | 33,909 |
| $ | 33,909 |
| $ | 34,254 |
| $ | 34,254 |
Servicing assets | $ | 10,829 |
| $ | 10,829 |
| $ | 9,821 |
| $ | 9,821 | $ | 10,134 |
| $ | 10,134 |
| $ | 10,716 |
| $ | 10,716 |
Accounts receivable and other assets | $ | 35,693 |
| $ | 35,693 |
| $ | 41,898 |
| $ | 41,898 | $ | 37,443 |
| $ | 37,443 |
| $ | 37,842 |
| $ | 37,842 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Deposits | $ | 4,850,971 |
| $ | 4,880,201 |
| $ | 4,782,197 |
| $ | 4,799,482 | $ | 4,941,446 |
| $ | 4,945,137 |
| $ | 4,881,903 |
| $ | 4,908,115 |
Securities sold under agreements to repurchase | $ | 385,430 |
| $ | 387,770 |
| $ | 191,104 |
| $ | 192,869 | $ | 239,038 |
| $ | 240,324 |
| $ | 453,135 |
| $ | 455,508 |
Advances from FHLB | $ | 127,994 |
| $ | 128,114 |
| $ | 99,509 |
| $ | 99,643 | $ | 81,868 |
| $ | 80,085 |
| $ | 78,503 |
| $ | 77,620 |
Other borrowings | $ | 299 |
| $ | 299 |
| $ | 153 |
| $ | 153 | $ | 338 |
| $ | 338 |
| $ | 1,214 |
| $ | 1,214 |
Subordinated capital notes | $ | 33,784 |
| $ | 36,083 |
| $ | 33,080 |
| $ | 36,083 | $ | 37,076 |
| $ | 36,083 |
| $ | 36,184 |
| $ | 36,083 |
Accrued expenses and other liabilities | $ | 80,019 |
| $ | 80,019 |
| $ | 86,791 |
| $ | 86,791 | $ | 70,512 |
| $ | 70,512 |
| $ | 87,665 |
| $ | 87,665 |
8683
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 June 30, 20182019 and December 31, 2017:2018:
• 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 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 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. The fair value 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.
• 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 datedatess..
8784
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 22 – BANKING AND FINANCIAL SERVICE REVENUES
The following table presents the major categories of banking and financial service revenues for the quarters and six-month periods ended June 30, 20182019 and 2017:2018:
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, |
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||
Banking service revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Checking accounts fees |
| $ | 1,365 |
| $ | 1,852 |
| $ | 2,884 |
| $ | 3,703 |
| $ | 1,476 |
| $ | 1,365 |
| $ | 2,949 |
| $ | 2,884 |
Savings accounts fees |
| 157 |
| 162 |
| 312 |
| 317 |
| 141 |
| 157 |
| 297 |
| 312 | ||||||||
Electronic banking fees |
| 8,286 |
| 7,676 |
| 15,856 |
| 15,360 |
| 8,211 |
| 8,286 |
| 16,103 |
| 15,856 | ||||||||
Credit life commissions |
| 139 |
| 154 |
| 258 |
| 304 |
| 151 |
| 139 |
| 268 |
| 258 | ||||||||
Branch service commissions |
| 396 |
| 104 |
| 723 |
| 251 |
| 345 |
| 396 |
| 718 |
| 723 | ||||||||
Servicing and other loan fees |
| 618 |
| 305 |
| 1,220 |
| 789 |
| 320 |
| 618 |
| 636 |
| 1,220 | ||||||||
International fees |
| 179 |
| 202 |
| 349 |
| 349 |
| 129 |
| 179 |
| 266 |
| 349 | ||||||||
Miscellaneous income |
|
| 4 |
| 3 |
|
| 5 |
| 11 |
|
| 3 |
| 4 |
|
| 4 |
| 5 | ||||
Total banking service revenues |
|
| 11,144 |
| 10,458 |
|
| 21,607 |
| 21,084 |
|
| 10,776 |
| 11,144 |
|
| 21,241 |
| 21,607 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wealth management revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Insurance income |
| 1,405 |
| 1,551 |
| 2,644 |
| 3,101 |
| 1,648 |
| 1,405 |
| 2,929 |
| 2,644 | ||||||||
Broker fees |
| 1,657 |
| 1,795 |
| 3,447 |
| 3,670 |
| 1,966 |
| 1,657 |
| 3,723 |
| 3,447 | ||||||||
Trust fees |
| 2,902 |
| 2,799 |
| 5,597 |
| 5,347 |
| 2,808 |
| 2,902 |
| 5,412 |
| 5,597 | ||||||||
Retirement plan and administration fees |
| 298 |
| 342 |
| 584 |
| 584 |
| 247 |
| 298 |
| 487 |
| 584 | ||||||||
Investment banking fees |
|
| - |
|
| 29 |
|
| 9 |
|
| 29 |
|
| - |
|
| - |
|
| - |
|
| 9 |
Total wealth management revenue |
|
| 6,262 |
|
| 6,516 |
|
| 12,281 |
|
| 12,731 |
|
| 6,669 |
|
| 6,262 |
|
| 12,551 |
|
| 12,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net servicing fees |
| 1,318 |
| 1,185 |
| 3,072 |
| 2,006 |
| 615 |
| 1,318 |
| 1,559 |
| 3,072 | ||||||||
Net gains on sale of mortgage loans and valuation |
| 77 |
| 310 |
| 80 |
| 484 |
| 88 |
| 77 |
| 250 |
| 80 | ||||||||
Other |
|
| (407) |
|
| (536) |
|
| (407) |
|
| (944) |
|
| (74) |
|
| (407) |
|
| 26 |
|
| (407) |
Total mortgage banking activities |
|
| 988 |
|
| 959 |
|
| 2,745 |
|
| 1,546 |
|
| 629 |
|
| 988 |
|
| 1,835 |
|
| 2,745 |
Total banking and financial service revenues |
| $ | 18,394 |
| $ | 17,933 |
| $ | 36,633 |
| $ | 35,361 |
| $ | 18,074 |
| $ | 18,394 |
| $ | 35,627 |
| $ | 36,633 |
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.
8885
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:
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.
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 as servicing fees, gain on sale of mortgage loans valuation and other are out of the scope of the 606 guideline.
86
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
8987
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 and six-month periods ended June 30, 20182019 and 2017:2018:
| Quarter Ended June 30, 2018 | Quarter Ended June 30, 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 | $ | 78,133 |
| $ | 14 |
| $ | 9,859 |
| $ | 88,006 |
| $ | - |
| $ | 88,006 | $ | 84,475 |
| $ | 19 |
| $ | 9,761 |
| $ | 94,255 |
| $ | - |
| $ | 94,255 |
Interest expense |
| (7,132) |
|
| - |
|
| (3,286) |
|
| (10,418) |
|
| - |
|
| (10,418) |
| (9,187) |
|
| - |
|
| (3,983) |
|
| (13,170) |
|
| - |
|
| (13,170) |
Net interest income |
| 71,001 |
|
| 14 |
|
| 6,573 |
|
| 77,588 |
|
| - |
|
| 77,588 |
| 75,288 |
|
| 19 |
|
| 5,778 |
|
| 81,085 |
|
| - |
|
| 81,085 |
Provision for loan and lease losses |
| (14,744) |
| - |
| (3) |
| (14,747) |
| - |
| (14,747) | ||||||||||||||||||||||
Provision for loan and lease losses, net |
| (17,675) |
|
| - |
|
| (30) |
|
| (17,705) |
|
| - |
|
| (17,705) | |||||||||||||||||
Non-interest income |
| 12,240 |
| 6,448 |
| 15 |
| 18,703 |
| - |
| 18,703 |
| 11,330 |
|
| 6,834 |
|
| 4,784 |
|
| 22,948 |
|
| - |
|
| 22,948 | |||||
Non-interest expenses |
| (46,109) |
| (5,282) |
| (909) |
| (52,300) |
| - |
| (52,300) |
| (46,346) |
|
| (3,898) |
|
| (1,208) |
|
| (51,452) |
|
| - |
|
| (51,452) | |||||
Intersegment revenue |
| 542 |
| - |
| - |
| 542 |
| (542) |
| - |
| 587 |
|
| - |
|
| - |
|
| 587 |
|
| (587) |
|
| - | |||||
Intersegment expenses |
| - |
|
| (208) |
|
| (334) |
|
| (542) |
|
| 542 |
|
| - |
| - |
|
| (165) |
|
| (422) |
|
| (587) |
|
| 587 |
|
| - |
Income before income taxes | $ | 22,930 |
| $ | 972 |
| $ | 5,342 |
| $ | 29,244 |
| $ | - |
| $ | 29,244 | $ | 23,184 |
| $ | 2,790 |
| $ | 8,902 |
| $ | 34,876 |
| $ | - |
| $ | 34,876 |
Income tax expense |
| 8,943 |
|
| 379 |
|
| 273 |
|
| 9,595 |
|
| - |
|
| 9,595 |
| 9,042 |
|
| 1,088 |
|
| 767 |
|
| 10,897 |
|
| - |
|
| 10,897 |
Net income | $ | 13,987 |
| $ | 593 |
| $ | 5,069 |
| $ | 19,649 |
| $ | - |
| $ | 19,649 | $ | 14,142 |
| $ | 1,702 |
| $ | 8,135 |
| $ | 23,979 |
| $ | - |
| $ | 23,979 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 | $ | 5,951,860 |
| $ | 27,067 |
| $ | 1,532,053 |
| $ | 7,510,980 |
| $ | (1,046,853) |
| $ | 6,464,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2019 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||
| Quarter Ended June 30, 2017 | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||||||||||||
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | (In thousands) | |||||||||||||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Interest income | $ | 77,019 |
| $ | 18 |
| $ | 8,903 |
| $ | 85,940 |
| $ | - |
| $ | 85,940 | $ | 167,991 |
| $ | 37 |
| $ | 20,937 |
| $ | 188,965 |
| $ | - |
| $ | 188,965 |
Interest expense |
| (6,820) |
|
| - |
|
| (3,557) |
|
| (10,377) |
|
| - |
|
| (10,377) |
| (17,823) |
|
| - |
|
| (8,268) |
|
| (26,091) |
|
| - |
|
| (26,091) |
Net interest income |
| 70,199 |
|
| 18 |
|
| 5,346 |
|
| 75,563 |
|
| - |
|
| 75,563 |
| 150,168 |
|
| 37 |
|
| 12,669 |
|
| 162,874 |
|
| - |
|
| 162,874 |
Provision for loan and lease losses |
| (26,526) |
| - |
| (10) |
| (26,536) |
| - |
| (26,536) | ||||||||||||||||||||||
Provision for loan and lease losses, net |
| (29,882) |
|
| - |
|
| (72) |
|
| (29,954) |
|
| - |
|
| (29,954) | |||||||||||||||||
Non-interest income |
| 11,776 |
| 6,329 |
| 6,781 |
| 24,886 |
| - |
| 24,886 |
| 22,986 |
|
| 12,818 |
|
| 4,800 |
|
| 40,604 |
|
| - |
|
| 40,604 | |||||
Non-interest expenses |
| (47,402) |
| (4,100) |
| (1,314) |
| (52,816) |
| - |
| (52,816) |
| (92,829) |
|
| (8,225) |
|
| (2,550) |
|
| (103,604) |
|
| - |
|
| (103,604) | |||||
Intersegment revenue |
| 346 |
| - |
| 71 |
| 417 |
| (417) |
| - |
| 1,141 |
|
| - |
|
| - |
|
| 1,141 |
|
| (1,141) |
|
| - | |||||
Intersegment expenses |
| (71) |
|
| (254) |
|
| (92) |
|
| (417) |
|
| 417 |
|
| - |
| - |
|
| (339) |
|
| (802) |
|
| (1,141) |
|
| 1,141 |
|
| - |
Income before income taxes | $ | 8,322 |
| $ | 1,993 |
| $ | 10,782 |
| $ | 21,097 |
| $ | - |
| $ | 21,097 | $ | 51,584 |
| $ | 4,291 |
| $ | 14,045 |
| $ | 69,920 |
| $ | - |
| $ | 69,920 |
Income tax expense (benefit) |
| 3,246 |
|
| 777 |
|
| (30) |
|
| 3,993 |
|
| - |
|
| 3,993 |
| 19,344 |
|
| 1,609 |
|
| 1,518 |
|
| 22,471 |
|
| - |
|
| 22,471 |
Net income | $ | 5,076 |
| $ | 1,216 |
| $ | 10,812 |
| $ | 17,104 |
| $ | - |
| $ | 17,104 | $ | 32,240 |
| $ | 2,682 |
| $ | 12,527 |
| $ | 47,449 |
| $ | - |
| $ | 47,449 |
Total assets | $ | 5,490,287 |
| $ | 22,531 |
| $ | 1,692,603 |
| $ | 7,205,421 |
| $ | (969,595) |
| $ | 6,235,826 | $ | 5,951,860 |
| $ | 27,067 |
| $ | 1,532,053 |
| $ | 7,510,980 |
| $ | (1,046,853) |
| $ | 6,464,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9088
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Six-Month Period Ended June 30, 2018 | Quarter Ended June 30, 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 | $ | 152,507 |
| $ | 26 |
| $ | 18,643 |
| $ | 171,176 |
| $ | - |
| $ | 171,176 | $ | 78,133 |
| $ | 14 |
| $ | 9,859 |
| $ | 88,006 |
| $ | - |
| $ | 88,006 |
Interest expense |
| (13,422) |
|
| - |
|
| (6,172) |
|
| (19,594) |
|
| - |
|
| (19,594) |
| (7,132) |
|
| - |
|
| (3,286) |
|
| (10,418) |
|
| - |
|
| (10,418) |
Net interest income |
| 139,085 |
|
| 26 |
|
| 12,471 |
|
| 151,582 |
|
| - |
|
| 151,582 |
| 71,001 |
|
| 14 |
|
| 6,573 |
|
| 77,588 |
|
| - |
|
| 77,588 |
Provision for loan and lease losses, net |
| (30,199) |
| - |
| (8) |
| (30,207) |
| - |
| (30,207) |
| (14,744) |
|
| - |
|
| (3) |
|
| (14,747) |
|
| - |
|
| (14,747) | |||||
Non-interest income |
| 24,433 |
| 12,756 |
| 28 |
| 37,217 |
| - |
| 37,217 |
| 12,240 |
|
| 6,448 |
|
| 15 |
|
| 18,703 |
|
| - |
|
| 18,703 | |||||
Non-interest expenses |
| (94,190) |
| (8,568) |
| (1,663) |
| (104,421) |
| - |
| (104,421) |
| (46,109) |
|
| (5,282) |
|
| (909) |
|
| (52,300) |
|
| - |
|
| (52,300) | |||||
Intersegment revenue |
| 903 |
| - |
| - |
| 903 |
| (903) |
| - |
| 542 |
|
| - |
|
| - |
|
| 542 |
|
| (542) |
|
| - | |||||
Intersegment expenses |
| - |
|
| (387) |
|
| (516) |
|
| (903) |
|
| 903 |
|
| - |
| - |
|
| (208) |
|
| (334) |
|
| (542) |
|
| 542 |
|
| - |
Income before income taxes | $ | 40,032 |
| $ | 3,827 |
| $ | 10,312 |
| $ | 54,171 |
| $ | - |
| $ | 54,171 | $ | 22,930 |
| $ | 972 |
| $ | 5,342 |
| $ | 29,244 |
| $ | - |
| $ | 29,244 |
Income tax expense |
| 15,612 |
|
| 1,493 |
|
| 500 |
|
| 17,605 |
|
| - |
|
| 17,605 |
| 8,943 |
|
| 379 |
|
| 273 |
|
| 9,595 |
|
| - |
|
| 9,595 |
Net income | $ | 24,420 |
| $ | 2,334 |
| $ | 9,812 |
| $ | 36,566 |
| $ | - |
| $ | 36,566 | $ | 13,987 |
| $ | 593 |
| $ | 5,069 |
| $ | 19,649 |
| $ | - |
| $ | 19,649 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2017 | Six-Month Period Ended June 30, 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 | $ | 154,592 |
| $ | 30 |
| $ | 17,496 |
| $ | 172,118 |
| $ | - |
| $ | 172,118 | $ | 152,507 |
| $ | 26 |
| $ | 18,643 |
| $ | 171,176 |
| $ | - |
| $ | 171,176 |
Interest expense |
| (13,634) |
|
| - |
|
| (8,303) |
|
| (21,937) |
|
| - |
|
| (21,937) |
| (13,422) |
|
| - |
|
| (6,172) |
|
| (19,594) |
|
| - |
|
| (19,594) |
Net interest income |
| 140,958 |
|
| 30 |
|
| 9,193 |
|
| 150,181 |
|
| - |
|
| 150,181 |
| 139,085 |
|
| 26 |
|
| 12,471 |
|
| 151,582 |
|
| - |
|
| 151,582 |
Provision for loan and lease losses, net |
| (44,168) |
| - |
| (22) |
| (44,190) |
| - |
| (44,190) |
| (30,199) |
|
| - |
|
| (8) |
|
| (30,207) |
|
| - |
|
| (30,207) | |||||
Non-interest income |
| 25,003 |
| 12,257 |
| 6,700 |
| 43,960 |
| - |
| 43,960 |
| 24,433 |
|
| 12,756 |
|
| 28 |
|
| 37,217 |
|
| - |
|
| 37,217 | |||||
Non-interest expenses |
| (93,456) |
| (8,320) |
| (2,724) |
| (104,500) |
| - |
| (104,500) |
| (94,190) |
|
| (8,568) |
|
| (1,663) |
|
| (104,421) |
|
| - |
|
| (104,421) | |||||
Intersegment revenue |
| 810 |
| - |
| 142 |
| 952 |
| (952) |
| - |
| 903 |
|
| - |
|
| - |
|
| 903 |
|
| (903) |
|
| - | |||||
Intersegment expenses |
| (142) |
|
| (565) |
|
| (245) |
|
| (952) |
|
| 952 |
|
| - |
| - |
|
| (387) |
|
| (516) |
|
| (903) |
|
| 903 |
|
| - |
Income before income taxes | $ | 29,005 |
| $ | 3,402 |
| $ | 13,044 |
| $ | 45,451 |
| $ | - |
| $ | 45,451 | $ | 40,032 |
| $ | 3,827 |
| $ | 10,312 |
| $ | 54,171 |
| $ | - |
| $ | 54,171 |
Income tax expense |
| 11,312 |
|
| 1,327 |
|
| 558 |
|
| 13,197 |
|
| - |
|
| 13,197 | |||||||||||||||||
Income tax expense (benefit) |
| 15,612 |
|
| 1,493 |
|
| 500 |
|
| 17,605 |
|
| - |
|
| 17,605 | |||||||||||||||||
Net income | $ | 17,693 |
| $ | 2,075 |
| $ | 12,486 |
| $ | 32,254 |
| $ | - |
| $ | 32,254 | $ | 24,420 |
| $ | 2,334 |
| $ | 9,812 |
| $ | 36,566 |
| $ | - |
| $ | 36,566 |
Total assets | $ | 5,490,287 |
| $ | 22,531 |
| $ | 1,692,603 |
| $ | 7,205,421 |
| $ | (969,595) |
| $ | 6,235,826 | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
9189
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 20172018 (the “2017“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 39 branches in Puerto Rico and a subsidiary in Boca Raton, 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.
90
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
CRITICAL ACCOUNTING POLICIESPOLICIES 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 20172018 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 20172018 Form 10-K, we identified the followingseveral 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:
· Fair value measurements of financial instruments
· Interest on loans and allowance for loan and lease losses
· Acquisition accountingAccounting for purchased credit-impaired loans
·Income taxes
·Goodwill
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. As part of Oriental’s continuous enhancement to the allowance for loan and lease losses methodology, during the quarter ended June 30, 2018, an assessment of the look-back period and historical loss factor was performed for auto and leasing and consumer and commercial loan portfolios. The analysis was based on the trends observed and their relation with the economic cycle as of the period ended June 30, 2018. As a result, for the commercial portfolio, the look-back period was extended to 40 months from 36 months. For auto and consumer portfolios, a look back period of 24 months was maintained, and for the residential mortgage portfolio, the period was extended to 24 from 12 months. In addition, during the quarter ended June 30, 2018, an assessment of environmental factors was performed for commercial, auto, and consumer portfolios. As a result, the environmental factors continue to reflect our assessment of the impact to our portfolio, taking into consideration the current evolution of the portfolio and expected impact, due to recent economic developments, changes in values of collateral and
92
delinquencies, among others. These changes in the allowance for loan and lease losses’ look-back period and the result of the assessment in economic factors for the commercial, auto, and consumer portfolios are considered a change in accounting estimate as per ASC 250-10 provisions, where adjustments should be made prospectively. TApart from these changes, therehere have been no other material changes in the methods used to formulate these critical accounting estimates from those discussed in our 20172018 Form 10-K.
91
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
| Variance |
| 2019 |
| 2018 |
| % |
| 2019 |
| 2018 |
| % | ||||
EARNINGS DATA: | (In thousands, except per share data) | ||||||||||||||
Interest income | $ | 94,255 |
| $ | 88,006 |
| 7.1% |
| $ | 188,965 |
| $ | 171,176 |
| 10.4% |
Interest expense |
| 13,170 |
|
| 10,418 |
| 26.4% |
|
| 26,091 |
|
| 19,594 |
| 33.2% |
Net interest income |
| 81,085 |
|
| 77,588 |
| 4.5% |
|
| 162,874 |
|
| 151,582 |
| 7.4% |
Provision for loan and lease losses, net |
| 17,705 |
|
| 14,747 |
| 20.1% |
|
| 29,954 |
|
| 30,207 |
| -0.8% |
Net interest income after provision for loan and lease losses |
| 63,380 |
|
| 62,841 |
| 0.9% |
|
| 132,920 |
|
| 121,375 |
| 9.5% |
Non-interest income |
| 22,948 |
|
| 18,703 |
| 22.7% |
|
| 40,604 |
|
| 37,217 |
| 9.1% |
Non-interest expenses |
| 51,452 |
|
| 52,300 |
| -1.6% |
|
| 103,604 |
|
| 104,421 |
| -0.8% |
Income before taxes |
| 34,876 |
|
| 29,244 |
| 19.3% |
|
| 69,920 |
|
| 54,171 |
| 29.1% |
Income tax expense |
| 10,897 |
|
| 9,595 |
| 13.6% |
|
| 22,471 |
|
| 17,605 |
| 27.6% |
Net income |
| 23,979 |
|
| 19,649 |
| 22.0% |
|
| 47,449 |
|
| 36,566 |
| 29.8% |
Less: dividends on preferred stock |
| (1,628) |
|
| (3,465) |
| 53.0% |
|
| (3,256) |
|
| (6,930) |
| 53.0% |
Income available to common shareholders | $ | 22,351 |
| $ | 16,184 |
| 38.1% |
| $ | 44,193 |
| $ | 29,636 |
| 49.1% |
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.44 |
| $ | 0.36 |
| 22.2% |
| $ | 0.86 |
| $ | 0.67 |
| 28.4% |
Diluted | $ | 0.43 |
| $ | 0.35 |
| 22.9% |
| $ | 0.86 |
| $ | 0.65 |
| 32.3% |
Average common shares outstanding |
| 51,330 |
|
| 43,975 |
| 16.7% |
|
| 51,317 |
|
| 43,965 |
| 16.7% |
Average common shares outstanding and equivalents |
| 51,680 |
|
| 51,226 |
| 0.9% |
|
| 51,652 |
|
| 51,157 |
| 1.0% |
Cash dividends declared per common share | $ | 0.07 |
| $ | 0.06 |
| 16.7% |
| $ | 0.14 |
| $ | 0.12 |
| 16.7% |
Cash dividends declared on common shares | $ | 3,595 |
| $ | 2,640 |
| 36.2% |
| $ | 7,186 |
| $ | 5,278 |
| 36.2% |
PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (ROA) |
| 1.48% |
|
| 1.23% |
| 20.3% |
|
| 1.45% |
|
| 1.16% |
| 25.0% |
Return on average tangible common equity |
| 10.32% |
|
| 9.20% |
| 12.2% |
|
| 10.32% |
|
| 8.47% |
| 21.8% |
Return on average common equity (ROE) |
| 9.36% |
|
| 8.15% |
| 14.8% |
|
| 9.35% |
|
| 7.50% |
| 24.7% |
Efficiency ratio |
| 51.89% |
|
| 54.49% |
| -4.8% |
|
| 52.19% |
|
| 55.48% |
| -5.9% |
Interest rate spread |
| 5.25% |
|
| 5.14% |
| 2.1% |
|
| 5.26% |
|
| 5.14% |
| 2.3% |
Interest rate margin |
| 5.37% |
|
| 5.23% |
| 2.7% |
|
| 5.38% |
|
| 5.23% |
| 2.9% |
92
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SELECTED FINANCIAL DATA - (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| Variance | ||
| 2019 |
| 2018 |
| % | ||
PERIOD END BALANCES AND CAPITAL RATIOS: | (In thousands, except per share data) | ||||||
Investments and loans |
|
|
|
|
|
|
|
Investment securities | $ | 870,669 |
| $ | 1,279,604 |
| -32.0% |
Loans and leases, net |
| 4,474,497 |
|
| 4,431,594 |
| 1.0% |
Total investments and loans | $ | 5,345,166 |
| $ | 5,711,198 |
| -6.4% |
Deposits and borrowings |
|
|
|
|
|
|
|
Deposits | $ | 4,945,137 |
| $ | 4,908,115 |
| 0.8% |
Securities sold under agreements to repurchase |
| 240,324 |
|
| 455,508 |
| -47.2% |
Other borrowings |
| 116,506 |
|
| 114,917 |
| 1.4% |
Total deposits and borrowings | $ | 5,301,967 |
| $ | 5,478,540 |
| -3.2% |
Stockholders’ equity |
|
|
|
|
|
|
|
Preferred stock | $ | 92,000 |
| $ | 92,000 |
| 0.0% |
Common stock |
| 59,885 |
|
| 59,885 |
| 0.0% |
Additional paid-in capital |
| 620,368 |
|
| 619,381 |
| 0.2% |
Legal surplus |
| 95,019 |
|
| 90,167 |
| 5.4% |
Retained earnings |
| 284,459 |
|
| 253,040 |
| 12.4% |
Treasury stock, at cost |
| (103,171) |
|
| (103,633) |
| 0.4% |
Accumulated other comprehensive (loss) |
| (3,686) |
|
| (10,963) |
| -66.4% |
Total stockholders' equity | $ | 1,044,874 |
| $ | 999,877 |
| 4.5% |
Per share data |
|
|
|
|
|
|
|
Book value per common share | $ | 18.76 |
| $ | 17.90 |
| 4.8% |
Tangible book value per common share | $ | 17.03 |
| $ | 16.15 |
| 5.4% |
Market price at end of period | $ | 23.77 |
| $ | 16.46 |
| 44.4% |
Capital ratios |
|
|
|
|
|
|
|
Leverage capital |
| 15.20% |
|
| 14.22% |
| 6.9% |
Common equity Tier 1 capital ratio |
| 17.48% |
|
| 16.78% |
| 4.2% |
Tier 1 risk-based capital |
| 19.87% |
|
| 19.20% |
| 3.5% |
Total risk-based capital |
| 21.14% |
|
| 20.48% |
| 3.2% |
Equity to assets ratio |
| 16.16% |
|
| 15.19% |
| 6.4% |
Financial assets managed |
|
|
|
|
|
|
|
Trust assets managed | $ | 2,992,170 |
| $ | 2,771,462 |
| 8.0% |
Broker-dealer assets | $ | 2,370,402 |
| $ | 2,116,035 |
| 12.0% |
93
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OVERVIEW OF FINANCIAL PERFORMANCEWe are extremely pleased with our second quarter results as Oriental continues to deliver on all fronts. Our strategies are proving highly effective in capturing the positive economic shift taking place in Puerto Rico as Oriental builds excellent momentum for growth now and into the future. Our levels of small business, auto and consumer loan production; our core deposit growth, credit quality, and capital; and our number of customers confirm the success of our Vive la Diferencia (Live the Difference) strategy.
As a result, we generated a 23% increase in earnings per share on a more than 3% increase in net revenue compared to the year ago quarter, with return on assets, net interest margin, and efficiency ratios all at levels similar to top performing peer mainland banks.
SELECTED FINANCIAL DATA | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
| Variance |
| 2018 |
| 2017 |
| % |
| 2018 |
| 2017 |
| % | ||||
EARNINGS DATA: | (In thousands, except per share data) | ||||||||||||||
Interest income | $ | 88,006 |
| $ | 85,940 |
| 2.4% |
| $ | 171,176 |
| $ | 172,118 |
| -0.5% |
Interest expense |
| 10,418 |
|
| 10,377 |
| 0.4% |
|
| 19,594 |
|
| 21,937 |
| -10.7% |
Net interest income |
| 77,588 |
|
| 75,563 |
| 2.7% |
|
| 151,582 |
|
| 150,181 |
| 0.9% |
Provision for loan and lease losses, net |
| 14,747 |
|
| 26,536 |
| -44.4% |
|
| 30,207 |
|
| 44,190 |
| -31.6% |
Net interest income after provision for loan and lease losses |
| 62,841 |
|
| 49,027 |
| 28.2% |
|
| 121,375 |
|
| 105,991 |
| 14.5% |
Non-interest income |
| 18,703 |
|
| 24,886 |
| -24.8% |
|
| 37,217 |
|
| 43,960 |
| -15.3% |
Non-interest expenses |
| 52,300 |
|
| 52,816 |
| -1.0% |
|
| 104,421 |
|
| 104,500 |
| -0.1% |
Income before taxes |
| 29,244 |
|
| 21,097 |
| 38.6% |
|
| 54,171 |
|
| 45,451 |
| 19.2% |
Income tax expense |
| 9,595 |
|
| 3,993 |
| 140.3% |
|
| 17,605 |
|
| 13,197 |
| 33.4% |
Net income |
| 19,649 |
|
| 17,104 |
| 14.9% |
|
| 36,566 |
|
| 32,254 |
| 13.4% |
Less: dividends on preferred stock |
| (3,465) |
|
| (3,466) |
| 0.0% |
|
| (6,930) |
|
| (6,931) |
| 0.0% |
Income available to common shareholders | $ | 16,184 |
| $ | 13,638 |
| 18.7% |
| $ | 29,636 |
| $ | 25,323 |
| 17.0% |
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.36 |
| $ | 0.30 |
| 20.0% |
| $ | 0.67 |
| $ | 0.58 |
| 15.5% |
Diluted | $ | 0.35 |
| $ | 0.30 |
| 16.7% |
| $ | 0.65 |
| $ | 0.57 |
| 14.0% |
Average common shares outstanding |
| 43,975 |
|
| 43,947 |
| 0.1% |
|
| 43,965 |
|
| 43,931 |
| 0.1% |
Average common shares outstanding and equivalents |
| 51,226 |
|
| 51,100 |
| 0.2% |
|
| 51,157 |
|
| 51,093 |
| 0.1% |
Cash dividends declared per common share | $ | 0.06 |
| $ | 0.06 |
| 0.0% |
| $ | 0.12 |
| $ | 0.12 |
| 0.0% |
Cash dividends declared on common shares | $ | 2,640 |
| $ | 2,640 |
| 0.0% |
| $ | 5,278 |
| $ | 5,277 |
| 0.0% |
PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (ROA) |
| 1.23% |
|
| 1.09% |
| 12.8% |
|
| 1.16% |
|
| 1.02% |
| 13.7% |
Return on average tangible common equity |
| 9.20% |
|
| 8.01% |
| 14.9% |
|
| 8.47% |
|
| 7.51% |
| 12.8% |
Return on average common equity (ROE) |
| 8.15% |
|
| 7.06% |
| 15.4% |
|
| 7.50% |
|
| 6.61% |
| 13.5% |
Efficiency ratio |
| 5.16% |
|
| 5.10% |
| 1.2% |
|
| 5.15% |
|
| 5.07% |
| 1.6% |
Interest rate spread |
| 5.24% |
|
| 5.18% |
| 1.2% |
|
| 5.23% |
|
| 5.14% |
| 1.8% |
94Looking ahead, we will further consolidate our position as the premier retail bank on the island when the recently announced Scotiabank Puerto Rico and U.S. Virgin Island acquisition is closed, and we become the second largest bank in core deposits, branches, automated and interactive teller machines, and mortgage servicing in Puerto Rico and the third largest bank in the U.S. Virgin Islands.
SELECTED FINANCIAL DATA - (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
PERIOD END BALANCES AND CAPITAL RATIOS: | (In thousands, except per share data) | ||||||
Investments and loans |
|
|
|
|
|
|
|
Investment securities | $ | 1,353,108 |
| $ | 1,166,050 |
| 16.0% |
Loans and leases, net |
| 4,315,866 |
|
| 4,056,329 |
| 6.4% |
Total investments and loans | $ | 5,668,974 |
| $ | 5,222,379 |
| 8.6% |
Deposits and borrowings |
|
|
|
|
|
|
|
Deposits | $ | 4,880,201 |
| $ | 4,799,482 |
| 1.7% |
Securities sold under agreements to repurchase |
| 387,770 |
|
| 192,869 |
| 101.1% |
Other borrowings |
| 164,496 |
|
| 135,879 |
| 21.1% |
Total deposits and borrowings | $ | 5,432,467 |
| $ | 5,128,230 |
| 5.9% |
Stockholders’ equity |
|
|
|
|
|
|
|
Preferred stock | $ | 176,000 |
| $ | 176,000 |
| 0.0% |
Common stock |
| 52,626 |
|
| 52,626 |
| 0.0% |
Additional paid-in capital |
| 541,734 |
|
| 541,600 |
| 0.0% |
Legal surplus |
| 85,249 |
|
| 81,454 |
| 4.7% |
Retained earnings |
| 221,441 |
|
| 200,878 |
| 10.2% |
Treasury stock, at cost |
| (103,969) |
|
| (104,502) |
| 0.5% |
Accumulated other comprehensive (loss) |
| (15,262) |
|
| (2,949) |
| -417.5% |
Total stockholders' equity | $ | 957,819 |
| $ | 945,107 |
| 1.3% |
Per share data |
|
|
|
|
|
|
|
Book value per common share | $ | 18.01 |
| $ | 17.73 |
| 1.6% |
Tangible book value per common share | $ | 15.96 |
| $ | 15.67 |
| 1.8% |
Market price at end of period | $ | 14.05 |
| $ | 9.40 |
| 49.5% |
Capital ratios |
|
|
|
|
|
|
|
Leverage capital |
| 13.92% |
|
| 13.92% |
| 0.0% |
Common equity Tier 1 capital ratio |
| 14.14% |
|
| 14.59% |
| -3.1% |
Tier 1 risk-based capital |
| 18.38% |
|
| 19.05% |
| -3.5% |
Total risk-based capital |
| 19.67% |
|
| 20.34% |
| -3.3% |
Equity to assets ratio |
| 14.73% |
|
| 15.27% |
| -3.5% |
Financial assets managed |
|
|
|
|
|
|
|
Trust assets managed | $ | 2,953,335 |
| $ | 3,039,998 |
| -2.9% |
Broker-dealer assets gathered | $ | 2,262,454 |
| $ | 2,250,460 |
| 0.5% |
95
FINANCIAL HIGHLIGHTS
Our earnings per share inComparison of the second quarter increased more than 17% from the first quarter and more than 16% year over year. Virtually every one of our financial performance metrics confirms the success of our strategies, people and technology.
For the third quarter in a row, loan growth, new loan production, and return on average tangible common stockholders' equity are up, while credit quality remained stable. For two quarters in a row, customer count, banking and financial service revenues, core retail deposits and NIM increased, and delinquency rates remained below pre-hurricane levels.
Our efforts to differentiate Oriental through superior service and technology is working. During the second quarter ofended June 30, 2019 versus 2018 we launched Oriental SmallBiz, another banking first for Puerto Rico, where new and existing customers can apply online for commercial credit. Services like these enable us to step up our ability to reach out to customers and clients fácil, rápido, hecho (easy, fast, done).
We are also encouraged as OFG continues to build solid capital, with tangible book value per common share at $15.96, up from the prior quarter more than 6% on an annualized basis. All indicators are positive, positioning us well to continue this trend for the rest of 2018.
While Puerto Rico faces similar challenges as before, now that insurance and federal funds are flowing, economic activity and optimism are gaining momentum. Based on what we have seen to date, we are confident about Oriental’s ability to continue to grow, deliver great customer experience and performance, and help Puerto Rico recover.
Summary of second quarter of 2018
· Net revenues increased 3.3% to $99.2 million from $96.0 million. Increased interest income available to shareholders was $16.2 million, or $0.35 per fully diluted share, compared to the first quarterfrom Originated Loans and Cash more than offset pay downs of 2018 $13.5 millionAcquired Loans and the second quarter of 2017 $13.6 million, equal to $0.30 per share, respectively.lower Investment Securities balances.
· Average loan balancesEarnings per diluted share of $4.3 billion increased 3.0% from the preceding quarter as growth of originated loans is outpacing the anticipated runoff of acquired loans.$0.43 compared to $0.35, a 22.9% increase. Book value per common share grew 4.2% to $18.76. Tangible Book Value per common share expanded 6.7% to $17.03.
· Loans increased 3.7% to $4.47 billion, while core deposits rose 3.1% to $4.56 billion. New loan productionorigination of $432.1$326.6 million grew 39.7% fromincluded the first quartercontinued success of 2018 with increases in production across the board in all categories.our strategic targeting of small business customers.
· Net Interest Margin increased 14 basis points to 5.37%. Credit quality and the efficiency ratio improved. Return on Average core deposit balancesAssets increased 25 basis points to 1.48%. Return on Average Tangible Common Equity expanded 112 basis points to 10.32%. Capital metrics continued at new multi-year highs.
Other items during the quarter ended June 30, 2019
·Oriental sold $349.7 million in low-yielding mortgage-backed securities (MBS) in May and reduced related high cost non-core funding. The sale resulted in a $4.8 million gain and the reduction of $4.4 billion rose 1.6% from the first quarter$191 million of 2018 with a 6.2% increase in non-interest bearing accounts to a record high $1.1 billion.repurchase agreements and $63 million of brokered CDs.
· Customer count grew 1% from the first quarterOriental decided to sell $53.6 million unpaid principal balance of 2018 and 3%mostly distressed acquired residential mortgages. The sale is expected to close before year over yearend of 2019 as our strategyOriental takes advantage of differentiation, delivering superior customer convenience with innovative technology solutions, continues to be successful.improving market conditions in Puerto Rico. This decision resulted in an $8.8 million net increase in provision.
· Total provision for loanOriental entered into an agreement with Scotiabank to acquire its Puerto Rico and lease losses of $14.7U.S. Virgin Islands operations, subject to usual closing conditions. During the quarter, $1.0 million dropped 4.6% from the preceding quarter as credit quality remains stable.in related expenses were incurred.
·All key performance metrics improved from the first quarter of 2018 with net interest margin at 5.24%, return on average assets at 1.23%, return on average tangible common stockholders’ equity at 9.20%, and the efficiency ratio at 54.49%.
·Tangible book value per common share of $15.96 at June 30, 2018 increased 6.4% annualized from March 31, 2018.
96
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 and six-month periods ended June 30, 20182019 and 2017:
2018:
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE QUARTERS ENDED JUNE 30, 2018 AND 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| June |
| June |
| June |
| June |
| June |
| June | ||||
| 2018 |
| 2017 |
| 2018 | 2017 |
| 2018 |
| 2017 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 88,006 |
| $ | 85,940 |
| 5.95% |
| 5.89% |
| $ | 5,933,775 |
| $ | 5,848,525 |
Tax equivalent adjustment |
| 1,218 |
|
| 1,302 |
| 0.08% |
| 0.09% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 89,224 |
|
| 87,242 |
| 6.03% |
| 5.98% |
|
| 5,933,775 |
|
| 5,848,525 |
Interest-bearing liabilities |
| 10,418 |
|
| 10,377 |
| 0.78% |
| 0.79% |
|
| 5,311,070 |
|
| 5,293,848 |
Tax equivalent net interest income / spread |
| 78,806 |
|
| 76,865 |
| 5.24% |
| 5.19% |
|
| 622,705 |
|
| 554,677 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.33% |
| 5.27% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 8,335 |
|
| 7,746 |
| 2.51% |
| 2.33% |
|
| 1,330,138 |
|
| 1,334,938 |
Interest bearing cash and money market investments |
| 1,242 |
|
| 956 |
| 1.70% |
| 1.00% |
|
| 293,431 |
|
| 384,037 |
Total investments |
| 9,577 |
|
| 8,702 |
| 2.37% |
| 2.03% |
|
| 1,623,569 |
|
| 1,718,975 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 8,752 |
|
| 9,411 |
| 5.17% |
| 5.40% |
|
| 679,133 |
|
| 698,782 |
Commercial |
| 20,518 |
|
| 16,688 |
| 5.83% |
| 5.33% |
|
| 1,411,177 |
|
| 1,256,827 |
Consumer |
| 8,833 |
|
| 8,075 |
| 11.05% |
| 11.06% |
|
| 320,687 |
|
| 292,739 |
Auto and leasing |
| 23,080 |
|
| 19,275 |
| 9.27% |
| 9.63% |
|
| 999,047 |
|
| 803,201 |
Total non-acquired loans |
| 61,183 |
|
| 53,449 |
| 7.20% |
| 7.03% |
|
| 3,410,044 |
|
| 3,051,549 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 6,916 |
|
| 7,694 |
| 5.49% |
| 5.66% |
|
| 505,384 |
|
| 545,490 |
Commercial |
| 3,601 |
|
| 4,517 |
| 7.13% |
| 7.31% |
|
| 202,530 |
|
| 247,815 |
Consumer |
| 2,336 |
|
| 2,847 |
| 17.11% |
| 18.93% |
|
| 54,763 |
|
| 60,317 |
Auto |
| 1,027 |
|
| 2,694 |
| 9.33% |
| 11.27% |
|
| 44,153 |
|
| 95,857 |
Total acquired BBVAPR loans |
| 13,880 |
|
| 17,752 |
| 6.90% |
| 7.50% |
|
| 806,830 |
|
| 949,479 |
Acquired Eurobank |
| 3,366 |
|
| 6,037 |
| 14.47% |
| 18.84% |
|
| 93,332 |
|
| 128,522 |
Total loans |
| 78,429 |
|
| 77,238 |
| 7.30% |
| 7.50% |
|
| 4,310,206 |
|
| 4,129,550 |
Total interest-earning assets |
| 88,006 |
|
| 85,940 |
| 5.95% |
| 5.89% |
|
| 5,933,775 |
|
| 5,848,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE QUARTERS ENDED JUNE 30, 2019 AND 2018 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| June |
| June |
| June |
| June |
| June |
| June | ||||
| 2019 |
| 2018 |
| 2019 | 2018 |
| 2019 |
| 2018 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 94,255 |
| $ | 88,006 |
| 6.24% |
| 5.93% |
| $ | 6,060,819 |
| $ | 5,951,906 |
Tax equivalent adjustment |
| 3,046 |
|
| 1,966 |
| 0.20% |
| 0.13% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 97,301 |
|
| 89,972 |
| 6.44% |
| 6.06% |
|
| 6,060,819 |
|
| 5,951,906 |
Interest-bearing liabilities |
| 13,171 |
|
| 10,418 |
| 0.99% |
| 0.79% |
|
| 5,339,916 |
|
| 5,311,548 |
Tax equivalent net interest income / spread |
| 84,130 |
|
| 79,554 |
| 5.45% |
| 5.27% |
|
| 720,903 |
|
| 640,358 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.65% |
| 5.40% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,271 |
|
| 8,335 |
| 2.39% |
| 2.48% |
|
| 1,050,739 |
|
| 1,344,917 |
Interest bearing cash and money market investments |
| 2,904 |
|
| 1,242 |
| 2.42% |
| 1.72% |
|
| 481,115 |
|
| 289,227 |
Total investments |
| 9,175 |
|
| 9,577 |
| 2.39% |
| 2.48% |
|
| 1,531,854 |
|
| 1,634,144 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 8,708 |
|
| 8,783 |
| 5.38% |
| 5.14% |
|
| 647,254 |
|
| 682,890 |
Commercial |
| 25,628 |
|
| 20,481 |
| 6.49% |
| 5.83% |
|
| 1,584,363 |
|
| 1,410,300 |
Consumer |
| 11,225 |
|
| 10,425 |
| 12.15% |
| 11.73% |
|
| 370,461 |
|
| 356,413 |
Auto and leasing |
| 27,418 |
|
| 23,021 |
| 9.18% |
| 9.23% |
|
| 1,197,959 |
|
| 1,000,028 |
Total non-acquired loans |
| 72,979 |
|
| 62,710 |
| 7.70% |
| 7.29% |
|
| 3,800,037 |
|
| 3,449,631 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 6,114 |
|
| 6,917 |
| 5.25% |
| 5.40% |
|
| 466,241 |
|
| 512,138 |
Commercial |
| 2,538 |
|
| 3,660 |
| 6.55% |
| 7.11% |
|
| 157,070 |
|
| 208,846 |
Consumer |
| 703 |
|
| 692 |
| 22.21% |
| 20.40% |
|
| 12,836 |
|
| 13,755 |
Auto |
| 247 |
|
| 1,084 |
| 15.03% |
| 11.43% |
|
| 6,666 |
|
| 38,454 |
Total acquired BBVAPR loans |
| 9,602 |
|
| 12,353 |
| 5.97% |
| 6.39% |
|
| 642,813 |
|
| 773,193 |
Acquired Eurobank |
| 2,499 |
|
| 3,366 |
| 11.61% |
| 14.18% |
|
| 86,115 |
|
| 94,938 |
Total loans |
| 85,080 |
|
| 78,429 |
| 7.54% |
| 7.29% |
|
| 4,528,965 |
|
| 4,317,762 |
Total interest-earning assets |
| 94,255 |
|
| 88,006 |
| 6.24% |
| 5.93% |
|
| 6,060,819 |
|
| 5,951,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Interest |
|
| Average rate |
| Average balance | ||||||||||
| June |
| June |
|
| June | June | June |
| June | ||||||
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| (Dollars in thousands) | |||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW Accounts |
| 1,730 |
|
| 968 |
|
| 0.62% |
| 0.37% |
|
| 1,124,670 |
|
| 1,052,465 |
Savings and money market |
| 1,882 |
|
| 1,555 |
|
| 0.64% |
| 0.51% |
|
| 1,180,153 |
|
| 1,230,741 |
Time deposits |
| 3,652 |
|
| 2,779 |
|
| 1.33% |
| 1.07% |
|
| 1,065,005 |
|
| 1,012,630 |
Total core deposits |
| 7,264 |
|
| 5,302 |
|
| 0.86% |
| 0.65% |
|
| 3,369,828 |
|
| 3,295,836 |
Brokered deposits |
| 2,526 |
|
| 2,134 |
|
| 2.46% |
| 1.82% |
|
| 412,383 |
|
| 470,775 |
|
| 9,790 |
|
| 7,436 |
|
| 1.04% |
| 0.79% |
|
| 3,782,211 |
|
| 3,766,611 |
Non-interest bearing deposits |
| - |
|
| - |
|
| 0.00% |
| 0.00% |
|
| 1,097,903 |
|
| 1,082,290 |
Core deposit intangible amortization |
| 201 |
|
| 215 |
|
| 0.00% |
| 0.00% |
|
| - |
|
| - |
Total deposits |
| 9,991 |
|
| 7,651 |
|
| 0.82% |
| 0.63% |
|
| 4,880,114 |
|
| 4,848,901 |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 2,106 |
|
| 1,840 |
|
| 2.46% |
| 2.09% |
|
| 343,370 |
|
| 353,313 |
Advances from FHLB and other borrowings |
| 559 |
|
| 448 |
|
| 2.79% |
| 2.45% |
|
| 80,349 |
|
| 73,250 |
Subordinated capital notes |
| 514 |
|
| 479 |
|
| 5.71% |
| 5.32% |
|
| 36,083 |
|
| 36,083 |
Total borrowings |
| 3,179 |
|
| 2,767 |
|
| 2.77% |
| 2.40% |
|
| 459,802 |
|
| 462,646 |
Total interest bearing liabilities |
| 13,170 |
|
| 10,418 |
|
| 0.99% |
| 0.79% |
|
| 5,339,916 |
|
| 5,311,547 |
Net interest income / spread | $ | 81,085 |
| $ | 77,588 |
|
| 5.25% |
| 5.14% |
|
|
|
|
|
|
Interest rate margin |
|
|
|
|
|
|
| 5.37% |
| 5.23% |
|
|
|
|
|
|
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
| $ | 720,903 |
| $ | 640,358 |
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
|
|
| 113.50% |
|
| 112.06% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C - CHANGES IN NET INTEREST INCOME DUE TO: |
|
|
|
|
|
|
| |||||||||
| Volume |
| Rate |
| Total |
|
|
|
|
|
|
|
| |||
| (In thousands) |
|
|
|
|
|
|
|
| |||||||
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments | $ | (599) |
| $ | 197 |
| $ | (402) |
|
|
|
|
|
|
|
|
Loans |
| 3,974 |
|
| 2,677 |
|
| 6,651 |
|
|
|
|
|
|
|
|
Total interest income |
| 3,375 |
|
| 2,874 |
|
| 6,249 |
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 49 |
|
| 2,291 |
|
| 2,340 |
|
|
|
|
|
|
|
|
Repurchase agreements |
| (52) |
|
| 318 |
|
| 266 |
|
|
|
|
|
|
|
|
Other borrowings |
| 60 |
|
| 86 |
|
| 146 |
|
|
|
|
|
|
|
|
Total interest expense |
| 57 |
|
| 2,695 |
|
| 2,752 |
|
|
|
|
|
|
|
|
Net Interest Income | $ | 3,318 |
| $ | 179 |
| $ | 3,497 |
|
|
|
|
|
|
|
|
96
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2019 AND 2018 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| June |
| June |
| June |
| June |
| June |
| June | ||||
| 2019 |
| 2018 |
| 2019 | 2018 |
| 2019 |
| 2018 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 188,965 |
| $ | 171,176 |
| 6.24% |
| 5.90% |
| $ | 6,106,868 |
| $ | 5,847,255 |
Tax equivalent adjustment |
| 5,384 |
|
| 3,867 |
| 0.18% |
| 0.13% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 194,349 |
|
| 175,043 |
| 6.42% |
| 6.03% |
|
| 6,106,868 |
|
| 5,847,255 |
Interest-bearing liabilities |
| 26,091 |
|
| 19,594 |
| 0.98% |
| 0.76% |
|
| 5,396,038 |
|
| 5,220,070 |
Tax equivalent net interest income / spread |
| 168,258 |
|
| 155,449 |
| 5.44% |
| 5.28% |
|
| 710,830 |
|
| 627,185 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.62% |
| 5.41% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 14,495 |
|
| 15,686 |
| 2.51% |
| 2.43% |
|
| 1,154,819 |
|
| 1,292,355 |
Interest bearing cash and money market investments |
| 5,271 |
|
| 2,449 |
| 2.44% |
| 1.61% |
|
| 435,102 |
|
| 306,366 |
Total investments |
| 19,766 |
|
| 18,135 |
| 2.51% |
| 2.43% |
|
| 1,589,921 |
|
| 1,598,721 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 17,595 |
|
| 17,795 |
| 5.43% |
| 5.21% |
|
| 648,331 |
|
| 682,938 |
Commercial |
| 50,776 |
|
| 38,746 |
| 6.46% |
| 5.75% |
|
| 1,584,305 |
|
| 1,359,951 |
Consumer |
| 22,257 |
|
| 20,433 |
| 12.17% |
| 11.58% |
|
| 368,870 |
|
| 355,700 |
Auto and leasing |
| 53,649 |
|
| 44,040 |
| 9.17% |
| 9.18% |
|
| 1,180,155 |
|
| 967,446 |
Total non-acquired loans |
| 144,277 |
|
| 121,014 |
| 7.69% |
| 7.25% |
|
| 3,781,661 |
|
| 3,366,035 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 12,465 |
|
| 13,988 |
| 5.31% |
| 5.45% |
|
| 469,879 |
|
| 513,683 |
Commercial |
| 5,245 |
|
| 7,406 |
| 6.69% |
| 6.99% |
|
| 158,059 |
|
| 213,522 |
Consumer |
| 1,512 |
|
| 1,452 |
| 23.63% |
| 20.66% |
|
| 12,902 |
|
| 14,174 |
Auto |
| 627 |
|
| 2,474 |
| 15.22% |
| 11.13% |
|
| 8,309 |
|
| 44,817 |
Total acquired BBVAPR loans |
| 19,849 |
|
| 25,320 |
| 6.12% |
| 6.44% |
|
| 649,149 |
|
| 786,196 |
Acquired Eurobank |
| 5,073 |
|
| 6,707 |
| 11.78% |
| 13.93% |
|
| 86,137 |
|
| 96,303 |
Total loans |
| 169,199 |
|
| 153,041 |
| 7.55% |
| 7.26% |
|
| 4,516,947 |
|
| 4,248,534 |
Total interest-earning assets |
| 188,965 |
|
| 171,176 |
| 6.24% |
| 5.90% |
|
| 6,106,868 |
|
| 5,847,255 |
97
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Interest |
| Average rate |
| Average balance | Interest |
|
| Average rate |
| Average balance | |||||||||||||||||||||
| June |
| June |
| June | June | June |
| June | June |
| June |
| June |
| June |
| June |
| June | ||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
NOW Accounts |
| 966 |
| 1,051 |
| 0.37% |
| 0.39% |
| 1,052,465 |
| 1,080,135 | $ | 3,183 |
| $ | 1,867 |
| 0.57% |
| 0.36% | #N/A | $ | 1,122,155 |
| $ | 1,055,779 | |||||
Savings and money market |
| 1,555 |
| 1,485 |
| 0.51% |
| 0.52% |
| 1,230,741 |
| 1,151,650 |
| 3,496 |
| $ | 3,052 |
| 0.60% |
| 0.51% |
| 1,180,586 |
| $ | 1,218,488 | ||||||
Individual retirement accounts |
| 299 |
| 380 |
| 0.56% |
| 0.63% |
| 213,750 |
| 242,009 | ||||||||||||||||||||
Retail certificates of deposits |
| 2,406 |
|
| 1,769 |
| 1.63% |
| 1.24% |
|
| 591,885 |
|
| 571,266 | |||||||||||||||||
Time deposits |
| 6,598 |
| $ | 5,580 |
| 1.29% |
| 1.10% |
|
| 1,028,870 |
| $ | 1,018,801 | |||||||||||||||||
Total core deposits |
| 5,226 |
|
| 4,685 |
| 0.69% |
| 0.63% |
|
| 3,088,841 |
|
| 3,045,060 |
| 13,277 |
|
| 10,499 |
| 0.80% |
| 0.64% |
|
| 3,331,611 |
|
| 3,293,068 | ||
Institutional deposits |
| 76 |
|
| 653 |
| 0.15% |
| 1.17% |
|
| 206,695 |
|
| 223,788 | |||||||||||||||||
Brokered deposits |
| 2,134 |
|
| 2,084 |
| 1.82% |
| 1.45% |
|
| 470,775 |
|
| 575,642 |
| 5,362 |
| $ | 4,020 |
| 2.38% |
| 1.47% |
|
| 455,013 |
|
| 468,718 | ||
Total wholesale deposits |
| 2,210 |
|
| 2,737 |
| 1.32% |
| 1.39% |
|
| 677,470 |
|
| 799,430 | |||||||||||||||||
|
| 7,436 |
|
| 7,422 |
| 0.79% |
| 0.77% |
|
| 3,766,311 |
|
| 3,844,490 |
| 18,639 |
|
| 14,519 |
| 0.99% |
| 0.78% |
|
| 3,786,624 |
|
| 3,761,786 | ||
Non-interest bearing deposits |
| - |
| - |
| 0.00% |
| 0.00% |
| 1,082,145 |
| 835,026 |
| - |
|
| - |
| 0.00% |
| 0.00% |
|
| 1,098,720 |
| $ | 1,050,730 | |||||
Core deposit intangible amortization |
| 215 |
|
| 230 |
| 0.00% |
| 0.00% |
|
| - |
|
| - |
| 401 |
|
| 429 |
| 0.00% |
| 0.00% |
|
| - |
|
| - | ||
Total deposits |
| 7,651 |
|
| 7,652 |
| 0.63% |
| 0.66% |
|
| 4,848,456 |
|
| 4,679,516 |
| 19,040 |
|
| 14,948 |
| 0.79% |
| 0.63% |
|
| 4,885,344 |
|
| 4,812,516 | ||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities sold under agreements to repurchase |
| 1,840 |
| 1,734 |
| 2.09% |
| 1.47% |
| 353,313 |
| 472,338 |
| 4,892 |
| $ | 2,919 |
| 2.50% |
| 1.94% |
| 393,826 |
| $ | 302,728 | ||||||
Advances from FHLB and other borrowings |
| 448 |
| 607 |
| 2.45% |
| 2.30% |
| 73,218 |
| 105,911 |
| 1,121 |
| $ | 822 |
| 2.80% |
| 2.41% |
| 80,785 |
| $ | 68,743 | ||||||
Subordinated capital notes |
| 479 |
|
| 384 |
| 5.29% |
| 4.27% |
|
| 36,083 |
|
| 36,083 |
| 1,038 |
| $ | 905 |
| 5.80% |
| 5.06% |
|
| 36,083 |
| $ | 36,083 | ||
Total borrowings |
| 2,767 |
|
| 2,725 |
| 2.40% |
| 1.78% |
|
| 462,614 |
|
| 614,332 |
| 7,051 |
|
| 4,646 |
| 2.78% |
| 2.30% |
|
| 510,694 |
|
| 407,554 | ||
Total interest bearing liabilities |
| 10,418 |
|
| 10,377 |
| 0.79% |
| 0.79% |
|
| 5,311,070 |
|
| 5,293,848 | |||||||||||||||||
Total interest-bearing liabilities |
| 26,091 |
|
| 19,594 |
| 0.98% |
| 0.76% |
|
| 5,396,038 |
|
| 5,220,070 | |||||||||||||||||
Net interest income / spread | $ | 77,588 |
| $ | 75,563 |
| 5.16% |
| 5.10% |
|
|
|
|
|
| $ | 162,874 |
| $ | 151,582 |
| 5.26% |
| 5.14% |
|
|
|
|
|
| ||
Interest rate margin |
|
|
|
|
|
| 5.24% |
| 5.18% |
|
|
|
|
|
|
|
|
|
| 5.38% |
| 5.23% |
|
|
|
| ||||||
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
| $ | 622,705 |
| $ | 554,677 |
|
|
|
|
|
|
|
|
| $ | 710,832 |
| $ | 627,185 | ||||
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
| 111.72% |
|
| 110.48% |
|
|
|
|
|
|
|
|
|
| 113.17% |
| $ | 112.01% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 | $ | (483) |
| $ | 1,358 |
| $ | 875 |
|
|
|
|
|
| $ | (100) |
| $ | 1,731 |
| $ | 1,631 |
|
|
|
|
|
| ||||
Loans |
| 1,959 |
|
| (768) |
|
| 1,191 |
|
|
|
|
|
|
| 9,110 |
|
| 7,048 |
|
| 16,158 |
|
|
|
|
|
| ||||
Total interest income |
| 1,476 |
|
| 590 |
|
| 2,066 |
|
|
|
|
|
|
| 9,010 |
|
| 8,779 |
|
| 17,789 |
|
|
|
|
|
| ||||
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits |
| 276 |
| (277) |
| (1) |
|
|
|
|
|
|
| 226 |
| 3,866 |
| 4,092 |
|
|
|
|
|
| ||||||||
Repurchase agreements |
| (437) |
| 546 |
| 109 |
|
|
|
|
|
|
| 878 |
| 1,095 |
| 1,973 |
|
|
|
|
|
| ||||||||
Other borrowings |
| (228) |
|
| 161 |
|
| (67) |
|
|
|
|
|
|
| 198 |
|
| 234 |
|
| 432 |
|
|
|
|
|
| ||||
Total interest expense |
| (389) |
|
| 430 |
|
| 41 |
|
|
|
|
|
|
| 1,302 |
|
| 5,195 |
|
| 6,497 |
|
|
|
|
|
| ||||
Net Interest Income | $ | 1,865 |
| $ | 160 |
| $ | 2,025 |
|
|
|
|
|
| $ | 7,708 |
| $ | 3,584 |
| $ | 11,292 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
OFG BANCORP
TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| June |
| June |
| June |
| June |
| June |
| June | ||||
| 2018 |
| 2017 |
| 2018 | 2017 |
| 2018 |
| 2017 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 171,176 |
| $ | 172,118 |
| 5.91% |
| 5.90% |
| $ | 5,842,933 |
| $ | 5,887,428 |
Tax equivalent adjustment |
| 2,380 |
|
| 2,577 |
| 0.08% |
| 0.09% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 173,556 |
|
| 174,695 |
| 5.99% |
| 5.99% |
|
| 5,842,933 |
|
| 5,887,428 |
Interest-bearing liabilities |
| 19,594 |
|
| 21,937 |
| 0.76% |
| 0.83% |
|
| 5,219,637 |
|
| 5,346,194 |
Tax equivalent net interest income / spread |
| 153,962 |
|
| 152,758 |
| 5.23% |
| 5.16% |
|
| 623,296 |
|
| 541,234 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.31% |
| 5.23% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 15,686 |
|
| 15,429 |
| 2.46% |
| 2.31% |
|
| 1,285,215 |
|
| 1,347,492 |
Interest bearing cash and money market investments |
| 2,449 |
|
| 1,801 |
| 1.59% |
| 0.89% |
|
| 310,726 |
|
| 407,442 |
Total investments |
| 18,135 |
|
| 17,230 |
| 2.29% |
| 1.98% |
|
| 1,595,941 |
|
| 1,754,934 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 17,757 |
|
| 18,932 |
| 5.26% |
| 5.41% |
|
| 681,265 |
|
| 705,167 |
Commercial |
| 38,793 |
|
| 32,685 |
| 5.75% |
| 5.27% |
|
| 1,360,811 |
|
| 1,251,179 |
Consumer |
| 17,265 |
|
| 15,722 |
| 10.91% |
| 11.08% |
|
| 318,991 |
|
| 286,149 |
Auto and leasing |
| 44,149 |
|
| 38,065 |
| 9.21% |
| 9.70% |
|
| 966,251 |
|
| 791,008 |
Total non-acquired loans |
| 117,964 |
|
| 105,404 |
| 7.15% |
| 7.01% |
|
| 3,327,318 |
|
| 3,033,503 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 13,988 |
|
| 15,585 |
| 5.54% |
| 5.69% |
|
| 509,626 |
|
| 552,177 |
Commercial |
| 7,290 |
|
| 9,500 |
| 7.07% |
| 7.56% |
|
| 207,975 |
|
| 253,286 |
Consumer |
| 4,724 |
|
| 5,779 |
| 16.96% |
| 19.04% |
|
| 56,156 |
|
| 61,207 |
Auto |
| 2,367 |
|
| 5,973 |
| 9.46% |
| 11.27% |
|
| 50,478 |
|
| 106,895 |
Total acquired BBVAPR loans |
| 28,369 |
|
| 36,837 |
| 6.94% |
| 7.63% |
|
| 824,235 |
|
| 973,566 |
Acquired Eurobank |
| 6,708 |
|
| 12,647 |
| 14.17% |
| 20.33% |
|
| 95,438 |
|
| 125,425 |
Total loans |
| 153,041 |
|
| 154,888 |
| 7.27% |
| 7.56% |
|
| 4,246,991 |
|
| 4,132,494 |
Total interest-earning assets |
| 171,176 |
|
| 172,118 |
| 5.91% |
| 5.90% |
|
| 5,842,932 |
|
| 5,887,428 |
99NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Interest |
|
| Average rate |
| Average balance | ||||||||||
| June |
| June |
|
| June |
| June |
| June |
| June | ||||
| 2018 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
| (Dollars in thousands) | |||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW Accounts | $ | 1,864 |
| $ | 2,092 |
|
| 0.36% |
| 0.39% |
| $ | 1,055,779 |
| $ | 1,086,228 |
Savings and money market |
| 3,052 |
|
| 2,966 |
|
| 0.51% |
| 0.52% |
|
| 1,218,488 |
|
| 1,157,811 |
Individual retirement accounts |
| 635 |
|
| 806 |
|
| 0.58% |
| 0.66% |
|
| 218,996 |
|
| 247,785 |
Retail certificates of deposits |
| 4,866 |
|
| 3,418 |
|
| 1.65% |
| 1.24% |
|
| 594,169 |
|
| 556,568 |
Total core deposits |
| 10,417 |
|
| 9,282 |
|
| 0.64% |
| 0.65% |
|
| 3,087,432 |
|
| 3,048,392 |
Institutional deposits |
| 82 |
|
| 1,294 |
|
| 0.08% |
| 1.16% |
|
| 205,336 |
|
| 223,991 |
Brokered deposits |
| 4,020 |
|
| 3,969 |
|
| 1.73% |
| 1.39% |
|
| 468,718 |
|
| 575,098 |
Total wholesale deposits |
| 4,102 |
|
| 5,263 |
|
| 0.61% |
| 0.66% |
|
| 674,054 |
|
| 799,089 |
|
| 14,519 |
|
| 14,545 |
|
| 0.78% |
| 0.76% |
|
| 3,761,486 |
|
| 3,847,481 |
Non-interest bearing deposits |
| - |
|
| - |
|
| 0.00% |
| -0.01% |
|
| 1,050,642 |
| $ | 833,852 |
Core deposit intangible amortization |
| 430 |
|
| 460 |
|
| 0.00% |
| 0.00% |
|
| - |
|
| - |
Total deposits |
| 14,949 |
|
| 15,005 |
|
| 0.63% |
| 0.65% |
|
| 4,812,128 |
|
| 4,681,333 |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 2,918 |
|
| 4,979 |
|
| 1.94% |
| 1.92% |
|
| 302,728 |
|
| 523,272 |
Advances from FHLB and other borrowings |
| 822 |
|
| 1,202 |
|
| 2.41% |
| 2.30% |
|
| 68,698 |
|
| 105,506 |
Subordinated capital notes |
| 905 |
|
| 751 |
|
| 5.05% |
| 4.20% |
|
| 36,083 |
|
| 36,083 |
Total borrowings |
| 4,645 |
|
| 6,932 |
|
| 2.30% |
| 2.10% |
|
| 407,509 |
|
| 664,861 |
Total interest-bearing liabilities |
| 19,594 |
|
| 21,937 |
|
| 0.76% |
| 0.83% |
|
| 5,219,637 |
|
| 5,346,194 |
Net interest income / spread | $ | 151,582 |
| $ | 150,181 |
|
| 5.15% |
| 5.07% |
|
|
|
|
|
|
Interest rate margin |
|
|
|
|
|
|
| 5.23% |
| 5.14% |
|
|
|
|
|
|
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
| $ | 623,296 |
| $ | 541,234 |
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
|
|
| 111.94% |
|
| 110.12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C - CHANGES IN NET INTEREST INCOME DUE TO: |
|
|
|
|
|
|
| |||||||||
| Volume |
| Rate |
| Total |
|
|
|
|
|
|
|
| |||
| (In thousands) |
|
|
|
|
|
|
|
| |||||||
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments | $ | (1,561) |
| $ | 2,466 |
| $ | 905 |
|
|
|
|
|
|
|
|
Loans |
| 2,107 |
|
| (3,952) |
|
| (1,845) |
|
|
|
|
|
|
|
|
Total interest income |
| 546 |
|
| (1,486) |
|
| (940) |
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 419 |
|
| (475) |
|
| (56) |
|
|
|
|
|
|
|
|
Repurchase agreements |
| (2,099) |
|
| 39 |
|
| (2,060) |
|
|
|
|
|
|
|
|
Other borrowings |
| (508) |
|
| 281 |
|
| (227) |
|
|
|
|
|
|
|
|
Total interest expense |
| (2,188) |
|
| (155) |
|
| (2,343) |
|
|
|
|
|
|
|
|
Net Interest Income | $ | 2,734 |
| $ | (1,331) |
| $ | 1,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
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 forof the quarters ended June 30, 20182019 and 20172018
Net interest income of $77.6$81.1 million increased $2.0$3.5 million from $75.6$77.6 million. Interest rate spread increased 611 basis points to 5.16%5.25% from 5.10%5.14% and net interest margin increased 614 basis points to 5.24%5.37% from 5.18%5.23%. These increases are mainly due to the net effect of an increase of 631 basis points in the average yield of total interest earning assets.interest-earning assets and an increase of 20 basis point in average cost of interest-bearing liabilities.
Net interest income increased as a result of:
· Higher interest income from originated loans of $7.7by $10.3 million, reflecting higher balances in the commercial, consumer and auto portfolios;portfolios. This increase also reflects higher interest rates in the originated loan portfolio by 41 basis points; and
· Higher interest income from investment of $875 thousand, reflecting ancash and money market investments by $1.7 million, or 70 basis points, mainly due to the increase in Federal Reserve Bank interest rates of $1.4 million, partially offset by a decrease in volume of $483 thousand.rates.
Such increases in net interest income were partially offsetadversely impacted by:
· A decreaseIncrease in interest expense of $6.5$2.8 million, mainly from an increase in cost of customer deposits and brokered deposits of $1.8 million and $400 thousand, respectively, and increase in cost of repurchase agreements of $267 thousand; and
·Decrease in interest income from investment of $2.1 million reflecting the $349.7 million of available-for-sale mortgage-backed securities sale in May 2019.
·Decrease of $3.6 million in the interest income from acquired loans as such loans continue to be repaid.
Comparison of the six-month periodsperiod ended June 30, 20182019 and 20172018
Net interest income of $151.6$162.9 million increased $1.4$11.3 million compared with $150.2from $151.6 million. Interest rate spread increased 812 basis points to 5.26% from 5.07% to 5.15%5.14% and net interest margin increased 915 basis points to 5.23%5.38% from 5.14%5.23%. These increases are mainly due to the net effect of 1an increase of 34 basis points increase in the average yield of interest-earningtotal interest earning assets from 5.90% to 5.91% and to 722 basis points decrease in the total average costs of interest-bearing liabilities from 0.83% to 0.76%liabilities.
Net interest income increased as a result of:was positively impacted by:
· Higher interest income from originated loans of $12.6by $23.3 million, reflecting higher balances in commercial, consumer and auto loan portfolios. This increase also reflects higher interest rates in the commercial, autooriginated loan portfolio by 44 basis points from higher prices by $8.0 million and consumer portfoliosvolume by $17.0 million; and
· Higher interest income from investmentcash and money market of $905 thousand, reflecting$2.8 million due to increase in price and volume of $1.6 million and $1.3 million, respectively.
Net interest income was adversely impacted by:
·Increase in interest expense of $6.5 million, mainly from an increase in interest ratescustomer and brokered deposit costs of $2.5$2.8 million partially offset by a decreaseand $1.3 million, respectively, and increase in volumecost of $1.6repurchase agreements of $2.4 million; and
· LowerDecrease in interest expenses on repurchase agreementsincome from investment of $1.2 million reflecting mortgage-backed securities sale in May 2019; and other borrowings of $2.3 million as a result of the repayment of high cost repurchase agreements and FHLB advances.
Such increases in net interest income were partially offset by:99
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
· A decreaseDecrease of $14.4$7.1 million in the interest income from acquired loans as such loans continue to be repaid.
101
TABLE 2 - NON-INTEREST INCOME SUMMARY | TABLE 2 - NON-INTEREST INCOME SUMMARY |
|
|
|
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|
|
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|
|
|
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| ||||||||||
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|
|
|
| ||||||||||||||||||||||
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||||||||||||
| 2018 |
| 2017 |
| Variance |
| 2018 |
| 2017 |
| Variance | 2019 |
| 2018 |
| Variance |
| 2019 |
| 2018 |
| Variance | ||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||
Banking service revenue | $ | 11,144 |
| $ | 10,458 |
| 6.6% |
| $ | 21,607 |
| $ | 21,084 |
| 2.5% | $ | 10,776 |
| $ | 11,144 |
| -3.3% |
| $ | 21,241 |
| $ | 21,607 |
| -1.7% |
Wealth management revenue |
| 6,262 |
| 6,516 |
| -3.9% |
|
| 12,281 |
| 12,731 |
| -3.5% |
| 6,669 |
| 6,262 |
| 6.5% |
|
| 12,551 |
| 12,281 |
| 2.2% | ||||
Mortgage banking activities |
| 988 |
|
| 959 |
| 3.0% |
| 2,745 |
|
| 1,546 |
| 77.6% |
| 629 |
|
| 988 |
| -36.3% |
|
| 1,835 |
|
| 2,745 |
| -33.2% | |
Total banking and financial service revenue |
| 18,394 |
|
| 17,933 |
| 2.6% |
| 36,633 |
|
| 35,361 |
| 3.6% |
| 18,074 |
|
| 18,394 |
| -1.7% |
|
| 35,627 |
|
| 36,633 |
| -2.7% | |
FDIC shared-loss benefit |
| - |
|
| - |
| 0.0% |
| - |
|
| 1,403 |
| -100.0% | ||||||||||||||||
Net gain on: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Net gain (loss) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sale of securities available for sale |
| - |
| 6,891 |
| -100.0% |
| - |
| 6,891 |
| -100.0% |
| 4,776 |
| - |
| 100.0% |
|
| 4,776 |
| - |
| 100.0% | |||||
Derivatives |
| - |
| 22 |
| -100.0% |
| - |
| 103 |
| -100.0% | ||||||||||||||||||
Early extinguishment of debt |
| - |
| (80) |
| 100.0% |
| - |
| (80) |
| 100.0% |
| (7) |
| - |
| -100.0% |
|
| (7) |
| - |
| -100.0% | |||||
Other non-interest income |
| 309 |
|
| 120 |
| 157.5% |
| 584 |
|
| 282 |
| 107.1% |
| 105 |
|
| 309 |
| -66.0% |
|
| 208 |
|
| 584 |
| -64.4% | |
|
| 309 |
|
| 6,953 |
| -95.6% |
|
| 584 |
|
| 8,599 |
| -93.2% | |||||||||||||||
Total non-interest income, net | $ | 18,703 |
| $ | 24,886 |
| -24.8% |
| $ | 37,217 |
| $ | 43,960 |
| -15.3% | $ | 22,948 |
| $ | 18,703 |
| 22.7% |
| $ | 40,604 |
| $ | 37,217 |
| 9.1% |
Non-Interest Income
Non-interest income is affected by the 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, fees generated from loans and deposit accounts, and gains on sales of assets.
Comparison of quarters ended June 30, 20182019 and 20172018
Oriental recorded non-interest income, net, in the amount of $18.7$22.9 million, compared to $24.9$18.7 million, a decreasean increase of 24.8%22.7%, or $6.2$4.2 million. The decreasenet increase in non-interest income was mainly due to:
· TheAn increase of $4.8 million from a gain on sale of $166.0$349.7 million in mortgage-backed securities during the second quarter of 2017, which generated a gain of $6.9 million.quarter.
Comparison of six-month periods ended June 30, 20182019 and 20172018
Oriental recorded non-interest income, net, in the amount of $37.2$40.6 million, compared to $44.0$37.2 million, a decreasean increase of 15.3%9.1%, or $6.7$3.4 million. The decreaseincrease in non-interest income was mainly due to:
· TheAn increase of $4.8 million from a gain on sale of $166.0$349.7 million in mortgage-backed securities during the second quarter of 2017, which generated a gain of $6.9 million; andsix-month period.
·The termination of the FDIC shared-loss agreement during the first quarter of 2017 resultingincrease in the recognition of a $1.4 million gain.
The decreasenon-interest income was partially offset by:
· An increase of $1.2 millionA decrease in mortgage banking activities which included $1.0 million in other income fromof $910 thousand, mainly reflecting lower mortgage servicing assets due to higher book balances of mortgage loans, mainly attributed to the hurricane related moratorim.fees.
102100
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 3 - NON-INTEREST EXPENSES SUMMARY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
| ||||
|
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|
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|
|
| ||||||||||||||||||||||
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||||||||||||
| 2018 |
| 2017 |
| Variance % |
| 2018 |
| 2017 |
| Variance % | 2019 |
| 2018 |
| Variance % |
| 2019 |
| 2018 |
| Variance % | ||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||
Compensation and employee benefits | $ | 18,099 |
| $ | 19,317 |
| -6.3% |
| $ | 38,707 |
| $ | 39,664 |
| -2.4% | $ | 19,875 |
| $ | 18,099 |
| 9.8% |
| $ | 40,216 |
| $ | 38,707 |
| 3.9% |
Occupancy, equipment and infrastructure costs |
| 7,511 |
| 9,166 |
| -18.1% |
|
| 15,257 |
| 16,934 |
| -9.9% | |||||||||||||||||
Electronic banking charges |
| 5,128 |
| 5,415 |
| -5.3% |
|
| 10,193 |
| 10,382 |
| -1.8% | |||||||||||||||||
Professional and service fees |
| 3,146 |
| 3,225 |
| -2.4% |
|
| 5,840 |
| 6,462 |
| -9.6% |
| 3,427 |
| 3,146 |
| 8.9% |
|
| 6,635 |
| 5,840 |
| 13.6% | ||||
Occupancy and equipment |
| 9,166 |
| 8,538 |
| 7.4% |
|
| 16,934 |
| 15,735 |
| 7.6% | |||||||||||||||||
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses |
| 2,584 |
| 2,289 |
| 12.9% |
|
| 5,950 |
| 5,934 |
| 0.3% | |||||||||||||||||
Information technology expenses |
| 2,200 |
| 2,000 |
| 10.0% |
|
| 4,707 |
| 4,009 |
| 17.4% | |||||||||||||||||
Taxes, other than payroll and income taxes |
| 2,142 |
| 2,384 |
| -10.2% |
|
| 4,295 |
| 4,645 |
| -7.5% | |||||||||||||||||
Advertising, business promotion, and strategic initiatives |
| 1,315 |
| 1,024 |
| 28.4% |
|
| 2,526 |
| 2,371 |
| 6.5% | |||||||||||||||||
Insurance |
| 1,482 |
| 1,183 |
| 25.3% |
|
| 2,960 |
| 2,783 |
| 6.4% |
| 1,277 |
| 1,482 |
| -13.8% |
|
| 2,423 |
| 2,960 |
| -18.1% | ||||
Electronic banking charges |
| 5,415 |
| 5,450 |
| -0.6% |
|
| 10,382 |
| 10,352 |
| 0.3% | |||||||||||||||||
Information technology expenses |
| 2,000 |
| 2,069 |
| -3.3% |
|
| 4,009 |
| 4,068 |
| -1.5% | |||||||||||||||||
Advertising, business promotion, and strategic initiatives |
| 1,024 |
| 1,405 |
| -27.1% |
|
| 2,371 |
| 2,800 |
| -15.3% | |||||||||||||||||
Loss on sale of foreclosed real estate and other repossessed assets |
| 392 |
| 1,787 |
| -78.1% |
|
| 1,618 |
| 3,113 |
| -48.0% | |||||||||||||||||
Loan servicing and clearing expenses |
| 1,227 |
| 1,270 |
| -3.4% |
|
| 2,388 |
| 2,459 |
| -2.9% |
| 1,160 |
| 1,227 |
| -5.5% |
|
| 2,368 |
| 2,388 |
| -0.8% | ||||
Taxes, other than payroll and income taxes |
| 2,384 |
| 2,393 |
| -0.4% |
|
| 4,645 |
| 4,764 |
| -2.5% | |||||||||||||||||
Merger and restructuring charges |
| 1,000 |
| - |
| 100.0% |
|
| 1,000 |
| - |
| 100.0% | |||||||||||||||||
Communication |
| 815 |
| 913 |
| -10.7% |
|
| 1,700 |
| 1,828 |
| -7.0% |
| 859 |
| 815 |
| 5.4% |
|
| 1,599 |
| 1,700 |
| -5.9% | ||||
Printing, postage, stationery and supplies |
| 605 |
| 665 |
| -9.0% |
|
| 1,249 |
| 1,303 |
| -4.1% |
| 636 |
| 605 |
| 5.1% |
|
| 1,214 |
| 1,249 |
| -2.8% | ||||
Director and investor relations |
| 337 |
| 274 |
| 23.0% |
|
| 577 |
| 554 |
| 4.2% |
| 330 |
| 337 |
| -2.1% |
|
| 560 |
| 577 |
| -2.9% | ||||
Credit related expenses |
| 1,897 |
| 2,217 |
| -14.4% |
|
| 4,316 |
| 4,843 |
| -10.9% | |||||||||||||||||
Other operating expenses |
| 4,311 |
| 2,110 |
| 104.3% |
|
| 6,725 |
| 3,772 |
| 78.3% | |||||||||||||||||
Other |
| 2,008 |
| 4,311 |
| -53.4% |
|
| 4,661 |
| 6,725 |
| -30.7% | |||||||||||||||||
Total non-interest expenses | $ | 52,300 |
| $ | 52,816 |
| -1.0% |
| $ | 104,421 |
| $ | 104,500 |
| -0.1% | $ | 51,452 |
| $ | 52,300 |
| -1.6% |
| $ | 103,604 |
| $ | 104,421 |
| -0.8% |
Relevant ratios and data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Efficiency ratio |
| 54.49% |
|
| 56.49% |
|
|
|
| 55.48% |
|
| 56.32% |
|
|
| 51.89% |
|
| 54.49% |
|
|
|
| 52.19% |
|
| 55.48% |
|
|
Compensation and benefits to non-interest expense |
| 34.61% |
|
| 36.57% |
|
|
|
| 37.07% |
|
| 37.96% |
|
|
| 38.63% |
|
| 34.61% |
|
|
|
| 38.82% |
|
| 37.07% |
|
|
Compensation to average total assets owned |
| 1.11% |
|
| 1.23% |
|
|
|
| 1.19% |
|
| 1.25% |
|
|
| 1.23% |
|
| 1.11% |
|
|
|
| 1.24% |
|
| 1.19% |
|
|
Average number of employees |
| 1,354 |
|
| 1,462 |
|
|
|
| 1,354 |
|
| 1,449 |
|
|
| 1,447 |
|
| 1,354 |
|
|
|
| 1,447 |
|
| 1,354 |
|
|
Average compensation per employee | $ | 13.37 |
| $ | 13.21 |
|
|
| $ | 28.59 |
| $ | 27.37 |
|
| $ | 13.73 |
| $ | 13.37 |
|
|
| $ | 27.79 |
| $ | 28.59 |
|
|
Average loans per average employee | $ | 3,183 |
| $ | 2,825 |
|
|
| $ | 3,137 |
| $ | 2,854 |
|
| $ | 3,130 |
| $ | 3,183 |
|
|
| $ | 3,122 |
| $ | 3,137 |
|
|
103101
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Non-Interest Expenses
Comparison of quarters ended June 30, 20182019 and 20172018
Non-interest expense was $52.3$51.5 million, representing a slight decrease of 1.0%1.6% compared to $52.8$52.3 million.
The slight decrease in non-interest expenses was driven by:
· Lower loss on sale of foreclosed real estate and other repossessed assets by $1.4 million in the second quarter of 2018; and
·Lower compensation and employee benefits by $1.2 million, mainly due to a decrease in the average number of employees.
The decreases in the foregoing non-interest expenses were offset by:
·Higher other operating expenses by $2.2$2.3 million, mainly attributed to an increase during the quarter ended June 30, 2018 in claims and settlements accruals and other losses, and to minor repairs to physical assets related to the impact of hurricanes.hurricanes, which were not present in the current quarter.
· Lower occupancy, equipment and infrastructure costs by $1.7 million, mainly attributed lower rent expenses due to the termination of several lease contracts and the closure of branches in 2018, partially offset by $478 thousand received in the prior year quarter as an early termination from one of our former tenants; and
·Lower credit related expenses by $666 thousand, mainly attributed to lower foreclosure and repossession expenses.
The decreases in the foregoing non-interest expenses were offset by:
·Higher compensation and employee benefits by $1.8 million, mainly due to an increase in average employees; and
·Merger and restructuring charges incurred amounting to $1.0 million related to the agreements with The Bank Nova Scotia to acquire its Puerto Rico and US Virgin Islands operations.
The efficiency ratio improved from 54.49% to 54.49% from 56.49%51.89%. 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, 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 June 30, 20182019 and 20172018 amounted to $4.9 million and $309 thousand, and $7.0 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 Bank operations. Estimated losses at December 31, 2017 amounted to $6.6 million. No additional losses have been incurred at June 30, 2018.
Oriental maintains insurance for casualty losses as well as for disaster response costs and certain revenue lost through business interruption. Management believes that recovery of $2.2 million incurred costs as of December 31, 2017 is probable. Oriental received a $1.0 million partial payment from the insurance company in December 2017 and a $0.7 million payment during the six-month period ended June 30, 2018. Accordingly, a receivable of $0.5 million and $1.2 million was included in other assets at June 30, 2018 and December 31, 2017, respectively, for the expected recovery.
Comparison of six-month periods ended June 30, 20182019 and 20172018
Non-interest expense was $104.4$103.6 million, representing a slight decrease of 0.1%0.8% compared to $104.5$104.4 million.
The slight decrease in non-interest expenses for the six-month period ended June 30, 2018 was driven by:
· Lower loss on sale of foreclosed real estate and other repossessed assets by $1.5 million, particularly attributed to an increase in gain on sales of $762 thousand and other repossessed assets markdowns of $1.1 million;
·Lower compensation and employee benefits by $1.0 million, mainly due to a decrease in the average number of employees;
·Lower professional and services fees by $622 thousand, mainly due to a decrease in consulting and advisory expenses of $777 thousand;
·Lower credit related expenses by $527 thousand related to a decrease in foreclosure legal fees of $281 thousand; and
·Lower marketing expenses by $429 thousand.
104
The decreases in the foregoing non-interest expenses were offset by:
·Higher other operating expenses by $3.0$2.1 million, mainly attributed to an increase during the year ago period in claims and settlements accruals and other losses, and to minor repairs to physical assets related to the impact of hurricanes.hurricanes, which were not present in 2019; and
·Lower occupancy, equipment and infrastructure costs by $1.7 million, mainly attributed lower rent expenses due to the termination of several lease contracts and the closure of branches in 2018, partially offset by $478 thousand received in the prior year period as an early termination from one of our former tenants.
The decreases in the foregoing non-interest expenses were partially offset by:
·Higher compensation and employee benefits by $1.5 million, mainly due to an increase in average employees;
· Higher occupancyprofessional and equipment expensesservice fees by $1.2$795 thousand, mainly consulting and advisory fees.
·Merger and restructuring charges incurred amounting to $1.0 million particularly attributedrelated to a lease cancellation fee of $1.5 millionthe agreements with The Bank Nova Scotia on June 26, 2019 to bring more of our offices into the Oriental Center building.acquire its Puerto Rico and US Virgin Islands operations.
102
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The efficiency ratio improved to 55.48%52.19% from 56.32% for the same period in 2017.55.48%. Amounts presented as part of non-interest income that are excluded from efficiency ratio computation for the six-month periods ended June 30, 20182019 and 20172018 amounted to $584$5.0 million and 584 thousand, and $8.6 million, respectively.
Provision for Loan and Lease Losses
Comparison of quarters ended June 30, 20182019 and 20172018
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 20.1%, or $3.0 million, to $17.7 million.The increase in the provision was mostly due to a net increase of $8.8 million primarily related to the expected sale before year-end of $54 million unpaid principal balance of mostly distressed acquired residential mortgages. Excluding such provision, there was a decline of $5.8 million reflecting improved asset quality.
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 six-month periods ended June 30, 2019 and 2018
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.
Provision for loan and lease losses decreased 44.4%0.8%, or $11.8 million,$252 thousand, to $14.7$30 million. The decrease in the provision was mostly due to:
·A $4.3 million provisionto a decrease in the second quarter of 2017 to charge-off the loss on sale of a loan to a Puerto Rico government municipality and a $5.9 million provision to increase the general allowance on the remaining municipal loan portfolio; and
·Most of the incremental commercial, consumer and auto charge-offs during the quarter ended June 30, 2018 were previously reserved.
Comparison of six-month periods ended June 30, 2018 and 2017
Provision for originated loan and lease losses decreased 31.6%, or $14.0of $8.0 million, mainly due to $30.2 million. The decrease in thean additional provision was mostly due to:
·The additional provisions placedrecognized during the secondyear ago quarter from the periodic assessment of 2017 described above; and
·Mostloans remaining in these portfolios, offset by $8.8 million provision related to the expected sale of the incremental commercial, consumer and auto charge-offs during the quarter ended June 30, 2018 were previously reserved.distressed acquired mortgages.
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.
Income Taxes
Comparison of quarters ended June 30, 20182019 and 20172018
Income tax expense was $9.6$10.9 million, compared to $4.0$9.6 million, reflecting the effective income tax rate of 32.6%31.2% and the net income before income taxes of $29.2$34.9 million for 2018.
the second quarter of 2019.
Comparison of six-month periods ended June 30, 20182019 and 20172018
105
Income tax expense was $17.6$22.5 million, compared to $13.2$17.6 million, reflecting the effective income tax rate of 32.4%32.1% and the net income before income taxes of $54.2$69.9 million for 2018.the same period in 2018, due to a higher proportion of exempt income and income subject to preferential rates.
Business Segments
106103
Business SegmentsOFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 productsits 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 and six-month periods ended June 30, 20182019 and 2017.2018.
| Quarter Ended June 30, 2019 | ||||||||||||||||
|
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||
| Banking |
|
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 84,475 |
| $ | 19 |
| $ | 9,761 |
| $ | 94,255 |
| $ | - |
| $ | 94,255 |
Interest expense |
| (9,187) |
|
| - |
|
| (3,983) |
|
| (13,170) |
|
| - |
|
| (13,170) |
Net interest income |
| 75,288 |
|
| 19 |
|
| 5,778 |
|
| 81,085 |
|
| - |
|
| 81,085 |
Provision for loan and lease losses |
| (17,675) |
|
| - |
|
| (30) |
|
| (17,705) |
|
| - |
|
| (17,705) |
Non-interest income |
| 11,330 |
|
| 6,834 |
|
| 4,784 |
|
| 22,948 |
|
| - |
|
| 22,948 |
Non-interest expenses |
| (46,346) |
|
| (3,898) |
|
| (1,208) |
|
| (51,452) |
|
| - |
|
| (51,452) |
Intersegment revenue |
| 587 |
|
| - |
|
| - |
|
| 587 |
|
| (587) |
|
| - |
Intersegment expenses |
| - |
|
| (165) |
|
| (422) |
|
| (587) |
|
| 587 |
|
| - |
Income before income taxes | $ | 23,184 |
| $ | 2,790 |
| $ | 8,902 |
| $ | 34,876 |
| $ | - |
| $ | 34,876 |
Income tax expense |
| 9,042 |
|
| 1,088 |
|
| 767 |
|
| 10,897 |
|
| - |
|
| 10,897 |
Net income | $ | 14,142 |
| $ | 1,702 |
| $ | 8,135 |
| $ | 23,979 |
| $ | - |
| $ | 23,979 |
Total assets | $ | 5,951,860 |
| $ | 27,067 |
| $ | 1,532,053 |
| $ | 7,510,980 |
| $ | (1,046,853) |
| $ | 6,464,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2019 | ||||||||||||||||
|
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||
| Banking |
|
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 167,991 |
| $ | 37 |
| $ | 20,937 |
| $ | 188,965 |
| $ | - |
| $ | 188,965 |
Interest expense |
| (17,823) |
|
| - |
|
| (8,268) |
|
| (26,091) |
|
| - |
|
| (26,091) |
Net interest income |
| 150,168 |
|
| 37 |
|
| 12,669 |
|
| 162,874 |
|
| - |
|
| 162,874 |
Provision for loan and lease losses |
| (29,882) |
|
| - |
|
| (72) |
|
| (29,954) |
|
| - |
|
| (29,954) |
Non-interest income |
| 22,986 |
|
| 12,818 |
|
| 4,800 |
|
| 40,604 |
|
| - |
|
| 40,604 |
Non-interest expenses |
| (92,829) |
|
| (8,225) |
|
| (2,550) |
|
| (103,604) |
|
| - |
|
| (103,604) |
Intersegment revenue |
| 1,141 |
|
| - |
|
| - |
|
| 1,141 |
|
| (1,141) |
|
| - |
Intersegment expenses |
| - |
|
| (339) |
|
| (802) |
|
| (1,141) |
|
| 1,141 |
|
| - |
Income before income taxes | $ | 51,584 |
| $ | 4,291 |
|
| 14,045 |
| $ | 69,920 |
| $ | - |
| $ | 69,920 |
Income tax expense (benefit) |
| 19,344 |
|
| 1,609 |
|
| 1,518 |
|
| 22,471 |
|
| - |
|
| 22,471 |
Net income | $ | 32,240 |
| $ | 2,682 |
| $ | 12,527 |
| $ | 47,449 |
| $ | - |
| $ | 47,449 |
Total assets | $ | 5,951,860 |
| $ | 27,067 |
| $ | 1,532,053 |
| $ | 7,510,980 |
| $ | (1,046,853) |
| $ | 6,464,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107104
| Quarter Ended June 30, 2018 | ||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | |||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 78,133 |
| $ | 14 |
| $ | 9,859 |
| $ | 88,006 |
| $ | - |
| $ | 88,006 |
Interest expense |
| (7,132) |
|
| - |
|
| (3,286) |
|
| (10,418) |
|
| - |
|
| (10,418) |
Net interest income |
| 71,001 |
|
| 14 |
|
| 6,573 |
|
| 77,588 |
|
| - |
|
| 77,588 |
Provision for loan and lease losses |
| (14,744) |
|
| - |
|
| (3) |
|
| (14,747) |
|
| - |
|
| (14,747) |
Non-interest income |
| 12,240 |
|
| 6,448 |
|
| 15 |
|
| 18,703 |
|
| - |
|
| 18,703 |
Non-interest expenses |
| (46,109) |
|
| (5,282) |
|
| (909) |
|
| (52,300) |
|
| - |
|
| (52,300) |
Intersegment revenue |
| 542 |
|
| - |
|
| - |
|
| 542 |
|
| (542) |
|
| - |
Intersegment expenses |
| - |
|
| (208) |
|
| (334) |
|
| (542) |
|
| 542 |
|
| - |
Income before income taxes | $ | 22,930 |
| $ | 972 |
| $ | 5,342 |
| $ | 29,244 |
| $ | - |
| $ | 29,244 |
Income tax expense |
| 8,943 |
|
| 379 |
|
| 273 |
|
| 9,595 |
|
| - |
|
| 9,595 |
Net income | $ | 13,987 |
| $ | 593 |
| $ | 5,069 |
| $ | 19,649 |
| $ | - |
| $ | 19,649 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2018 | ||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | |||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 152,507 |
| $ | 26 |
| $ | 18,643 |
| $ | 171,176 |
| $ | - |
| $ | 171,176 |
Interest expense |
| (13,422) |
|
| - |
|
| (6,172) |
|
| (19,594) |
|
| - |
|
| (19,594) |
Net interest income |
| 139,085 |
|
| 26 |
|
| 12,471 |
|
| 151,582 |
|
| - |
|
| 151,582 |
Provision for loan and lease losses |
| (30,199) |
|
| - |
|
| (8) |
|
| (30,207) |
|
| - |
|
| (30,207) |
Non-interest income |
| 24,433 |
|
| 12,756 |
|
| 28 |
|
| 37,217 |
|
| - |
|
| 37,217 |
Non-interest expenses |
| (94,190) |
|
| (8,568) |
|
| (1,663) |
|
| (104,421) |
|
| - |
|
| (104,421) |
Intersegment revenue |
| 903 |
|
| - |
|
| - |
|
| 903 |
|
| (903) |
|
| - |
Intersegment expenses |
| - |
|
| (387) |
|
| (516) |
|
| (903) |
|
| 903 |
|
| - |
Income before income taxes | $ | 40,032 |
| $ | 3,827 |
| $ | 10,312 |
| $ | 54,171 |
| $ | - |
| $ | 54,171 |
Income tax expense |
| 15,612 |
|
| 1,493 |
|
| 500 |
|
| 17,605 |
|
| - |
|
| 17,605 |
Net income | $ | 24,420 |
| $ | 2,334 |
| $ | 9,812 |
| $ | 36,566 |
| $ | - |
| $ | 36,566 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
105
| Quarter Ended June 30, 2018 | ||||||||||||||||
|
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||
| Banking |
|
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 78,133 |
| $ | 14 |
| $ | 9,859 |
| $ | 88,006 |
| $ | - |
| $ | 88,006 |
Interest expense |
| (7,132) |
|
| - |
|
| (3,286) |
|
| (10,418) |
|
| - |
|
| (10,418) |
Net interest income |
| 71,001 |
|
| 14 |
|
| 6,573 |
|
| 77,588 |
|
| - |
|
| 77,588 |
Provision for loan and lease losses |
| (14,744) |
|
| - |
|
| (3) |
|
| (14,747) |
|
| - |
|
| (14,747) |
Non-interest income |
| 12,240 |
|
| 6,448 |
|
| 15 |
|
| 18,703 |
|
| - |
|
| 18,703 |
Non-interest expenses |
| (46,109) |
|
| (5,282) |
|
| (909) |
|
| (52,300) |
|
| - |
|
| (52,300) |
Intersegment revenue |
| 542 |
|
| - |
|
| - |
|
| 542 |
|
| (542) |
|
| - |
Intersegment expenses |
| - |
|
| (208) |
|
| (334) |
|
| (542) |
|
| 542 |
|
| - |
Income before income taxes | $ | 22,930 |
| $ | 972 |
| $ | 5,342 |
| $ | 29,244 |
| $ | - |
| $ | 29,244 |
Income tax expense |
| 8,943 |
|
| 379 |
|
| 273 |
|
| 9,595 |
|
| - |
|
| 9,595 |
Net income | $ | 13,987 |
| $ | 593 |
| $ | 5,069 |
| $ | 19,649 |
| $ | - |
| $ | 19,649 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, 2017 | ||||||||||||||||
|
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||
| Banking |
|
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 77,019 |
| $ | 18 |
| $ | 8,903 |
| $ | 85,940 |
| $ | - |
| $ | 85,940 |
Interest expense |
| (6,820) |
|
| - |
|
| (3,557) |
|
| (10,377) |
|
| - |
|
| (10,377) |
Net interest income |
| 70,199 |
|
| 18 |
|
| 5,346 |
|
| 75,563 |
|
| - |
|
| 75,563 |
Provision for loan and lease losses |
| (26,526) |
|
| - |
|
| (10) |
|
| (26,536) |
|
| - |
|
| (26,536) |
Non-interest income |
| 11,776 |
|
| 6,329 |
|
| 6,781 |
|
| 24,886 |
|
| - |
|
| 24,886 |
Non-interest expenses |
| (47,402) |
|
| (4,100) |
|
| (1,314) |
|
| (52,816) |
|
| - |
|
| (52,816) |
Intersegment revenue |
| 346 |
|
| - |
|
| 71 |
|
| 417 |
|
| (417) |
|
| - |
Intersegment expenses |
| (71) |
|
| (254) |
|
| (92) |
|
| (417) |
|
| 417 |
|
| - |
Income before income taxes | $ | 8,322 |
| $ | 1,993 |
|
| 10,782 |
| $ | 21,097 |
| $ | - |
| $ | 21,097 |
Income tax expense (benefit) |
| 3,246 |
|
| 777 |
|
| (30) |
|
| 3,993 |
|
| - |
|
| 3,993 |
Net income | $ | 5,076 |
| $ | 1,216 |
| $ | 10,812 |
| $ | 17,104 |
| $ | - |
| $ | 17,104 |
Total assets | $ | 5,490,287 |
| $ | 22,531 |
| $ | 1,692,603 |
| $ | 7,205,421 |
| $ | (969,595) |
| $ | 6,235,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108OFG BANCORP
| Six-Month Period Ended June 30, 2018 | ||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | |||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 152,507 |
| $ | 26 |
| $ | 18,643 |
| $ | 171,176 |
| $ | - |
| $ | 171,176 |
Interest expense |
| (13,422) |
|
| - |
|
| (6,172) |
|
| (19,594) |
|
| - |
|
| (19,594) |
Net interest income |
| 139,085 |
|
| 26 |
|
| 12,471 |
|
| 151,582 |
|
| - |
|
| 151,582 |
Provision for loan and lease losses |
| (30,199) |
|
| - |
|
| (8) |
|
| (30,207) |
|
| - |
|
| (30,207) |
Non-interest income |
| 24,433 |
|
| 12,756 |
|
| 28 |
|
| 37,217 |
|
| - |
|
| 37,217 |
Non-interest expenses |
| (94,190) |
|
| (8,568) |
|
| (1,663) |
|
| (104,421) |
|
| - |
|
| (104,421) |
Intersegment revenue |
| 903 |
|
| - |
|
| - |
|
| 903 |
|
| (903) |
|
| - |
Intersegment expenses |
| - |
|
| (387) |
|
| (516) |
|
| (903) |
|
| 903 |
|
| - |
Income before income taxes | $ | 40,032 |
| $ | 3,827 |
| $ | 10,312 |
| $ | 54,171 |
| $ | - |
| $ | 54,171 |
Income tax expense |
| 15,612 |
|
| 1,493 |
|
| 500 |
|
| 17,605 |
|
| - |
|
| 17,605 |
Net income | $ | 24,420 |
| $ | 2,334 |
| $ | 9,812 |
| $ | 36,566 |
| $ | - |
| $ | 36,566 |
Total assets | $ | 6,006,889 |
| $ | 29,253 |
| $ | 1,447,949 |
| $ | 7,484,091 |
| $ | (982,529) |
| $ | 6,501,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six-Month Period Ended June 30, 2017 | ||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | |||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Interest income | $ | 154,592 |
| $ | 30 |
| $ | 17,496 |
| $ | 172,118 |
| $ | - |
| $ | 172,118 |
Interest expense |
| (13,634) |
|
| - |
|
| (8,303) |
|
| (21,937) |
|
| - |
|
| (21,937) |
Net interest income |
| 140,958 |
|
| 30 |
|
| 9,193 |
|
| 150,181 |
|
| - |
|
| 150,181 |
Provision for loan and lease losses |
| (44,168) |
|
| - |
|
| (22) |
|
| (44,190) |
|
| - |
|
| (44,190) |
Non-interest income |
| 25,003 |
|
| 12,257 |
|
| 6,700 |
|
| 43,960 |
|
| - |
|
| 43,960 |
Non-interest expenses |
| (93,456) |
|
| (8,320) |
|
| (2,724) |
|
| (104,500) |
|
| - |
|
| (104,500) |
Intersegment revenue |
| 810 |
|
| - |
|
| 142 |
|
| 952 |
|
| (952) |
|
| - |
Intersegment expenses |
| (142) |
|
| (565) |
|
| (245) |
|
| (952) |
|
| 952 |
|
| - |
Income before income taxes | $ | 29,005 |
| $ | 3,402 |
| $ | 13,044 |
| $ | 45,451 |
| $ | - |
| $ | 45,451 |
Income tax expense |
| 11,312 |
|
| 1,327 |
|
| 558 |
|
| 13,197 |
|
| - |
|
| 13,197 |
Net income | $ | 17,693 |
| $ | 2,075 |
| $ | 12,486 |
| $ | 32,254 |
| $ | - |
| $ | 32,254 |
Total assets | $ | 5,490,287 |
| $ | 22,531 |
| $ | 1,692,603 |
| $ | 7,205,421 |
| $ | (969,595) |
| $ | 6,235,826 |
109NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Comparison of quarters ended June 30, 20182019 and 20172018
Banking
Oriental's banking segment net income before taxes increased $14.6$254 thousand from $22.9 million to $22.9$23.2 million, reflecting that:mainly reflecting:
· TheHigher interest income from originated loans of $10.3 million due to higher balances and interest rates, offset by a decrease of $3.6 million in interest income from acquired loans as such loans continue to be repaid;
·Increase in interest expense of $2.1 million mainly from increase in cost of deposits;
·Increase in the provision for loan and lease losses of $3.0 million, mostly due to a net increase of $8.8 million primarily related to the expected sale before year-end of $54 million unpaid principal balance of mostly distressed acquired residential mortgages, which was partially offset by a decline of $5.8 million reflecting improved asset quality; and
·Decrease in the second quartermortgage banking activities of 2017 included $4.3$360 thousand, mainly reflecting lower mortgage servicing fees.
Wealth Management
Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, increased $1.8 million to charge-off$2.8 million mainly from the lossdecrease in non-interest expenses of $1.4 million mainly from lower legal expenses related to claims and settlement accruals.
Treasury
Treasury segment net income before taxes increased $3.6 million from $5.3 million to $8.9 million, reflecting:
·Increase of $4.8 million from a gain on sale of a loan to a Puerto Rico government municipality and a $5.9$349.7 million provision for loan and lease losses to increase the general allowance on the municipal loan portfolio, and most of the incremental commercial, consumer and auto charge-offsin mortgage-backed securities during the quarter; and
·Increase in cost of repurchase agreements of $267 thousand.
Comparison of six-month periods ended June 30, 2019 and 2018 were previously reserved;
Banking
Oriental's banking segment net income before taxes increased $11.6 million to $51.6 million, reflecting:
· Higher interest income by $1.1 million, reflecting more interest income from originated loans of $23.3 million due to higher balances and interest rates, offset by a decrease of $7.1 million in the commercial and auto portfoliosinterest income from acquired loans as such loans continue to be repaid;
;106
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
·Increase in interest expense of $4.4 million mainly from an increase in costs of deposits; and,
· Lower non-interest expenses by $1.3 million,Decrease in mortgage banking activities of $910 thousand, mainly fromreflecting lower losses on sale of foreclosed real estate and other repossessed assets by $1.4 million.mortgage servicing fees.
Wealth Management
Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, decreased $1.0increased $464 thousand to $4.3 million, to $972 thousandmainly due to higherthe decrease in non-interest expenses by $1.2 million,of $343 thousand mainly from lower legal expenses related to an increase in claims and settlementssettlement accruals.
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, decreasedincreased to $5.3$14.0 million, compared to $10.8$10.3 million, reflecting the sale of $166.0 million in mortgage-backed securities during the second quarter of 2017, which generated a gain of $6.9 million.
Comparison of six-month periods ended June 30, 2018 and 2017
Banking
Oriental's banking segment net income before taxes increased $11.0 million to $40.0 million, reflecting:
·The lower provision for loan and lease losses by $14.0 million to $30.2 million related to the additional provisions placed during the second quarter of 2017;
Such decrease in the provision was partially offset by:
· Lower interest income by $2.1Increase of $4.8 million reflectingfrom a decrease in the interest income from acquired loans as such loans continue to be repaid.
Wealth Management
Wealth management revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, increased $425 thousand to $3.8 million, mainly from changes in volume and market rates.
Treasury
Treasury segment net income before taxes decreased to $10.3 million, compared to $13.0 million, reflecting:
110
·The gain on sale of $166.0$349.7 million in mortgage-backed securities during the second quarter of 2017, which generated a gain of $6.9 million.in 2019;
Such decrease was partially offset by:
· Higher interest income from investment of $1.1 million, reflecting an increaseIncrease in interest rates;expenses from securities sold under agreement to repurchase of $2.4 million; and
· Lower interestDecrease in non-interest expenses on repurchase agreements and other borrowings of $2.1 million$887 thousand as a resultpart of the repayment of high cost repurchase agreements and FHLB advancessavings initiatives..
107
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
ANALYSIS OF FINANCIAL CONDITION
Assets Owned
At June 30, 2018,2019, Oriental’s total assets amounted to $6.502$6.464 billion representing an increasea decrease of 5.05%1.8% when compared to $6.189$6.583 billion at December 31, 2017. This increase is attributable to an increase in2018.
During the first quarter of 2019 Oriental reclassified $424.7 million of its held-to-maturity securities into available-for-sale securities as a result of the adoption of ASU 2017-12. During the second quarter of 2019 Oriental sold $349.7 million of its available for sale mortgage-backed securities at a gain of $4.8 million. Cash and the loans portfolio and investments portfolios of $259.5increased $229.3 million and $187.1$42.9 million, respectively, partially offset byrespectively. In addition, assets reflect the adoption of the Accounting Standard Update (“ASU”) No. 2016-02, under the effective date method, which requires lessees to recognize a decrease in cashright-of-use asset and related lease liability for lease classified as operating leases, prospectively. At June 30, 2019, the right of use assets amounted to $20.4 million.
Cash and cash equivalents increased 51.3% to $676.4 million, mainly from the sale of $109.9 million.securities during the second quarter of 2019.
Oriental’s loan portfolio is comprised of residential mortgage loans, commercial loans collateralized by mortgages on real estate, other commercial and industrial loans, consumer loans, and auto loans. At June 30, 2018,2019, Oriental’s loan portfolio increased 6.4%1.0%. Loan production during the six-month period ended June 30, 2018,2019, reached $741.5$602.9 million compared to $473.3$741.5 million in the year ago period, a 56.7% increase.18.7% decrease, mainly from lower originations in the US loan program. The non-acquired loan portfolio increased $334.7$81.7 million from December 31, 20172018 to $3.540$3.827 billion at June 30, 2018. The2019. From December 31, 2018, the BBVAPR acquired loan portfolio decreased $64.7$46.4 million from December 31, 2017 to $761.2$630.1 million at June 30, 2018. Theand the Eurobank acquired loan portfolio decreased $7.3$3.5 million from December 31, 2017 to $92.0$83.6 million at June 30, 2018.2019.
Oriental's investment portfolio increased 16.0% to $1.353 billion at June 30, 2018, mainly attributed to the purchase of $260.0 million mortgage-backed securities available-for-sale and retained securitized GNMA pools totaling $37.6 million, partially offset by paydowns in the investment available-for-sale portfolio of $54.4 million and in the investment securities held-to-maturity portfolio of $38.6 million during the six-month period ended June 30, 2018.
Cash and cash equivalents decreased 22.6% to $375.3 million, mainly attributed to the funding of new loan growth and purchases of investments, partially offset by repurchase agreements and Federal Home Loan Bank advances.
Accrued interest receivable resulting from the loan payment moratorium has been decreasing from December 31, 2017, as most moratoriums have expired. Some of these accrued interests are payable at the end of the loan term.
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 ("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 June 30, 2018,2019, total assets managed by Oriental’s trust division and OPC amounted to $2.953$2.992 billion, compared to $3.040$2.771 billion at December 31, 2017.2018. 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 June 30, 2018,2019, total assets gathered by Oriental Financial Services and Oriental Insurance from its customer investment accounts amounted to $2.262$2.370 billion, compared to $2.250$2.116 billion at December 31, 2017.2018. Changes in trust and broker-dealer related assets primarily reflect changes in portfolio balances and differences in market values.
111
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.
108
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 2018,2019, 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 2017,2018, based on its annual goodwill impairment test, Oriental determined that the Banking unit failedboth 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, the Banking unit’sfair value of both units exceeded its adjusted net book value exceeded its fair value by approximately $236.4 million, or 26%.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 There were no events that caused Oriental to perform interim testing in the six-month periodquarter ended June 30, 2018, Oriental performed an assessment of events or circumstances that could trigger reductions in the book value of the goodwill. Based on this assessment, no events were identified that triggered changes in the book value of goodwill at June 30, 2018.2019.
112109
FDIC Indemnification Asset
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.
113OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 4 - ASSETS SUMMARY AND COMPOSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30 |
| December 31, |
| Variance | ||
| 2019 |
| 2018 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Investments: |
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 690,356 |
| $ | 978,071 |
| -29.4% |
Obligations of US government-sponsored agencies |
| 2,131 |
|
| 2,265 |
| -5.9% |
US Treasury securities |
| 10,907 |
|
| 10,805 |
| 0.9% |
CMOs issued by US government-sponsored agencies |
| 58,630 |
|
| 64,064 |
| -8.5% |
GNMA certificates |
| 94,347 |
|
| 210,169 |
| -55.1% |
FHLB stock |
| 12,821 |
|
| 12,644 |
| 1.4% |
Other debt securities |
| 1,062 |
|
| 1,222 |
| -13.1% |
Other investments |
| 415 |
|
| 364 |
| 14.0% |
Total investments |
| 870,669 |
|
| 1,279,604 |
| -32.0% |
Loans |
| 4,474,497 |
|
| 4,431,594 |
| 1.0% |
Total investments and loans |
| 5,345,166 |
|
| 5,711,198 |
| -6.4% |
Other assets: |
|
|
|
|
|
|
|
Cash and due from banks (including restricted cash) |
| 669,945 |
|
| 445,133 |
| 50.5% |
Money market investments |
| 7,485 |
|
| 4,930 |
| 51.8% |
Foreclosed real estate |
| 29,509 |
|
| 33,768 |
| -12.6% |
Accrued interest receivable |
| 33,909 |
|
| 34,254 |
| -1.0% |
Deferred tax asset, net |
| 111,147 |
|
| 113,763 |
| -2.3% |
Premises and equipment, net |
| 71,001 |
|
| 68,892 |
| 3.1% |
Servicing assets |
| 10,134 |
|
| 10,716 |
| -5.4% |
Derivative assets |
| 26 |
|
| 347 |
| -92.5% |
Goodwill |
| 86,069 |
|
| 86,069 |
| 0.0% |
Right of use assets |
| 20,419 |
|
| - |
| 100.0% |
Other assets and customers' liability on acceptances |
| 79,317 |
|
| 74,282 |
| 6.8% |
Total other assets |
| 1,118,961 |
|
| 872,154 |
| 28.3% |
Total assets | $ | 6,464,127 |
| $ | 6,583,352 |
| -1.8% |
Investment portfolio composition: |
|
|
|
|
|
|
|
FNMA and FHLMC certificates |
| 79.3% |
|
| 76.5% |
|
|
Obligations of US government-sponsored agencies |
| 0.2% |
|
| 0.2% |
|
|
US Treasury securities |
| 1.3% |
|
| 0.8% |
|
|
CMOs issued by US government-sponsored agencies |
| 6.7% |
|
| 5.0% |
|
|
GNMA certificates |
| 10.8% |
|
| 16.4% |
|
|
FHLB stock |
| 1.5% |
|
| 1.0% |
|
|
Other debt securities and other investments |
| 0.2% |
|
| 0.1% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
110
TABLE 4 - ASSETS SUMMARY AND COMPOSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30 |
| December 31 |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Investments: |
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 1,055,100 |
| $ | 887,779 |
| 18.8% |
Obligations of US government-sponsored agencies |
| 2,541 |
|
| 2,879 |
| -11.7% |
US Treasury securities |
| 10,450 |
|
| 10,163 |
| 2.8% |
CMOs issued by US government-sponsored agencies |
| 71,154 |
|
| 80,071 |
| -11.1% |
GNMA certificates |
| 194,858 |
|
| 167,338 |
| 16.4% |
Puerto Rico government and public instrumentalities |
| 2,455 |
|
| 2,093 |
| 17.3% |
FHLB stock |
| 14,919 |
|
| 13,995 |
| 6.6% |
Other debt securities |
| 1,210 |
|
| 1,538 |
| -21.3% |
Other investments |
| 421 |
|
| 194 |
| 117.0% |
Total investments |
| 1,353,108 |
|
| 1,166,050 |
| 16.0% |
Loans |
| 4,315,866 |
|
| 4,056,329 |
| 6.4% |
Total investments and loans |
| 5,668,974 |
|
| 5,222,379 |
| 8.6% |
Other assets: |
|
|
|
|
|
|
|
Cash and due from banks (including restricted cash) |
| 371,374 |
|
| 481,212 |
| -22.8% |
Money market investments |
| 6,991 |
|
| 7,021 |
| -0.4% |
Foreclosed real estate |
| 40,551 |
|
| 44,174 |
| -8.2% |
Accrued interest receivable |
| 34,476 |
|
| 49,969 |
| -31.0% |
Deferred tax asset, net |
| 125,141 |
|
| 127,421 |
| -1.8% |
Premises and equipment, net |
| 66,174 |
|
| 67,860 |
| -2.5% |
Servicing assets |
| 10,829 |
|
| 9,821 |
| 10.3% |
Derivative assets |
| 1,100 |
|
| 771 |
| 42.7% |
Goodwill |
| 86,069 |
|
| 86,069 |
| 0.0% |
Other assets and customers' liability on acceptances |
| 89,883 |
|
| 92,356 |
| -2.7% |
Total other assets |
| 832,588 |
|
| 966,674 |
| -13.9% |
Total assets | $ | 6,501,562 |
| $ | 6,189,053 |
| 5.0% |
Investment portfolio composition: |
|
|
|
|
|
|
|
FNMA and FHLMC certificates |
| 77.9% |
|
| 76.1% |
|
|
Obligations of US government-sponsored agencies |
| 0.2% |
|
| 0.2% |
|
|
US Treasury securities |
| 0.8% |
|
| 0.9% |
|
|
CMOs issued by US government-sponsored agencies |
| 5.3% |
|
| 6.9% |
|
|
GNMA certificates |
| 14.4% |
|
| 14.4% |
|
|
Puerto Rico government and public instrumentalities |
| 0.2% |
|
| 0.2% |
|
|
FHLB stock |
| 1.1% |
|
| 1.2% |
|
|
Other debt securities and other investments |
| 0.1% |
|
| 0.1% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
114
TABLE 5 — LOANS RECEIVABLE COMPOSITION | |||||||
| June 30 |
| December 31, |
| Variance | ||
| 2019 |
| 2018 |
| % | ||
| (In thousands) |
|
| ||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
Mortgage | $ | 635,616 |
| $ | 668,809 |
| -5.0% |
Commercial |
| 1,616,973 |
|
| 1,597,588 |
| 1.2% |
Consumer |
| 356,110 |
|
| 348,980 |
| 2.0% |
Auto and leasing |
| 1,218,070 |
|
| 1,129,695 |
| 7.8% |
|
| 3,826,769 |
|
| 3,745,072 |
| 2.2% |
Allowance for loan and lease losses on originated and other loans and leases |
| (89,952) |
|
| (95,188) |
| -5.5% |
|
| 3,736,817 |
|
| 3,649,884 |
| 2.4% |
Deferred loan costs, net |
| 9,251 |
|
| 7,740 |
| 19.5% |
Total originated and other loans held for investment, net |
| 3,746,068 |
|
| 3,657,624 |
| 2.4% |
Acquired loans: |
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 2,249 |
|
| 2,546 |
| -11.7% |
Consumer |
| 21,966 |
|
| 23,988 |
| -8.4% |
Auto |
| 996 |
|
| 4,435 |
| -77.5% |
|
| 25,211 |
|
| 30,969 |
| -18.6% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (1,685) |
|
| (2,062) |
| -18.3% |
|
| 23,526 |
|
| 28,907 |
| -18.6% |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
Mortgage |
| 476,081 |
|
| 492,890 |
| -3.4% |
Commercial |
| 169,481 |
|
| 182,319 |
| -7.0% |
Auto |
| 6,462 |
|
| 14,403 |
| -55.1% |
|
| 652,024 |
|
| 689,612 |
| -5.5% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (45,427) |
|
| (42,010) |
| 8.1% |
|
| 606,597 |
|
| 647,602 |
| -6.3% |
Total acquired BBVAPR loans, net |
| 630,123 |
|
| 676,509 |
| -6.9% |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 61,920 |
|
| 63,392 |
| -2.3% |
Commercial |
| 46,421 |
|
| 47,826 |
| -2.9% |
Consumer |
| 867 |
|
| 846 |
| 2.5% |
|
| 109,208 |
|
| 112,064 |
| -2.5% |
Allowance for loan and lease losses on Eurobank loans |
| (25,578) |
|
| (24,971) |
| 2.4% |
Total acquired Eurobank loans, net |
| 83,630 |
|
| 87,093 |
| -4.0% |
Total acquired loans, net |
| 713,753 |
|
| 763,602 |
| -6.5% |
Total held for investment, net |
| 4,459,821 |
|
| 4,421,226 |
| 0.9% |
Mortgage loans held for sale |
| 14,676 |
|
| 10,368 |
| 41.6% |
Total loans, net | $ | 4,474,497 |
| $ | 4,431,594 |
| 1.0% |
TABLE 5 — LOANS RECEIVABLE COMPOSITION | |||||||
| June 30 |
| December 31 |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (In thousands) |
|
| ||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
Mortgage | $ | 678,259 |
| $ | 683,607 |
| -0.8% |
Commercial |
| 1,507,368 |
|
| 1,307,261 |
| 15.3% |
Consumer |
| 339,341 |
|
| 330,039 |
| 2.8% |
Auto and leasing |
| 1,014,664 |
|
| 883,985 |
| 14.8% |
|
| 3,539,632 |
|
| 3,204,892 |
| 10.4% |
Allowance for loan and lease losses on originated and other loans and leases |
| (94,218) |
|
| (92,718) |
| 1.6% |
|
| 3,445,414 |
|
| 3,112,174 |
| 10.7% |
Deferred loan costs, net |
| 7,028 |
|
| 6,695 |
| 5.0% |
Total originated and other loans held for investment, net |
| 3,452,442 |
|
| 3,118,869 |
| 10.7% |
Acquired loans: |
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 2,909 |
|
| 4,380 |
| -33.6% |
Consumer |
| 25,736 |
|
| 28,915 |
| -11.0% |
Auto |
| 11,283 |
|
| 21,969 |
| -48.6% |
|
| 39,928 |
|
| 55,264 |
| -27.8% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (2,726) |
|
| (3,862) |
| -29.4% |
|
| 37,202 |
|
| 51,402 |
| -27.6% |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
Mortgage |
| 516,934 |
|
| 532,053 |
| -2.8% |
Commercial |
| 223,853 |
|
| 243,092 |
| -7.9% |
Consumer |
| 495 |
|
| 1,431 |
| -65.4% |
Auto |
| 26,937 |
|
| 43,696 |
| -38.4% |
|
| 768,219 |
|
| 820,272 |
| -6.3% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (44,176) |
|
| (45,755) |
| -3.5% |
|
| 724,043 |
|
| 774,517 |
| -6.5% |
Total acquired BBVAPR loans, net |
| 761,245 |
|
| 825,919 |
| -7.8% |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 65,637 |
|
| 69,538 |
| -5.6% |
Commercial |
| 49,706 |
|
| 53,793 |
| -7.6% |
Consumer |
| 935 |
|
| 1,112 |
| -15.9% |
|
| 116,278 |
|
| 124,443 |
| -6.6% |
Allowance for loan and lease losses on Eurobank loans |
| (24,314) |
|
| (25,174) |
| -3.4% |
Total acquired Eurobank loans, net |
| 91,964 |
|
| 99,269 |
| -7.4% |
Total acquired loans, net |
| 853,209 |
|
| 925,188 |
| -7.8% |
Total held for investment, net |
| 4,305,651 |
|
| 4,044,057 |
| 6.5% |
Mortgage loans held for sale |
| 10,215 |
|
| 12,272 |
| -16.8% |
Total loans, net | $ | 4,315,866 |
| $ | 4,056,329 |
| 6.4% |
115OFG BANCORP
116NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 $4.316$4.474 billion at June 30, 20182019 and $4.056$4.432 billion at December 31, 2017.2018. Oriental’s originated and other loans held-for-investment portfolio composition and trends were as follows:
· Mortgage loan portfolio amounted to $678.3$635.6 million (19.2%(16.6% of the gross originated loan portfolio) compared to $683.6$668.8 million (21.3%(17.9% of the gross originated loan portfolio) at December 31, 2017.2018. Mortgage loan production totaled $31.8$22.2 million and $58.5$45.3 million for the quarter and six-month period ended June 30, 2018,2019, which represents a decrease of 30.7%30.2% and 34.6%22.5% from $45.9$31.8 million and $89.4$58.5 million, respectively, for the same periods in 2017.2018. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $14.5$11.6 million and $8.3$19.7 million at June 30, 20182019 and December 31, 2017,2018, 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 $1.507$1.617 billion (42.6%(42.3% of the gross originated loan portfolio) compared to $1.307$1.598 billion (40.8%(42.7% of the gross originated loan portfolio) at December 31, 2017.2018. Commercial loan production, including the U.S. loan program production of $99.7$56.4 million and $174.0$88.1 million, respectively, increased 182.3%decreased 46.9% and 171.3%38.2% to $226.9$120.4 million and $344.0$212.6 million, respectively, for the quarter and six-month period ended June 30, 2018,2019, from $80.4$226.9 million and $126.8$344.0 million, for the same periods in 2017.2018.
· Consumer loan portfolio amounted to $339.3356.1 million (9.6%(9.3% of the gross originated loan portfolio) compared to $330.0$349.0 million (10.3%(9.3% of the gross originated loan portfolio) at December 31, 2017.2018. Consumer loan production decreased 14.8%increased 11.9% and 13.1%10.5% to $42.3$47.3 million and $79.8$88.2 million, respectively, for the quarter and six-month period ended June 30, 20182019 from $49.7$42.3 million and $91.8$79.8 million, respectively, for the same periods in 2017.2018.
· Auto and leasing portfolio amounted to $1.015$1.218 billion (28.6%(31.8% of the gross originated loan portfolio) compared to $884.0$1.130 million (27.6%(30.1 of the gross originated loan portfolio) at December 31, 2017.2018. Auto production increased by 66.8% and 56.8%, respectively,3.9% to $136.3 million for the quarter ended June 30, 2019, compared to $131.1 million and $259.2 million, respectively, for the quarter andsame period in 2018. However, the auto production decreased by 1.1% to $256.5 million for the six-month period ended June 30, 20182019, when compared to $78.6$259.2 million and $165.4 million, respectively, for the same periodsperiod in 2017.2018.
117112
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2018 | ||||||||||||||||||||||
| Higher-Risk Residential Mortgage Loans* | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| High Loan-to-Value Ratio Mortgages | ||||||
| Junior Lien Mortgages |
| Interest Only Loans |
| LTV 90% and over | ||||||||||||||||||
| Carrying |
|
|
|
|
|
| Carrying |
|
|
|
|
|
| Carrying |
|
|
|
|
| |||
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage | ||||||
| (In thousands) | ||||||||||||||||||||||
Delinquency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 - 89 days | $ | 9,116 |
| $ | 276 |
| 3.03% |
| $ | 8,110 |
| $ | 404 |
| 4.98% |
| $ | 65,447 |
| $ | 1,393 |
| 2.13% |
90 - 119 days |
| 252 |
|
| 19 |
| 7.54% |
|
| 433 |
|
| 23 |
| 5.31% |
|
| 1,328 |
|
| 44 |
| 3.31% |
120 - 179 days |
| 81 |
|
| 2 |
| 2.47% |
|
| 130 |
|
| 22 |
| 16.92% |
|
| 1,550 |
|
| 140 |
| 9.03% |
180 - 364 days |
| 55 |
|
| 7 |
| 12.73% |
|
| 314 |
|
| 53 |
| 16.88% |
|
| 1,559 |
|
| 77 |
| 4.94% |
365+ days |
| 249 |
|
| 34 |
| 13.65% |
|
| 1,279 |
|
| 221 |
| 17.28% |
|
| 8,068 |
|
| 556 |
| 6.89% |
Total | $ | 9,753 |
| $ | 338 |
| 3.47% |
| $ | 10,266 |
| $ | 723 |
| 7.04% |
| $ | 77,952 |
| $ | 2,210 |
| 2.84% |
Percentage of total loans excluding acquired loans accounted for under ASC 310-30 |
| 0.27% |
|
|
|
|
|
|
| 0.29% |
|
|
|
|
|
|
| 2.18% |
|
|
|
|
|
Refinanced or Modified Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount | $ | 1,897 |
| $ | 225 |
| 11.86% |
| $ | 523 |
| $ | 62 |
| 11.85% |
| $ | 17,397 |
| $ | 1,350 |
| 7.76% |
Percentage of Higher-Risk Loan Category |
| 19.45% |
|
|
|
|
|
|
| 5.09% |
|
|
|
|
|
|
| 22.32% |
|
|
|
|
|
Loan-to-Value Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 70% | $ | 6,488 |
| $ | 235 |
| 3.62% |
| $ | 828 |
| $ | 37 |
| 4.47% |
| $ | - |
| $ | - |
| - |
70% - 79% |
| 1,495 |
|
| 84 |
| 5.62% |
|
| 2,588 |
|
| 119 |
| 4.60% |
|
| - |
|
| - |
| - |
80% - 89% |
| 1,051 |
|
| 6 |
| 0.57% |
|
| 2,835 |
|
| 212 |
| 7.48% |
|
| - |
|
| - |
| - |
90% and over |
| 719 |
|
| 13 |
| 1.81% |
|
| 4,015 |
|
| 355 |
| 8.84% |
|
| 77,952 |
|
| 2,210 |
| 2.84% |
| $ | 9,753 |
| $ | 338 |
| 3.47% |
| $ | 10,266 |
| $ | 723 |
| 7.04% |
| $ | 77,952 |
| $ | 2,210 |
| 2.84% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans. |
118OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||||||||||||||
| Higher-Risk Residential Mortgage Loans* | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| High Loan-to-Value Ratio Mortgages | ||||||
| Junior Lien Mortgages |
| Interest Only Loans |
| LTV 90% and over | ||||||||||||||||||
| Carrying |
|
|
|
|
|
| Carrying |
|
|
|
|
|
| Carrying |
|
|
|
|
| |||
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage | ||||||
| (In thousands) | ||||||||||||||||||||||
Delinquency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 - 89 days | $ | 8,165 |
| $ | 295 |
| 3.61% |
| $ | 7,538 |
| $ | 132 |
| 1.75% |
| $ | 56,576 |
| $ | 831 |
| 1.47% |
90 - 119 days |
| 225 |
|
| 22 |
| 9.78% |
|
| - |
|
| - |
| 0.00% |
|
| 553 |
|
| 27 |
| 4.88% |
120 - 179 days |
| 145 |
|
| 17 |
| 11.72% |
|
| - |
|
| - |
| 0.00% |
|
| 268 |
|
| 30 |
| 11.19% |
180 - 364 days |
| - |
|
| - |
| 0.00% |
|
| 94 |
|
| 12 |
| 12.77% |
|
| 1,089 |
|
| 109 |
| 10.01% |
365+ days |
| 220 |
|
| 31 |
| 14.09% |
|
| 1,361 |
|
| 184 |
| 13.52% |
|
| 5,089 |
|
| 399 |
| 7.84% |
Total | $ | 8,755 |
| $ | 365 |
| 4.17% |
| $ | 8,993 |
| $ | 328 |
| 3.65% |
| $ | 63,575 |
| $ | 1,396 |
| 2.20% |
Percentage of total loans excluding acquired loans accounted for under ASC 310-30 |
| 0.23% |
|
|
|
|
|
|
| 0.23% |
|
|
|
|
|
|
| 1.65% |
|
|
|
|
|
Refinanced or Modified Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount | $ | 2,163 |
| $ | 272 |
| 12.58% |
| $ | 589 |
| $ | 75 |
| 12.73% |
| $ | 14,411 |
| $ | 1,080 |
| 7.49% |
Percentage of Higher-Risk Loan Category |
| 24.71% |
|
|
|
|
|
|
| 6.55% |
|
|
|
|
|
|
| 22.67% |
|
|
|
|
|
Loan-to-Value Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 70% | $ | 5,763 |
| $ | 245 |
| 4.25% |
| $ | 1,139 |
| $ | 20 |
| 1.76% |
| $ | - |
| $ | - |
| - |
70% - 79% |
| 1,215 |
|
| 59 |
| 4.86% |
|
| 2,116 |
|
| 44 |
| 2.08% |
|
| - |
|
| - |
| - |
80% - 89% |
| 991 |
|
| - |
| 0.00% |
|
| 3,914 |
|
| 121 |
| 3.09% |
|
| - |
|
| - |
| - |
90% and over |
| 786 |
|
| 61 |
| 7.76% |
|
| 1,824 |
|
| 143 |
| 7.84% |
|
| 63,575 |
|
| 1,396 |
| 2.20% |
| $ | 8,755 |
| $ | 365 |
| 4.17% |
| $ | 8,993 |
| $ | 328 |
| 3.65% |
| $ | 63,575 |
| $ | 1,396 |
| 2.20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans. |
113
Deposits from the Puerto Rico government totaled $156.9 million at June 30, 2018. The following table includes the maturities 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 | ||||||||||||
|
|
|
|
|
|
|
|
| Maturity |
|
|
|
Loans and Securities: |
|
| Carrying Value |
|
| Less than 1 Year |
|
| 1 to 3 Years |
|
| More than 3 Years |
|
| (In thousands) | ||||||||||
Municipalities |
| $ | 145,637 |
| $ | 5,273 |
| $ | 95,641 |
| $ | 44,723 |
119OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deposits from the Puerto Rico government totaled $276.9 million at June 30, 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 | ||||||||||||
|
|
|
|
|
|
|
|
| Maturity |
|
|
|
Loans and Securities: |
|
| Carrying Value |
|
| Less than 1 Year |
|
| 1 to 3 Years |
|
| More than 3 Years |
|
| (In thousands) | ||||||||||
Municipalities |
| $ | 136,002 |
| $ | 23,788 |
| $ | 68,224 |
| $ | 43,990 |
114
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
As discussed in Note 2, during 2017, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. 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.
At June 30, 2018,2019, Oriental’s allowance for loan and lease losses amounted to $165.4$162.6 million, a $2.1$1.6 million decrease from $167.5$164.2 million at December 31, 2017.2018.
For the commercial portfolio, 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.
As part of the process, 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.
During the fourth quarter of 2017, Oriental performed an update of the initial estimate, taking into consideration the most recent available information gathered through additional visits and interviews with clients and the economic environment in Puerto Rico.
For the retail portfolios, mortgage, consumer and auto, the assumptions established in the initial estimate were 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 mortgage loans. During the fourth quarter of 2017, Oriental performed additional procedures to evaluate the reasonability of the initial estimate based on the payment experience percentage of borrowers for which the deferral period expired. The analysis took into consideration historical payment behavior and loss experience of borrowers (PDs and LGDs) of each portfolio segment to develop a range of estimated potential losses. Management understands that this approach is reasonable given the lack of historical information related to the behavior of local borrowers in such an unprecedented event. The amount used in the analysis represents the average of potential outcomes of expected losses.
During the first quarter of 2018, Oriental updated the previously performed analysis to estimate probable losses related to the hurricanes. Analyses were based on the payment experience percentage of borrowers for which the deferral period expired in retail portfolios. For the commercial portfolio, no changes in the level of impact assessed were identified based on communications with credit officers. During the second quarter of 2018, Oriental continued its monitoring process of the performance of those affected borrowers. As additional information became available, it was incorporated into the allowance framework.
At June 30, 2018 and December 31, 2017, Oriental's allowance for loan and lease losses incorporated all risks associated to our loan portfolio, including the impact of hurricanes Irma and Maria.
120
Tables 8 through 10 set forth an analysis of activity in the ALLLallowance 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.
121
Non-performing Assets
Oriental’s non-performing assets include non-performing loans and foreclosed real estate (see Tables 11 and 12). At June 30, 20182019 and December 31, 2017,2018, Oriental had $122.1$108.5 million and $99.7$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 June 30, 20182019 and December 31, 2017,2018, loans whose terms have been extended and which are classified as troubled-debt restructuringrestructurings that are not included in non-performing assets amounted to $100.5$119.7 million and $109.2$112.9 million, respectively.
At June 30, 20182019 and December 31, 2017,2018, loans that are current in their monthly payments, but placed in non-accrual amounted to $21.8$20.5 million and $20.1$21.2 million, respectively. During the six-month period ended June 30, 2018,2019, a $10.4$9.6 million loan that is current in its monthly payments was placed in non-accrual due to credit deterioration after the hurricanes.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 12 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 thetheir 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.
Following hurricanes Irma and Maria, Oriental offered automatic payment deferrals and 90-day extensions for most loan categories. Most of these payment moratoriums ended during the six-month period ended June 30, 2018 with most credit metrics better than, or returned to, pre-hurricanes levels.
At June 30, 2018,2019, Oriental’s non-performing assets increaseddecreased by 12.5%9.8% to $176.2$145.6 million (2.82%(2.31% of total assets, excluding acquired loans with deteriorated credit quality) from $156.7$161.3 million (2.95%(2.76% of total assets, excluding acquired loans with deteriorated credit quality) at December 31, 2017.2018. Foreclosed real estate and other repossessed assets amounting to $40.6$29.5 million and $5.5$2.5 million, respectively, at June 30, 2018.2019, and $44.2$33.8 million and $3.5$3.0 million, respectively, at December 31, 2017,2018, were recorded at fair value. Oriental does not expect non-performing loans to result in significantly higher losses. At June 30, 2018,2019, the allowance coverage ratio for originated loan and lease losses to non-performing loans coverage ratio was 73.37% (87.35%80.04% (77.38% at December 31, 2017)2018). At June 30, 2019, Oriental reclassified to loans held-for-sale $1.4 million commercial loans in non-accrual status. In addition, Oriental decided to sell $46.6 million unpaid principal balance of distressed acquired residential mortgages with and recorded them at fair market value.
115
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 12 months or more past due. At June 30, 2018,2019, Oriental’s originated non-performing mortgage loans totaled $67.0$53.5 million (51.3%(47.1% of Oriental’s non-performing loans), a 4.6% increase16.0% decrease from $64.1$63.7 million (58.7%(51.1% of Oriental’s non-performing loans) at December 31, 2017.2018.
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 June 30, 2018,2019, Oriental’s originated non-performing commercial loans amounted to $47.5$44.6 million (36.5%(39.3% of Oriental’s non-performing loans), a 34.6%5.1% increase from $35.3$42.5 million at December 31, 2017 (32.4%2018 (34.1% of Oriental’s non-performing loans). This increase is mainly from a $10.4$9.6 million loan that is current in its monthly payments but was placed in non-accrual during the six-month period ended June 30, 20182019 due to credit deterioration after the hurricanes.deterioration.
122
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 June 30, 2018,2019, Oriental’s originated non-performing consumer loans amounted to $2.8$2.2 million (2.2%(1.9% of Oriental’s non-performing loans), a 9.9% increase34.2% decrease from $2.6$3.4 million at December 31, 2017 (2.4%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 June 30, 2018,2019, Oriental’s originated non-performing auto loans and leases amounted to $11.1$12.0 million (8.6%(10.6% of Oriental’s total non-performing loans), an increasea decrease of 163.3%10.9% from $4.2$13.5 million at December 31, 2017 (3.9%2018 (10.8% of Oriental’s total non-performing loans).
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/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 pursuant 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, 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.
123116
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| Variance | June 30, |
| December 31, |
| Variance | ||||
|
| 2018 |
| 2017 |
| % |
| 2019 |
| 2018 |
| % | ||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 19,323 |
| $ | 20,439 |
| -5.5% | $ | 15,361 |
| $ | 19,783 |
| -22.4% |
Commercial |
| 31,480 |
|
| 30,258 |
| 4.0% |
| 29,234 |
|
| 30,326 |
| -3.6% |
Consumer |
| 16,192 |
|
| 16,454 |
| -1.6% |
| 15,831 |
|
| 15,571 |
| 1.7% |
Auto and leasing |
| 27,223 |
|
| 25,567 |
| 6.5% |
| 29,526 |
|
| 29,508 |
| 0.1% |
Total allowance balance | $ | 94,218 |
| $ | 92,718 |
| 1.6% | $ | 89,952 |
| $ | 95,188 |
| -5.5% |
Allowance composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 20.5% |
|
| 22.0% |
| -6.9% |
| 17.1% |
|
| 20.8% |
| -17.8% |
Commercial |
| 33.4% |
|
| 32.6% |
| 2.4% |
| 32.5% |
|
| 31.9% |
| 2.0% |
Consumer |
| 17.2% |
|
| 17.8% |
| -3.2% |
| 17.6% |
|
| 16.4% |
| 7.6% |
Auto and leasing |
| 28.9% |
|
| 27.6% |
| 4.7% |
| 32.8% |
|
| 31.0% |
| 5.9% |
|
| 100.0% |
|
| 100.0% |
|
|
| 100.0% |
|
| 100.0% |
|
|
Allowance coverage ratio at end of period applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 2.85% |
|
| 2.99% |
| -4.7% |
| 2.42% |
|
| 2.96% |
| -18.2% |
Commercial |
| 2.09% |
|
| 2.31% |
| -9.5% |
| 1.81% |
|
| 1.90% |
| -4.7% |
Consumer |
| 4.77% |
|
| 4.99% |
| -4.4% |
| 4.45% |
|
| 4.46% |
| -0.2% |
Auto and leasing |
| 2.68% |
|
| 2.89% |
| -7.3% |
| 2.42% |
|
| 2.61% |
| -7.3% |
Total allowance to total originated loans |
| 2.66% |
|
| 2.89% |
| -8.0% |
| 2.35% |
|
| 2.54% |
| -7.5% |
Allowance coverage ratio to non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 28.84% |
|
| 31.89% |
| -9.6% |
| 28.69% |
|
| 31.05% |
| -7.6% |
Commercial |
| 66.34% |
|
| 85.83% |
| -22.7% |
| 65.52% |
|
| 71.43% |
| -8.3% |
Consumer |
| 572.97% |
|
| 639.74% |
| -10.4% |
| 716.98% |
|
| 464.25% |
| 54.4% |
Auto and leasing |
| 244.35% |
|
| 604.14% |
| -59.6% |
| 245.56% |
|
| 218.67% |
| 12.3% |
Total |
| 73.37% |
|
| 87.35% |
| -16.0% |
| 80.04% |
|
| 77.38% |
| 3.4% |
124117
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| June 30, |
| December 31, |
| Variance | June 30, |
|
| December 31, | Variance | ||||
|
| 2018 |
| 2017 |
| % |
| 2019 |
| 2018 |
| % | ||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Acquired BBVAPR loans accounted for under ASC 310-20 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance balance: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial | $ | 86 |
| $ | 42 |
| 104.8% | $ | 31 |
| $ | 22 |
| 40.9% |
Consumer |
| 2,357 |
|
| 3,225 |
| -26.9% |
| 1,617 |
|
| 1,905 |
| -15.1% |
Auto |
| 283 |
|
| 595 |
| -52.4% |
| 37 |
|
| 135 |
| -72.6% |
Total allowance balance | $ | 2,726 |
| $ | 3,862 |
| -29.4% | $ | 1,685 |
| $ | 2,062 |
| -18.3% |
Allowance composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 3.2% |
| 1.09% |
| 189.0% |
| 1.8% |
|
| 1.1% |
| 72.0% | |
Consumer |
| 86.5% |
| 83.50% |
| 3.5% |
| 96.0% |
|
| 92.4% |
| 3.9% | |
Auto |
| 10.4% |
|
| 15.41% |
| -32.6% |
| 2.2% |
|
| 6.6% |
| -66.4% |
|
| 100.0% |
|
| 100.00% |
|
|
| 100.0% |
|
| 100.00% |
|
|
Allowance coverage ratio at end of period applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 2.96% |
| 0.96% |
| 208.3% |
| 1.38% |
|
| 0.86% |
| 60.5% | |
Consumer |
| 9.16% |
| 11.15% |
| -17.8% |
| 7.36% |
|
| 7.94% |
| -7.3% | |
Auto |
| 2.51% |
|
| 2.71% |
| -7.4% |
| 3.71% |
|
| 3.04% |
| 22.0% |
Total allowance to total acquired loans |
| 6.83% |
|
| 6.99% |
| -2.3% |
| 6.68% |
|
| 6.66% |
| 0.3% |
Allowance coverage ratio to non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 8.47% |
| 3.31% |
| 155.9% |
| 3.75% |
|
| 2.32% |
| 61.6% | |
Consumer |
| 394.15% |
| 238.01% |
| 65.6% |
| 563.41% |
|
| 478.64% |
| 17.7% | |
Auto |
| 203.60% |
|
| 332.40% |
| -38.7% |
| 63.79% |
|
| 67.50% |
| -5.5% |
Total |
| 155.59% |
|
| 137.73% |
| 13.0% |
| 143.89% |
|
| 133.20% |
| 8.0% |
125118
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
| June 30, |
| December 31, |
| Variance | ||
|
| 2018 |
| 2017 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 14,567 |
| $ | 14,085 |
| 3.4% |
Commercial |
| 23,019 |
|
| 23,691 |
| -2.8% |
Consumer |
| 18 |
|
| 18 |
| 0.0% |
Auto |
| 6,572 |
|
| 7,961 |
| -17.4% |
Total allowance balance | $ | 44,176 |
| $ | 45,755 |
| -3.5% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 33.0% |
|
| 30.8% |
| 7.1% |
Commercial |
| 52.1% |
|
| 51.8% |
| 0.7% |
Auto |
| 14.9% |
|
| 17.4% |
| -14.5% |
|
| 100.0% |
|
| 100.0% |
|
|
|
|
|
|
|
|
|
|
Acquired Eurobank loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 15,170 |
| $ | 15,187 |
| -0.1% |
Commercial |
| 9,140 |
|
| 9,982 |
| -8.4% |
Consumer |
| 4 |
|
| 5 |
| -20.0% |
Total allowance balance | $ | 24,314 |
| $ | 25,174 |
| -3.4% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 62.4% |
|
| 60.3% |
| 3.4% |
Commercial |
| 37.6% |
|
| 39.6% |
| -5.2% |
|
| 100.0% |
|
| 100.0% |
|
|
126OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
| June 30, |
|
| December 31, | Variance | ||
|
| 2019 |
| 2018 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 25,208 |
| $ | 15,225 |
| 65.6% |
Commercial |
| 17,083 |
|
| 20,641 |
| -17.2% |
Auto |
| 3,136 |
|
| 6,144 |
| -49.0% |
Total allowance balance | $ | 45,427 |
| $ | 42,010 |
| 8.1% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 55.5% |
|
| 36.2% |
| 53.1% |
Commercial |
| 37.6% |
|
| 49.1% |
| -23.4% |
Auto |
| 6.9% |
|
| 14.6% |
| -52.8% |
|
| 100.0% |
|
| 100.0% |
|
|
|
|
|
|
|
|
|
|
Acquired Eurobank loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 17,213 |
| $ | 15,382 |
| 11.9% |
Commercial |
| 8,365 |
|
| 9,585 |
| -12.7% |
Consumer |
| - |
|
| 4 |
| -100.0% |
Total allowance balance | $ | 25,578 |
| $ | 24,971 |
| 2.4% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 67.3% |
|
| 61.6% |
| 9.3% |
Commercial |
| 32.7% |
|
| 38.4% |
| -14.8% |
Consumer |
| 0.0% |
|
| 0.0% |
| -100.0% |
|
| 100.0% |
|
| 100.0% |
|
|
119
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
| Six-Month Period Ended June 30, | ||||||||||||
|
|
| Variance |
|
|
|
| Variance | ||||||||
| 2018 |
| 2017 |
| % |
|
| 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) | |||||||||||||||
Originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 96,832 |
| $ | 60,483 |
| 60.1% |
|
| $ | 92,718 |
| $ | 59,300 |
| 56.4% |
Provision for loan and lease losses |
| 12,835 |
|
| 22,818 |
| -43.8% |
|
|
| 27,793 |
|
| 34,551 |
| -19.6% |
Charge-offs |
| (21,662) |
|
| (18,790) |
| 15.3% |
|
|
| (37,023) |
|
| (32,945) |
| 12.4% |
Recoveries |
| 6,213 |
|
| 5,155 |
| 20.5% |
|
|
| 10,730 |
|
| 8,760 |
| 22.5% |
Balance at end of period | $ | 94,218 |
| $ | 69,666 |
| 35.2% |
|
| $ | 94,218 |
| $ | 69,666 |
| 35.2% |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBVAPR loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 3,184 |
| $ | 3,615 |
| -11.9% |
|
| $ | 3,862 |
| $ | 4,300 |
| -10.2% |
Provision for loan and lease losses |
| (295) |
|
| (59) |
| 400.0% |
|
|
| (111) |
|
| (92) |
| 20.7% |
Charge-offs |
| (513) |
|
| (1,102) |
| -53.4% |
|
|
| (1,660) |
|
| (2,271) |
| -26.9% |
Recoveries |
| 350 |
|
| 894 |
| -60.9% |
|
|
| 635 |
|
| 1,411 |
| -55.0% |
Balance at end of period | $ | 2,726 |
| $ | 3,348 |
| -18.6% |
|
| $ | 2,726 |
| $ | 3,348 |
| -18.6% |
Acquired loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 43,166 |
| $ | 34,930 |
| 23.6% |
|
| $ | 45,755 |
| $ | 31,056 |
| 47.3% |
Provision for loan and lease losses |
| 1,542 |
|
| 3,365 |
| -54.2% |
|
|
| 1,721 |
|
| 7,696 |
| -77.6% |
Allowance de-recognition |
| (532) |
|
| (801) |
| -33.6% |
|
|
| (3,300) |
|
| (1,258) |
| 162.3% |
Balance at end of period | $ | 44,176 |
| $ | 37,494 |
| 17.8% |
|
| $ | 44,176 |
| $ | 37,494 |
| 17.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 25,411 |
| $ | 22,006 |
| 15.5% |
|
| $ | 25,174 |
| $ | 21,281 |
| 18.3% |
Provision for loan and lease losses |
| 665 |
|
| 412 |
| 61.4% |
|
|
| 805 |
|
| 2,032 |
| -60.4% |
Allowance de-recognition |
| (1,762) |
|
| (631) |
| 179.2% |
|
|
| (1,665) |
|
| (1,526) |
| 9.1% |
Balance at end of period | $ | 24,314 |
| $ | 21,787 |
| 11.6% |
|
| $ | 24,314 |
| $ | 21,787 |
| 11.6% |
127OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY |
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||
|
|
| Variance |
|
|
| Variance | ||||||||
| 2019 |
| 2018 |
| % |
| 2019 |
| 2018 |
| % | ||||
| (Dollars in thousands) | ||||||||||||||
Originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 94,035 |
| $ | 96,832 |
| -2.9% |
| $ | 95,188 |
| $ | 92,718 |
| 2.7% |
Provision for loan and lease losses |
| 8,481 |
|
| 12,835 |
| -33.9% |
|
| 19,815 |
|
| 27,793 |
| -28.7% |
Charge-offs |
| (18,261) |
|
| (21,662) |
| -15.7% |
|
| (35,425) |
|
| (37,023) |
| -4.3% |
Recoveries |
| 5,697 |
|
| 6,213 |
| -8.3% |
|
| 10,374 |
|
| 10,730 |
| -3.3% |
Balance at end of period | $ | 89,952 |
| $ | 94,218 |
| -4.5% |
| $ | 89,952 |
| $ | 94,218 |
| -4.5% |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBVAPR loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 1,968 |
| $ | 3,184 |
| -38.2% |
| $ | 2,062 |
| $ | 3,862 |
| -46.6% |
Provision (recapture) for loan and lease losses |
| 135 |
|
| (295) |
| -145.8% |
|
| 433 |
|
| (111) |
| -490.1% |
Charge-offs |
| (569) |
|
| (513) |
| 10.9% |
|
| (1,094) |
|
| (1,660) |
| -34.1% |
Recoveries |
| 151 |
|
| 350 |
| -56.9% |
|
| 284 |
|
| 635 |
| -55.3% |
Balance at end of period | $ | 1,685 |
| $ | 2,726 |
| -38.2% |
| $ | 1,685 |
| $ | 2,726 |
| -38.2% |
Acquired loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 42,133 |
| $ | 43,166 |
| -2.4% |
| $ | 42,010 |
| $ | 45,755 |
| -8.2% |
Provision for loan and lease losses |
| 7,311 |
|
| 1,542 |
| 374.1% |
|
| 8,580 |
|
| 1,721 |
| 398.5% |
Allowance de-recognition |
| (4,017) |
|
| (532) |
| 655.1% |
|
| (5,163) |
|
| (3,300) |
| 56.5% |
Balance at end of period | $ | 45,427 |
| $ | 44,176 |
| 2.8% |
| $ | 45,427 |
| $ | 44,176 |
| 2.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 24,352 |
| $ | 25,410 |
| -4.2% |
| $ | 24,971 |
| $ | 25,174 |
| -0.8% |
Provision for loan and lease losses |
| 1,778 |
|
| 665 |
| 167.4% |
|
| 1,127 |
|
| 805 |
| 40.0% |
Allowance de-recognition |
| (552) |
|
| (1,761) |
| -68.7% |
|
| (520) |
|
| (1,665) |
| -68.8% |
Balance at end of period | $ | 25,578 |
| $ | 24,314 |
| 5.2% |
| $ | 25,578 |
| $ | 24,314 |
| 5.2% |
120
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||
|
|
| Variance |
|
|
| Variance | ||||||||
| 2018 |
| 2017 |
| % |
| 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) | ||||||||||||||
Originated and other loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (1,328) |
| $ | (2,162) |
| -38.6% |
| $ | (2,298) |
| $ | (4,541) |
| -49.4% |
Recoveries |
| 466 |
|
| 63 |
| 639.7% |
|
| 786 |
|
| 119 |
| 560.5% |
Total |
| (862) |
|
| (2,099) |
| -58.9% |
|
| (1,512) |
|
| (4,422) |
| -65.8% |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (1,998) |
|
| (4,841) |
| -58.7% |
|
| (3,147) |
|
| (5,697) |
| -44.8% |
Recoveries |
| 227 |
|
| 136 |
| 66.9% |
|
| 409 |
|
| 226 |
| 81.0% |
Total |
| (1,771) |
|
| (4,705) |
| -62.4% |
|
| (2,738) |
|
| (5,471) |
| -50.0% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (4,588) |
|
| (4,012) |
| 14.4% |
|
| (8,847) |
|
| (7,368) |
| 20.1% |
Recoveries |
| 240 |
|
| 780 |
| -69.2% |
|
| 479 |
|
| 945 |
| -49.3% |
Total |
| (4,348) |
|
| (3,232) |
| 34.5% |
|
| (8,368) |
|
| (6,423) |
| 30.3% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (13,748) |
|
| (7,775) |
| 76.8% |
|
| (22,731) |
|
| (15,339) |
| 48.2% |
Recoveries |
| 5,280 |
|
| 4,176 |
| 26.4% |
|
| 9,056 |
|
| 7,470 |
| 21.2% |
Total |
| (8,468) |
|
| (3,599) |
| 135.3% |
|
| (13,675) |
|
| (7,869) |
| 73.8% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (21,662) |
|
| (18,790) |
| 15.3% |
|
| (37,023) |
|
| (32,945) |
| 12.4% |
Total recoveries |
| 6,213 |
|
| 5,155 |
| 20.5% |
|
| 10,730 |
|
| 8,760 |
| 22.5% |
Total | $ | (15,449) |
| $ | (13,635) |
| 13.3% |
| $ | (26,293) |
| $ | (24,185) |
| 8.7% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 0.51% |
|
| 1.20% |
| -57.5% |
|
| 0.44% |
|
| 1.25% |
| -64.9% |
Commercial |
| 0.50% |
|
| 1.50% |
| -66.7% |
|
| 0.40% |
|
| 0.87% |
| -54.3% |
Consumer |
| 5.42% |
|
| 4.42% |
| 22.6% |
|
| 5.25% |
|
| 4.49% |
| 16.9% |
Auto |
| 3.39% |
|
| 1.79% |
| 89.4% |
|
| 2.83% |
|
| 1.99% |
| 42.2% |
Total |
| 1.81% |
|
| 1.79% |
| 1.1% |
|
| 1.58% |
|
| 1.59% |
| -0.9% |
Recoveries to charge-offs |
| 28.68% |
|
| 27.43% |
| 4.6% |
|
| 28.98% |
|
| 26.59% |
| 9.0% |
Average originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 679,133 |
|
| 698,782 |
| -2.8% |
| $ | 681,265 |
|
| 705,167 |
| -3.4% |
Commercial |
| 1,411,177 |
|
| 1,256,827 |
| 12.3% |
|
| 1,360,811 |
|
| 1,251,179 |
| 8.8% |
Consumer |
| 320,687 |
|
| 292,739 |
| 9.5% |
|
| 318,991 |
|
| 286,149 |
| 11.5% |
Auto |
| 999,047 |
|
| 803,201 |
| 24.4% |
|
| 966,251 |
|
| 791,008 |
| 22.2% |
Total | $ | 3,410,044 |
| $ | 3,051,549 |
| 11.7% |
| $ | 3,327,318 |
| $ | 3,033,503 |
| 9.7% |
128OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 |
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||
|
|
| Variance |
|
|
| Variance | ||||||||
| 2019 |
| 2018 |
| % |
| 2019 |
| 2018 |
| % | ||||
| (Dollars in thousands) | ||||||||||||||
Originated and other loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (604) |
| $ | (1,328) |
| -54.5% |
| $ | (1,191) |
| $ | (2,298) |
| -48.2% |
Recoveries |
| 316 |
|
| 466 |
| -32.2% |
|
| 603 |
|
| 786 |
| -23.3% |
Total |
| (288) |
|
| (862) |
| -66.6% |
|
| (588) |
|
| (1,512) |
| -61.1% |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (2,146) |
|
| (1,998) |
| 7.4% |
|
| (3,232) |
|
| (3,147) |
| 2.7% |
Recoveries |
| 177 |
|
| 227 |
| -22.0% |
|
| 323 |
|
| 409 |
| -21.0% |
Total |
| (1,969) |
|
| (1,771) |
| 11.2% |
|
| (2,909) |
|
| (2,738) |
| 6.2% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (4,839) |
|
| (4,588) |
| 5.5% |
|
| (8,958) |
|
| (8,847) |
| 1.3% |
Recoveries |
| 327 |
|
| 240 |
| 36.3% |
|
| 590 |
|
| 479 |
| 23.2% |
Total |
| (4,512) |
|
| (4,348) |
| 3.8% |
|
| (8,368) |
|
| (8,368) |
| 0.0% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (10,672) |
|
| (13,748) |
| -22.4% |
|
| (22,044) |
|
| (22,731) |
| -3.0% |
Recoveries |
| 4,877 |
|
| 5,280 |
| -7.6% |
|
| 8,858 |
|
| 9,056 |
| -2.2% |
Total |
| (5,795) |
|
| (8,468) |
| -31.6% |
|
| (13,186) |
|
| (13,675) |
| -3.6% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (18,261) |
|
| (21,662) |
| -15.7% |
|
| (35,425) |
|
| (37,023) |
| -4.3% |
Total recoveries |
| 5,697 |
|
| 6,213 |
| -8.3% |
|
| 10,374 |
|
| 10,730 |
| -3.3% |
Total | $ | (12,564) |
| $ | (15,449) |
| -18.7% |
| $ | (25,051) |
| $ | (26,293) |
| -4.7% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 0.18% |
|
| 0.50% |
| -64.0% |
|
| 0.18% |
|
| 0.44% |
| -59.1% |
Commercial |
| 0.50% |
|
| 0.50% |
| 0.0% |
|
| 0.37% |
|
| 0.40% |
| -7.5% |
Consumer |
| 4.87% |
|
| 4.88% |
| -0.2% |
|
| 4.54% |
|
| 4.71% |
| -3.6% |
Auto |
| 1.93% |
|
| 3.39% |
| -43.1% |
|
| 2.23% |
|
| 2.83% |
| -21.2% |
Total |
| 1.32% |
|
| 1.79% |
| -26.3% |
|
| 1.32% |
|
| 1.56% |
| -15.4% |
Recoveries to charge-offs |
| 31.20% |
|
| 28.68% |
| 8.8% |
|
| 29.28% |
|
| 28.98% |
| 1.0% |
Average originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 647,254 |
|
| 682,890 |
| -5.2% |
| $ | 648,331 |
|
| 682,938 |
| -5.1% |
Commercial |
| 1,584,363 |
|
| 1,410,300 |
| 12.3% |
|
| 1,584,305 |
|
| 1,359,951 |
| 16.5% |
Consumer |
| 370,461 |
|
| 356,413 |
| 3.9% |
|
| 368,870 |
|
| 355,700 |
| 3.7% |
Auto |
| 1,197,959 |
|
| 1,000,028 |
| 19.8% |
|
| 1,180,155 |
|
| 967,446 |
| 22.0% |
Total | $ | 3,800,037 |
| $ | 3,449,631 |
| 10.2% |
| $ | 3,781,661 |
| $ | 3,366,035 |
| 12.3% |
121
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED) |
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||
|
|
|
| Variance |
|
|
|
| Variance | ||||||||
| 2018 |
| 2017 |
|
| % |
| 2018 |
| 2017 |
|
| % | ||||
| (Dollars in thousands) | ||||||||||||||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (5) |
| $ | (126) |
|
| -96.0% |
| $ | (5) |
| $ | (132) |
|
| -96.2% |
Recoveries |
| 12 |
|
| 2 |
|
| 500.0% |
|
| 15 |
|
| 3 |
|
| 400.0% |
Total |
| 7 |
|
| (124) |
|
| -105.6% |
|
| 10 |
|
| (129) |
|
| -107.8% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (420) |
|
| (771) |
|
| -45.5% |
|
| (1,442) |
|
| (1,656) |
|
| -12.9% |
Recoveries |
| 94 |
|
| 295 |
|
| -68.1% |
|
| 148 |
|
| 359 |
|
| -58.8% |
Total |
| (326) |
|
| (476) |
|
| -31.5% |
|
| (1,294) |
|
| (1,297) |
|
| -0.2% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (88) |
|
| (205) |
|
| -57.1% |
|
| (213) |
|
| (483) |
|
| -55.9% |
Recoveries |
| 244 |
|
| 597 |
|
| -59.1% |
|
| 472 |
|
| 1,049 |
|
| -55.0% |
Total |
| 156 |
|
| 392 |
|
| -60.2% |
|
| 259 |
|
| 566 |
|
| -54.2% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (513) |
|
| (1,102) |
|
| -53.4% |
|
| (1,660) |
|
| (2,271) |
|
| -26.9% |
Total recoveries |
| 350 |
|
| 894 |
|
| -60.9% |
|
| 635 |
|
| 1,411 |
|
| -55.0% |
Total | $ | (163) |
| $ | (208) |
|
| -21.6% |
| $ | (1,025) |
| $ | (860) |
|
| 19.2% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| -8.19% |
|
| 126.52% |
|
| -106.5% |
|
| -5.62% |
|
| 64.18% |
|
| -108.8% |
Consumer |
| 2.41% |
|
| 3.29% |
|
| -26.9% |
|
| 4.68% |
|
| 4.46% |
|
| 5.0% |
Auto |
| -2.95% |
|
| -3.78% |
|
| -22.1% |
|
| -2.22% |
|
| -2.50% |
|
| -11.4% |
Total |
| 0.86% |
|
| 0.83% |
|
| 3.2% |
|
| 2.59% |
|
| 1.66% |
|
| 56.6% |
Recoveries to charge-offs |
| 68.23% |
|
| 81.13% |
|
| -15.9% |
|
| 38.25% |
|
| 62.13% |
|
| -38.4% |
Average loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 342 |
|
| 392 |
|
| -12.8% |
| $ | 356 |
|
| 402 |
|
| -11.4% |
Consumer |
| 54,154 |
|
| 57,813 |
|
| -6.3% |
|
| 55,314 |
|
| 58,214 |
|
| -5.0% |
Auto |
| 21,165 |
|
| 41,447 |
|
| -48.9% |
|
| 23,380 |
|
| 45,281 |
|
| -48.4% |
Total | $ | 75,661 |
| $ | 99,652 |
|
| -24.1% |
| $ | 79,050 |
| $ | 103,897 |
|
| -23.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED) |
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||||||||
|
|
|
| Variance |
|
|
|
| Variance | ||||||||
| 2019 |
| 2018 |
|
| % |
| 2019 |
| 2018 |
|
| % | ||||
| (Dollars in thousands) | ||||||||||||||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (80) |
| $ | (5) |
|
| 1500.0% |
| $ | (80) |
| $ | (5) |
|
| 1500.0% |
Recoveries |
| 2 |
|
| 12 |
|
| -83.3% |
|
| 5 |
|
| 15 |
|
| -66.7% |
Total |
| (78) |
|
| 7 |
|
| -1214.3% |
|
| (75) |
|
| 10 |
|
| -850.0% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (433) |
|
| (420) |
|
| 3.1% |
|
| (873) |
|
| (1,442) |
|
| -39.5% |
Recoveries |
| 78 |
|
| 94 |
|
| -17.0% |
|
| 118 |
|
| 148 |
|
| -20.3% |
Total |
| (355) |
|
| (326) |
|
| 8.9% |
|
| (755) |
|
| (1,294) |
|
| -41.7% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (56) |
|
| (88) |
|
| -36.4% |
|
| (141) |
|
| (213) |
|
| -33.8% |
Recoveries |
| 71 |
|
| 244 |
|
| -70.9% |
|
| 161 |
|
| 472 |
|
| -65.9% |
Total |
| 15 |
|
| 156 |
|
| -90.4% |
|
| 20 |
|
| 259 |
|
| -92.3% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (569) |
|
| (513) |
|
| 10.9% |
|
| (1,094) |
|
| (1,660) |
|
| -34.1% |
Total recoveries |
| 151 |
|
| 350 |
|
| -56.9% |
|
| 284 |
|
| 635 |
|
| -55.3% |
Total | $ | (418) |
| $ | (163) |
|
| 156.4% |
| $ | (810) |
| $ | (1,025) |
|
| -21.0% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 13.10% |
|
| -0.92% |
|
| -1523.9% |
|
| 6.16% |
|
| -0.64% |
|
| -1062.5% |
Consumer |
| 11.03% |
|
| 9.98% |
|
| 10.5% |
|
| 11.66% |
|
| 19.53% |
|
| -40.3% |
Auto |
| -3.29% |
|
| -4.51% |
|
| -27.0% |
|
| -1.48% |
|
| -3.13% |
|
| -52.8% |
Total |
| 9.79% |
|
| 2.18% |
|
| 349.7% |
|
| 8.96% |
|
| 6.23% |
|
| 43.8% |
Recoveries to charge-offs |
| 26.54% |
|
| 68.23% |
|
| -61.1% |
|
| 25.96% |
|
| 38.25% |
|
| -32.1% |
Average loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 2,381 |
|
| 3,052 |
|
| -22.0% |
| $ | 2,437 |
|
| 3,122 |
|
| -21.9% |
Consumer |
| 12,879 |
|
| 13,068 |
|
| -1.4% |
|
| 12,946 |
|
| 13,251 |
|
| -2.3% |
Auto |
| 1,822 |
|
| 13,838 |
|
| -86.8% |
|
| 2,707 |
|
| 16,550 |
|
| -83.6% |
Total | $ | 17,082 |
| $ | 29,958 |
|
| -43.0% |
| $ | 18,090 |
| $ | 32,923 |
|
| -45.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 11 — NON-PERFORMING ASSETS | TABLE 11 — NON-PERFORMING ASSETS | TABLE 11 — NON-PERFORMING ASSETS | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| June 30, |
| December 31, |
| Variance | June 30, |
| December 31, |
| Variance | ||||
| 2018 |
| 2017 |
| (%) | 2019 |
| 2018 |
| (%) | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Non-performing assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-accruing loans |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Troubled-Debt Restructuring loans | $ | 36,475 |
| $ | 25,354 |
| 43.9% | $ | 33,500 |
| $ | 41,679 |
| -19.6% |
Other loans |
| 85,630 |
| 74,360 |
| 15.2% |
| 75,003 |
|
| 78,047 |
| -3.9% | |
Accruing loans |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Troubled-Debt Restructuring loans |
| 6,787 |
| 6,704 |
| 1.2% |
| 4,269 |
|
| 4,302 |
| -0.8% | |
Other loans |
| 1,280 |
|
| 2,528 |
| -49.4% |
| 782 |
|
| 541 |
| 44.5% |
Total non-performing loans | $ | 130,172 |
| $ | 108,946 |
| 19.5% | $ | 113,554 |
| $ | 124,569 |
| -8.8% |
Foreclosed real estate |
| 40,551 |
| 44,174 |
| -8.2% |
| 29,509 |
|
| 33,768 |
| -12.6% | |
Other repossessed assets |
| 5,483 |
|
| 3,548 |
| 54.5% |
| 2,507 |
|
| 2,986 |
| -16.0% |
| $ | 176,206 |
| $ | 156,668 |
| 12.5% | $ | 145,570 |
| $ | 161,323 |
| -9.8% |
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy) |
| 2.82% |
|
| 2.95% |
| -4.4% |
| 2.31% |
|
| 2.76% |
| -16.3% |
Non-performing assets to total capital |
| 18.40% |
|
| 16.58% |
| 11.0% |
| 14.06% |
|
| 16.13% |
| -12.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
| Six-Month Period Ended June 30, | ||||||||
| 2018 |
| 2017 |
|
| 2018 |
| 2017 | ||||
| (In thousands) | |||||||||||
Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans | $ | 1,034 |
| $ | 909 |
|
| $ | 1,800 |
| $ | 1,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
| Six-Month Period Ended June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| (In thousands) | ||||||||||
Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans | $ | 937 |
| $ | 1,034 |
| $ | 1,644 |
| $ | 1,800 |
|
|
|
|
|
|
|
|
|
|
|
|
130123
TABLE 12 — NON-PERFORMING LOANS | |||||||
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Non-performing loans: |
|
|
|
|
|
|
|
Originated and other loans held for investment |
|
|
|
|
|
|
|
Mortgage | $ | 67,002 |
| $ | 64,085 |
| 4.6% |
Commercial |
| 47,451 |
|
| 35,253 |
| 34.6% |
Consumer |
| 2,826 |
|
| 2,572 |
| 9.9% |
Auto and leasing |
| 11,141 |
|
| 4,232 |
| 163.3% |
|
| 128,420 |
|
| 106,142 |
| 21.0% |
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 1,015 |
|
| 1,270 |
| -20.1% |
Consumer |
| 598 |
|
| 1,355 |
| -55.9% |
Auto |
| 139 |
|
| 179 |
| -22.3% |
|
| 1,752 |
|
| 2,804 |
| -37.5% |
Total | $ | 130,172 |
| $ | 108,946 |
| 19.5% |
Non-performing loans composition percentages: |
|
|
|
|
|
|
|
Originated loans |
|
|
|
|
|
|
|
Mortgage |
| 51.3% |
|
| 58.7% |
|
|
Commercial |
| 36.5% |
|
| 32.4% |
|
|
Consumer |
| 2.2% |
|
| 2.4% |
|
|
Auto and leasing |
| 8.6% |
|
| 3.9% |
|
|
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 0.8% |
|
| 1.2% |
|
|
Consumer |
| 0.5% |
|
| 1.2% |
|
|
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) |
| 3.64% |
|
| 3.34% |
| 9.0% |
Total assets, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 2.08% |
|
| 2.05% |
| 1.5% |
Total capital |
| 13.59% |
|
| 11.53% |
| 17.9% |
Non-performing loans with partial charge-offs to: |
|
|
|
|
|
|
|
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.14% |
|
| 1.15% |
| -0.87% |
Non-performing loans |
| 31.40% |
|
| 34.49% |
| -9.0% |
Other non-performing loans ratios: |
|
|
|
|
|
|
|
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken |
| 56.97% |
|
| 57.69% |
| -1.2% |
Allowance for loan and lease losses to non-performing loans on which no charge-offs have been taken |
| 108.57% |
|
| 134.26% |
| -19.1% |
|
|
|
|
|
|
|
|
131OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 12 — NON-PERFORMING LOANS | |||||||
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
| Variance | ||
| 2019 |
| 2018 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Non-performing loans: |
|
|
|
|
|
|
|
Originated and other loans held for investment |
|
|
|
|
|
|
|
Mortgage | $ | 53,534 |
| $ | 63,717 |
| -16.0% |
Commercial |
| 44,617 |
|
| 42,456 |
| 5.1% |
Consumer |
| 2,208 |
|
| 3,354 |
| -34.2% |
Auto and leasing |
| 12,024 |
|
| 13,494 |
| -10.9% |
|
| 112,383 |
|
| 123,021 |
| -8.6% |
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 826 |
|
| 950 |
| -13.1% |
Consumer |
| 287 |
|
| 398 |
| -27.9% |
Auto |
| 58 |
|
| 200 |
| -71.0% |
|
| 1,171 |
|
| 1,548 |
| -24.4% |
Total | $ | 113,554 |
| $ | 124,569 |
| -8.8% |
Non-performing loans composition percentages: |
|
|
|
|
|
|
|
Originated loans |
|
|
|
|
|
|
|
Mortgage |
| 47.1% |
|
| 51.1% |
|
|
Commercial |
| 39.3% |
|
| 34.1% |
|
|
Consumer |
| 1.9% |
|
| 2.7% |
|
|
Auto and leasing |
| 10.6% |
|
| 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) |
| 2.95% |
|
| 3.30% |
| -10.6% |
Total assets, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.79% |
|
| 2.13% |
| -16.0% |
Total capital |
| 10.87% |
|
| 12.46% |
| -12.8% |
Non-performing loans with partial charge-offs to: |
|
|
|
|
|
|
|
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 0.93% |
|
| 1.16% |
| -19.83% |
Non-performing loans |
| 31.45% |
|
| 35.30% |
| -10.9% |
Other non-performing loans ratios: |
|
|
|
|
|
|
|
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken |
| 65.80% |
|
| 59.20% |
| 11.1% |
Allowance for loan and lease losses to non-performing loans on which no charge-offs have been taken |
| 117.73% |
|
| 120.67% |
| -2.4% |
|
|
|
|
|
|
|
|
124
TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION | |||||||
| June 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Deposits: |
|
|
|
|
|
|
|
Non-interest bearing deposits | $ | 1,110,738 |
| $ | 969,525 |
| 14.6% |
NOW accounts |
| 1,066,170 |
|
| 1,069,572 |
| -0.3% |
Savings and money market accounts |
| 1,253,449 |
|
| 1,251,396 |
| 0.2% |
Certificates of deposit |
| 1,448,142 |
|
| 1,507,101 |
| -3.9% |
Total deposits |
| 4,878,499 |
|
| 4,797,594 |
| 1.7% |
Accrued interest payable |
| 1,702 |
|
| 1,888 |
| -9.9% |
Total deposits and accrued interest payable |
| 4,880,201 |
|
| 4,799,482 |
| 1.7% |
Borrowings: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 387,770 |
|
| 192,869 |
| 101.1% |
Advances from FHLB |
| 128,114 |
|
| 99,643 |
| 28.6% |
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 0.0% |
Other term notes |
| 299 |
|
| 153 |
| 95.4% |
Total borrowings |
| 552,266 |
|
| 328,748 |
| 68.0% |
Total deposits and borrowings |
| 5,432,467 |
|
| 5,128,230 |
| 5.9% |
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
Derivative liabilities |
| 679 |
|
| 1,281 |
| -47.0% |
Acceptances outstanding |
| 30,578 |
|
| 27,644 |
| 10.6% |
Other liabilities |
| 80,019 |
|
| 86,791 |
| -7.8% |
Total liabilities | $ | 5,543,743 |
| $ | 5,243,946 |
| 5.7% |
Deposits portfolio composition percentages: |
|
|
|
|
|
|
|
Non-interest bearing deposits |
| 22.8% |
|
| 20.2% |
|
|
NOW accounts |
| 21.9% |
|
| 22.3% |
|
|
Savings and money market accounts |
| 25.6% |
|
| 26.1% |
|
|
Certificates of deposit |
| 29.7% |
|
| 31.4% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Borrowings portfolio composition percentages: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 70.2% |
|
| 58.7% |
|
|
Advances from FHLB |
| 23.2% |
|
| 30.3% |
|
|
Other term notes |
| 0.1% |
|
| 0.0% |
|
|
Subordinated capital notes |
| 6.5% |
|
| 11.0% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Securities sold under agreements to repurchase (excluding accrued interest) |
|
|
|
|
|
|
|
Amount outstanding at period-end | $ | 387,379 |
| $ | 192,500 |
|
|
Daily average outstanding balance | $ | 305,682 |
| $ | 393,133 |
|
|
Maximum outstanding balance at any month-end | $ | 422,475 |
| $ | 606,210 |
|
|
132OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION | |||||||
| June 30, |
| December 31, |
| Variance | ||
| 2019 |
| 2018 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Deposits: |
|
|
|
|
|
|
|
Non-interest bearing deposits | $ | 1,075,744 |
| $ | 1,105,324 |
| -2.7% |
NOW accounts |
| 1,144,117 |
|
| 1,086,447 |
| 5.3% |
Savings and money market accounts |
| 1,222,109 |
|
| 1,212,260 |
| 0.8% |
Certificates of deposit |
| 1,500,588 |
|
| 1,501,002 |
| 0.0% |
Total deposits |
| 4,942,558 |
|
| 4,905,033 |
| 0.8% |
Accrued interest payable |
| 2,579 |
|
| 3,082 |
| -16.3% |
Total deposits and accrued interest payable |
| 4,945,137 |
|
| 4,908,115 |
| 0.8% |
Borrowings: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 240,324 |
|
| 455,508 |
| -47.2% |
Advances from FHLB |
| 80,085 |
|
| 77,620 |
| 3.2% |
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 0.0% |
Other term notes |
| 338 |
|
| 1,214 |
| -72.2% |
Total borrowings |
| 356,830 |
|
| 570,425 |
| -37.4% |
Total deposits and borrowings |
| 5,301,967 |
|
| 5,478,540 |
| -3.2% |
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
Derivative liabilities |
| 985 |
|
| 333 |
| 195.8% |
Acceptances outstanding |
| 23,610 |
|
| 16,937 |
| 39.4% |
Lease liability |
| 22,179 |
|
| - |
| 100.0% |
Other liabilities |
| 70,512 |
|
| 87,665 |
| -19.6% |
Total liabilities | $ | 5,419,253 |
| $ | 5,583,475 |
| -2.9% |
Deposits portfolio composition percentages: |
|
|
|
|
|
|
|
Non-interest bearing deposits |
| 21.8% |
|
| 22.5% |
|
|
NOW accounts |
| 23.1% |
|
| 22.1% |
|
|
Savings and money market accounts |
| 24.7% |
|
| 24.7% |
|
|
Certificates of deposit |
| 30.4% |
|
| 30.7% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Borrowings portfolio composition percentages: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 67.4% |
|
| 79.9% |
|
|
Advances from FHLB |
| 22.4% |
|
| 13.6% |
|
|
Other term notes |
| 0.1% |
|
| 0.2% |
|
|
Subordinated capital notes |
| 10.1% |
|
| 6.3% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Securities sold under agreements to repurchase (excluding accrued interest) |
|
|
|
|
|
|
|
Amount outstanding at period-end | $ | 240,000 |
| $ | 454,723 |
|
|
Daily average outstanding balance | $ | 393,826 |
| $ | 357,086 |
|
|
Maximum outstanding balance at any month-end | $ | 461,954 |
| $ | 457,053 |
|
|
125
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Liabilities and Funding Sources
As shown in Table 1315 above, at June 30, 20182019, Oriental’s total liabilities were $5.544$5.419 billion, 5.7% more2.9% less than the $5.244$5.583 billion reported at December 31, 20172018. Deposits and borrowings, Oriental’s funding sources, amounted to $5.432$5.302 billion at June 30, 20182019 versus $5.128$5.479 billion at December 31, 20172018, a 5.9% increase.3.2% decrease.
Borrowings consist mainly of repurchase agreements, FHLB-NY advances and subordinated capital notes. At June 30, 20182019, borrowings amounted to $552.3$356.8 million, representing an increasea decrease of 68.0%37.5% when compared with the $328.7$570.4 million reported at December 31, 20172018. The increasedecrease in borrowings reflects:reflect the reduction of $191.2 million in repurchase agreements with the proceeds from the sale of $349.7 million of mortgage-backed securities during the quarter ended June 30, 2019.
·An increase of $288.4 million in new repurchase agreements usedOn January 1, 2019, Oriental adopted 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 the purchase of investment securities during the six-month period endedleases classified as operating leases prospectively. At June 30, 2018, partially offset by $82.5 million in maturities during2019, the period; and
·An increase of $28.5 million in advances from FHLB attributablelease liability amounted to $119.0 million new advances, partially offset by the maturing of $90.0 million advances which were not renewed.$22.2 million.
At June 30, 20182019, deposits represented 90%91% and borrowings represented 10%9% of interest-bearing liabilities. At June 30, 20182019, deposits, the largest category of Oriental’s interest-bearing liabilities, were $4.880$4.945 billion, an increasea decrease of 1.7%0.8% from $4.798$4.908 billion at December 31, 20172018. Such decrease reflects a reduction of $62.8 million in brokered CD’s with the proceeds from the sale of $349.7 million mortgage-backed securities during the quarter ended June 30, 2019.
Stockholders’ Equity
At June 30, 20182019, Oriental’s total stockholders’ equity was $957.8 million,$1.045 billion, a 1.3%4.50% increase when compared to $945.1$999.9 million at December 31, 20172018. This increase in stockholders’ equity reflects increases in retained earnings of $20.6$31.4 million and legal surplus of $3.8 million, additional paid in capital of $135 thousand$4.9 million; and a decrease in treasury stock, at cost, of $533 thousand, partially offset by an increasedecreases in accumulated other comprehensive loss, net of tax of $12.3 million.$7.3 million and treasury stock, at cost, of $462 thousand. Book value per share was $18.01$18.76 at June 30, 20182019 compared to $17.73$17.90 at December 31, 20172018.
From December 31, 20172018 to June 30, 20182019, tangible common equity to total assets decreasedincreased from 12.59% to 10.80% from 11.12%13.52%, Leverageleverage capital ratio remained at 13.92%increased from 14.22% to 15.20%, Common Equity Tiercommon equity tier 1 capital ratio decreasedincreased from 16.78% to 14.14% from 14.59%17.48%, Tiertier 1 Risk-Basedrisk-based capital ratio decreasedincreased from 19.20% to 18.38% from 19.05%19.87%, and Total Risk-Basedtotal risk-based capital ratio decreasedincreased from 20.48% to 19.67% from 20.34%21.14%. The increase in these ratios reflect an increase of $23.7 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.
Capital Rules to Implement Basel III Capital Requirements
OFG BancorpOriental and the Bank are subject to regulatory capital requirements established by the Federal Reserve Board and the FDIC. The current risk-based capital standards applicable to OFG BancorpOriental 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 June 30, 2018, OFG Bancorp's2019, the capital ratios of Oriental and the Bank’s capital ratiosBank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.
The risk-based capital ratios presented in Table 14, which include common equity tier 1, tier 1 capital, total capital and leverage capital as of June 30, 20182019 and December 31, 2017,2018, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.
133126
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following are the consolidated capital ratios of Oriental under the Basel III capital rules at June 30, 20182019 and December 31, 2017:2018:
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA | TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA | TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA | ||||||||||||
| June 30, |
| December 31, |
| Variance | June 30, |
| December 31, |
| Variance | ||||
| 2018 |
| 2017 |
| % | 2019 |
| 2018 |
| % | ||||
| (Dollars in thousands, except per share data) |
|
| (Dollars in thousands, except per share data) |
|
| ||||||||
Capital data: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stockholders’ equity | $ | 957,819 |
| $ | 945,107 |
| 1.3% | $ | 1,044,874 |
| $ | 999,877 |
| 4.5% |
Regulatory Capital Ratios data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
| 14.14% |
|
| 14.59% |
| -3.1% |
| 17.48% |
|
| 16.78% |
| 4.2% |
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 | $ | 669,922 |
|
| 644,804 |
| 3.9% | $ | 855,667 |
|
| 811,707 |
| 5.4% |
Minimum common equity tier 1 capital required | $ | 213,189 |
|
| 198,930 |
| 7.2% | $ | 220,295 |
|
| 217,675 |
| 1.2% |
Minimum capital conservation buffer required | $ | 88,829 |
|
| 55,258 |
| 60.8% | $ | 122,386 |
|
| 90,698 |
| 34.9% |
Excess over regulatory requirement | $ | 367,904 |
|
| 390,615 |
| -5.8% | $ | 512,986 |
|
| 503,334 |
| 1.9% |
Risk-weighted assets | $ | 4,737,529 |
|
| 4,420,667 |
| 7.2% | $ | 4,895,441 |
|
| 4,837,214 |
| 1.2% |
Tier 1 risk-based capital ratio |
| 18.38% |
|
| 19.05% |
| -3.5% |
| 19.87% |
|
| 19.20% |
| 3.5% |
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 | $ | 870,792 |
| $ | 842,133 |
| 3.4% | $ | 972,537 |
| $ | 928,577 |
| 4.7% |
Minimum tier 1 risk-based capital required | $ | 284,252 |
| $ | 265,240 |
| 7.2% | $ | 293,726 |
| $ | 290,233 |
| 1.2% |
Excess over regulatory requirement | $ | 586,540 |
| $ | 576,893 |
| 1.7% | $ | 678,811 |
| $ | 638,344 |
| 6.3% |
Risk-weighted assets | $ | 4,737,529 |
| $ | 4,420,667 |
| 7.2% | $ | 4,895,441 |
| $ | 4,837,214 |
| 1.2% |
Total risk-based capital ratio |
| 19.67% |
|
| 20.34% |
| -3.3% |
| 21.14% |
|
| 20.48% |
| 3.2% |
Minimum total risk-based capital ratio required |
| 8.00% |
|
| 8.00% |
| 0.0% |
| 8.00% |
|
| 8.00% |
| 0.0% |
Actual total risk-based capital | $ | 931,717 |
| $ | 899,258 |
| 3.6% | $ | 1,035,109 |
| $ | 990,499 |
| 4.5% |
Minimum total risk-based capital required | $ | 379,002 |
| $ | 353,653 |
| 7.2% | $ | 391,635 |
| $ | 386,977 |
| 1.2% |
Excess over regulatory requirement | $ | 552,715 |
| $ | 545,604 |
| 1.3% | $ | 643,474 |
| $ | 603,522 |
| 6.6% |
Risk-weighted assets | $ | 4,737,529 |
| $ | 4,420,667 |
| 7.2% | $ | 4,895,441 |
| $ | 4,837,214 |
| 1.2% |
Leverage capital ratio |
| 13.92% |
|
| 13.92% |
| 0.0% |
| 15.20% |
|
| 14.22% |
| 6.9% |
Minimum leverage capital ratio required |
| 4.00% |
|
| 4.00% |
| 0.0% |
| 4.00% |
|
| 4.00% |
| 0.0% |
Actual tier 1 capital | $ | 870,792 |
| $ | 842,133 |
| 3.4% | $ | 972,537 |
| $ | 928,577 |
| 4.7% |
Minimum tier 1 capital required | $ | 250,165 |
| $ | 242,057 |
| 3.3% | $ | 255,876 |
| $ | 261,125 |
| -2.0% |
Excess over regulatory requirement | $ | 620,627 |
| $ | 600,076 |
| 3.4% | $ | 716,661 |
| $ | 667,452 |
| 7.4% |
Tangible common equity to total assets |
| 10.80% |
|
| 11.12% |
| -2.9% |
| 13.52% |
|
| 12.59% |
| 7.4% |
Tangible common equity to risk-weighted assets |
| 14.81% |
|
| 15.57% |
| -4.9% |
| 17.86% |
|
| 17.13% |
| 4.3% |
Total equity to total assets |
| 14.73% |
|
| 15.27% |
| -3.5% |
| 16.16% |
|
| 15.19% |
| 6.4% |
Total equity to risk-weighted assets |
| 20.22% |
|
| 21.38% |
| -5.4% |
| 21.34% |
|
| 20.67% |
| 3.2% |
Stock data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding common shares |
| 43,983,195 |
|
| 43,947,442 |
| 0.1% |
| 51,330,031 |
|
| 51,293,924 |
| 0.1% |
Book value per common share | $ | 18.01 |
| $ | 17.73 |
| 1.6% | $ | 18.76 |
| $ | 17.90 |
| 4.8% |
Tangible book value per common share | $ | 15.96 |
| $ | 15.67 |
| 1.8% | $ | 17.03 |
| $ | 16.15 |
| 5.4% |
Market price at end of period | $ | 14.05 |
| $ | 9.40 |
| 49.5% | $ | 23.77 |
| $ | 16.46 |
| 44.4% |
Market capitalization at end of period | $ | 617,964 |
| $ | 413,106 |
| 49.6% | $ | 1,220,115 |
| $ | 844,298 |
| 44.5% |
134127
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents a reconciliation of Oriental’s total stockholders’ equity to tangible common equity and total assets to tangible assets at June 30, 2018,2019 and December 31, 2017:2018:
| June 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2018 |
| 2017 | 2019 |
| 2018 | ||||
| (In thousands, except share or per share information) | (In thousands, except share or per share information) | ||||||||
Total stockholders' equity | $ | 957,819 |
| $ | 945,107 | $ | 1,044,874 |
| $ | 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 |
| (2,910) |
| (3,339) |
| (2,080) |
|
| (2,480) | |
Customer relationship intangible |
| (1,118) | �� |
| (1,348) |
| (704) |
|
| (888) |
Total tangible common equity (non-gaap) | $ | 701,852 |
| $ | 688,481 | |||||
Total tangible common equity (non-GAAP) | $ | 874,151 |
| $ | 828,570 | |||||
Total assets |
| 6,501,562 |
|
| 6,189,053 |
| 6,464,127 |
|
| 6,583,352 |
Goodwill |
| (86,069) |
| (86,069) |
| (86,069) |
|
| (86,069) | |
Core deposit intangible |
| (2,910) |
| (3,339) |
| (2,080) |
|
| (2,480) | |
Customer relationship intangible |
| (1,118) |
|
| (1,348) |
| (704) |
|
| (888) |
Total tangible assets | $ | 6,411,465 |
| $ | 6,098,297 | $ | 6,375,274 |
| $ | 6,493,915 |
Tangible common equity to tangible assets |
| 10.95% |
|
| 11.29% |
| 13.71% |
|
| 12.76% |
Common shares outstanding at end of period |
| 43,983,195 |
|
| 43,947,442 |
| 51,330,031 |
|
| 51,293,924 |
Tangible book value per common share | $ | 15.96 |
| $ | 15.67 | $ | 17.03 |
| $ | 16.15 |
The tangible common equity ratio and tangible book value per common share are non-GAAP measures and, unlike Tiertier 1 capital and Common Equity Tiercommon 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.
135128
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents Oriental’s capital adequacy information under the Basel III capital rules:
| June 30, |
| December 31, |
| Variance | June 30, |
| December 31, |
| Variance | ||||
| 2018 |
| 2017 |
| % | 2019 |
| 2018 |
| % | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Common equity tier 1 capital | $ | 669,922 |
| $ | 644,804 |
| 3.9% | $ | 855,667 |
| $ | 811,707 |
| 5.4% |
Additional tier 1 capital |
| 200,869 |
|
| 197,329 |
| 1.8% |
| 116,870 |
|
| 116,870 |
| 0.0% |
Tier 1 capital |
| 870,791 |
|
| 842,133 |
| 3.4% |
| 972,537 |
|
| 928,577 |
| 4.7% |
Additional Tier 2 capital |
| 60,925 |
|
| 57,125 |
| 6.7% |
| 62,572 |
|
| 61,922 |
| 1.1% |
Total risk-based capital | $ | 931,716 |
| $ | 899,258 |
| 3.6% | $ | 1,035,109 |
| $ | 990,499 |
| 4.5% |
Risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items | $ | 4,550,747 |
| $ | 4,249,042 |
| 7.1% | $ | 4,676,905 |
| $ | 4,641,998 |
| 0.8% |
Off-balance sheet items |
| 186,782 |
|
| 171,625 |
| 8.8% |
| 218,536 |
|
| 195,216 |
| 11.9% |
Total risk-weighted assets | $ | 4,737,529 |
| $ | 4,420,667 |
| 7.2% | $ | 4,895,441 |
| $ | 4,837,214 |
| 1.2% |
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital (minimum required - 4.5%) |
| 14.14% |
| 14.59% |
| -3.1% |
| 17.48% |
| 16.78% |
| 4.2% | ||
Tier 1 capital (minimum required - 6%) |
| 18.38% |
| 19.05% |
| -3.5% |
| 19.87% |
| 19.20% |
| 3.5% | ||
Total capital (minimum required - 8%) |
| 19.67% |
| 20.34% |
| -3.3% |
| 21.14% |
| 20.48% |
| 3.2% | ||
Leverage ratio (minimum required - 4%) |
| 13.92% |
| 13.92% |
| 0.0% |
| 15.20% |
| 14.22% |
| 6.9% | ||
Equity to assets |
| 14.73% |
| 15.27% |
| -3.5% |
| 16.16% |
| 15.19% |
| 6.4% | ||
Tangible common equity to assets |
| 10.80% |
| 11.12% |
| -2.9% |
| 13.52% |
| 12.59% |
| 7.4% |
136129
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 20182019 and December 31, 2017:2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| June 30, |
| December 31, |
| Variance | June 30, |
| December 31, |
| Variance | ||||
| 2018 |
| 2017 |
| % | 2019 |
| 2018 |
| % | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Oriental Bank Regulatory Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common Equity Tier 1 Capital to Risk-Weighted Assets |
| 17.89% |
|
| 18.63% |
| -4.0% |
| 18.92% |
|
| 18.40% |
| 2.8% |
Actual common equity tier 1 capital | $ | 846,903 |
| $ | 822,776 |
| 2.9% | $ | 922,242 |
| $ | 887,918 |
| 3.9% |
Minimum capital requirement (4.5%) | $ | 212,969 |
| $ | 198,712 |
| 7.2% | $ | 219,398 |
| $ | 217,120 |
| 1.0% |
Minimum capital conservation buffer requirement (1.875% at June 30, 2018 - 1.25% at December 31, 2017) | $ | 88,737 |
| $ | 55,198 |
| 60.8% | |||||||
Minimum capital conservation buffer requirement (1.875%) | $ | 121,888 |
| $ | 90,467 |
| 34.7% | |||||||
Minimum to be well capitalized (6.5%) | $ | 307,622 |
| $ | 287,028 |
| 7.2% | $ | 316,908 |
| $ | 313,618 |
| 1.0% |
Tier 1 Capital to Risk-Weighted Assets |
| 17.89% |
|
| 18.63% |
| -4.0% |
| 18.92% |
|
| 18.40% |
| 2.8% |
Actual tier 1 risk-based capital | $ | 846,903 |
| $ | 822,776 |
| 2.9% | $ | 922,242 |
| $ | 887,918 |
| 3.9% |
Minimum capital requirement (6%) | $ | 283,959 |
| $ | 264,949 |
| 7.2% | $ | 292,530 |
| $ | 289,494 |
| 1.0% |
Minimum to be well capitalized (8%) | $ | 378,612 |
| $ | 353,265 |
| 7.2% | $ | 390,040 |
| $ | 385,992 |
| 1.0% |
Total Capital to Risk-Weighted Assets |
| 19.18% |
|
| 19.92% |
| -3.7% |
| 20.19% |
|
| 19.68% |
| 2.6% |
Actual total risk-based capital | $ | 907,578 |
| $ | 879,648 |
| 3.2% | $ | 984,483 |
| $ | 949,596 |
| 3.7% |
Minimum capital requirement (8%) | $ | 378,612 |
| $ | 353,265 |
| 7.2% | $ | 390,040 |
| $ | 385,992 |
| 1.0% |
Minimum to be well capitalized (10%) | $ | 473,265 |
| $ | 441,581 |
| 7.2% | $ | 487,550 |
| $ | 482,490 |
| 1.0% |
Total Tier 1 Capital to Average Total Assets |
| 13.59% |
|
| 13.63% |
| -0.3% |
| 14.54% |
|
| 13.68% |
| 6.3% |
Actual tier 1 capital | $ | 846,903 |
| $ | 822,776 |
| 2.9% | $ | 922,242 |
| $ | 887,918 |
| 3.9% |
Minimum capital requirement (4%) | $ | 249,314 |
| $ | 241,417 |
| 3.3% | $ | 253,721 |
| $ | 259,547 |
| -2.2% |
Minimum to be well capitalized (5%) | $ | 311,643 |
| $ | 301,771 |
| 3.3% | $ | 317,152 |
| $ | 324,434 |
| -2.2% |
137130
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Oriental’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At June 30, 20182019 and December 31, 2017,2018, Oriental’s market capitalization for its outstanding common stock was $618.0 million$1.220 billion ($14.0523.77 per share) and $413.1$844.3 million ($9.4016.46 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 twothree calendar years:
|
|
|
|
|
| Cash |
|
|
|
|
| Cash | ||||
| Price |
| Dividend | Price |
| Dividend | ||||||||||
| High |
| Low |
| Per share | High |
| Low |
| Per share | ||||||
2019 |
|
|
|
|
|
|
|
| ||||||||
June 30, 2019 | $ | 23.77 |
| $ | 18.78 |
| $ | 0.07 | ||||||||
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 | $ | 14.75 |
| $ | 10.60 |
| $ | 0.06 |
March 31, 2018 | $ | 12.05 |
| $ | 8.60 |
| $ | 0.06 | $ | 12.05 |
| $ | 8.60 |
| $ | 0.06 |
2017 |
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|
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|
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December 31, 2017 | $ | 10.25 |
| $ | 7.90 |
| $ | 0.06 | $ | 10.25 |
| $ | 7.90 |
| $ | 0.06 |
September 30, 2017 | $ | 10.40 |
| $ | 8.40 |
| $ | 0.06 | $ | 10.40 |
| $ | 8.40 |
| $ | 0.06 |
June 30, 2017 | $ | 12.03 |
| $ | 9.19 |
| $ | 0.06 | $ | 12.03 |
| $ | 9.19 |
| $ | 0.06 |
March 31, 2017 | $ | 13.80 |
| $ | 10.90 |
| $ | 0.06 | $ | 13.80 |
| $ | 10.90 |
| $ | 0.06 |
2016 |
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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 | ||||||||
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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 and six-month period ended June 30, 20182019.
At June 30, 2018,2019, the number of shares that may yet be purchased under such program is estimated at 550,239325,236 and was calculated by dividing the remaining balance of $7.7 million by $14.05 $23.77 (closing price of Oriental's common stock at June 30, 2018)2019).
138131
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 BoardBoard’s Risk and Compliance Committee and the executive Risk and Compliance 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 core 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.
139132
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 June 30, 20182019 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 | $ | 9,064 |
| 2.98% |
| $ | 10,249 |
| 3.35% | $ | 15,667 |
| 4.91% |
| $ | 16,259 |
| 4.73% |
+ 100 Basis points | $ | 4,569 |
| 1.50% |
| $ | 5,189 |
| 1.70% | $ | 7,916 |
| 2.48% |
| $ | 8,215 |
| 2.39% |
- 100 Basis points | $ | (4,485) |
| -1.48% |
| $ | (5,063) |
| -1.66% | $ | (8,214) |
| -2.58% |
| $ | (8,489) |
| -2.47% |
- 200 Basis points | $ | (9,071) |
| -2.99% |
| $ | (10,213) |
| -3.34% | $ | (16,102) |
| -5.05% |
| $ | (16,587) |
| -4.82% |
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 June 30, 2018.2019.
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 fluctuationsfluctuation 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 98 to the accompanying consolidated financial statements for further information concerning Oriental’s derivative activities.
140
Following is a summary of certain strategies, including derivative activities, currently used by Oriental to manage interest rate risk:
133
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 borrowingsborrowing 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 assetliability of $421$959 thousand (notional amount of $34.4$32.8 million) was recognized at June 30, 20182019 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 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 June 30, 2018,2019, Oriental did not have interest rate swaps offered to clients not designated as hedging instruments represented a derivative asset of $335 thousand (notional amounts of $12.5 million), and the mirror-image interest rate swaps in which Oriental entered into represented a derivative liability of $335 thousand (notional amounts of $12.5 million).instruments.
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 June 30, 2018,2019, Oriental had $34.4$32.8 million in interest rate swaps at an average rate of 2.4%2.42% designated as cash flow hedges for $34.4$32.8 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 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 the federally-created Fiscal Oversight and Management Board offor Puerto Rico. In addition, as was demonstrated with hurricanes Irma and Maria during the month of September 2017, Puerto Rico is susceptible to natural disasters, such as hurricanes and earthquakes, which can have a disproportionate impact on Puerto Rico because of the logistical difficulties of bringing relief to an island far from the United States main land.mainland. Moreover, the Puerto Rico government's fiscal challenges and Puerto Rico's unique relationship with the United States also complicate any relief efforts after a natural disaster. These events increase credit risk as debtors may no longer be capable of operating their businesses and the collateral securing Oriental's loans may suffer significant 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 all agency mortgage-backed securities. Thus, 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 Team, composed of its Chief Operating 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.
141
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.
134
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 external wholesale funding sources. Oriental has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements and brokered deposits. As of June 30, 2018,2019, Oriental had $387.4$240.0 million in repurchase agreements, excluding accrued interest, and $461.4$388.4 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 June 30, 2018,2019, Oriental had approximately $375.3$676.4 million in unrestricted cash and cash equivalents, $849.9$403.2 million in investment securities that are not pledged as collateral, $775.6and $784.8 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 Risk and Compliance 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.
142
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.
135
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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
There have not been any changes in Oriental’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2018,2019, that has materially affected, or is reasonably likely to materially affect, Oriental’s internal control over financial reporting.
143136
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
PART - II OTHER INFORMATION
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.
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, 2017.2018, except as described below. 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.
Oriental may fail to successfully consummate the Scotiabank Transaction.
While Oriental intends and expects to meet all of the conditions required to consummate the Scotiabank Transaction, there are certain closing conditions, which are beyond our control, required for the consummation of the Purchase Agreements. These factors include the receipt of regulatory approvals from the FDIC, the Federal Reserve Board, the OCFI and the USVI Banking Board (the “Approvals”).
In determining whether to approve the Scotiabank Transaction, federal bank regulators will consider, among other factors, its effect on our competitors, our financial condition and our future prospects. The regulators also review current and projected capital ratios and levels, the competence, experience, and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the Community Reinvestment Act) and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. There can be no assurance as to when or whether these regulatory approvals will be received, or the conditions associated with any approval.
Oriental may fail to realize the anticipated benefits of the Scotiabank Transaction.
The success of the Scotiabank Transaction will depend on, among other things, Oriental’s ability to realize anticipated cost savings and to integrate the assets and operations to be acquired in a manner that permits growth opportunities and does not materially disrupt Oriental’s existing customer relationships or result in decreased revenues resulting from any loss of customers. If Oriental is not able to successfully achieve these objectives, the anticipated benefits of the Scotiabank Transaction may not be realized fully or at all or may take longer to realize than expected. Additionally, Oriental made assumptions and estimates concerning the fair value of assets and liabilities to be acquired in evaluating the Scotiabank Transaction and the purchase price. Actual values of these assets and liabilities could differ from Oriental’s assumptions and estimates, which could result in not achieving the anticipated benefits of the Scotiabank Transaction.
At Closing, BNS and Oriental will enter into a transition services agreement pursuant to which BNS will provide Oriental with services necessary to assist Oriental with the day-to-day operations of the acquired companies and their transition to our infrastructure, and to provide data for the integration of information, for a period of up to eighteen months. The Purchase Agreements contains customary indemnification rights for each of BNS and Oriental, including with respect to breaches of representations, warranties or covenants and certain other specified matters. Certain of the indemnification obligations of each party are subject to a minimum claim size threshold, an aggregate claim threshold, a cap on indemnification and other limitations on liability.
137
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
There can be no assurance that the Scotiabank Transaction will have positive results, including results relating to: correctly assessing the asset quality of the assets acquired; the total cost of integration, including management attention and resources; the time required to complete the integration successfully; the amount of longer-term cost savings; being able to profitably deploy funds acquired in the transaction; or the overall performance of the combined business. Oriental’s future growth and profitability depends, in part, on the ability to successfully manage the combined operations. Integration of an acquired business can be complex and costly, sometimes including combining relevant accounting and data processing systems and management controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners. Integration efforts could divert management attention and resources, which could adversely affect Oriental’s operations or results. The loss of key employees in connection with the Scotiabank Transaction could adversely affect our ability to successfully conduct the combined operations.
Greater than expected credit costs, markdowns and provisions for loan and lease losses concerning the assets to be acquired could adversely affect Oriental’s financial condition and results of operations in the future. There is no assurance that our integration efforts will not result in other unanticipated costs, including the diversion of personnel, or losses.
The Scotiabank Transaction may also result in business disruptions that cause us to lose customers or cause customers to move their accounts or business to competing financial institutions. It is possible that the integration process related to this acquisition could disrupt Oriental’s ongoing business or result in inconsistencies in customer service that could adversely affect Oriental’s ability to maintain relationships with clients, customers, depositors and employees. Our inability to overcome these risks could have a material adverse effect on our business, financial condition, results of operations and future prospects.
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.
None.
144138
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
ITEM 6. EXHIBITS
Exhibit No. Description of Document:
10.1 Amendment to Technology Outsourcing Agreement between the Company and Metavante (a).
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 June 30, 2018,2019, 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.
(a)Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
145139
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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)
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By: | /s/ José Rafael Fernández
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| Date: August |
| José Rafael Fernández |
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| President and Chief Executive Officer |
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By: | /s/ Maritza Arizmendi
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| Date: August |
| Maritza Arizmendi |
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| Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||
By: | /s/ Krisen Aguirre Torres | Date: August 2, 2019 | |
Krisen Aguirre Torres | |||
Vice President Financial Reporting and Accounting Control |
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146140