UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019

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

EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-12647

OFG Bancorp

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

Principal Executive Offices:

254 Muñoz Rivera Avenue

San Juan, Puerto Rico 00918

Telephone Number: (787) 771-6800

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, par value $1.00 per share	OFG	New York Stock Exchange
7.125% Noncumulative Monthly Income Preferred Stock, Series A ($25.00 liquidation preference per share)	OFG.PRA	New York Stock Exchange
7.0% Noncumulative Monthly Income Preferred Stock, Series B ($25.00 liquidation preference per share)	OFG.PRB	New York Stock Exchange
7.125% Noncumulative Perpetual Preferred Stock, Series D ($25.00 liquidation preference per share)	OFG.PRD	New York Stock Exchange

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

~~Emerging Growth Company~~ ☐

Accelerated Filer ☑

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

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:

~~43,983,195~~51,347,056 common shares ($1.00 par value per share) outstanding as of July 31, ~~2018~~2019

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION			Page
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition		1
	Unaudited Consolidated Statements of Operations		3
	Unaudited Consolidated Statements of Comprehensive Income		5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity		6
	Unaudited Consolidated Statements of Cash Flows		7
	Notes to Unaudited Consolidated Financial Statements

		Note 1 – Organization, Consolidation and Basis of Presentation	109
		Note 2 – Significant Events	11
		Note 3 – Restricted Cash	12
		Note 4 – Investment Securities	1312
		Note 5 – Loans	1918
		Note 6 – Allowance for Loan and Lease Losses	4746
		Note 7 – ~~FDIC Shared-loss Agreements~~Foreclosed Real Estate	56
		Note 8 – Derivatives	57
		Note 9 – Accrued Interest Receivable and Other Assets	58
		Note 10 – Deposits and Related Interest	59
		Note 811 – ~~Foreclosed Real Estate~~	58
		~~Note 9 – Derivatives~~Borrowings and Related Interest	61
		Note 1012 – ~~Accrued Interest Receivable~~Offsetting of Financial Assets and ~~Other Assets~~	62
		~~Note 11 – Deposits and Related Interest~~Liabilities	63
		Note 1213 – ~~Borrowings and Related Interest~~Income Taxes	65
		~~Note 13 – Offsetting of Financial Assets and Liabilities~~	6866
		Note 14 – Regulatory Capital Requirements	67
		Note 15 – Stockholders’ Equity	69
		Note 16 – Accumulated Other Comprehensive Income ~~Taxes~~	70
		Note ~~15 – Regulatory Capital Requirements~~	71
		~~Note 16 – Stockholders’ Equity~~	72
		~~Note~~ 17 – ~~Accumulated Other Comprehensive Income~~Earnings per Common Share	73
		Note 18 – ~~Earnings per Common Share~~Guarantees	74
		Note 19 – Commitments and Contingencies	75
		Note 1920 – ~~Guarantees~~Operating Leases	77
		~~Note 20 – Commitments and Contingencies~~	7876
		Note 21 – Fair Value of Financial Instruments	8878
		Note 22 – Banking and Financial Service Revenues	8285
		Note 23 – Business Segments	8987

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9290
		Critical Accounting Policies and Estimates	92
		~~Overview of Financial Performance:~~	9291
		Selected Financial Data	9492
		Financial Highlights of the Second Quarter of ~~2018~~2019	9694
		Analysis of Results of Operations	9794
		Analysis of Financial Condition	~~111~~108
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		~~139~~132
Item 4.	Controls and Procedures		~~143~~136
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		~~144~~137
Item 1A.	Risk Factors		~~144~~137
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		~~144~~138
Item 3.	Default upon Senior Securities		~~144~~138
Item 4.	Mine Safety Disclosures		~~144~~138
Item 5.	Other Information		~~144~~138
Item 6.	Exhibits		~~145~~139
Signatures			~~146~~140

FORWARD-LOOKING STATEMENTS

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

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

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

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

· ~~the~~a credit default by ~~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.

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, ~~2018~~2019 AND DECEMBER 31, ~~2017~~2018

		June 30,		December 31,			June 30,		December 31,
		2018		2017			2019		2018
		(In thousands)					(In thousands)
ASSETS
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

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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, ~~2018~~2019 AND DECEMBER 31, ~~2017~~2018 (CONTINUED)

		June 30,		December 31,			June 30,		December 31,
		2018		2017			2019		2018
		(In thousands)					(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
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

OFG BANCORP

~~UNAUDITED~~UNADUTIED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 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, 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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018 (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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018

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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018


	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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018


	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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018 (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

OFG BANCORP

~~UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 (CONTINUED)~~

~~OFG BANCORP~~

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Nature of Operations

OFG Bancorp (“Oriental”) is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. Oriental operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer, Oriental Financial Services Corp. (“Oriental Financial Services”), an insurance agency, Oriental Insurance LLC. (“Oriental Insurance”), 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.

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

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

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, which simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2019. ~~We will assess the impact that the adoption~~The effects of ~~ASU 2017-04 will have~~this standard on our consolidated statement of financial ~~statements and related disclosures 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 have~~are 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, reviewed~~development 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 expects~~controls, 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 amount~~provisions of ~~the increase will depend on the portfolio composition, credit quality, economic conditions and reasonable and supportable forecasts at that time.~~

~~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 lessees~~2016-13 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 it~~in 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 liabilities~~time 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.

NOTE 2 – SIGNIFICANT EVENTS

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.

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.~~

NOTE 3 – RESTRICTED CASH

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, ~~2018~~2019 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 $~~300~~305 thousand and $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. These instruments cannot be withdrawn or transferred by OIB or Oriental Overseas without prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (the ~~"OCFI"~~"OCFI").

As part of its derivative activities, Oriental ~~has entered~~enters into collateral agreements with certain financial counterparties. At ~~both~~ June 30, ~~2018 and~~2019 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, ~~2018~~2019 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, ~~2018~~2019 was ~~$219.7~~$208.3 million (December 31, ~~2017~~2018 - ~~$189.2~~$211.6 million). At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank complied with ~~the~~this requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

~~OFG BANCORP~~

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

NOTE 4 – 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, ~~2018~~2019 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.

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, ~~2018~~2019 and December 31, ~~2017~~2018 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%

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

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 $$25.7~~37.6~~ million amortized cost, at a yield of ~~3.45~~3.69 % from its own originations while, during the six-month period ended June 30, ~~2017,~~ 2018 that amount totaled ~~$49.8~~ $37.6 million amortized cost, at a yield of ~~3.15~~3.45%.

During the ~~six-month period~~quarter 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 recorded~~recognized 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

$
-

~~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~~ 556.5~~billion,~~ million, amortized cost) with an unrealized loss position at June 30, ~~2018~~2019 consist of securities issued or guaranteed by the U.S. Treasury or U.S. government-sponsored agencies, all of which are highly liquid securities that have a large and efficient secondary market. Their aggregate losses and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthiness of the issuers or guarantors of such securities.

~~The sole exposure to 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.~~

NOTE 5 - LOANS

Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The composition of Oriental’s loan portfolio at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as ~~follows~~follows::

	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

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

~~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, ~~2018~~2019 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.

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		-

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

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		-

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

-

~~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, ~~2018~~2019, 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, ~~2018~~2019 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, ~~2018~~2019 and December 31, ~~2017~~2018 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

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

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.~~

T~~he 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

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

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

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

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

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

~~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, ~~2018~~2019 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, ~~2018~~2019 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~~ $119.7 million and ~~$109.2~~ $112.9million, respectively, as they are performing under their new terms.

At June 30, ~~2018~~2019 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~~ $20.5 million 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~~ $82.0 million at June 30, ~~2018~~2019 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~~ $9.2 million and ~~$10.6~~ $8.4 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was ~~$84.5~~ $83.1 million and ~~$85.4~~$84.2 million at June 30, ~~2018~~2019 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~~ $10.6 million and ~~$9.1~~ $10.2million at June 30, ~~2018~~2019 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, ~~2018~~2019 and ~~2017~~December 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%

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%

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)~~

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)~~

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%

~~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.

Acquired Eurobank Loans

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

	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, ~~2018~~2019 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

Modifications

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

~~Modifications~~39

	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 the~~table presents troubled-debt restructurings ~~in all loan portfolios~~for which there was a payment default during the ~~quarters and six-month~~twelve-month periods ended June 30, ~~2018~~2019 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	-	$	-

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

~~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, ~~2018~~2019 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		-		-

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	$	-	$	-

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		-		-

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	$	-	$	-

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

$
-

$
-

~~OFG BANCORP~~

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

NOTE 6 – ALLOWANCE ~~FOR~~FO R LOAN AND LEASE LOSSES

The composition of Oriental’s allowance for loan and lease losses at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 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.

~~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~~.

~~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

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

~~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 ~~indicated~~indicated::

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

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

	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:

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

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:~~

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

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

~~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.

~~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

~~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.

DERIVATIVES

~~OFG BANCORP~~

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

~~NOTE 9~~ — ~~DERIVATIVES~~

The following table presents Oriental’s derivative assets and liabilities at June 30, ~~2018~~2019 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

Interest Rate Swaps

Oriental enters into interest rate swap contracts to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in a predetermined variable index rate. The interest rate swaps effectively fix Oriental’s interest

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, and~~such; therefore, qualify for cash flow hedge accounting. Any gain or loss associated with the effective portion of the cash flow hedges is recognized in other comprehensive income (loss) and is subsequently reclassified into operations in the period during which the hedged forecasted transactions affect earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income to the extent there is no significant ineffectiveness in the cash flow hedging relationships. Currently, Oriental does not expect to reclassify any amount included in other comprehensive income (loss) related to these interest rate swaps to operations in the next twelve months.

The following table shows a summary of these swaps and their terms at June 30, ~~2018:~~2019:

Notional

Fixed

Variable

Trade

Settlement

Maturity

Notional

Fixed

Variable

Trade

Settlement

Maturity

Type

Amount

Rate

Rate Index

Date

Amount

Rate

Rate Index

Date

(In thousands)

Interest Rate Swaps

34,352

2.4210%

1-Month LIBOR

07/03/13

08/01/23

32,773

2.4210%

1-Month LIBOR

07/03/13

08/01/23

34,352

32,773

An accumulated unrealized ~~gain~~loss of $$959 ~~421~~ thousand and a ~~loss~~gain of ~~$510~~$14 thousand were recognized in accumulated other comprehensive income related to the valuation of these swaps at June 30, ~~2018~~2019 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 and~~2019 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.

~~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

Interest Rate Caps

Oriental has entered into interest rate cap transactions with various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. In these cases, Oriental simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting, and therefore, they are marked to market through earnings. As of June 30, ~~2018~~2019 and December 31, ~~2017~~2018, 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, ~~2018~~2019 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, ~~2018~~2019 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, ~~2018~~2019 and December 31, ~~2017~~2018 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.~~

O~~ther 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, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, include prepaid municipal, property and income taxes aggregating to $$8.8~~8.5~~ 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, ~~2018~~2019 and December 31, ~~2017~~2018 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, ~~2018~~2019 and December 31, ~~2017~~2018, this customer relationship intangible amounted to ~~$1.1~~$704 ~~million~~thousand 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, ~~2018~~2019 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, ~~2018~~2019 and December 31, ~~2017~~2018 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~~ $21.7 million in money market accounts at June 30, ~~2018,~~2019, and ~~$471.6~~ $500.8 million in certificates of deposits and ~~$46.9~~ $24.3 million 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 ~~0.63~~0.80 % and ~~0.65~~0.67%, respectively, at June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. Interest expense for the quarters and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 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, ~~2018~~2019 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 $$19.6 ~~3.5~~ million at a weighted average rate of ~~0.93~~134.3 % and ~~0.28~~116.4% at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

At June 30, ~~2018~~2019 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, ~~2018~~2019 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, ~~2018~~2019 and ~~2017~~December 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, ~~2018~~2019 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 under~~The following table shows Oriental’s repurchase agreements, ~~to repurchase (classified by counterparty),~~ excluding accrued interest in the amount of ~~$391~~ $324 thousand and ~~$369~~ $785thousand ~~respectively, were~~at 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’s~~securities 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)

~~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, ~~2018~~2019 and December 31, ~~2017~~2018, these advances were secured by mortgage and commercial loans amounting to ~~$910.7~~ $864.7 million and ~~$1.3~~ $847.3~~billion,~~ million, respectively. Also, at June 30, ~~2018~~2019 and December 31, ~~2017~~2018, Oriental had an additional borrowing capacity with the FHLB-NY of ~~$775.6~~ $784.8 million and ~~$920.0~~$762.0 million, respectively. At June 30, ~~2018~~2019 and December 31, ~~2017~~2018, the weighted average remaining maturity of FHLB’s advances was ~~8.4 months~~ 26.0 months and ~~3.2~~26.6 months,, respectively. The original terms of these advances range between one ~~month~~day and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of June 30, ~~2018.~~2019.

The following table shows a summary of ~~these~~the 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 renewed~~Advances 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, ~~2018~~2019 and December 31, ~~2017~~2018:

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

Instruments

Received

Amount

(In thousands)

Derivatives

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

Instruments

Received

Amount

(In thousands)

Derivatives

347

2,037

(1,690)

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)

NOTE 1413 —INCOME TAXES

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

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

At June 30, ~~2018~~2019 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 ~~are~~is deductible, management believes it is more likely than not that Oriental will realize the deferred tax asset, net of the existing valuation allowances recorded at June 30, ~~2018~~2019 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 ~~remained~~amounted at $$908 ~~1.3~~ thousand and $875 ~~million when compared to December 31, 2017.~~ thousand, respectively. Oriental had accrued ~~$48~~$33 thousand at June 30, ~~2018~~2019 (December 31, ~~2017~~2018 - ~~$97~~$81 thousand) for the payment of interest and penalties relating to unrecognized tax ~~benefits~~benefits..

~~Oriental is subject to the dispositions of the 2011 Puerto Rico Internal Revenue Code, as amended (the "Code"). The Code imposes a maximum corporate tax rate of~~ 39~~%. Oriental maintained a lower effective tax rate for the 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 ~~that~~based on the framework of the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”), which became effective January 1, 2015 for Oriental and the Bank (subject to certain phase-in periods through January 1, 2019) and that replaced their general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules. Among other matters, the ~~new~~Basel III capital rules: (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to prior regulations. The ~~current~~Basel III capital rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the previous four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, and resulting in higher risk weights for a variety of asset classes.

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

4.5% CET1 to risk-weighted assets;

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

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

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

as the “leverage ratio”).

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

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, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio		Amount	Ratio
	(Dollars in thousands)
OFG Bancorp Ratios
As of 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~~

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.

Legal Surplus

The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income ~~or loss~~ for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank’s legal surplus amounted to ~~$85.2~~ $95.0 million 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.

Treasury Stock

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

At June 30, ~~2018~~2019 the number of shares that may yet be purchased under the $70 million program is estimated at 325,236~~550,239~~ and was calculated by dividing the remaining balance of $7.7 million 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, ~~2018~~2019 and ~~2017~~2018 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

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:

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:

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

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, 2017~~on 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.

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)

~~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:~~

~~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

~~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.~~

~~NOTE 19~~ – GUARANTEES

At June 30, ~~2018~~2019 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, ~~2018~~2019 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, ~~2018~~2019 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 party~~third-party investor for the incurred loss. The maximum potential amount of future payments that Oriental would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the ~~quarter~~quarters 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– $358~~2018– $346 thousand).

When Oriental sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. Oriental's mortgage operations division groups conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to

~~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 ~~quarter~~quarters ended June 30, ~~2018~~ 2019, Oriental repurchased ~~$2.4~~$8.1 million (June 30, ~~2017~~2018 – ~~$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, ~~2018~~2019 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.

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, ~~2018~~2019, Oriental serviced ~~$880.4~~$892.1 million (December 31, ~~2017~~2018 - ~~$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, ~~2018~~2019, the outstanding balance of funds advanced by Oriental under such mortgage loan servicing agreements was approximately ~~$651~~$607 thousand (December 31, ~~2017~~2018 - ~~$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, ~~2018~~2019 and December 31, ~~2017~~2018 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

~~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

~~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, ~~2018~~2019 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, ~~2018~~2019 and December 31, ~~2017~~2018, respectively.

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

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, ~~2018~~2019 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 ~~nonperformance~~non-performance is the face amount of the letter of credit or financial guarantee. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The amount of collateral obtained, if it is deemed necessary by Oriental upon extension of credit, is based on management’s credit evaluation of the customer.

~~Lease Commitments~~

~~Oriental has entered into various operating lease agreements for branch facilities and administrative offices. Rent expense for the quarters ended 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

~~OFG BANCORP~~

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

Contingencies

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

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

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

NOTE 20— OPERA TING LEASES

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

Lessee Accounting

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

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.

Operating Lease Cost

	Quarter Ended June 30, 2019		Six-Month Period Ended June 30, 2019
	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
		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
	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:

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, ~~2018~~2019 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

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.

~~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, ~~2018~~2019 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

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, ~~2018~~2019, 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)

	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 ~~relationships~~relationships 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, ~~2018~~2019 and December 31, ~~2017~~2018 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, ~~2018~~2019 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 ~~date~~datess..

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, ~~2018~~2019 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:

Banking Service Revenues

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

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

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

Wealth Management Revenue

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

Brokers fees consist of two categories:

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

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

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

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

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

Mortgage Banking Activities

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

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 23 –BUSINESS SEGMENTS

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

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

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

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

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, ~~2018~~2019 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, ~~2017~~2018 (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.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CRITICAL ACCOUNTING ~~POLICIES~~POLIC IES 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 ~~2017~~2018 Form 10-K.

In the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” section of our ~~2017~~2018 Form 10-K, we identified ~~the following~~several accounting policies as critical, including the following, because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition:

· Fair value measurements of financial instruments

· Interest on loans and allowance for loan and lease losses

· ~~Acquisition accounting~~Accounting 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

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. T~~Apart from these changes, there~~here have been no ~~other~~ material changes in the methods used to formulate these critical accounting estimates from those discussed in our ~~2017~~2018 Form 10-K.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SELECTED FI NANCIAL DATA

Quarter Ended June 30,

Six-Month Period Ended June 30,

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%

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%

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~OVERVIEW OF FINANCIAL PERFORMANCE~~We 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%

FINANCIAL HIGHLIGHTS

~~Our earnings per share in~~Comparison 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 of~~ended 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 quarter~~from Originated Loans and Cash more than offset pay downs of ~~2018 $13.5 million~~Acquired Loans and ~~the second quarter of 2017 $13.6 million, equal to $0.30 per share, respectively.~~lower Investment Securities balances.

· ~~Average loan balances~~Earnings 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 ~~production~~origination of ~~$432.1~~$326.6 million ~~grew 39.7% from~~included the ~~first quarter~~continued 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 balances~~Assets 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 quarter~~Oriental 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 year~~end of 2019 as ~~our strategy~~Oriental 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 loan~~Oriental entered into an agreement with Scotiabank to acquire its Puerto Rico and ~~lease losses of $14.7~~U.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.~~

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, ~~2018~~2019 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

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

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

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

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

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 ~~for~~of the quarters ended June 30, ~~2018~~2019 and ~~2017~~2018

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 $7.7~~by $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 an~~cash 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 offset~~adversely impacted by:

· ~~A decrease~~Increase 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 ~~periods~~period ended June 30, ~~2018~~2019 and ~~2017~~2018

Net interest income of ~~$151.6~~$162.9 million increased ~~$1.4~~$11.3 million ~~compared with $150.2~~from $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-earning~~total interest earning assets ~~from 5.90% to 5.91%~~ and ~~to 7~~22 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 $12.6~~by $23.3 million, reflecting higher balances in commercial, consumer and auto loan portfolios. This increase also reflects higher interest rates in the ~~commercial, auto~~originated loan portfolio by 44 basis points from higher prices by $8.0 million and ~~consumer portfolios~~volume by $17.0 million; and

· Higher interest income from ~~investment~~cash 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 rates~~customer and brokered deposit costs of ~~$2.5~~$2.8 million ~~partially offset by a decrease~~and $1.3 million, respectively, and increase in ~~volume~~cost of ~~$1.6~~repurchase agreements of $2.4 million; ~~and~~

· ~~Lower~~Decrease in interest ~~expenses on repurchase agreements~~income 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 decrease~~Decrease 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

	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, ~~2018~~2019 and ~~2017~~2018

Oriental recorded non-interest income, net, in the amount of ~~$18.7~~$22.9 million, compared to ~~$24.9~~$18.7 million, ~~a decrease~~an increase of ~~24.8%~~22.7%, or ~~$6.2~~$4.2 million. The ~~decrease~~net increase in non-interest income was mainly due to:

· ~~The~~An 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, ~~2018~~2019 and ~~2017~~2018

Oriental recorded non-interest income, net, in the amount of ~~$37.2~~$40.6 million, compared to ~~$44.0~~$37.2 million, ~~a decrease~~an increase of ~~15.3%~~9.1%, or ~~$6.7~~$3.4 million. The ~~decrease~~increase in non-interest income was mainly due to:

·The ~~termination of the FDIC shared-loss agreement during the first quarter of 2017 resulting~~increase in ~~the recognition of a $1.4 million gain.~~

~~The decrease~~non-interest income was partially offset by:

· ~~An increase of $1.2 million~~A decrease in mortgage banking activities ~~which included $1.0 million in other income from~~of $910 thousand, mainly reflecting lower mortgage servicing ~~assets due to higher book balances of mortgage loans, mainly attributed to the hurricane related moratorim.~~fees.

~~102~~100

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

TABLE 3 - NON-INTEREST EXPENSES SUMMARY

	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

~~103~~101

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Non-Interest Expenses

Comparison of quarters ended June 30, ~~2018~~2019 and ~~2017~~2018

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, ~~2018~~2019 and ~~2017~~2018 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, ~~2018~~2019 and ~~2017~~2018

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 ~~occupancy~~professional and ~~equipment expenses~~service fees by ~~$1.2~~$795 thousand, mainly consulting and advisory fees.

·Merger and restructuring charges incurred amounting to $1.0 million ~~particularly attributed~~related to ~~a lease cancellation fee of $1.5 million~~the 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, ~~2018~~2019 and ~~2017~~2018 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, ~~2018~~2019 and ~~2017~~2018

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

Provision for loan and lease losses increased 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 provision~~to 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 $14.0~~of $8.0 million, mainly due to ~~$30.2 million.~~ ~~The decrease in the~~an additional provision ~~was mostly due to:~~

·~~The additional provisions placed~~recognized during the ~~second~~year ago quarter from the periodic assessment of ~~2017 described above; and~~

·~~Most~~loans 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, ~~2018~~2019 and ~~2017~~2018

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, ~~2018~~2019 and ~~2017~~2018

~~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

~~106~~103

~~Business Segments~~OFG 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 products~~its services were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. Following are the results of operations and the selected financial information by operating segment for the quarters and six-month periods ended June 30, ~~2018~~2019 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

~~107~~104

	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

~~108~~OFG 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

~~109~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Comparison of quarters ended June 30, ~~2018~~2019 and ~~2017~~2018

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:

· ~~The~~Higher 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 quarter~~mortgage 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 ~~loss~~decrease 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-offs~~in 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 portfolios~~interest 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 ~~from~~reflecting 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 $1.0~~increased $464 thousand to $4.3 million, ~~to $972 thousand~~mainly due to ~~higher~~the decrease in non-interest expenses ~~by $1.2 million,~~of $343 thousand mainly from lower legal expenses related to ~~an increase in~~ claims and ~~settlements~~settlement 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, ~~decreased~~increased 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 $2.1~~Increase of $4.8 million ~~reflecting~~from 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 increase~~Increase in interest ~~rates;~~expenses from securities sold under agreement to repurchase of $2.4 million; and

· ~~Lower interest~~Decrease in non-interest expenses ~~on repurchase agreements and other borrowings~~ of ~~$2.1 million~~$887 thousand as ~~a result~~part of ~~the repayment of high~~ cost ~~repurchase agreements and FHLB advances~~savings 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 increase~~a 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 in~~2018.

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 $259.5~~increased $229.3 million and ~~$187.1~~$42.9 million, ~~respectively, partially offset by~~respectively. 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 cash~~right-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, ~~2017~~2018 to ~~$3.540~~$3.827 billion at June 30, ~~2018. The~~2019. 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. The~~and 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 failed~~both units passed step one of the two-step impairment ~~test and that the Wealth Management unit passed such step.~~test. As a result of step one, the ~~Banking unit’s~~fair 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 period~~quarter 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.

~~112~~109

~~FDIC Indemnification Asset~~

~~113~~OFG 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%

~~115~~OFG BANCORP

~~116~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As shown in Table 5 above, total loans, net, amounted to ~~$4.316~~$4.474 billion at June 30, ~~2018~~2019 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, ~~2018~~2019 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 ~~$339.3~~356.1 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, ~~2018~~2019 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 and~~same period in 2018. However, the auto production decreased by 1.1% to $256.5 million for the six-month period ended June 30, ~~2018~~2019, when compared to ~~$78.6~~$259.2 million ~~and $165.4 million, respectively,~~ for the same ~~periods~~period in ~~2017.~~2018.

~~117~~112

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.

~~118~~OFG 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

~~119~~OFG 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

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.

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.

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 ~~ALLL~~allowance for loan and lease losses and present selected loan loss statistics. In addition, Table 5 sets forth the composition of the loan portfolio.

Please refer to the “Provision for Loan and Lease Losses” section in this MD&A for a more detailed analysis of provisions for loan and lease losses.

~~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, ~~2018~~2019 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, ~~2018~~2019 and December 31, ~~2017,~~2018, loans whose terms have been extended and which are classified as troubled-debt ~~restructuring~~restructurings that are not included in non-performing assets amounted to ~~$100.5~~$119.7 million and ~~$109.2~~$112.9 million, respectively.

At June 30, ~~2018~~2019 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.

Acquired loans with credit deterioration are considered to be performing due to the application of the accretion method under ASC 310-30, in which these loans will accrete interest income over ~~the~~their remaining life ~~of the loans~~ using estimated cash flow analyses. Credit related decreases in expected cash flows, compared to those previously forecasted are recognized by recording a provision for credit losses on these loans when it is probable that all cash flows expected at acquisition will not be collected.

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 ~~increased~~decreased 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% increase~~16.0% 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, ~~2018~~2019 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% increase~~34.2% 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 increase~~a 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.

~~123~~116

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%

~~124~~117

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%

~~125~~118

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%

~~126~~OFG 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%

~~127~~OFG 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%

~~128~~OFG 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%

~~129~~OFG 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

~~130~~123

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%

~~131~~OFG 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

~~132~~OFG 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, ~~2018~~2019, Oriental’s total liabilities were ~~$5.544~~$5.419 billion, ~~5.7% more~~2.9% less than the ~~$5.244~~$5.583 billion reported at December 31, ~~2017~~2018. Deposits and borrowings, Oriental’s funding sources, amounted to ~~$5.432~~$5.302 billion at June 30, ~~2018~~2019 versus ~~$5.128~~$5.479 billion at December 31, ~~2017~~2018, a ~~5.9% increase.~~3.2% decrease.

Borrowings consist mainly of repurchase agreements, FHLB-NY advances and subordinated capital notes. At June 30, ~~2018~~2019, borrowings amounted to ~~$552.3~~$356.8 million, representing ~~an increase~~a decrease of ~~68.0%~~37.5% when compared with the ~~$328.7~~$570.4 million reported at December 31, ~~2017~~2018. The ~~increase~~decrease 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 used~~On 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 ended~~leases classified as operating leases prospectively. At June 30, ~~2018, partially offset by $82.5 million in maturities during~~2019, the ~~period; and~~

·~~An increase of $28.5 million in advances from FHLB attributable~~lease 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, ~~2018~~2019, deposits represented ~~90%~~91% and borrowings represented ~~10%~~9% of interest-bearing liabilities. At June 30, ~~2018~~2019, deposits, the largest category of Oriental’s interest-bearing liabilities, were ~~$4.880~~$4.945 billion, ~~an increase~~a decrease of ~~1.7%~~0.8% from ~~$4.798~~$4.908 billion at December 31, ~~2017~~2018. 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, ~~2018~~2019, 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, ~~2017~~2018. 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 increase~~decreases 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, ~~2018~~2019 compared to ~~$17.73~~$17.90 at December 31, ~~2017~~2018.

From December 31, ~~2017~~2018 to June 30, ~~2018~~2019, tangible common equity to total assets ~~decreased~~increased from 12.59% to ~~10.80% from 11.12%~~13.52%, ~~Leverage~~leverage capital ratio ~~remained at 13.92%~~increased from 14.22% to 15.20%, ~~Common Equity Tier~~common equity tier 1 capital ratio ~~decreased~~increased from 16.78% to ~~14.14% from 14.59%~~17.48%, ~~Tier~~tier 1 ~~Risk-Based~~risk-based capital ratio ~~decreased~~increased from 19.20% to ~~18.38% from 19.05%~~19.87%, and ~~Total Risk-Based~~total risk-based capital ratio ~~decreased~~increased 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 Bancorp~~Oriental 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 Bancorp~~Oriental and the Bank (“Basel III capital rules”), which have been effective since January 1, 2015, are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of June 30, ~~2018, OFG Bancorp's~~2019, the capital ratios of Oriental and the ~~Bank’s capital ratios~~Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

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, ~~2018~~2019 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.

~~133~~126

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, ~~2018~~2019 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%

~~134~~127

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 ~~Tier~~tier 1 capital and ~~Common Equity Tier~~common equity tier 1 capital, are not codified in the federal banking regulations. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which Oriental calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. To mitigate these limitations, Oriental has procedures in place to calculate these measures using the appropriate GAAP or regulatory components. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

~~135~~128

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)

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

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%

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%

~~136~~129

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, ~~2018~~2019 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%

~~137~~130

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, ~~2018~~2019 and December 31, ~~2017,~~2018, Oriental’s market capitalization for its outstanding common stock was ~~$618.0 million~~$1.220 billion ($~~14.05~~23.77 per share) and ~~$413.1~~$844.3 million ($~~9.40~~16.46 per share), respectively.

The following table provides the high and low prices and dividends per share of Oriental’s common stock for each quarter of the last ~~two~~three calendar years:

					Cash						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
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
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

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, ~~2018~~2019.

At June 30, ~~2018,~~2019, the number of shares that may yet be purchased under such program is estimated at ~~550,239~~325,236 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).

~~138~~131

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 ~~Board~~Board’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.

~~139~~132

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, ~~2018~~2019 for the most likely scenario, assuming a one-year time horizon:

	Net Interest Income Risk (one year projection)						Net Interest Income Risk (one-year projection)
	Static Balance Sheet			Growing Simulation			Static Balance Sheet			Growing Simulation
	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
	Change		Change	Change		Change	Change		Change	Change		Change
Change in interest rate	(Dollars in thousands)						(Dollars in thousands)
+ 200 Basis points	$	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 ~~fluctuations~~fluctuation is that the contractual interest income and interest expense of hedged variable-rate assets and liabilities, respectively, will increase or decrease.

Derivative instruments that are used as part of Oriental’s interest risk management strategy include interest rate swaps, forward-settlement swaps, futures contracts, and option contracts that have indices related to the pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable-rate interest payments between two parties based on a common notional principal amount and maturity date. Interest rate futures generally involve exchanged-traded contracts to buy or sell U.S. Treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to (i) receive cash or (ii) purchase, sell, or enter into a financial instrument at a specified price within a specified period. Some purchased option contracts give Oriental the right to enter into interest rate swaps and cap and floor agreements with the writer of the option. In addition, Oriental enters into certain transactions that contain embedded derivatives. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated and carried at fair value. Please refer to Note 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 ~~borrowings~~borrowing transactions occurred, the interest rate swap effectively fixes Oriental’s interest payments on an amount of forecasted interest expense attributable to the one-month LIBOR rate corresponding to the swap notional stated rate. A derivative ~~asset~~liability of ~~$421~~$959 thousand (notional amount of ~~$34.4~~$32.8 million) was recognized at June 30, ~~2018~~2019 related to the valuation of these swaps.

In addition, Oriental has certain derivative contracts, including interest rate swaps not designated as hedging instruments, which are utilized to convert certain variable-rate 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, ~~$775.6~~and $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.

~~143~~136

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

PART - II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Oriental and its subsidiaries are defendants in a number of legal proceedings incidental to their business. Oriental is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on Oriental’s financial condition or results of operations.

ITEM 1A. RISK FACTORS

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.

ITEM 5. OTHER INFORMATION

None.

~~144~~138

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.~~

~~145~~139

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OFG Bancorp

(Registrant)


By:	/s/ José Rafael Fernández	Date: August ~~3, 2018~~2, 2019
	José Rafael Fernández
	President and Chief Executive Officer

By:	/s/ Maritza Arizmendi	Date: August ~~3, 2018~~2, 2019
	Maritza Arizmendi
	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

~~146~~140

			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%

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